SHEARWATER GROUP PLC
Company No. 05059457
ANNUAL REPORT AND
FINANCIAL STATEMENT
FOR THE YEAR ENDED 31 MARCH 2018
Contents Page
Company Information ……………………………..…….1
Chairman’s Statement……………………………..…….2
Chief Executive Officers Review………………..……...3
Principal risks and uncertainties…………………..……7
Report of the Directors……………………..……………9
Corporate Governance Statement…………………….11
Statement of Directors Responsibilities………………14
Independent Auditors Report………………………….15
Consolidated Financial Statements…………………...20
Notes to the Consolidated Financial Statements…….24
Company Information
FOR THE YEAR ENDED 31 MARCH 2018
Directors
David Williams (Chairman)
Michael Stevens (Group Chief Executive Officer)
Robin Southwell (Non-Executive Director)
Stephen Ball (Non-Executive Director)
Giles Willits (Non-Executive Director)
Registered Office
22 Great James Street
London
WC1N 3ES
Company Secretary
Paul McFadden
Company Number
05059457
Nominated Advisor
And Broker
Cenkos Securities plc
6-8 Tokenhouse Yard
London
EC2R 7AS
Auditors
Solicitors
Registrars
BDO LLP
55 Baker Street
London
W1U 7EU
Mayer Brown International LLP
201 Bishopsgate
London
EC2M 3AF
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
West Midlands
B62 8HD
Company website
www.theshearwatergroup.co.uk
1
Strategic and Business Review of Activities
FOR THE YEAR ENDED 31 MARCH 2018
Chairman’s Statement
As highlighted in my statement in the interim results for the Group for the six months ended 30 September 2017, we
expected this financial year to be a particularly exciting one as we embarked on our journey of becoming a leading UK
based digital resilience group. When we reflect on the acquisitions of SecurEnvoy and Newable Consulting, the launch
of Xcina, and the traction of UK based businesses are seeing internationally, it has certainly turned out to be a very
productive year.
When we consider making acquisitions or investing in growth, we critically evaluate what we believe we as a team can
bring to bear in helping to unlock growth opportunities and support the scaling ambitions of those incoming teams. It is
particularly pleasing to see how we are delivering against those objectives and the early growth that is coming through
our portfolio companies.
The market opportunity for providers of digital resilience solutions remains as compelling as ever, however navigating
a highly dynamic and evolving sector requires a considerable amount of experience and foresight to ensure that we
continue to make the right decisions at the right time around where and how we can deliver growth. As a Group, we are
fortunate to have industry experts delivering our strategy ably supported by a highly professional and hard working team
that is now 100+ strong across all of our businesses. Achieving what we have in these past 12 months wouldn’t have
been possible without their expertise, dedication and enthusiasm, and I would like to thank all of our employees for their
contributions during the year and their continued hard work in helping Shearwater become a leading digital resilience
group.
Finally, I would also like to take the opportunity to thank our shareholders, who have shown immense support and loyalty
to us as a Group as we have embarked on a substantial transformation plan over the past 18 months. I am delighted
that we are beginning to see some of the benefits of our new strategy coming through, with a lot more yet to come from
Shearwater.
We look forward to continuing to build on early progress as we move through the new financial year and are confident
2018/19 will bring even more exciting acquisition and organic growth opportunities for us as a Group.
David Williams
Chairman
31 July 2018
2
Strategic and Business Review of Activities
FOR THE YEAR ENDED 31 MARCH 2018
Chief Executive Officer’s Review
Overview
This financial year has been one of significant progress for the Group. As part of our transformation strategy, we have
continued to make important advances against our strategic objective of building a leading UK based digital resilience
group.
Through the acquisition of SecurEnvoy, we have established a platform upon which we are now able to develop the
Group’s Identity and Access Management offering, and following the acquisition of Newable Consulting (rebranded
Xcina Consulting), we have been able to launch and develop Xcina, the Group’s full-service information security and
assurance solutions company. During the period we have also seen excellent organic growth within both SecurEnvoy
and Xcina Consulting since acquisition, as a result of the implementation of the planned growth initiatives.
Post period end, the Group expanded its software product offering through the acquisition of GeoLang, an award-
winning Data Loss Protection enterprise software company, and augmented Xcina’s service proposition through the
acquisition of Crystal IT (rebranded Xcina IS). Both businesses continue to make excellent progress since joining the
Group. Please refer to Note 23 for further details of events after the reporting period.
As a result of this growth and our expectations around the forthcoming year, the Group has also invested in establishing
the appropriate infrastructure to support the development of our portfolio companies. This has included the setting up
of overseas offices in the US and Germany, which will enable our portfolio companies to better serve international
clients, and at a Group level, additional finance, information services, commercial and HR capability to ensure our
portfolio companies are appropriately supported with shared services as they continue to grow and expand.
Market opportunity
Through digitalisation and the rapidly growing interconnectivity of enterprises, functions, people, objects and devices,
organisations continue to face unprecedented levels of pressure in needing to evolve their business models so that they
can digitally engage effectively with all stakeholders and manage and protect their critical data and information assets.
All of this is occurring at a time when attack vectors are increasing, and the sophistication of threats is outpacing the
capability and capacity to respond.
As a result, organisations are having to rethink traditional approaches to data and information management and security
and move beyond standard protection measures aimed at meeting minimum levels of compliance. Organisations now
have to consider how information security can be embedded within business processes and operations to manage,
monitor and protect core data and information assets, while still competing effectively in an increasingly globalised and
interconnected digitalised world.
Developing this digital resilience is key for all organisations irrespective of size as digital technologies have become
increasingly interwoven and inseparable from business process such that functions are operating with decreasing
human oversight and interaction, and organisations are digitally dependent upon the resilience of their systems. In this
connected digital environment, failure or partial failure of any single underlying point, whether through malicious activity
or human error, can cascade and have catastrophic effects across an enterprise or organisation.
This presents an attractive market opportunity for those providers of digital resilience solutions and services which
maintain trust between users, provide assurance around the protection of critical data and information assets, and
support the operational effectiveness of the wider enterprise.
Business strategy
The Group is focused on building a UK based group providing digital resilience solutions and services. Through the
application of its “buy, focus, grow” strategy, the Group aims to identify investment and acquisition opportunities where
the target company has a leading product, solution, service or consulting capability whose potential can be unlocked
through active management and capital investment.
3
Through recent acquisitions and a number of organic growth initiatives, the Group is at the early stages of building a
broad portfolio of information security, governance, risk and compliance, cyber and cyber security assets, which we
believe in time will meet the ever-increasing digital resilience demands from the Group's customers, and provide the
Company’s current and prospective shareholders with exposure to a large and rapidly growing sector through a portfolio
approach, which aims to balance risk and return in a highly dynamic and often unpredictable operating environment.
In driving our strategy, we continue to leverage the substantial operating experience we have within the Group covering
technology, cyber, information security, digital and communication sectors, and prior track records of delivering
shareholder value through accelerated buy and build processes.
Financial performance
The Group generated revenue of £6.2 million in the period (2016/17: £nil), which reflected 10.7 months of trading from
SecurEnvoy and 8.2 months of trading from Newable Consulting (rebranded Xcina Consulting) since acquisition
respectively. Of the £6.2 million of Group revenue, 54% (2016/17: £nil) was generated through the licencing of the
Group’s owned software products and 46% (2016/17: £nil) through the provision of services.
The portfolio companies contributed £1.1 million of underlying EBITDA during the period, after taking into account
investments made by the businesses in specific growth initiatives (2016/17: £nil). The profit made by portfolio companies
is reduced by head office costs meaning the Group is loss making in the financial year.
The Group generated an underlying EBITDA loss of £0.8 million for the period, which reflected the cost of the Group’s
overhead, investments made in establishing and strengthening the Group’s infrastructure, the launch of Xcina, and only
partial trading contribution from the portfolio companies in the period (2016/17: underlying EBITDA loss of £1.1 million).
After exceptional items of £1.0 million (2016/17: £0.4 million), amortisation of acquired intangible assets, depreciation
and share-based payments, the Group made an operating loss of £2.9 million (2016/17: operating loss of £1.6 million).
Of the £1.0 million of exceptional items, £0.7 million related to the acquisition of SecurEnvoy, £0.1 million related to the
acquisition of the business and assets of Newable Consulting, with the remaining £0.2 million of costs incurred as a
result of other potential acquisition opportunities. Due to the volatility of the share-based payment charge which will vary
year on year dependent on the level of completed acquisitions this is adjusted out in underlying EBITDA so as not to
distort year on year trading comparisons.
Financial position
At the period end, Group cash was £2.5 million (2016/17: £7.1 million) reflecting investments made in portfolio
companies and their growth initiatives, including the costs incurred as a result of the creation and development of Xcina,
and Group overheads. These costs were partially offset by strong cash generation at SecurEnvoy and a profitable
contribution from Xcina Consulting. As previously disclosed it is the intention of the Board to dispose of the Gold
Exploration rights which we anticipate will occur in the next financial year. Further detail is provided in note 11.
Cash management continues to be a priority for the Group and actual expenditure compared to budget is monitored
closely to ensure that the Group maintains adequate liquidity to meet financial commitments as they arise.
Net cash used in operating activities was £(3.1) million for the period (2016/17: £(0.9) million). Net cash used in investing
activities was £(10.0) million (2016/17: £0.0 million) and net cash generated by financing activities was £8.5 million
(2016/17: £7.9 million). Overall net cash outflow for the period was £(4.6) million (2016/17: net cash inflow of £7.0
million).
Key performance indicators
Integral to the performance management of the Group, the Board and management monitor actual against budgeted
revenue, costs and underlying EBITDA on a monthly basis as part of the portfolio companies’ monthly business reviews,
finance meetings and scheduled Board meetings.
The Board and management believe that revenue and underlying EBITDA are key metrics to monitor the performance
of the Group, as they provide a good basis to judge underlying performance and are recognised by the Group’s
shareholders.
4
Underlying EBITDA is defined as profit before tax, before one off exceptional items, share based payment charges,
finance charges, depreciation and amortisation, and a reconciliation from underlying EBITDA to loss before tax is
detailed in Note 2.
In addition, control of bank and cash balances is a priority for the Group and these are budgeted and monitored closely
to ensure that the Group maintains adequate liquidity to meet all of its financial commitments as they arise.
Segmental performance summary (including activities after the financial year end)
Software (54% of Group revenue)
Software, comprising SecurEnvoy during the period, generated £3.4 million of revenue for 10.7 months of trading
included in the financial year ended 31 March 2018. On a pro rata basis, this represents 17 per cent. growth compared
to the pre-acquisition period. At a portfolio company underlying EBITDA level, SecurEnvoy contributed £1.8 million to
the total Segment EBITDA of £1.1 million, which reflected strong performance within the UK business, offset by
investments made in the period, which are detailed below.
Since joining the Group in May 2017, SecurEnvoy has also made considerable progress against the stated objectives
at the time of acquisition, and during the period has established its overseas presence in the US and Germany to support
international growth ambitions, strengthened its senior leadership team through the hire of a new Chief Information
Officer to lead the product development teams, and won its first contract under its newly launch B-2-C product offering.
Post the period end, SecurEnvoy also made significant advances against its product road map by developing its
authentication security solutions offering to meet increasing customer demand for cloud-based solutions. In April 2018,
the business launched its Cloud Service Partner proposition, and is scheduled to release its own cloud multi-factor
authentication solution later this year. On the sales side, SecurEnvoy has expanded its channel partners in the US to
fifteen, and most recently has been appointed as one of the first Premier Citrix Ready Partners for the rapidly growing
Identity and Access Management sector. The Directors believe the business is now ideally positioned for growth and
look forward to continuing to deliver against the post-acquisition plans.
In April 2018, the Company also welcomed GeoLang to the Group. As an award-winning Data Loss Protection ("DLP")
enterprise software company, the acquisition established the Group’s position within the rapidly growing DLP market
and augmented the Group’s GDPR and cyber security capability offering. Whilst no trading for GeoLang is included in
the results for the financial year ended 31 March 2018, the business is already generating revenue having won its
inaugural enterprise licence following acquisition. For the Group’s interim results for the six months ending 30 September
2018, GeoLang’s post acquisition trading will be included within the Software segment, whilst organisationally the
business fits within Xcina where it is able to leverage the existing infrastructure created alongside the wider Shearwater
Group in delivering its growth plan.
Services (46% of Group revenue)
Services, comprising Xcina Consulting during the period, generated £2.9 million of revenue for the 8.2 months of trading
included in the financial year ended 31 March 2018. Prior to acquisition, Xcina Consulting generated £2.4 million of
revenue for the twelve months ended 31 March 2017, and on a pro rata basis has delivered revenue growth of 79 per
cent since acquisition. As a result, the business generated a positive contribution to the Group and continues to trade
profitably and ahead of the Directors’ expectations.
During the period and post period end, substantial progress has also been made in establishing Xcina as a full service
information security and assurance solutions and services company. Launched following the acquisition of Newable
Consulting in July 2017 (rebranded Xcina Consulting), Xcina has expanded its solutions offering from governance,
compliance, technology risk and cyber security assurance and advisory services to include the following:
Xcina Managed Security Services Provider ("MSSP"), which through its London-based Security Operations
Centre ("SOC"), provides outsourced SOC services, data analytics, threat intelligence and incident response;
Xcina Information Services ("IS"), formed through the acquisition of Crystal IT, which augments Xcina’s existing
services capability and provides resilience information services to SMEs; and
Xcina Enterprise, which has been established to provide digital transformation and information security solutions
to companies looking to embed digital resilience within business strategy.
5
As a result of the investments made in establishing Xcina and the launch of the new service lines detailed above,
Services contributed a Segment Underlying EBITDA loss of £0.6 million for the period.
In April 2018, Xcina was appointed as an approved supplier of data and information assurance solutions to a global
FTSE 100 company and was awarded its first contract under this supplier arrangement providing a Payment Card
Industry Data Security Standard ("PCI DSS") architecture review initially worth £0.2 million. The Directors believe the
award of this contract serves to highlight the applicability of Xcina’s information and cyber security solutions across
corporate customers of all sizes and potential for additional contract wins during the current financial year.
Outlook
The new financial year will see a full years’ contribution from a number of the Group’s businesses and will benefit from
the organic growth initiatives implemented during 2018. Overall trading for the Group continues in line with the Board’s
expectations.
The Software segment will include a full years’ trading from SecurEnvoy and nearly a full year from GeoLang as the
Group continues to support the business with its go-to-market strategy and moving it to a revenue-generating position.
We will look to develop the Software segment around a core set of Software as a service (“SaaS”) products with high
levels of recurring revenue and strong cash flow generation to benefit the Group over the coming years.
Within Services, further organic growth is anticipated, which will support the Group’s decision to largely organically
develop its full service information security and assurance business, Xcina. It is expected that Xcina will deliver
substantial value for shareholders compared to the acquisition of a market peer within the information security,
governance, regulatory and compliance advisory sectors.
The market outlook for providers of digital resilience solutions continues to be extremely positive, with strong macro
drivers creating a large number of opportunities for growth. Identifying those opportunities which if secured, can help
our portfolio companies provide market leading solutions to assure and protect the data and information assets of our
customers, whilst delivering enhanced returns will be key to our success as a Group.
By applying our portfolio approach to growth and creating the right environment to unlock growth from our acquisitions,
the Group provides investors with access to, and participation in a large and rapidly growing sector, without
overexposure to one particular technology or service offering.
The Board has identified a number of potential acquisitions which meet the Group’s selection criteria and believes
Shearwater is ideally positioned as we move through the new financial year to make great strides in its strategic aim of
becoming a leading UK based digital resilience group.
Michael Stevens
Group Chief Executive Officer
31 July 2018
6
Strategic and Business Review of Activities
FOR THE YEAR ENDED 31 MARCH 2018
Principal risks and uncertainties
The Group has established a risk management process for identifying, assessing and mitigating the Company’s principal
risks and uncertainties. Individual portfolio companies consider material strategic, operational and financial risks every
three months at their quarterly business reviews. Those risks are considered by the Company’s executive leadership
team and are assessed at monthly operational board meetings and where it is considered appropriate to do so, included
on the Group’s risk register and allocated to a member of the Company’s executive leadership team who is then
responsible for monitoring that risk and developing suitable mitigation actions. The Company’s risk register is
considered by the Board on a quarterly basis, with ad hoc reviews conducted as required.
The Company’s activities are carried out in the UK, Europe, and the US. Accordingly, the principal risks and
uncertainties are considered as follows:
1. Cyber security attacks
Going forward as a publicly traded provider of digital resilience solutions, the Group is a high profile target for third
parties wishing to gain unauthorised access to the Group’s networks, or to bypass or breach its products. Any breach
of the Group’s networks or products, whether through a deliberate hack or unintentional event, may cause significant
business disruption to the Group or its customers and result in the Group incurring the costs of remedying any breach.
Furthermore, the Group’s reputation may be damaged, leading to a loss of customer, industry and investor confidence.
In addressing this risk, the Group has established a secure network infrastructure, supported by its own in house team
of information security and cyber security specialists, who are able to monitor, identify and respond to any incident, and
if required, recover any data or information. With regards to the Group’s owned software products, each is subjected to
third party testing as part of the ongoing development process both prior to launch and also whilst the product is being
used by the Group’s customers. Where new threats emerge, product updates are made available and communicated
to the Group’s customers so that they are able to maintain continuity of protection.
2. Intellectual property
The Company’s commercial success will depend upon in part, its ability to use its intellectual property, and any other
intellectual property acquired or internally developed. In particular, this includes patents and know-how. Whilst the
Company seeks to protect its intellectual property through the filing of patent applications where permissible, as well as
entering into confidentiality obligations within employment contracts to protect the Company from the release of
information relating to its know-how and other measures to protect the confidentiality of its know-how and trade secrets,
this does not provide any assurances that a third party will not infringe upon the Company’s intellectual property, release
confidential information about it or claim technology which is registered to the Company. Furthermore, where the
Company is exploiting one of its patent-protected technologies or products, these may infringe or may be alleged to
infringe existing patents or patents that may be granted in the future which may result in costly litigation and could result
in the Company having to pay substantial damages or limit the Company’s ability to commercialise its products. As a
result, the Company may become party to, or threatened with, future adversarial proceedings or litigation regarding
patents with respect to its products and technology, or may itself commit significant resource in the protection of its own
intellectual property. In addressing this risk, the Group utilises specialist external support and expert advice from its
legal counsel and patent attorneys, whom help capture and document the Group’s intellectual property, and where
appropriate, manage the patent creation, approval and renewal process.
3. Technology
The markets in which the Company operates (and plans to operate) are characterised by rapid technological
development, changes in customer requirements and preferences, frequent new product and service launches
incorporating new technologies, and the emergence of new industry standards and practices that could render the
Company’s existing technology and products obsolete. If the Company is unable to anticipate and respond to
technological changes and customer preferences in a timely and cost-effective manner, it is possible that existing
customers and prospective customers may turn to competitor offerings. In addressing this risk, the Group has created
a Group wide technical forum, through which all of the portfolio company Chief Technical Officers are able to work
7
together to continue to improve the Group’s products and to develop and market new products that keep pace with
technological change and the threats that the Group’s customers face.
4. Recruitment and retention of key personnel
The Group’s success depends upon its ability to attract and recruit, retain and incentivise highly skilled employees
across all areas of the business. If the Group is unable to retain or successfully attract and recruit key employees across
all and any areas of the business, it could delay or prevent the implementation of its strategy. The Board recognises
this risk and as a result have a Group-wide people strategy which encompasses among other things, culture, training
and development, capability and competence assessments, succession planning and reward and recognition structures,
to help attract and appropriately incentivise key personnel.
5. Regulation
In response to the increased frequency and severity of data breaches, new industry regulation and government
legislation has been introduced in order to compel companies to enhance their information and cyber security measures.
As a result of the continued and evolving cyber threats faced by companies, industry regulation, and in turn legislation
may be amended, adapted and enhanced at relatively short notice, which will create a new set of data protection
requirements for companies, which information and cyber security product and service vendors will need to address
with their products. If the Group is unable to provide products or services to its customers which enable them to meet
the changing regulatory or legislative requirements laid down by industry or government, then its current or prospective
customers may turn to competitor offerings. In addressing this risk, the Group has appointed a Data Protection Officer,
who is responsible for ensuring the Group’s continued compliance with the new data protection requirements which
have most recently come into force. Furthermore, based upon the collective experience of the Board and the Group’s
Advisory Panel, the Group is well placed to monitor and process industry or legislative developments which can impact
its portfolio companies.
6. EU membership
On 23 June 2016, the UK electorate voted to discontinue its membership of the EU. Until further details are known
regarding the terms on which the UK will exit, the Directors are not able to assess the impact on the Group, or what
impact the wider regulatory and legal consequences of the UK leaving the EU would be on the Group. Any updates from
the UK Government are assessed by the Directors and the impact is discussed as a Board. The Directors have
discussed the potential impact to the Group and in particularly to its working relationship with its German entity and EU
clients and believe that due to the autonomy given to the local entity, the business is currently well protected based on
the current status of the leave negotiations.
On behalf of the Board
Michael Stevens
Group Chief Executive Officer
31 July 2018
8
Report of the Directors
FOR THE YEAR ENDED 31 MARCH 2018
The Directors present their annual report together with the audited financial statements for the year ended 31 March
2018.
Dividends
The Directors do not recommend the payment of a dividend for the year (2016/17: £nil).
Strategic report
A review of the business, future developments and the principal risks and uncertainties facing the Company are included
within the Strategic and Business Review of Activities on pages 2 to 8.
Directors
The Directors of the Company who held office during the year are as follows:
Name of Director
D Williams
M Stevens
R Southwell
S Ball
G Willits
S Finlay
C Eadie
Appointed as Chairman on 20 April 2015
Appointed as Group Chief Executive Officer on 3 October 2016
Appointed as Non-Executive Director on 10 October 2016
Appointed as Non-Executive Director on 24 October 2016
Appointed as Non-Executive Director on 9 December 2016
Resigned as Non-Executive Director on 13 April 2017
Resigned as Executive Director on 29 September 2017
Directors’ interests in shares and share options
The Directors’ who held office during the year had the following interests, including family interests, in the ordinary
shares of the Company as follows:
D Williams
M Stevens
R Southwell
S Ball
G Willits
C Eadie (resigned 29 September 2017)
S Finlay (resigned 13 April 2017)
Number of shares
held at 31 March
2018
Number of shares
held at 31 March
2017
119,833,994
11,250,000
11,250,000
11,250,000
6,250,000
5,750,001
666,055
101,083,994
10,625,000
10,625,000
10,625,000
5,625,000
5,125,001
666,055
The Directors’ interests in the share options of the Company as at 31 March 2018 were as follows:
G Willits*
C Eadie
S Finlay
Number of options at
31 March 2017 & 2018
521,739
Exercise price
1.0p
1,000,000
500,000
1.0p
1.0p
Date of grant
09/12/16
03/10/16
03/10/16
First date of
exercise
09/12/17
03/10/16
03/10/16
Final date of
exercise
30/06/18
03/10/21
03/10/21
9
*These options vested in twelve equal tranches commencing on 12/12/16 and ending on 12/12/17 and were exercised by G Willits on 4 June 2018.
The remuneration of Directors during the year is disclosed in note 6.
Directors’ indemnities
The Company currently has in place, and had for the year ended 31 March 2018, Directors and Officers liability insurance
for the benefit of all Directors of the Company.
Going concern
The Financial Statements have been prepared on the going concern basis, following the Directors’ review of the
Company’s operations, current financial position and cash flow forecasts and future financing requirements. The
Directors are satisfied that sufficient cash resources are available to meet financial commitments as they arise and for
at least twelve months from the date of signing the Financial Statements. Further disclosure is provided in note 1 of the
Financial Statements.
Events after the reporting date
Details of this are included in the notes to the financial statements per note 23 of the financial statements.
Research and development activities
Due to the everchanging and competitiveness within the market the Group operates within, it actively supports the
continued research and development of our software (SaaS) services to ensure that the Group remains at the forefront
of the markets we serve. All research and development expenditure is recognised when incurred in the statement of
comprehensive income.
Financial instruments
Details of the use of financial instruments by the Company are contained in note 20 of the Financial Statements. The
financial risk management policies and objectives are set out in detail in note 20 of the Financial Statements.
Statement as to disclosure of information to auditors
The Directors who held office at the date of approval of these financial statements have confirmed, as far as they are
aware, that there is no relevant audit information of which the auditors are unaware. Each of the Directors has confirmed
that they have taken all steps that they ought to have taken as Directors in order to make themselves aware of any
relevant audit information and to establish that it has been communicated to the auditor.
Auditor
BDO LLP has expressed its willingness to continue in office as auditors and a resolution to re-appoint BDO will be
proposed at the forthcoming Annual General Meeting.
Annual General Meeting
The Company proposes to convene the Annual General Meeting for 11a.m. on 27 September 2018 at the offices of
Mayer Brown International LLP, 201 Bishopsgate, London EC2M 3AF. Notice of the Annual General Meeting will be
circulated shortly to Shareholders.
On behalf of the Board
David Williams
Chairman
31 July 2018
10
Corporate Governance Statement
FOR THE YEAR ENDED 31 MARCH 2018
As an AIM listed company, the Group is not required to comply with the UK Corporate Governance Code (‘the Code’)
as amended in April 2016. However, the Group has given consideration to the provisions set out in the Code. The
Directors support the objectives of the Code and currently comply with those aspects that they consider relevant to the
Group’s size and circumstances but do not consider it necessary to comply with the Code in its entirety. Details of the
Group’s current corporate governance practices are set out on page 12. A statement of the Directors’ responsibilities in
respect of the financial statements is set out on page 14.
Following the issuance of AIM Notice 50 and the subsequent amendment to AIM Rule 26, the Company is undertaking
a review of its corporate governance practices. It is the Board’s intention to adopt those aspects of the newly issued
QCA Code from 28 September 2018 which the Board believe are appropriate for the size, scale and complexity of the
Company. Where the Board believe that a departure from the QCA Code is warranted, an explanation will be provided
in the Company’s next Interim Report in addition to an explanation detailing aspects of the Company’s corporate
governance practices against the principles of the QCA Code.
Below is a brief description of the role of the Board and its committees, including a statement regarding the Company’s
system of internal financial control.
The Board of Directors
The following is a list of the full names, positions and ages of the current members of the Board:
The business address of each Director is 22 Great James Street, London, WC1N 3ES.
David Jeffreys Williams (Chairman) Age 66
David has a reputation for building companies in the public and private sectors and has chaired a large number of these,
both in an executive and non-executive capacity. In developing these companies he has raised in excess of £1 billion
of capital to support organic and acquisition growth strategies. He was formerly chairman of Entertainment One Ltd. and
currently chairs Oxford Biodynamics Plc. He is also a founder and non-executive director of Breedon Group plc. David
serves as the chairman of the Remuneration Committee and Nomination Committee, and is a member of the Audit
Committee.
Michael Joseph Stevens (Group Chief Executive Officer) Age 56
Michael has over 25 years’ experience operating within the security, cyber, aerospace, defence and high technology
sectors. During this time, he has held a number of senior leadership roles with responsibility for driving growth and
operational improvements across a portfolio of high technology, cyber and defence businesses. Michael was head of
international market development for Airbus Defence & Space and chief executive officer of Cassidian UK, which
included Airbus’ cyber security division. Michael serves as a member of the Nomination Committee.
Robin Simon Southwell OBE (Non-Executive Director) Age 58
Robin has over 35 years’ experience of working in the aerospace and defence industry, including roles as chief executive
officer of Airbus UK and Airtanker Ltd, as well as senior positions at BAE Systems, which included running their
operations in Australasia and establishing the company’s asset management organisation. Robin is a Fellow of the
Royal Aeronautical Society and has been appointed as a DTI Business Ambassador by the UK Government and
received his OBE in 1997 for services to exports. Robin serves as a member of the Remuneration Committee.
Stephen Robert Ball (Non-Executive Director) Age 64
Stephen has over 35 years’ experience of working in senior roles in the technology, defence, information security and
communications industries. Stephen was formerly chief executive officer of Lockheed Martin UK until his retirement in
2016. Prior to this, he was managing director of the company’s operations in Ampthill, Bedfordshire. Before joining
Lockheed Martin, Stephen spent 21 years with HM Government Communications Centre (HMGCC), latterly as chief
executive officer, working on specialist development and the manufacture of security and communications equipment.
Stephen serves as a member of the Nomination and Audit Committees.
11
Giles Kirkley Willits (Non-Executive Director) Age 51
Giles has over twenty years’ experience in senior leadership and financial roles and is currently the chief financial officer
of IG Design Group plc (AIM: IGR). Prior to this, Giles was also chief financial officer of FTSE 250 listed Entertainment
One Ltd. (LSE: ETO), having worked with Entertainment One Ltd. initially as non-executive director, before assuming
the chief financial officer role in 2007. Over this time Entertainment One Ltd. grew to a market capitalisation of
approximately £1 billion. Giles was formerly director of group finance of J Sainsbury plc and Woolworths Group plc, and
currently serves as the Chairman of the Company’s Audit Committee.
Advisory Panel
The Group’s Advisory Panel is chaired by Rt Hon. the Lord Reid of Cardowan. The purpose of the Advisory Panel is to
track developments in the digital resilience sector as well as supporting the Group in accessing growth opportunities via
the network of contacts of each member of the Advisory Panel. The Advisory Panel will meet at least four times a year,
with additional ad hoc meetings held with various Directors as required.
Lord Reid joined the Group as Chairman of its Advisory Panel in January 2017. Lord Reid has had an illustrious career
in UK Government, serving in numerous UK cabinet positions, including Home Secretary and Secretary of State for
Defence. He now sits in the House of Lords and is Executive Chairman of the Institute for Strategy, Resilience and
Security at University College London.
Corporate Governance
The main features of the Group’s corporate governance arrangements are:
The Board intends to meet at least six times per year for formal Board meetings. It will approve financial statements,
dividends and significant changes in accounting practices and key commercial matters, such as decisions to be taken
on whether to take forward or to cancel a material collaboration project or commercial agreement. There is a formal
schedule of matters reserved for decision by the Board in place.
Currently, the Board includes two Non-Executive Directors who are considered by the Directors to be independent for
the purposes of the QCA Code, Robin Southwell and Stephen Ball. Robin and Stephen joined the Board on 10 October
2016 and 24 October 2016 respectively, and prior to this neither had any association with the Company.
As noted in the Strategic and Business Review of Activities on page 7, the Board has in place a risk management policy
and a risk management register for identifying, assessing and mitigating the Company’s principal risks and uncertainties.
Internal Financial Control
The Board is responsible for establishing and maintaining the Company’s system of internal financial controls. Internal
financial control systems are designed to meet the particular needs of the Company and the risk to which it is exposed,
and by its very nature can provide reasonable, but not absolute, assurance against material misstatement or loss. During
the period, the Directors enhanced the Group’s finance function with a number of new hires, including the appointment
of a Head of Finance, whom is responsible for the day to day management of all finance aspects of the business. As
part of this process, the Directors have also implemented a more formal system of internal financial control, which has
developed as the Group has scaled with the acquisitions it has made in the period. The Directors have reviewed the
effectiveness of the procedures presently in place and consider that they are appropriate to the nature and scale of the
operations of the Company. The Directors will continue to reassess internal financial controls as the Company expands
further.
Board Committees
Audit Committee
The Audit Committee’s principal functions include ensuring that the appropriate accounting systems and financial
controls are in place, monitoring the integrity of the financial statements of the Company, reviewing the effectiveness of
the Company’s accounting and internal control systems, reviewing reports from the Group’s auditors relating to the
Company’s accounting and internal controls, and reviewing the interim and annual results and reports to Shareholders,
in all cases having due regard to the interests of Shareholders. The Audit Committee meets at least three times a year,
12
with regard to the reporting and audit cycle. Giles Willits has recent and relevant financial experience through his role
as CFO of other UK listed companies and acts as Chairman. David Williams and Stephen Ball are the other members
of the Audit Committee.
Remuneration Committee
The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the
remuneration packages for Directors. The Remuneration Committee considers all aspects of the Executive Directors’
remuneration, including pensions, bonus arrangements, benefits, incentive payments and share option awards, and the
policy for, and scope of any termination payments. The remuneration of the Non-Executive Directors is a matter for the
Board. The Remuneration Committee meets at least twice a year and at such other times as may be deemed necessary.
No Director may be involved in discussions relating to their own remuneration. David Williams acts as Chairman of the
Remuneration Committee and Robin Southwell is the other member of the Remuneration Committee.
Nomination Committee
The Nomination Committee is responsible for reviewing the structure, size and composition of the Board based upon
the skills, knowledge and experience required to ensure the Board operates effectively. The Nomination Committee is
expected to meet when necessary to do so. The Nomination Committee also identifies and nominates suitable
candidates to join the Board when vacancies arise and makes recommendations to the Board for the re-appointment of
any Non-Executive Directors. David Williams acts as Chairman of the Nomination Committee and Stephen Ball and
Michael Stevens are the other members of the Nomination Committee.
13
Statement of Directors’ Responsibilities
FOR THE YEAR ENDED 31 MARCH 2018
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
have elected to prepare the Group and Company financial statements in accordance with International Financial
Reporting Standards (‘IFRS’) as adopted by the European Union. Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss of the Group and Company for that period. The Directors are also required to
prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading
securities on AIM.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject
to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and
enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are
also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and the Financial Statements are made available on a
website. Financial statements are published on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company’s website is the responsibility of the Directors. The
Directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
14
Independent auditor’s report to the members of Shearwater Group plc
Opinion
We have audited the financial statements of Shearwater Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 31 March 2018 which comprise the consolidated statement of comprehensive income, the consolidated and company
statements of changes in equity, the consolidated and company statements of financial position, the consolidated and company
cashflow statements and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company
financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March
2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate;
or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
15
Matter
How we addressed the matter in our audit
Accounting for the acquisition of SecurEnvoy
Limited and Newable Consulting Limited
(renamed Xcina Consulting Limited)
As explained in note 9 of the financial statements,
on 09 May 2017 the Group completed its
acquisition of SecurEnvoy Limited and on 26 July
2017 its acquisition of Newable Consulting Limited
(renamed Xcina Consulting Limited).
We focused on these transactions because they
are material to the consolidated financial
statements and because there is a degree of
judgement in the identification and valuation of the
assets and liabilities acquired.
Our audit procedures included assessing the appropriateness of the
accounting treatment adopted and challenging the directors’ assessment of
the fair value of the assets acquired and liabilities assumed with reference
to a Purchase price allocation (“PPA”) provided by management.
We used our own valuation specialists to evaluate and conclude on the
results of management’s procedures and PPA to determine the fair value of
the intangible assets acquired. This included:
-
evaluating the completeness and existence of intangible assets
recognised;
assessment of the valuation methodologies applied;
assessment of the key assumptions made by management, such as
discount rates and growth rates compared to our independently
calculated range;
benchmarking the assumptions used with other transactions in the
sector; and
performing sensitivity analysis to understand the extent to which
changes in key assumptions may give risk to a materially different
valuation for the intangible asset.
-
-
-
-
Possible impairment of exploration rights
As disclosed in note 11 of the financial statements
and in the Financial Position discussion in the
CEO review, there is £936k worth of exploration
rights that have been capitalised.
IFRS 6 Exploration for and Evaluation of Mineral
Resources prescriptively requires exploration
rights to be assessed for impairment if specific
criteria are not met. One specific criteria is that
substantive expenditure on further exploration for
and evaluation of mineral resources in the specific
area is neither budgeted nor planned. This
crieteria has not been met which necessitated an
impairment review in accordance with IAS 36
Impairment of assets.
Under IAS 36 Impairment of assets management
prepared an impairment assessment calculating
the asset’s recoverable amount to be it’s fair value
less costs to sell.
However, the period for which the entity has the
right to explore in the specific area has expired.
Management are working towards renewals of the
exploration rights, however no sale process can
proceed until the rights are renewed, leading to
uncertainty over the recoverable amount.
Revenue recognition
The group’s revenue recognition policy can be
found in note 1.f to the financial statements.
We assessed the sufficiency of the disclosures relating to the acquisition
taking into account the requirements of the accounting standards and
testing the completeness and accuracy of the disclosures.
BDO have reviewed management’s IFRS 6 assessment of impairment
indicators and are in agreement that an impairment assessment was
necessitated.
Our audit procedures performed to conclude on whether the Exploration
rights warrant an impairment as per IAS 36 included:
- Obtained and reviewed management’s impairment assessment for IAS
36 compliance.
- Reviewing minutes of meetings held between the company and the
-
-
Director General of Energy and Mines for Spain noting the strong
possibility of the exploration rights being renewed which will enable the
Company to proceed with sale negotiations.
BDO have challenged the Board of Directors and the Audit Committee
on the carrying value of the exploration rights and discussed with them
whether an impairment was required. The Board and Audit Committee
concluded that the carrying value was appropriate and that there was
no impairment warranted.
BDO have also discussed with the Board of Directors and the Audit
Committee the fact that there have been informal offers made for the
exploration rights. These offers have been considered to be the basis
of management’s calculated recoverable amount.
These discussions with the Board of Directors and Audit Committees have
been represented to BDO in a formal management representation letter.
A summary of procedures performed to address the risk include:
16
We consider a significant risk of material
misstatement to arise from the recognition of
revenue around the year end on consulting
contracts within Xcina Consulting Limited.
Therefore the key audit matter is the recognition
of revenue in the correct period.
-
-
Testing a sample of transactions from the accrued revenue listing by
obtaining the invoices raised subsequent to the year end detailing price
per day and the days spent on the project, recalculating the accrued
revenue to be recognised at year end.
Agreed the cash receipts received post year end for those accrued
revenue transactions sampled.
- Where cash had not been received, the invoice details were agreed to
-
contract or correspondence with project management.
Agreed a sample of unbilled revenue transactions from the sales listing
to the accrued revenue listing ensuring completeness of the accrued
revenue listing.
- Reviewed a sample of sales invoices raised before and after year end
to ensure that accounted for in the correct period and accrued for
appropriately.
Our application of materiality
We apply the concept of materiality in performing our audit and evaluating the effect of misstatements. We consider materiality to
be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that
are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower
materiality, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will
not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
We agreed with the audit committee that we would report to the committee all individual audit differences identified during the
course of our audit in excess of £9,700 (2016: £8,475). We also agreed to report differences below these thresholds that, in our
view, warranted reporting on qualitative grounds.
Group Overall materiality
Group Performance materiality
Basis for determining
Rationale for benchmark applied
Parent company Overall materiality
Parent company Performance
Materiality
Component materiality
£194,000 (2017: £226,000)
£145,500 (2017: £169,500)
7% of group loss before tax (2017: 3% of Net Assets)
We used loss before tax as a benchmark because this is the
first year that the group has traded, and therefore shareholder
value and focus has been determined to be on the current year
loss as a measure for shareholders in assessing the
performance of the Group.
£40,000 (2017: £226,000)
£30,000 (2017: £169,500)
Component materiality is established when performing audits on complete financial information of subsidiaries within the group,
where the subsidiary is considered significant to the group.
We determined component materiality as follows:
Range of component materiality
6% to 85% of group materiality
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group’s system of
internal control, and assessing the risks of material misstatement in the financial statements at the group level.
In determining the scope of our audit we considered the level of work to be performed at each component in order to ensure
sufficient assurance was gained to allow us to express an opinion on the financial statements of the Group as a whole. We tailored
the extent of the work to be performed by us at each component based on our assessment of the risk of material misstatement at
each component. We identified four centrally controlled components as significant, and have audited these for group reporting
purposes. All of the audit work was undertaken by BDO LLP.
17
For two of the components not considered significant, we performed specific scope procedures based on their relative size, risks in
the business and our knowledge of those entities appropriate to respond to the risk of material misstatement. Review procedures
were performed by the group audit team on the remaining one reporting component not considered significant to the group.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
•
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 14, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
18
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
Nicole Martin (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
31 July 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
19
Consolidated statement of comprehensive income
for the year ended 31 March 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Finance income
Loss before tax
Income tax charge
Loss for the year and attributable to equity holders of the
Company
Operating loss analysed as:
Underlying EBITDA
Amortisation of acquired intangibles
Depreciation of fixed assets
Share-based payments
Exceptional items
Finance income
Loss before tax
Other comprehensive income
Items that may be reclassified to profit and loss:
Change in fair value of available-for-sale assets
Total comprehensive loss for the year
Note
3
7
4
4
4
4
2017/18
£ (000)
6,240
(2,604)
3,636
(6,520)
(2,884)
2
(2,882)
(3)
2016/17
£ (000)
-
-
-
(1,585)
(1,585)
1
(1,584)
-
(2,885)
(1,584)
(837)
(647)
(14)
(366)
(1,020)
2
(2,882)
(1,076)
-
(1)
(79)
(429)
1
(1,584)
(67)
76
(2,952)
(1,508)
Loss per share
Basic and diluted (pence per share)
8
(0.31)
(0.54)
The notes on pages 24 to 45 are an integral part of these consolidated financial statements.
20
Consolidated statement of financial position
as at 31 March 2018
Assets
Non-current assets
Goodwill
Other intangible assets
Investments in subsidiaries
Available for sale assets
Property, plant and equipment
Amounts owed by subsidiary undertaking
Total non-current assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities assets
Non-current liabilities
Deferred tax
Total non-current liabilities assets
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
Available for sale reserve
Other reserves
Retained deficit
Equity attributable to owners of the Company
Total equity and liabilities
Group
Company
2018
£ (000)
Note
2017
£ (000)
2018
£ (000)
2017
£ (000)
10
11
12
13
14
15
16
17
18
18
12,956
8,220
-
51
76
-
21,303
1,949
2,493
4,442
25,745
1,755
1,755
1,847
1,847
3,602
-
935
-
118
1
-
1,054
86
7,073
7,159
8,213
732
732
-
-
732
-
986
20,221
51
18
1,662
22,938
47
540
587
23,525
1,243
1,243
-
-
1,243
-
935
-
118
1
-
1,054
86
7,073
7,159
8,213
737
737
-
-
737
22,143
7,481
22,282
7,476
9,644
28,923
36
401
(16,861)
22,143
25,745
5,353
15,962
103
39
(13,976)
7,481
8,213
9,644
28,923
36
401
(16,722)
22,282
23,525
5,353
15,957
103
39
(13,976)
7,476
8,213
The company has taken advantage of the exemption allowed under section 408 of the Companies Act 2016 and has not
presented its own statement of comprehensive income in these financial statements. The loss for the financial year for the
parent Company was £2.7 million (2017: £1.6 million).
The notes on pages 24 to 45 are an integral part of these consolidated financial statements. The financial statements on pages
20 to 45 were approved and authorised for issue by the Board and signed on their behalf on 31 July 2018.
M Stevens
Chief Executive Officer
Registered number: 05059457
21
Consolidated statement of changes in equity
for the year ended 31 March 2018
Group
At 1 April 2016
Loss for the year
Other comprehensive loss for the period
Total comprehensive loss for the period
Contributions by and distributions to
owners
Issue of share capital
Share issue costs
Share based payments
At 31 March 2017
Loss for the year
Other comprehensive loss for the period
Total comprehensive loss for the period
Contributions by and distributions to
owners
Issue of share capital
Share issue costs
Share based payments
At 31 March 2018
Company
At 1 April 2016
Loss for the year
Other comprehensive loss for the period
Total comprehensive loss for the period
Contributions by and distributions to
owners
Issue of share capital
Share issue costs
Share based payments
At 31 March 2017
Loss for the year
Other comprehensive loss for the period
Share
capital
(Note 18)
£ (000)
1,719
-
-
-
Share
premium
(Note 18)
£ (000)
11,593
-
-
-
Available
for sale
reserve
£ (000)
27
-
76
76
Other
reserve
£ (000)
-
-
-
-
4,605
(236)
-
15,962
-
-
15,962
13,491
(530)
-
28,923
-
-
-
103
-
(67)
36
-
-
-
36
-
-
39
39
-
-
39
-
-
362
401
Share
premium
(Note 18)
Available
for sale
reserve
£ (000)
£ (000)
Other
reserve
£ (000)
3,634
-
-
5,353
-
-
5,353
4,291
-
-
9,644
Share
capital
(Note 18)
£ (000)
1,719
-
-
-
3,634
-
-
11,593
-
-
-
4,600
(236)
-
5,353
15,957
-
-
-
-
27
-
76
76
-
-
-
103
-
(67)
36
-
-
-
36
-
-
-
-
-
-
39
39
-
-
39
-
-
362
401
Retained
deficit
£ (000)
(12,432)
(1,584)
-
(1,584)
-
-
40
(13,976)
(2,885)
-
(16,861)
-
-
-
(16,861)
Retained
deficit
£ (000)
(12,432)
(1,584)
-
Total
Equity
£ (000)
907
(1,584)
76
(1,508)
8,239
(236)
79
7,481
(2,885)
(67)
4,529
17,782
(530)
362
22,143
Total
Equity
£ (000)
907
(1,584)
76
(1,584)
(1,508)
-
-
40
(13,976)
8,234
(236)
79
7,476
(2,746)
(2,746)
-
(16,722)
(67)
4,663
-
-
-
17,787
(530)
362
(16,722)
22,282
Total comprehensive loss for the period
5,353
15,957
Contributions by and distributions to
owners
Issue of share capital
Share issue costs
Share based payments
At 31 March 2018
4,291
-
-
13,491
(530)
-
9,644
28,918
The notes on pages 24 to 45 are an integral part of these consolidated financial statements.
22
Consolidated Cash Flow Statement
for the year ended 31 March 2018
Group
2017/18
£ (000)
2016/17
£ (000)
Company
2017/18
£ (000)
2016/17
£ (000)
Note
(2,885)
(1,584)
(2,747)
(1,584)
Cash flows from operating activities
Loss for the period
Adjustments for:
Depreciation of property, plant and machinery
Amortisation of acquired intangible assets
Finance income
Share-based payment charge
Income tax
Cash flow from operating activities before changes in
working capital
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Cash used in operations
Net foreign exchange movements
Tax paid
Net cash used in operating activities
Investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and machinery
Purchase of software
Interest received
Gold exploration payments
Net cash used in investing activities
Financing activities
Proceeds from issue of share capital
Expenses paid in connection with share issues
Proceeds from convertible loan
Net cash generated by financing activities
4
4
4
14
11
14
647
(2)
366
3
(1,857)
(1,412)
457
(2,812)
(19)
(280)
(3,111)
(9,839)
(72)
(19)
2
(50)
(9,978)
9,020
(530)
-
8,490
1
-
(1)
79
-
(1,505)
(75)
670
(910)
-
-
(910)
-
(2)
-
1
(9)
(10)
8,084
(236)
100
7,948
4
-
(1)
366
-
(2,378)
39
(1,149)
(3,488)
-
-
(3,488)
(11,466)
(20)
-
1
(50)
(11,535)
9,020
(530)
-
8,490
Net (decrease)/increase in cash and cash equivalents
(4,599)
7,028
(6,533)
Foreign exchange movement on cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
19
7,073
2,493
-
45
7,073
-
7,073
540
The notes on pages 24 to 45 are an integral part of these consolidated financial statements.
23
1
-
(1)
79
-
(1,505)
(75)
670
(910)
-
-
(910)
-
(2)
-
1
(9)
(10)
8,084
(236)
100
7,948
7,028
-
45
7,073
Notes to the Financial Statements
General Information
The Group is a public limited company incorporated and domiciled in the UK. The address of its registered office is 22 Great James
Street, London, WC1N 3ES.
The Group is listed on the alternative investment market on the London Stock Exchange. The Group provides digital resilience
solutions to a range of end user markets.
1. Statement of accounting policies
The significant accounting policies applied in preparing the financial statements are outlined below. These policies have been
consistently applied for all the years presented, unless otherwise stated.
a) Basis of preparation
The Consolidated and Company financial statements have been prepared in accordance with International Financial Reporting
Standards (‘IFRS’), including International Accounting Standards (‘IAS’) and interpretations (‘IFRS ICs’) issued by the International
Accounting Standards Board (‘IASB’) and its Committees, and as adopted in the EU, and in accordance with the Companies Act
2006 as applicable to Companies using IFRS.
The Consolidated financial statements have been prepared under the historic cost convention, except for certain financial instruments
that have been measured at fair value. The Consolidated financial statements are presented in Sterling, the functional currency of
Shearwater Group plc, the Parent Company. All values are rounded to the nearest thousand pounds (£’000s) except where otherwise
indicated.
b) Going concern
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing
these consolidated financial statements. The Group is forecast to become profitable in fiscal year March 2020.
c) Critical accounting judgements estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the
reporting date.
Business Combinations
Management make judgments, estimates and assumptions in assessing the fair value of the net assets acquired on a business
combination, in identifying and measuring intangible assets arising on a business combination, and in determining the fair value of
the consideration. If the consideration includes an element of contingent consideration, the final amount of which is dependent on the
future performance of the business, management assess the fair value of that contingent consideration based on their reasonable
expectations of future performance. Further information can be found in note 9.
Share based payments
Management make judgements, estimates and assumptions in determining the fair value of share-based payments costs. The details
of these are set out in note 19. The judgement applied relates to the consideration of the incentive scheme and how it is settled.
There is judgement in the inputs to the fair value model which is calculated using Black Scholes methodology.
Exploration assets
Management make judgements, estimates and assumptions in assessing the fair value of exploration assets. The company assesses
at each reporting date whether there is any indication that there may be facts or circumstances relating to these assets which may
be impaired. If such indication exists, the Group estimates recoverable amount of the asset. The recoverable amount is assessed by
reference to the fair value less cost to sell based on the assumption that the exploration rights will be renewed enabling a sale. No
impairment has been booked in either this year or the prior year.
24
1. Statement of accounting policies continued
d) 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 12). 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.
e) 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.
f) Revenue
Revenue comprises the fair value of the consideration received or receivable from the licensing of software and for the provision of
services to customers in the ordinary course of the Group’s activities. Revenue is shown net of sales tax, discounts and after
eliminating intra-group sales.
Revenue from software licences
The Group recognises revenue from the licencing of software when all the following conditions are satisfied:
all licencing obligations have been performed;
the rights to use the software has been assigned in exchange for a fixed fee;
the Group retains no continuing managerial rights to use the software; and
the contract is non-cancellable.
Revenue for the provision of services
The Group recognises revenue from the provision of services when all the following conditions are satisfied:
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the entity;
the stage of completion of the transaction at the end of the reporting period can be measured reliably; and
the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
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.
g) Segmental reporting
For internal reporting and management purposes, the Group is organised into two reportable segments based on the types of
products and services from which each segment derives its revenue – software and services. The Group's operating segments are
identified on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate
resources to the segment and to assess its performance.
h) Exceptional items
The group’s statement of comprehensive income separately identifies exceptional items. Such items are those that in the Directors’
judgement are one-off in nature and need to be disclosed separately by virtue of their size and incidence. In determining whether an
item or transaction should be classified as an exceptional item, the Directors’ consider quantitative as well as qualitative factors such
as the frequency, predictability of occurrence and significance. This is consistent with the way that financial performance is measured
25
1. Statement of accounting policies continued
by management and reported to the Board. Exceptional items may not be comparable to similarly titled measures used by other
companies. Disclosing adjusted items separately provides additional understanding of the performance of the Group.
i) 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
j)
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 arises from contractual or other legal
rights and their fair value can be measured reliably. Expenditure on internally developed intangible assets is taken to the consolidated
statement of comprehensive income in the period in which it is incurred.
Intangible assets with a finite life have no residual value and are amortised over their expected useful lives as follows:
Computer software
3-5 years straight line basis
Customer relationships
1-15 years straight line basis
Software
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.
k) Property, plant and machinery
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of
the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following
annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Plant and machinery
Office equipment
20-33 per cent per annum
25 per cent per annum
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.
Investments in subsidiaries
l)
Fixed asset investments, which all relate to investments in subsidiaries, are stated at cost less provision for any impairment in value.
m) Financial instruments
Financial assets
The Group’s financial assets fall into the following categories which are discussed below. The Group does not have any held to
maturity or fair value through profit and loss financial assets.
26
1. Statement of accounting policies continued
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Loans and receivables are initially recognised at fair value plus transaction costs. They are subsequently carried at amortised cost
using the effective interest method, with changes in carrying value recognised in the statement of comprehensive income.
Trade and other receivables and cash and cash equivalents
Financial assets within trade and other receivables 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), less provisions
made for doubtful receivables. Provisions are made specifically, where there is evidence of a risk of non-payment taking into account
aging, previous losses experienced and general economic conditions.
If collection is expected in 12 months or less, the trade or other receivable is classified as a current asset. It is otherwise classified
as a non-current asset.
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments with less
than three months’ original maturity that are readily convertible to a known amount of cash and are subject to an insignificant risk of
change in value.
The convertible loan of £0.1 million was converted into equity in the current year.
Available for sale financial assets
These comprise of the Group’s investments in entities not qualifying as subsidiaries, associate or jointly controlled entities. After initial
measurement, available for sale financial assets are subsequently measured at fair value, with unrealised gain or losses recognised
in other comprehensive income in equity under available for sale reserve.
Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective
evidence of impairment), the full amount of the impairment including any amount previously recognised in other comprehensive
income, is recognised in the statement of comprehensive income.
Impairment of financial assets
The Group assesses at each balance sheet date whether a financial asset or Group of financial assets is impaired. Where there is
objective evidence that an impairment loss has arisen on an asset carried at amortised cost, the carrying amount is reduced and the
impairment loss is recognised in the statement of comprehensive income. The impairment loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective
interest rate.
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).
If due within 12 months or less, the trade or other payable is classified as a current liability. It is otherwise classified as a non-current
liability.
n) Share-based payments
In order to calculate the charge for share-based payments as required by IFRS 2, the Group makes estimates principally relating to
assumptions used in its option-pricing model as set out in note 19.
The cost of equity-settled transactions with employees, and transactions with suppliers where fair value cannot be estimated reliably,
is measured with reference to the fair value of the equity instrument. The fair value of equity-settled instrument 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
27
1. Statement of accounting policies continued
movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with
the corresponding entry in equity.
o) Pre-production assets
Pre-production assets are categorized as intangible assets on the statement of financial position. Pre-licence expenditure is expensed
as directed by IFRS 6. Expenditure on licence acquisition costs, geological and geophysical costs, costs of drilling exploration,
appraisal and development drilling, and an appropriate share of overheads are capitalised in the relevant cash-generating unit. These
costs which relate to the exploration, appraisal and development of mining interests are initially held as intangible non-current assets
pending determination of commercial viability. On commencement of production these costs are transferred to production assets.
p) Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases.
Rentals incurred in respect of operating leases (net of any incentives received from the lessor) are charged to the Statement of
comprehensive income on a straight-line basis over the period of the lease.
q) New standards and interpretations not applied
The following new standard, amendments and interpretations have not been adopted in the current year.
International Financial Reporting Standards (IFRS/IAS)
IFRS 9
Financial instruments
IFRS 15
Revenue from contracts with customers
IFRS 16
Leases
Effective for
accounting periods
starting after
1 January 2018
1 January 2018
1 January 2019
Management is currently assessing the impact of the above new standards. During the year to 31 March 2019 the Group will put in
place necessary processes to capture all of the adjustments and additional disclosures required for those standards taking effect
before this date. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material
impact on the Group.
IFRS 9 comes into effect for accounting periods beginning on or after 1 January 2018. Given the nature of the financial assets and
liabilities of the Group and the parent Company, the key areas for consideration are trade receivables and intercompany receivables
with the introduction of expected credit loss calculations. Management do not believe that there will be any material impact on
valuation of these assets.
IFRS 15 Revenue from contracts with customers replaces IAS 18 Revenue and related interpretations, introducing a new single,
principles-based approach to recognition and measurement of revenue from all contracts with customers. The new approach requires
identification of performance obligations in a contract and revenue to be recognised when or as those performance obligations are
satisfied, as well as additional disclosure. The Group has reviewed the impact of adopting IFRS 15 and the directors do not believe
that this will have a material impact on reported revenues.
With respect to IFRS 15 implementation Shearwater Group plc generates income from its customers via two income streams:
Software licences (‘SaaS’); whereby the customer pays an annual fee for a secure key to access two factor authentication
software. Currently 100% of revenue is recognised when the client receives a secure key to access the software. Under IFRS
15 it is the intention that revenue will continue to be recognised in full when the secure key is provided as the company does not
have any further contractual obligation to provide after sales support.
Provision of other services; which constitutes consultancy services on a range of topics including data protection. project
management, governance and compliance. At present revenue customer contracts stipulate a number of consultancy days that
make up the contracted consideration. Consultancy days generally comprise of field work and (where required) report writing
and delivery which we consider to be of equal value to the client. Revenue is then recognised over the number of consultancy
days provided within the period. This remains unchanged under IFRS 15.
IFRS 16 comes into effect for accounting periods beginning on or after 1 January 2019. The standard requires almost all leases to
be recorded in the statement of financial position. This requires the recognition of a right-of-use asset and lease liability. The lease
liability is measured as the present value of the future lease payments, discounted at the interest rate implicit in the lease if
determinable, or otherwise at the leasee’s incremental borrowing rate. The asset is measured as equivalent to the lease liability,
adjusted for other costs including initial direct costs or obligations under the lease such as restoration costs. The asset is subsequently
28
1. Statement of accounting policies continued
depreciated on a straight-line basis to the expected maturity date of the lease. The liability is increased by interest and reduced by
the lease payments made. The impact of this standard is currently being assessed.
2. Measure of profit
To provide Shareholders with a better understanding of the trading performance of the Group, underlying EBITDA has been calculated
as loss before tax after adding back the following items, which can distort the underlying performance of the Group:
Amortisation of acquired intangibles
Depreciation
Share-based payments
Exceptional items
Finance income
Underlying EBITDA reconciles to loss before tax as follows:
Loss before tax
Amortisation of acquired intangibles
Depreciation of fixed assets
Share-based payments
Exceptional items
Finance income
Underlying EBITDA
3. Segmental information
2017/18
£ (000)
(2,882)
647
14
366
1,020
(2)
(837)
2016/17
£ (000)
(1,584)
-
1
79
429
(1)
(1,076)
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 reports its results in two segments as this accurately reflects the way the
Group is managed.
The Group is organised into two reportable segments based on the types of products and services from which each segment derives
its revenue – software and services.
Segment information for the 12 months ended 31 March 2018 is presented below and excludes intersegment revenue as they are
not material, and assets as the Directors do not review assets and liabilities on a segmental basis.
Revenue
Segment underlying EBITDA
Group costs
Underlying EBITDA
Amortisation of acquired intangibles
Depreciation of fixed assets
Share-based payments
Exceptional items
Finance income
Loss before tax
29
Software
Services
Total
2017/18
2017/18
2017/18
(audited)
(audited)
(audited)
£ (000)
£ (000)
£ (000)
3,372
1,668
2,868
(575)
6,240
1,093
(1,930)
(837)
(647)
(14)
(366)
(1,020)
2
(2,882)
3. Segmental information continued
No prior year comparatives are included as the Group was not trading in the last financial year. Whilst the Group has established
operations in Germany and the US these regions were not fully established until the end of the financial year therefore segmental
information based on geographical location would not be appropriate.
4. Operating loss
Operating loss is stated after charging:
Depreciation of fixed assets
Amortisation of acquired intangibles
Operating lease expense
External auditors' remuneration:
- Audit fee for annual audit of the Group and financial statements
- Other taxation and compliance services
Share based payments
Exceptional items
2017/18
£ (000)
2016/17
£ (000)
14
647
211
55
5
366
1
-
41
21
4
79
1,020
429
Exceptional items relate to acquisition costs for SecurEnvoy (£0.7m), Newable Consulting (£0.1m) (rebranded Xcina Consulting) and
other potential future acquisitions (£0.2m).
5. Staff costs
Total staff cost within the Group comprise of all Directors and employee costs for the financial year. The totals below include 10.7
months of staff costs for SecurEnvoy (acquired May 2017) and 8.2 months of staff costs for Newable Consulting (acquired July 2017).
Wages and salaries
Social security costs
Pension costs
Share-based payments
National insurance on share options
Group
Company
2017/18
2016/17
2017/18
2016/17
£ (000)
£ (000)
£ (000)
£ (000)
2,638
295
69
366
-
3,368
277
28
11
74
13
403
700
87
21
366
-
1,174
277
28
11
74
13
403
The weighted average monthly number of employees, including Directors employed by the Group and Company during the year
was:
Administration
Production
Sales and marketing
Group
Company
2017/18
2016/17
2017/18
2016/17
11
8
22
41
6
-
-
6
7
-
-
7
6
-
-
6
30
6. Key management personnel and Directors compensation
The remuneration of key management personnel during the year was as follows:
Wages and salaries
Social security costs
Pension costs
Share-based payments
National insurance on share options
The remuneration of Directors during the year was as follows:
2018
Executive Directors
M Stevens
C Eadie (resigned 29 September 2017)
Non-Executive Directors
D Williams
S Ball
R Southwell
G Willits
S Finlay (resigned 13 April 2017)
2017
Executive Directors
M Stevens
C Eadie (resigned 29 September 2017)
Non-Executive Directors
D Williams
S Ball
R Southwell
G Willits
S Finlay (resigned 13 April 2017)
H Kanabar (resigned 29 September 2016)
Total
salary
and fees
Pension
costs
£ (000)
£ (000)
337
26
50
25
25
8
1
472
2
-
-
-
-
-
-
2
Total
salary
and fees
Pension
costs
£ (000)
£ (000)
105
39
25
11
12
0
17
8
7
3
-
-
-
-
-
-
217
10
2017/18
2016/17
£ (000)
£ (000)
472
44
2
193
-
711
217
23
10
70
13
333
Total
£ (000)
339
26
50
25
25
8
1
474
Total
£ (000)
112
42
25
11
12
0
17
8
227
The highest paid Director received remuneration (excluding share-based payments) totalling £339,446 (2017: £130,000).
Directors’ interests and share options are disclosed in the Directors’ report.
In 2018 and 2017, key management personnel are considered to comprise of the Directors.
31
7. Taxation
Current tax:
UK corporation tax at current rates on UK losses for the year
Adjustments in respect of previous years
Foreign tax
Adjustments in respect of previous years
Total current tax
Deferred tax asset not recognised
Income tax charge
Reconciliation of taxation:
Loss before tax
Loss multiplied by the average rate of corporation tax in the year of 19% (2017: 20%)
Tax effects of:
Depreciation and amortisation in excess of capital allowance
Expenses not deductible for tax purposes
Foreign tax rate differences
Enhanced R&D relief
Deferred tax asset not recognised
Income tax charge
2017/18
2016/17
£ (000)
£ (000)
(465)
-
(465)
3
-
(462)
465
3
(136)
-
(136)
-
-
(136)
136
-
(2,882)
(1,584)
(548)
(317)
(2)
131
(1)
(42)
465
3
-
181
-
-
136
-
On 26 October 2015, the UK corporation tax rate was reduced from 20% to 19% from 1 April 2017 and a further change was
announced on 23 November 2016 to reduce the rate from 19% to 17% from 1 April 2020.
The Group has gross tax losses and temporary timing differences of £0.5 million (2016/17: £0.1 million) for which no deferred tax
asset has been recognised as the timing of their utilisation is uncertain.
8. Loss 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.
For diluted loss per share, the weighted average number of shares in issue is adjusted to assume conversion of all the potential
dilutive ordinary shares. The potential dilutive shares are anti-dilutive for the twelve months ended 31 March 2018 and the twelve
months ended 31 March 2017 as the Group is loss making.
At the reporting date, there were 18,815,074 (2017: 3,378,882) potentially dilutive ordinary shares. Dilutive potential ordinary shares
relate to share options.
32
8. Loss per share continued
The calculation of the basic and diluted earnings per share from total operations attributable to Shareholders is based on the following
data:
Net loss from total operations
Earnings for the purposes of basic and diluted earnings per share being net loss
attributable to Shareholders
Number of
shares
Weighted average number of ordinary shares for the purpose of basic and diluted
earnings per share
Earnings per share
Basic and diluted
9. Acquisitions
a) SecurEnvoy – May 2017
2017/18
2016/17
£ (000)
£ (000)
(2,885)
(1,584)
No
No
917,725,525 291,850,286
Pence
(0.31)
Pence
(0.54)
On 9 May 2017, the Group acquired 100% of the issued share capital of SecurEnvoy Limited ("SecurEnvoy") for a total consideration
of £19.6 million (after customary adjustments for working capital and net debt), comprising £11.0 million gross cash consideration
and £8.6 million share consideration. For accounting purposes, the fair value of the ordinary shares issued in the Group was based
on 200,000,000 ordinary shares at the closing share price on the date of completion. This purchase was accounted for as an
acquisition.
SecurEnvoy is a leading MFA software company headquartered in the UK with operations in the US, Europe and Australia, and
established the Company’s presence within the large and growing IAM sector.
The following table summarises the fair values of the assets acquired, the liabilities assumed, and the total consideration transferred
as part of this acquisition:
Goodwill
Other intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Net assets acquired
Satisfied by:
Cash
Shares in Shearwater Group plc
Total consideration transferred
Fair value
£ (000)
12,366
7,752
16
452
1,627
(772)
(1,825)
19,616
11,016
8,600
19,616
The net cash outflow arising from the acquisition was £9.4 million in the twelve months ended 31 March 2018, comprising cash
consideration of £11.0 million less cash and cash equivalents acquired of £1.6 million.
33
9. Acquisitions continued
Acquisition related costs amounted to £1.2 million; of this £0.5 million related to the issuance of new equity and has been charged to
the share premium account, and £0.7 million has been charged to the statement of comprehensive income for the twelve month
period to 31 March 2018 within exceptional items.
SecurEnvoy contributed £3.4 million to the Group’s revenue and underlying EBITDA of £1.7 million for the period from the date of the
acquisition to 31 March 2018.
On acquisition SecurEnvoy held trade receivables with a book and fair value of £0.2 million. The Group is confident that the full
amount will be ultimately received.
b) Newable Consulting – July 2017
On 26 July 2017, the Group acquired the business and assets of Newable Consulting ("Newable Consulting") for an initial
consideration of £0.6 million. As part of the transaction, Newable Consulting agreed to subscribe for 3,620,806 new ordinary shares
at £0.04143 per share. Based on performance to 31 March 2018 a further payment of up to £0.1 million will be made to Newable
Consulting which will be settled through the issuance of new ordinary shares. On acquisition, Newable Consulting was rebranded
Xcina Consulting and formed a core component of the Group’s new information and assurance company, Xcina.
Goodwill
Other intangible assets
Deferred tax liabilities
Net assets acquired
Satisfied by:
Cash
Shares in Shearwater Group plc
Deferred contingent consideration
Total consideration transferred
Fair value
£ (000)
590
111
(21)
680
450
163
67
680
The net cash outflow arising from the acquisition was £0.4 million in the twelve months ended 31 March 2018, comprising cash
consideration of £0.6 million less cash received for the subscription of shares of £0.2 million.
Acquisition related costs amounted to £0.1 million which have been charged to the statement of comprehensive income for the twelve-
month period to 31 March 2018 within exceptional items.
Xcina Consulting contributed £2.9 million to the Group’s revenue and £0.2 million of underlying EBITDA for the period from the date
of the acquisition to 31 March 2018.
In the case of both SecurEnvoy and Newable Consulting, goodwill arising from the acquisition consists largely of the future revenue
opportunities of the service offering not yet realised, expertise within the workforce as well as synergies and economies of scale
expected as a result of utilising the Group’s shared services function. None of the goodwill recognised is expected to be deductible
for income tax purposes.
10. Goodwill
Cost
At 1 April 2017
Recognised on acquisition
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
SecurEnvoy
Newable
consulting
£ (000)
£ (000)
-
12,366
12,366
12,366
-
-
590
590
590
-
Total
£ (000)
-
12,956
12,956
12,956
-
34
10. Goodwill continued
The Group tests goodwill annually for impairment. The recoverable amount of goodwill is determined as the higher of the value in
use calculation or fair value less cost of disposal for each cash generating unit (‘CGU’). The value in use calculations use pre-tax
cash flow projections based on financial budgets and forecasts approved by the Board covering a three-year period. These pre-tax
cash flows beyond the three-year period are extrapolated using estimated long-term growth rates. For both SecurEnvoy and Newable
Consulting a weighted average cost of capital of 15% and a terminal value of 2.5% has been used when testing goodwill. Sensitivity
analysis has been performed adjusting where long-term forecast revenues have been adjusted by 5%, weighted average cost of
capital increased by 1% and the terminal value reduced to 2% and in each case no impairment has arisen.
The goodwill for SecurEnvoy and Newable Consulting are represented as two separate cash generating units.
11. Intangible assets
Group
Cost
At 1 April 2017
Recognised on acquisition
Additions
At 31 March 2018
Accumulated amortisation
At 1 April 2017
Additions
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
Company
Cost
At 1 April 2017
Recognised on acquisition
Additions
At 31 March 2018
Accumulated amortisation
At 1 April 2017
Additions
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
Customer
relations
Software
Gold
exploration
£ (000)
£ (000)
£ (000)
-
4,260
-
4,260
-
324
324
-
3,602
19
3,621
-
323
323
3,936
-
3,298
-
935
-
51
986
-
-
-
986
935
Total
£ (000)
935
7,862
70
8,867
-
647
647
8,220
935
Gold exploration
£ (000)
935
-
51
986
-
-
-
986
935
It is the intention of the Group to dispose of the Gold exploration rights during calendar year 2018.
35
11. Intangible assets continued
The Group has incurred £0.3 million for research and development expenditure within SecurEnvoy to ensure that service offering
remains competitive within the market. This has not been capitalised and has been expensed in the statement of comprehensive
income as incurred.
12. Investments in subsidiaries
Company
Investments in subsidiaries at 1 April 2017
Acquisition of SecurEnvoy Limited
Investment in Shearwater Subco Limited
Investments in subsidiaries at 31 March 2018
Total
£ (000)
-
19,616
605
20,221
The following table gives brief details of the entities controlled and included in the consolidated financial statements of the Group at
31 March 2018. Subsidiaries marked (*) are directly owned by Shearwater Group plc, all other subsidiaries are indirectly owned.
The Company gave an allotment of shares to Shearwater Subco Limited which was passed down to Xcina Consulting Limited to
fund the acquisition of the business and assets of Newable Consulting.
Name of company
Country of
incorporation or
residence
Registered address
Shearwater Subco Limited*
England and Wales
22 Great James Street, London, WC1N 3ES
SecurEnvoy Limited*
England and Wales
22 Great James Street, London, WC1N 3ES
Xcina Limited
England and Wales
22 Great James Street, London, WC1N 3ES
Xcina Consulting Limited
England and Wales
22 Great James Street, London, WC1N 3ES
SecurEnvoy Inc
SecurEnvoy GMBH
USA
Germany
1209 Orange Street, Wilmington, Delaware
Freibadstr. 30, 81543, Munchen
13. Available for sale assets
Group and
Company
Cost
At 1 April 2016
Fair value gain
At 31 March 2017
Fair value loss
At 31 March 2018
Percentage
owned
100
100
100
100
100
100
Total
£ (000)
42
76
118
(67)
51
On 4 November 2014, the Group received 715,000 ordinary shares in Plymouth Minerals Limited (ASX: INF previously PLH) listed
on the Australian Securities Exchange as the deferred payment of €50,000 (£42,000) worth of shares under the Morille project share
purchase agreement, as final consideration for the acquisition of the project. The share price on 31 March 2018 was AUS $0.13
(2017: AUS $0.27) resulting in an impairment of £67,000 (2017: fair value gain of £76,000).
36
14. Property, plant and machinery
Group
Cost
At 1 April 2016
Additions
At 31 March 2017
Recognised on acquisition
Additions
At 31 March 2018
Accumulated depreciation
At 1 April 2016
At 31 March 2017
Charge for the period
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
At 1 April 2016
Total
£ (000)
-
2
2
16
72
90
-
-
14
14
76
1
-
Depreciation of property, plant and equipment is charged to administrative expenses within the statement of comprehensive income.
Company
Cost
At 1 April 2016
Additions
At 31 March 2017
Additions
At 31 March 2018
Accumulated depreciation
At 1 April 2016
At 31 March 2017
Charge for the period
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
At 1 April 2016
37
Total
£ (000)
-
2
2
20
22
-
-
4
4
18
1
-
15. Trade and other receivables
Group
Company
Trade receivables
Accrued income
Prepayments and other receivables
VAT recoverable
Amounts owed by group companies
2018
£ (000)
1,012
610
205
122
-
1,949
Amounts due from all subsidiaries are interest free, unsecured and are repayable on demand.
The ageing analysis of these receivables is as follows:
Up to 3 months overdue
3 to 6 months overdue
2017
£ (000)
2018
£ (000)
2017
£ (000)
-
-
22
64
-
86
-
-
47
-
-
47
-
-
22
64
-
86
2018
£ (000)
205
6
211
No comparative information is included as all trading companies were acquired this financial year. The Company does not have any
trade receivable debt.
As at 31 March 2018 trade receivables of £211,121 were past due but not impaired. They relate to the customers with no default
history. No debtor balances have been impaired.
16. Trade and other payables
Accruals and other payables
Trade payables
Other taxation and social security
Deferred contingent consideration
Corporation tax
Amounts owed to group companies
Group
Company
2018
£ (000)
2017
£ (000)
766
632
279
67
11
-
607
103
22
-
-
-
1,755
732
2018
£ (000)
282
164
151
-
-
646
1,243
Amounts due to all subsidiaries are interest free, unsecured and are repayable on demand.
17. Deferred tax
Non-current liabilities
Liability at 31 March 2017
Deferred tax charge in the statement of comprehensive income
Acquisition of subsidiaries
Total current tax
38
2017
£ (000)
607
103
22
-
-
5
737
Group
2018
£ (000)
-
-
1,847
1,847
17. Deferred tax continued
The deferred tax liability arises from the acquisition of SecurEnvoy and Newable. There are no deferred tax liabilities resulting from
trading.
No deferred tax liability exist in the Company.
18. Share capital & other reserves
Group
Issued and fully paid ordinary shares
At 1 April 2016
Shares issued
At 31 March 2017
Shares issued
At 31 March 2018
Share capital
Number of
ordinary
shares of 1p
each
171,850,286
363,400,000
535,250,286
429,108,914
964,359,200
Ordinary
Share
shares
£ (000)
Premium
Total
£ (000)
£ (000)
11,593
4,369
15,962
12,961
28,923
13,312
8,003
21,315
17,252
38,567
1,719
3,634
5,353
4,291
9,644
The following issues of shares were undertaken in the twelve month period ended 31 March 2018:
On 9 May 2017, 200,000,000 new ordinary shares of 1p were issued to new and existing investors at a placing price of £0.04 pe r
share raising gross cash proceeds of £8.0 million. In addition, a further 25,488,108 new ordinary shares of 1p were issued to existing
shareholders by way of an open offer at a price of £0.04 per share raising gross cash proceeds of £1.0 million. The £9.0 million
aggregated gross cash proceeds were used to part satisfy the £9.4 million of net cash consideration paid to the shareholders of
SecurEnvoy, which was acquired by the Group on 9 May 2017.
On the same day, a further 200,000,000 new ordinary shares of 1p were issued to the shareholders of SecurEnvoy at a price of £0.05
per share to satisfy the share consideration as part of the acquisition.
On 26 July 2017, 3,620,806 new ordinary shares of 1p were issued to Newable Consulting Limited at a placing price of £0.04143 per
share. The ordinary shares were subscribed for to satisfy the share consideration paid to Newable Consulting for the acquisition of
its business and assets by the Group.
Share premium
This comprises of the amount subscribed for share capital in excess of the nominal value.
Available for sale reserves
This comprises of gains/losses arising on financial assets classified as available for sale. A fair value loss was recognised in the year
in relation to Plymouth Minerals (see note 13).
Other reserves
These comprises of amounts expensed in relation to the share incentive scheme (see note 19).
39
19. Share based payments
Share options
Subsidiary incentive scheme
Group
2017/18
£ (000)
2016/17
£ (000)
166
200
366
40
39
79
Share options
The following options over ordinary shares remained outstanding at 31 March 2018:
Options at
1 April
2016
Options
issued
during the
year
Options
lapsed
during the
year
options at
31 March
2017
Options
issued
during the
year
options at
31 March
2018
Exercise
price
Date of
grant
First
date of
exercise
Final
date of
exercise
Options ' -
Directors:
G Willits
Employees:
0
521,739
0
521,739
0
0
0
0
0
0
0
Employees
650,000
Employees
Employees
Employees
Employees
Employees
Non-employees
0
0
0
0
0
0
0
0
0
0
0
650,000
0
0
0
0
0
2,000,000
0
2,000,000
0
1,000,000
0
1,000,000
650,000
0
650,000
0
0
500,000
0
500,000
H Kanabar
650,000
0
650,000
0
0
0
500,000
857,143
0
0
500,000
857,143
C Eadie
C Eadie
S Finlay
S Finlay
H Kanabar
Other
Total
0
0
521,739
1.0p 09/12/16
09/12/17
30/06/18
0
3.5p 27/04/11
27/04/11
26/04/16
6,950,000
6,950,000
4.0p 09/05/17
09/05/18
08/05/22
1,500,000
1,500,000
4.0p 28/09/17
28/09/18
27/09/22
4,557,692
4,557,692
4.0p 13/11/17
13/11/18
12/11/22
500,000
500,000
4.0p 08/01/18
08/01/19
07/01/23
1,928,500
1,928,500
4.0p 01/03/18
01/03/19
28/02/23
0
0
0
0
0
0
0
0
3.5p 27/04/11
27/04/11
26/04/16
1,000,000
1.0p 03/10/16
03/10/16
03/10/21
0
3.5p 27/04/11
27/04/11
26/04/16
500,000
1.0p 03/10/16
03/10/16
03/10/21
0
3.5p 27/04/11
27/04/11
26/04/16
500,000
857,143
1.0p 03/10/16
03/10/16
03/10/21
1.0p 24/01/17
24/01/18
31/03/20
3,950,000 3,378,882 3,950,000 3,378,882 15,436,192 18,815,074
The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the
year.
Outstanding at the beginning of year
Issued
Lapsed during the year
Outstanding at 31 March
Exercisable at 31 March
2017/18
2016/17
Number
3,378,882
15,436,192
WAEP
Pence
0.6
4.0
Number
3,950,000
3,378,882
-
-
3,950,000
18,815,074
3,378,882
3.4
0.6
3,378,882
2,000,000
WAEP
Pence
3.5
0.6
3.5
0.6
1.0
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:
40
19. Share based payments continued
Share price at grant date
Exercise price
Expected option life (year)
Expected volatility (%)
Expected dividends
Risk-free interest rate (%)
Option fair value
2018
1.85p to 7.38p
1.0p to 4.0p
0 years to 6.0 years
10.6% to 80.0%
0%
0.79% to 3.00%
1.4p to 7.36p
The expense is recognised for share-based payments in respect of Employees, directors and consultant services received during the
year ended 31 March 2018 was £166k (2016/17: £40k).
This represented £88k in respect of share options and £78k in respect of share-based compensation (2017: £28k in respect of share
options and £12k in respect of share-based compensation).
The expected volatility of the original share plan utilised a volatility rate of 80% to reflect the lack of established assets on the Group’s
balance sheet. As the Group has grown the new scheme options shares (bar those issued to the SecurEnvoy participants) have been
issued utilising the 5-year volatility rate for the AIM all share index.
Options held by Directors are disclosed in the Directors Report on pages 9 to 10.
The market price of shares as at 31 March 2018 was 2.78p (2016/17: 5.12p). The range during the financial year was 2.78p to 5.12p.
At the date of signing the financial statements the share price was 5.99p.
The weighted average remaining contractual life of options outstanding at the end of the year was 4 years 5 months (2017: 3 years
and 7 months).
Subsidiary incentive scheme
On 29 September 2016, the Group established a share incentive scheme for certain Directors and consultants to the Group, via the
Group’s subsidiary, Shearwater Subco Limited (the “subsidiary”), in order to align the interests of the scheme participants directly
with those of shareholders.
Pursuant to the subsidiary incentive scheme, the subsidiary issued 160,000 “B” ordinary shares of £0.000001 in the capital of the
subsidiary (“incentive shares”) on 18 January 2017 at a price of £0.032 per share. Subject to the growth and vesting conditions both
being satisfied, participants may elect to sell their respective B shares to the Group and the Group shall acquire those B shares in
consideration for cash or by the issue of new ordinary shares at the Group’s discretion. The Group’s intention is to settle these through
the issue of new ordinary shares in the Group.
The value of the incentive shares is discussed below. Neither of the growth or vesting conditions were satisfied during the year and
none of the incentive shares were forfeited or expired during the year. The subsidiary incentive scheme is now closed and the
Directors do not anticipate making any further grants under the scheme.
Growth conditions
The growth condition is that the compound annual growth of the Group’s equity value must be at least 12.5% per annum. The growth
condition takes into account the new shares issued, dividends and capital returned to shareholders.
Vesting conditions
The incentive shares are subject to a vesting period which ends on 29 September 2019 and can be extended to 29 September 2021
if the growth condition has not been met. The participants can exercise its right to require the Group to purchase its incentive shares
at any time up to 29 September 2021.
Value
Subject to the provisions detailed above, the incentive shares can be sold to the Group for an aggregate value equivalent to 16% of
the increase in market capitalisation of all ordinary shares of the Group issued up to the date of sale, allowing for any dividends and
other capital movements.
Directors Incentive Shares
The incentive shares issued to Directors are shown in the table below:
41
19. Share based payments continued
Participation
in increase in
shareholder
value
7.5%
3.0%
3.5%
Nominal value
of incentive
shares
£0.000001
£0.000001
£0.000001
Issue price
£0.032
£0.032
£0.032
Number of
incentive
shares 1 April
2017
Number of
incentive
shares 31
March 2018
Number of
Shearwater
Group plc
shares issued
Share based
payment charge
75,000
30,000
35,000
75,000
30,000
35,000
0
0
0
£93,544
£37,418
£43,654
M Stevens
D Williams
G Willits
A further 20,000 incentive shares were subscribed for by non-employees.
Valuation of incentive shares
The share-based payment charge for the incentive shares has been calculated using a binomial valuation model at the grant date.
The fair value amounted to £937,623 which has been recognised over the period to 29 September 2021. In the current year £199,552
(2017: £39,364) 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.
The binomial valuation model uses the following assumptions:
Date of grant
Share price at grant date (adjusted for unusual volatility)
Exercise price
Contractual life
Hurdle
rate
Expected volatility
Risk free rate
Expected dividends
2018
18 January
2017
4 pence
Nil
1825 days
12.50%
12.40%
0.56%
Nil
20. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash at bank and various items such as 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.
Categories of financial assets and financial liabilities:
Available for sales financial assets
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Financial liabilities at amortised cost
Trade and other payables
Group
Company
2018
2017
2018
2017
£ (000)
£ (000)
£ (000)
£ (000)
51
118
51
118
1,022
2,493
3,566
-
7,073
7191
-
540
591
-
7,073
7191
(1,186)
(715)
(174)
(715)
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 Board receives monthly reports through which it
reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
42
20. Financial instruments continued
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 main risks arising from the Group’s financial instruments are liquidity risk, credit risk and currency risk. Further details regarding
these policies are set out below:
Liquidity risk
The Group mainly finances its operations through the issue of equity share capital. The Group seeks to manage financial risk, to
ensure sufficient liquidity to meet foreseeable requirements and to invest cash profitably at low risk.
The liquidity risk of each Group entity is managed centrally by the Group’s finance function. Each entity has a predefined facility which
is based on the budget which is set and approved by the Board in advance, which provides detail of each entities cash requirements.
Any additional expenditure over budget requires sign off by the Board. A rolling 12-month cashflow forecast is reviewed by
management on a monthly basis and cash balances are reviewed daily.
The Group also hold shares in Plymouth Minerals Ltd (see note 13), which are quoted on the Australian Stock Exchange and
considered to be readily realised into cash. The Group’s strategy for managing cash is to maximise interest income whilst ensuring
its availability to match the profile of the Group’s expenditure. Liquidity risk is further managed by tight controls over expenditure.
The Group has a £65,000 credit facility with its bank in the form of corporate credit cards. The balance outstanding is automatically
paid off in full on a monthly basis. At year end only £30,000 was utilised.
Credit risk
The group’s principal financial assets are 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 policy is that the lines of business assess the creditworthiness and financial strength of customers at inception and on an
ongoing basis. The Group as reviews the credit rating of the bank.
Set out below is an analysis of the Group’s trade and other receivables by due date prior to any impairment.
Trade receivables
Other receivables
Not yet
due
0-30
days
30-60
days
60-90
days
Over
90days
Total
£ (000)
£ (000)
£ (000)
£ (000)
£ (000)
£ (000)
801
10
811
60
91
54
6
1,012
-
-
-
-
10
60
91
54
6
1,022
Receivables within the 0-30 day’s category or above are past due, but the Group considers them to be collectable and not impaired.
No provision is held for bad debt.
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 predominately denominated US dollars ($) and Euros (€). Owing to size of overseas operations the
group does not currently use derivatives to hedge translation exposures arising on the consolidation of it’s overseas operations.
The effect of a 10% strengthening of the US dollar ($) against sterling (£) at the reporting date on the US dollar ($) denominated trade
receivables, payables and cash and cash equivalents carried at that date would, all other variables held constant, have resulted in a
reduction of the pre-tax loss in the year and an increase in net assets of £13,188. 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 £11,989.
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
reduction of the pre-tax loss in the year and an increase in net assets of £85,777. 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 £77,979.
43
21. Financial commitments
The total of future minimum lease payments under non-cancellable operating leases are as follows:
Land and buildings
- One year
- Between two and five years
Acquisition costs
- One year
Group
Company
2017/18
£ (000)
2016/17
£ (000)
2017/18
£ (000)
2016/17
£ (000)
199
-
199
104
26
130
199
-
199
104
26
130
Group
Company
2017/18
£ (000)
2016/17
£ (000)
2017/18
£ (000)
2016/17
£ (000)
105
105
665
665
105
105
665
665
Current year acquisition costs are for the future minimum payments under contractual commitments in respect of the acquisition of
GeoLang (see note 23). Prior year acquisition costs are for the total of future minimum payments under contractual commitments in
respect of the acquisition of SecurEnvoy.
22. Related party transactions
On 9 May 2017, David Williams, Michael Stevens, Robin Southwell, Stephen Ball and Giles Willits subscribed for new ordinary shares
of 1p at a placing price of £0.04 as part of the placing through which gross proceeds were raised to part satisfy the cash consideration
paid to the shareholders of SecurEnvoy. David Williams subscribed for ordinary shares at a value of £0.5 million and the other
Directors (excluding Chris Eadie) subscribed for ordinary shares at a total value of £0.1 million in aggregate. This constituted a related
party transaction under the AIM Rules for Companies. Chris Eadie, who was an independent director for those purposes at the time
of the transaction, considered, having consulted with WH Ireland, that the terms of the Directors subscription were fair and reasonable
insofar as the shareholders of the Group are concerned.
Related party transaction taking place after 31 March 2018 are disclosed in events after the reporting date note below. (note 22).
The Company made recharges totalling £1,212,957 (2016/17: nil) to it’s to its fellow group undertakings in respect of management
services and recharges: SecurEnvoy £548,990, Xcina Consulting £287,543, Xcina Limited £376,424.
Amounts due from (+) and to (-) subsidiary undertakings by the Company are set out below:
Shearwater Subco Limited £ (5,120)
SecurEnvoy Limited £ (640,776)
Xcina Consulting Limited £ 750,479
Xcina Limited £ 911,424
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.
23. Events after the reporting period
On 4 April 2018, the Group acquired the entire share capital of GeoLang Holdings Limited, an award-winning pre-revenue DLP
enterprise software company. The total consideration for the acquisition is £1.7million, which is to be settled through the issuance of
43,165,750 ordinary shares of the Group at an issue price of 4 pence per ordinary share to the GeoLang shareholders. At the same
time, the Group agreed to repay £0.3 million of GeoLang’s indebtedness.
On acquisition GeoLang had £0.02 million cash, The Group acquired GeoLang from its founding management team, who are
continuing in the business. The process of fair valuing GeoLang has not been completed at the date of these financial statements.
Subject to this process to fair value, the group acquired approximately £0.3 million of net liabilities. The excess consideration above
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23. Events after the reporting period continued
the fair value of these acquired net liabilities will be recognised as goodwill and intangible asset following completion of the exercise
to fair value. All amounts are disclosed as provisional.
On 26 April 2018, the Group acquired the business and assets of Crystal IT Services Limited, a Cardiff based provider of cyber
security and business information technology solutions. On joining the Group, Crystal IT was rebranded Xcina IS. The total
consideration for the acquisition was £35,000, which has been settled in cash.
On acquisition Crystal IT had £2,199 in cash, The Group acquired Crystal IT from its founder, who has continued in the business. The
process of fair valuing the assets of Crystal IT has not been completed at the date of these financial statements. Subject to this
process to fair value, the group acquired approximately £8,000 of net assets. The excess consideration above the fair value of these
acquired net liabilities will be recognised as goodwill and intangible asset following completion of the exercise to fair value. All amounts
are disclosed as provisional.
On 18 June 2018 Giles Willits exercised 521,739 options following which the Company issued an allotted 521,739 new ordinary
shares to him.
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