Annual Report and Financial Statements
31 March 2020
For more information contact Shearwater Group plc
t: +44 (0) 20 3985 8467 www.shearwatergroup.com
Annual Report and Financial Statements
31 March 2020
Contents
Page
Contents
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103
Strategic Report
About us
Reasons to invest
Financial highlights
Our strategy
Our stakeholders
Social responsibility
Chairman’s statement
Chief Executive’s review
Financial review
Case study
Principal risks and uncertainties
Governance
Board of Directors
Corporate Governance report
Audit Committee report
Directors remuneration report
Nomination Committee report
Directors report
Statement of Directors responsibilities
Financial Statements
Independent auditor’s report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated cashflow statement
Notes to the consolidated financial statements
Company statement of financial position
Company statement of changes in equity
Notes to the company financial statements
Advisors and corporate calendar
For more information contact Shearwater Group plc
t: +44 (0) 20 3985 8467 www.shearwatergroup.com
3
Collectively the Group provides technology solutions and advisory services focused
around the cyber, security and regulatory requirements of corporate clients. Through
our in-house engineering and consulting teams we deliver our services that help our
clients realise a greater potential from their technology investment and protection
of their data assets.
Further details on core services can be found on our website under the following icons:
About us
Shearwater Group plc is an award-winning organisational resilience group that
provides cyber security, advisory and managed security services to help assure
and secure businesses in the connected global economy
The Shearwater Group benefits from having two distinct divisions housing our operating companies. On one
side we have our software division that designs and builds leading edge software to help our clients secure and
make compliant their corporate environment and on the other, our services division which consist of our services
companies who focus on delivering our own award winning technology as well as our strategic third party
partners technical solutions
Our software division comprises:
SecurEnvoy, provides trusted identity and access management solutions to millions of users in real-time,
while having the ability to deploy rapidly across any environment.
Geolang, delivers data discovery and data loss prevention solutions, services and technologies to discover,
classify and protect sensitive data and information in the cloud and on premise.
Our services division comprises:
Brookcourt Solutions, delivers cyber security, network monitoring technologies and managed security services to
secure and protect organisation’s critical infrastructure.
Xcina Consulting, provides technology, operational and regulatory risk assurance and advisory services in
support of resilience and risk management.
Pentest, provides next generation penetration testing, red team and offensive security consultancy services
designed to uncover IT security vulnerabilities, support the customers remediation efforts and increase the digital
resilience of the business.
4
5
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Reasons to invest
The market
The Cybersecurity market continues to grow with the increasing use of
e-commerce platforms and the emergence of disruptive technologies
such as Artificial Intelligence (AI), Blockchain, and streaming services
increasingly forcing it up the priority list for organisations across the globe.
In the wake of COVID-19 and the recovery from the global pandemic,
with large numbers of workers and teams being relocated to work from
home, the requirement to protect digital assets has become ever more
challenging. Cyber attackers have targeted the tens of millions of
employees working from home resulting in an enlarged risk footprint. The
‘New Normal’ will see cybersecurity as crucial as the internet
access itself.
The Group’s ‘Blue-chip’ customer base is broad and covers multiple
sectors, providing credibility and cross-sell opportunities. Many of the
Group’s customers gain confidence with the blend of differentiated
organisational resilience offering best in breed technology solutions with
market-leading advisory service. This has created long-term
relationships with many of our customers.
Market growth in numbers
Enterprises are predicted to spend $12.6B on cloud security tools by 2023,
up from $5.6B in 2018, according to Forrester.*
Enterprise spending on cloud security solutions is predicted to increase
from $636M in 2020 to $1.63B in 2023, attaining a 26.5% CAGR.*
Spending on Infrastructure Protection is predicted to increase from
$18.3B in 2020 to $24.6B in 2023, attaining a 7.68% CAGR.*
Endpoint security tools are 24% of all I.T. security spending,
and by 2020 global I.T. security spending will reach $128B
according to Morgan Stanley Research.*
71% of UK-based business decision makers believe the shift
to 100% remote working during the COVID-19 crisis has
increased the likelihood of a cyber-breach according to
research by Centrify.*
70% of all breaches still originate at endpoints, despite
increased I.T. spend on this threat surface, according to IDC.*
Mobile security threat
87% of enterprises are seeing mobile threats growing the fastest
this year, outpacing other threat types. Mobile device security
threats are growing quicker than others.*
Notes:
* Forbes, Cyber Security Review
** Fortune Business Insights
6
“The global cyber
security market value
stood at USD 112.01
billion in 2019 and is
projected to reach USD
281.74 billion by 2027.”
Fortune Business Insights
Global client
base
FTSE350, Fortune 500,
government and SMEs
An award-winning organisational
resilience Group, delivering cyber security,
advisory and managed security services
to assure and secure businesses in
a connected global economy
A complimentary
set of robust and
adaptable products and
services which support
the needs of an ever
growing market
A growing
Group delivering
strong cash
generation
Annual
recurring
revenues
from software sales and
managed services
Internal
infrastructure
capable of
scaling
7
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Financial highlights
Group Revenue
£33.0m
+41% year on year increase in reported
revenue (2019: £23.5m, 2019 underlying*: £37.3m)
Underlying EBITDA
£3.4m
£4.8m year on year improvement
(2019: £1.4m loss, 2019 underlying* £1.1m loss)
£33.0m
£23.5m
£6.2m
2018
2019
2020
£3.4m
Underlying EBITDA margin
10% (2019: -6%)
-£0.8m
-£1.4m
Underlying profit/loss before tax
£2.2m
£3.9m year on year improvement
(2019: £1.7m loss, underlying* £1.5m loss)
Underlying profit/loss before tax margin
7% (2019: -7%)
Loss before tax
£(1.3)m
(2019: £(6.9)m)
2018
2019
2020
£2.2m
-£0.8m
-£1.7m
2018
2019
2020
-£2.9m
-£6.9m
£1.3m
*Underlying comparisons incorporate a full year’s trading into the prior year (2018/19) for Brookcourt Solutions
Underlying EBITDA excludes exceptional items which are in their nature one off, share based payment costs, fair value
adjustments for deferred consideration to be settled in shares, contingent consideration and impairment of legacy mining assets
which is not reflective of the underlying performance of the Group. Underlying profit/loss before tax excludes acquisition
amortisation in addition to the adjusting items detailed above to calculate underlying EBITDA.
2018
2019
2020
8
Segmental Highlights
Software
Revenue
Operating profit
2019/20
£ (000)
5,460
2,678
2018/19
£ (000)
3,880
468
Variance
%
41%
472%
Margin %
49%
12%
% of Group revenue
% of operating profit*
17%
54%
% of Group revenue (prior year)
17%
% of operating profit (prior year)*
64%
• Strong double-digit revenue growth from SecurEnvoy delivering improved year on year margin
• Continued upward progress of GeoLang with year on year revenue increases in excess of 100%
Services
Revenue
Operating profit
2019/20
£ (000)
27,544
2,262
2018/19
£ (000)
19,572
266
Variance
%
41%**
750%**
Margin %
8%
1%
% of Group revenue
83%
% of Group revenue (prior year)
83%
% of operating profit*
46%
% of operating profit (prior year)*
36%
Incorporates a full years contribution from Brookcourt which has delivered improved profit margins
•
• New acquisition ‘Pentest’ (acquired 9 April 2019) has been integrated into the Group
* Operating profit % incorporates trading profits before central group costs.
** 2019/20 includes a full year of revenue and profits from Brookcourt which was acquired in October 2018.
.
Please see note 3 in the consolidated financial statements for a reconciliation of segmental performance shown above to
statutory measures.
9
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Our strategy
Our stakeholders
Shearwater aims to acquire and develop information security, cyber security, advisory and risk management
companies with a leading product, solution or service capability the full potential of which can be unlocked through
active management and capital investment. The Group deploys a ‘buy, focus, grow’ strategy to deliver enhanced
value to acquired businesses, helping them solve the core scaling issues faced by SMEs operating within
information security and cyber security sectors.
We will continue to drive greater efficiencies across the Group, developing internal saleable services to help drive
greater ROI. We have a strong team capable of delivering solid organic growth coupled with a new additional
incentivisation plan that rewards the member of staff based upon the resulting business they bring to the Group.
We will push forward in our evaluation of market trends and identify companies that complement our company’s
growth through acquisition.
Our Acquisition Strategy is simple and governed by the following principles:
Targets desired fundamentals:
• Accretive, cash generative, profitable or near-term profitable companies
• Key management to stay with the organisation
Our areas of interest:
• Opportunities for market consolidation building size and client base
• Specialist feature rich software or services to either add to our existing software or services companies or to
stand alongside
“Building strong relationships to help enable the UK to be a safer
place online”
Section 172 statement
As a Board we recognise collectively and individually our obligations under the Companies Act and in particular,
our duties as Directors.
Each Director is fully aware of their duty to promote the success of the Company for the benefit of all of its
members and in doing so each Director has (amongst other matters) to consider:
•
•
•
•
•
•
the likely consequences of any decision in the long term,
the interests of the Company’s employees,
the need to foster the Company’s business relationships with customers, suppliers and others,
the impact of the Company’s operations on the community and the environment,
the desirability of the Company to maintain a reputation for high standards of business conduct, and;
the need to act fairly as between members of the Company.
Fairness amongst members of the Board is an extremely important and relevant consideration for us due to David
Williams and Phil Higgins being both Directors and significant shareholders. We are keen to ensure that decisions
are taken with all stakeholders in mind.
Key stakeholders include
Communities
and the
environment
Customers
Employees
Shareholders
Suppliers
For each stakeholder group, the below table takes into consideration the key issues they face, how we engage with
them and provide examples of Board decisions that have been made that support the Directors duties set
out above.
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Our stakeholders
Social responsibility
Our
stakeholders
Issues they
faced
How we engaged
Impact of board decisions
Local people want to see
tangible benefits from
Shearwater Groups’
presence in their
communities.
Communities
and the
environment
The Group has looked to see
how it impacts local
communities for each of its
businesses and has been
listening and working with our
businesses to implement a
number of initiatives that will
support local communities.
The Board is fully supportive of the
recent announcement of the Group’s
sustainability program which launched
during the past fiscal year.
Customers
Employees
Customer demands evolve
owing to the ever-increasing
threat landscape within the
market the Group operates
in. Our customers require a
partner that can deliver in line
with their needs and
expectations.
The Group look to foster long
term relationships with its
customers, in order to achieve
this we take time to work with
customers to understand the
challenges they face. This
allows us to develop effective
solutions to fit our customers
needs.
Employees look for a happy
working environment where
there are opportunities
to gain experience that
will support future career
development. It is important
that employees feel that
their contribution is valued
and that they are rewarded
appropriately.
The Group invests in our people
providing training opportunities
to employees to develop which
will enhance the individuals
opportunities for career
progression within the Group as
opportunities arise. The Group
values its employees and has
recently implemented
additional benefits including
private healthcare to all
employees.
The Board understand and supports
the Groups approach to invest time in
developing long-term partnerships with
its customers.
Our employees are key and the Board
has played an active role in ensuring
that key positions are recruited and the
correct organisation structure is put in
place. The Board actively promotes
back filling of vacancies where existing
employees step up into roles where it is
possible.
They want to see the Group
growing and enhancing our
financial position.
Shareholders
Our Chairman, CEO and CFO
maintain regular contact with
our institutional investors and
our AGM provides an
opportunity to meet individual
investors. The Group has an
active M&A pipeline and is
actively looking for additional
strategic acquisitions.
The Board has worked closely with our
NOMAD Cenkos to ensure the view
of shareholders is represented in key
decisions taken by the Board. During
the year the Board proposed a share
consolidation which was approved by
shareholders at the AGM in order to try
and improve market liquidity and reduce
volatility and spread in trading activity.
Suppliers
Margin pressures from the
end customer require us to
work with suppliers to ensure
that we are able to source
at competitive prices whilst
maintaining the Groups
position on ethical sourcing.
The Group actively looks to
create long-term collaborative
relationships with key suppliers.
As part of the Groups aim to explore
opportunities to leverage the Groups
growing position the Board is
supportive of managements’ current
review of the Groups’ preferred
supplier list.
Through our products and services we aim to help create a safer
environment for our staff, our clients and their end users clients when
on line connected to the global economy. We will continuously develop
our offerings that help protect users from the adversaries who prey on
the vulnerable no matter their location and we with the very minimum
environmental impact wherever possible. We are witnessing more of our
solutions becoming subscription or cloud based meaning we naturally
see a reduction in the importation of physical goods which contributes
to a lesser carbon footprint helping us along the route in becoming a
better balanced business. With our new charity based initiatives coming
on line we will be able to proactively look for ways where we can make a
difference both nationally and locally from within our local communities.
This activity will help strengthen our teams whilst benefitting those
in need. Supported by the executive board and to help keep these
programs moving forward we have appointed a staff member to monitor
and report on our achievements and for these to be highlighted on our
Group company website.
Values
Our values are incorporated in all our operating procedures and define
our management approach and Group culture. We are also very aware
of the changing social environment and fully supportive in having a
better, fairer, greener, more tolerant and kinder society. We will play our
part in supporting new initiatives and look for improvement in the way
we manage our business and maintain the respect for our work and
colleagues. We will stay professional inside and outside the company,
and the drive to achieve both excellence and integrity that are essential
to our continued success delivering increased value to customers,
portfolio businesses and shareholders alike.
Equality and Diversity
Promoting and supporting diversity within the Group is an important
aspect of good people management. We believe it’s about valuing
everyone within the organisation as an individual, and in order to reap
the benefits of a diverse workforce it’s imperative to have an inclusive
environment where everyone feels able to participate and achieve their
full potential. The Shearwater Group strives to build an enriched multi-
cultural working community where everyone is encouraged to succeed
in the information technology industry no matter their age, race, sex or
background.
The Group aligns it’s polices with UK legislation covering; age, disability,
race, religion, gender and sexual orientation among others going beyond
just legal compliance but also seeking to add value to the Group as a
whole. Shearwater has a modern and progressive ‘diversity and equal
opportunities policy’ and will continue to develop this policy as the Group
grows in line with the employment landscape of the 21st century.
Our
responsibility
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13
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Social responsibility
Employee wellbeing and mindfulness
The Group employees are our greatest asset; therefore, we continue our journey to work towards enhancing the
working environment across all our sites and help support them during times of trouble. We operate an Employee
Assistance Programme (“EAP”) aimed at minimising workplace risks and improving our employees’ health and
wellbeing. An EAP is an employee support system designed to help our organisation deal with issues that could be
affecting our employees’ home or work life, health and general wellbeing.
Charity
Employee Volunteering and Charitable Giving Scheme - In the coming
financial year, the Group have advanced plans to launch the ‘Employee
Volunteering and Charitable Giving Scheme’. Group wide the scheme will
provide an opportunity for both employees and employer to be united in
giving back to the community and supporting charitable organisations.
Support may take the form of employees obtaining sponsorships or
employees volunteering to support or take part in events throughout
the year. The Group employee’s will be asked to nominate local or less
known charities of which they would like to be considered and have
greater impact. Every full-time employee will receive eight hours
of paid time off each year to volunteer with non-profit or community
organisations. We will supplement employees’ personal donations to
non-profit organisations and charities with an additional
company donation.
The Shearwater Group EAP provides a complete support network that offers expert advice and guidance 24/7.
Confidential and compassionate support is available to employees and their immediate family. We feel that in
today’s fast paced digital society and the pressure it brings, we need to be able to help our greatest asset
as best we can.
Environmental
Zero Carbon Initiative - The Shearwater Group plc are committed to a sustainable future and to improving the
social, economic and environmental wellbeing of the community. We encourage all parts of the business to look to
reduce our impact on the environment and look to continually improve each year through the development of new
environmentally friendly products and better processes that reduce our carbon footprint.
In March 2020 Shearwater Group plc announced that its portfolio companies; GeoLang, Brookcourt Solutions,
Pentest, SecurEnvoy, Xcina IS and Xcina Consulting have implemented a zero-carbon programme and the Group
would now carry the ‘Make It Wild’ mark. The Shearwater Group plc companies are contributing in this initiative
by way of offsetting their carbon footprint through planting trees within the UK. The number of trees planted is
calculated through how many tons of carbon dioxide the Group’s activities generate annually and how many trees it
would take to offset those emissions.
We will continue to look at new initiatives that we can deploy that positively contributes to the reduction in our
carbon footprint and our impact on the planet.
We are determined to be part of the solution that contributes to a prosperous low-carbon future, one that uses IT
innovations not just to protect its employees, clients, data and operational assets but solutions that also benefits
society’s environmental footprint.
Our
Environmental
Mission
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Chairman’s statement
“Looking ahead we are very
confident in the future of the
business. It is in a sector which is
growing, is generating good cash
and we continue to see a strong
pipeline of acquisition opportunities.
We have set our sights on improving
the marketability of your company by
buying businesses that fit our
strict criteria.”
For example, earlier this year we held a networking
event for all our subsidiary directors, non-executive
directors and advisory team which proved to be highly
successful. Our non-executives and advisory team are
very active on our behalf and provide significant value
to us as a Group.
Corporate Governance
We remain committed as a Board to the highest levels
of Corporate Governance and stakeholder engagement.
More details of the latter are covered within the section
172 statement in the annual report.
Looking Ahead
Looking ahead we are very confident in the future of the
business. It is in a sector which is growing, is generating
good cash and we continue to see a strong pipeline of
acquisition opportunities.
Funds from our recent placing of new ordinary shares,
coupled with our existing financial resources, give us
fire power moving forward so that we are in a much
stronger position than at this time last year. Both
myself and Phil Higgins purchased shares in the recent
placing, demonstrating confidence in our prospects
and I am optimistic that, despite the challenges of
COVID-19, we are in great shape to see Shearwater
prosper and grow in the years ahead.
David Williams
Chairman
28 July 2020
Introduction
We are very pleased to have recorded our first full
year’s underlying profit as a Group, following a
reorganisation of the business led by Phil Higgins in his
first full year as CEO. This reorganisation has resulted
in a clearly defined growth strategy, a cohesive Group
structure, increased cross-sale activity and a reduced
cost base. We took the necessary time to ensure it was
completed thoroughly and to a high standard, and as is
clear to see from these results, early progress has been
encouraging. We are ready to progress our plans to see
Shearwater become a stronger, scaled company with
increased capabilities and a broader reach within the
organisational resilience sector.
Acquisitive growth strategy
Our sector is one of constant innovation and this
provides both opportunities and challenges, with a
wealth of potential acquisition opportunities to assess.
In the past we have been successful in both smaller
acquisitions, such as GeoLang which was pre-revenue
at the point of purchase, but with an exciting software
product and industry-renowned team, and those of
a larger scale, such as Brookcourt, an established,
profitable business with an extensive customer base.
Our focus moving forward will be on the larger scale
of opportunity, bringing additional customers, industry
expertise, revenue and profits into the Group. We will
also remain alert to opportunistic, bolt-on technology
acquisitions. Ideally these will be acquisitions where the
existing management wish to remain within the Group,
thus strengthening our team, and where vendors take
a significant portion of the consideration in shares,
as was the case with our acquisition of Brookcourt,
aligning management teams’ interest with those of
our shareholders. Target acquisitions will be earnings
enhancing and increase our skill-sets and offerings.
Our team
For a company of our size we are fortunate to enjoy
the support of a highly experienced board and advisory
team. Not only do they have a great working knowledge
of our sector, but their contacts are second to none.
This contact base not only provides us with interesting
acquisition opportunities, it allows us to make important
introductions for our Group businesses. This is a
key benefit of being part of the Shearwater Group.
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Chief executives review
“I am delighted to announce that both
divisions (Software & Services) have
performed exceptionally well during the
financial year to 31 March 2020.”
Overview
With my first year as Group CEO complete, my views
regarding the exciting opportunity for Shearwater have
not changed. The technology markets are continuously
evolving and cyber, security and advisory services are
taking an ever-more prominent position.
Over the past year our focus has been on creating a
balanced Group structure that can take advantage
of this constantly expanding market whilst extracting
greater value from within our own business and
providing a platform for future acquisitions. As a result
of the changes we have made we have delivered
greater staff benefits, stronger Group cohesion, better
client offerings and, most importantly, enhanced our
competitive edge allowing us to win new business.
Together this has led to the delivery of a 41% increase
in revenue and our first annual Group underlying profit.
I wish to thank the entire Shearwater Group team for
their continued support, determination, and drive to
succeed, which has resulted in the FY20 performance
announced today and in the Group being strongly
positioned for future growth.
Successful reorganisation of the
Group complete
•
Introduction of Shearwater Shared Services
• Realisation of over £3m of annualised cost savings
•
Introduction of a cross-selling programme for Group
businesses
We began the year with the implementation of
significant change, moving rapidly to implement a
restructuring plan with the aim to bring the Group
into profit.
One key aspect of this was the immediate creation
of Shearwater Shared Services (SSS), a function
sitting within the centre of our organisation providing
centralised shared services such as finance, legal, HR,
marketing, compliance and core IT systems, assisted
by Xcina IS. Where we had duplicate services, resulting
from the acquisition of Brookcourt six months earlier,
we chose the service that we felt was best equipped to
evolve as the Group grows.
Shared service
Our shared services enable us to leverage negotiations
with suppliers and offer additional staff benefits centrally,
as well as reducing our administrative overheads.
This platform has delivered tangible synergy savings
Group wide and, coupled with some office consolidation
plus cost savings from the reorganisation, we were
able to realise annualised savings of over £3m. Moving
forward the Shearwater Shared Services function
provides a standard model that will allow us to quickly
and efficiently realise cost savings when onboarding
new acquisitions.
Alongside this a cross-selling program was introduced
across our service companies to extract untapped
accretive value from within the Group. This program
provides a mechanism for client introductions to be
made on behalf of other Group companies, reducing
the cost of sale and broadening the pool of potential
new business leads. The program resulted in a material
number of additional opportunities in the first three
months.
Building upon this success we have devised incentive
programs for the coming year that financially reward
full-time equivalent staff for business introductions that
result in new wins for any of the Group constituents.
Initially this program will be made available to all full
time staff excluding company directors, incentivising
staff to drive further organic growth.
Review of operations
Alongside the Group reorganisation, the Group
has delivered significant operational achievement
throughout the year. This includes the completion of an
acquisition, the launch of a number of innovative new
solutions, and the signing of a multitude of new logo
contracts with blue-chip clients.
Continuing our run of awards success, Shearwater
companies were also presented with five industry
awards across the year; Contribution to Cybersecurity,
Cloud delivery, Security Provider, Security Reseller and
Security Company of the year.
Software
Innovative new solutions launched, providing entrance
to new markets Innovation and the launch of new
products is an integral part of the Shearwater Group
growth strategy, and we are very proud of our nine
current patents and the five we have pending. Over the
year we saw a number of new solutions launched,
expanding our end-to-end organisational resilience
capability and increasing the size of our
addressable market.
SecurEnvoy launched its Identity & Access
Management (IAM) module, an important additional
component adding to the SecureIdentity platform which
was launched in 2019. This release continues to expand
the breadth of SecurEnvoy offering, moving from a
pure play Multi-Factor Authentication provider to offer a
full Access Management solution suite. The expanded
capability provides access to a market which analysts
forecast will grow to $24.12b by 2025 (reference from
Grand View Research).
Our GeoLang team have further developed their Data
Loss Prevention and Sensitive Data Discovery and
Extraction platform. In addition, they innovated to create
a new Atlassian Confluence platform connector to
capitalise on this opportunity, receiving the first order in
the year. Atlassian’s Confluence is a wiki most used by
developers and invariably contains an organisation’s
most sensitive development and security data, from
code to intellectual property to security policies. With
over 170,000 companies reportedly using Atlassian
technologies worldwide, including an estimated 83%
of the Fortune 500, the Atlassian market represents a
significant opportunity for GeoLang technologies with
very few competitors.
Services
Strong performance of our newest acquisition:
Pentest
The acquisition of technology companies with a leading
product, solution or service capability remains central
to our growth strategy, and as such we were delighted
to acquire certain assets of Secarma in April 2019,
subsequently renamed Pentest Ltd.
The Pentest team has brought a wealth of advanced
skills in penetration testing and red teaming to the
Group. Both these skills are highly sought-after
and a must have requirement in today’s security
and governance conscious corporations. Based
in Altrincham, Pentest delivers its services both
domestically and internationally, boasting world class
18
19
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Chief executives review
corporate clients that contribute to the Pentest annual
balance sheet as well as providing introductions to the
rest of the Group companies.
We do expect this shift to continue and it demonstrates
our agility to continuously evolve along with industry
trends taking advantage by winning business away from
the less equipped slower competitors.
In line with our ‘buy, focus, grow’ strategy I am pleased
to report Pentest increased its net client list by 35 since
acquisition.
Developments at Xcina Consulting resulting in
reduced losses
During the second half Rob Treacey and George
Grey were promoted to take over as joint Managing
Directors of Xcina Consulting. Both Rob and George
have an abundance of experience in risk assurance and
advisory roles, which has been gained from many years
in senior positions within tier one banks and big four
accounting firms.
Leveraging their experience, they formulated a strategy
focused on structure, sustainability, accountability and
ownership. Their decision making has seen Xcina
Consulting halve its second half losses in comparison
to the same period in the prior year. Meaningful
partnerships with well-established organisations have
been established, which are beginning to bear fruit,
and will ensure the consultancy provides a compelling
service offering to a broader client base.
Xcina Consulting has also been assisting in the
creation of new Group-wide service offerings that we
will be launching later this year including a Security
Operations Centre, E-Learning material and additional
Operational Resilience Consulting Services for
the financial services sector. These offerings build
upon Xcina’s existing consulting services that have
already been generating substantial opportunities for
Brookcourt.
During the year Brookcourt continued its winning streak
by adding a number of key critical infrastructure project
wins along with a number of new clients mainly from the
financial and telecommunications sectors. These project
deliverables either help protect a corporate client from
cyber attack or provide security monitoring services on
key infrastructure. Furthermore we witnessed a shifting
market place with clients reducing their appliance based
computing purchases in favour of software, cloud or
subscription based computing. This shift lowered our
top line revenue but greatly enhanced our profitability.
20
Share consolidation
On 25 September 2019 our shareholders approved a
100-for-1 consolidation of the issued ordinary shares in
the Company, reducing the number of shares in issue
by a factor of 100.
The rationale behind the share consolidation was to
seek to improve market liquidity of the Company’s
ordinary shares, reduce share price volatility and to
narrow the bid/offer spread in an effort to make the
Company’s ordinary shares more attractive to a broader
range of institutional investors and other members of
the investing public, both in the UK and overseas.
COVID-19
Quarter four is typically heavily weighted due to client
budget spend cycles. This year we, alongside all
businesses, had to navigate the global COVID-19
pandemic during this time.
Having tested our business continuity two weeks ahead
of UK Government announcements as to ‘lockdown’
restrictions, we were well positioned to move to remote
working, and quickly adjusted to this new way of
operating. Being a company that provides services and
solutions to help deliver organisational resilience we
have not needed to make redundancies, or to use the
government furlough scheme.
Whilst the pandemic, and associated restrictions put in
place by the Government, effected parts of our business
that relied upon ‘face to face’ consultation other parts of
our business benefited with an upsurge in new orders
for remote workers and remote security solutions noted
shortly after working from home was encouraged.
The impact on our clients has varied according to their
end sector, with industries such as leisure and travel
worst impacted with sectors such as infrastructure
showing resilience.
Outlook
Going forward, we will continue to capitalise on the
cross-selling opportunities within the Group to drive new
contract wins. This cross-sell opportunity is substantial,
and in addition to driving revenues for the Group it also
allows us to improve our customers’ overall service
experience, helping to solve all their security needs and
keeping their data and information assets safe and secure,
whilst enhancing their ability to do business.
We are committed to building Shearwater into an
established and respected provider of innovative
organisational resilience solutions. Our end-to-end offering
is attractive, and whilst the Group has noted a certain
amount of delayed decision making brought about by the
increased economic uncertainty, we are confident the
business has an excellent opportunity to grow organically
in the mid to long term, capturing substantial market share.
In addition, we also see the effects of COVID-19 having an
impact on potential service sector targets for the Company,
and whilst vendors of stronger companies will inevitably
want to wait until the current environment improves and
performance returns to a more normalised level before
considering an exit, this does present potential inorganic
opportunities for the Group where Shearwater’s strategy
and ability to onboard targets through our shared services
model, quickly enables synergy savings to be realised
and the support of our senior management teams and
advisors. to add value. We feel these opportunities could
potentially deliver greater benefit to our Group.
Following our restructuring, and having reached
profitability, we are well-placed to embark on a strategic,
targeted acquisition program. The organisational resilience
market remains fragmented, and we have identified a
pipeline of businesses for potential acquisition. We will
focus on companies with a leading product, solution,
service or consulting capability with further growth potential
to be unlocked. We will continue to evaluate selective
M&A opportunities which are profitable, organically fit with
existing Group companies and provide tangible synergies
as we look to propel Shearwater to becoming a leading UK
Security, cyber solutions and advisory company.
We have a clear strategic direction and are excited to
capitalise on our growth opportunity over the year ahead.
.
Phil Higgins
Chief Executive Officer
28 July 2020
21
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Financial review
Revenue
Gross profit
Overheads (underlying)
Underlying EBITDA
Underlying EBITDA margin
Finance charge
Depreciation
Amortisation of intangible assets - computer software
Underlying profit before tax
Amortisation of acquired intangible assets
Exceptional items
Share based payments
Impairment of legacy assets
Fair value adjustment for deferred consideration*
Contingent consideration
Loss before tax
Taxation charge/(credit)
Loss after tax
Alternative performance measures
The Group use alternative performance measures
alongside statutory measures to manage the
performance of the business. In the opinion of the
Directors alternative measures can provide additional
relevant information on past and future performance to
the reader in assessing the underlying performance of
the business.
Underlying EBITDA excludes exceptional items which
are in their nature one off, share based payment costs,
fair value adjustments for deferred consideration to be
settled in shares and contingent consideration which
is not reflective of the underlying performance of
the Group.
Underlying profit before tax excludes amortisation of
acquired intangible assets in addition to the adjusting
items detailed in underlying EBITDA. Please see
note 2 of the consolidated financial statements for a
reconciliation of underlying EBITDA and underlying
profit before tax to statutory measures.
31 March 2020
£m
33.0
10.2
6.8
31 March 2019
£m
23.5
6.8
8.2
% change
41%
50%
17%
3.4
10%
0.6
0.3
0.3
2.2
2.1
0.7
0.3
-
0.1
0.3
(1.3)
0.2
(1.5)
(1.4)
(6%)
0.2
0.1
0.1
(1.8)
1.2
2.7
0.3
1.0
(0.1)
-
(6.9)
(1.0)
(5.9)
* To be settled by issue of ordinary shares to the ex-vendors of GeoLang Holdings Limited.
22
Revenue
For the twelve months ended 31 March 2020 revenue
increased 41% (£9.5m) to £33.0m (2018/19: £23.5m)
which incorporates £1.7m revenues from Pentest
Limited which was acquired on 9 April 2019. On an
underlying like-for-like basis which reflects a full year
of Brookcourt’s prior year performance into 2018/19,
revenue is 16% behind prior year, which is partially due
to a change in revenue mix within Brookcourt whereby
we have witnessed a move from high revenue, low
margin hardware sales to low revenue, higher margin
software sales. In addition, Xcina Consulting has
experienced reductions in revenues of £2.1m following
the strong performance in the prior year off the back of
the introduction of GDPR.
Underlying EBITDA
A year on year improvement in Underlying EBITDA
of £4.8m to a £3.4m profit (2018/19: Loss £1.4m)
incorporates the uplift in revenue detailed above which
has generated an improved gross profit margin of 31%
(2018/19: 29%).
The improvement in profitability is due to a number of
factors which include a change in revenue mix within
our Services division whereby low margin hardware
sales are being replaced with higher margin software
sales. In addition to this profitability within our software
division has improved year on year as a result of a
minor re-structure in SecurEnvoy which has resulted in
a more efficient sales function. An additional £1.4m of
overhead savings were recognised in the year following
the re-organisation of the Group in the first half the year.
Finance charges
Finance charges of £0.6m includes £0.4m interest
on deferred completion cash for the acquisition of
Brookcourt, £0.1m interest for other loans taken when
acquiring Pentest and £0.1m interest for an invoice
discounting facility which the Group utilised during the
last financial year.
Depreciation
Depreciation of £0.3m (2018/19: £0.1m) incorporates
£0.2m depreciation of Right of use assets which have
been added for the first time in the year.
Amortisation of intangible assets –
computer software
Amortisation of computer software has increased by
£0.2m year on year owing mainly to internal software
development in SecurEnvoy that went live in the year.
Underlying profit before tax
A year on year improvement of £3.9m includes
the £4.8m year on year improvement in underlying
EBITDA less an additional £0.4m finance costs, £0.2m
depreciation and £0.2m amortisation of computer
software which are detailed in the relevant
headings above.
Acquisition of acquired intangibles
A year on year increase of £0.8m in amortisation of
acquired intangibles to £2.1m (2018/19:£1.3m)
incorporates a full year’s charge for Brookcourt
Solutions which was acquired in October 2018 in
addition to amortisation for Pentest which was acquired
in April 2019.
Exceptional items
Exceptional items of £0.7m include £0.3m of one off
costs incurred as part of the re-organisation of the
Group implemented by the incoming CEO in April 2019
which included the costs associated with discontinuation
of a few smaller business areas which had not achieved
the required return on investment. £0.3m costs relate
to the acquisition of Pentest and the remaining £0.1m
is for legacy one off legal costs. Exceptional items are
significantly reduced from the reported £2.7m posted in
the prior year. These included £1.7m costs relating to
the acquisition of Brookcourt and GeoLang plus £1.0m
one off legal costs.
Impairment of legacy assets
A prior year impairment recognises the full write off of
the remaining mining exploration assets held by Group
which date back to when the Group was known as
Aurum Mining plc.
Fair value adjustment for deferred consideration
The fair value adjustment of deferred consideration
relates to deferred share consideration owed to
the previous owners of GeoLang Holdings Limited.
Deferred consideration is measured at fair value and
the additional cost recognised in the year represent an
increase in the Group’s share price over the past twelve
months to 31 March 2020.
23
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Financial review
Contingent consideration
Contingent consideration of £0.3m represents the issue
of 14,388,567 ordinary shares (pre-share consolidation)
of the Group to the GeoLang sellers. These additional
consideration shares were issued pursuant to the
acquisition of GeoLang Holdings Limited announced
on 4 April 2018, under which certain provisions were
triggered by the share price performance criteria set
out in the sale and purchase agreement which were
considered unlikely at the point of acquisition and as
such were not recognised on acquisition.
Taxation
Taxation charges of £0.2m include a charge for the
current year of £0.3m less £0.1m in relation to an
adjustment for the prior-year.
Earnings/(loss) per share
Adjusted Basic and Diluted Earnings per Share of
£0.08 (2018/19: Adjusted loss per share £-0.10) and
Reported Basic and Diluted Loss per Share of £0.07
(2018/19: loss £0.42) represents a significant year on
year improvement. All comparisons have been restated
for the share consolidation.
Statement of financial position
Intangible assets
Intangible assets increased by £4.4m to £56.8m (2019:
£52.4m) with £5.1m arising from acquisitions in the
period, computer software additions of £1.4m relating
to the capitalisation of internal development costs and
£0.3m for additional consideration relating to historical
acquisitions. This is offset by £2.4m amortisation in
the year.
Property, plant and equipment
Property, plant and equipment increased by £0.5m to
£0.7m (2019: £0.2m) in the period which incorporates
for the first time, the addition of £0.7m of right to use
assets (1 April 2019). Other additions were under £0.1m
in the period. This is offset by £0.3m depreciation in
the year.
Trade and other receivables
Trade and other receivables have decreased by £4.7m
from £15.2m to £10.5m. The acquisition of Pentest has
added £0.2m however the changes to the timing of
some projects plus strong cash collection in March 2020
24
has resulted in the reduction of total trade and other
receivables at year-end.
Statement of cash flows
The prior year includes a restatement of £1.0m which
reduces trade receivables with the corresponding
entry being a reduction to deferred income which is
due to amounts that had been invoiced but not yet due
and where the performance obligation had not been
completed at the reporting date. There is no impact on
to the statement of comprehensive income.
Trade and other payables
Trade and other payable have decreased by £1.8m
from £16.4m to £14.6m despite the acquisition of
Pentest adding £0.1m. This is primarily due to a
reduction in trade payables at year-end of £1.4m which
is as a result of cost savings realised from the re-
organisation of the Group early in the financial year. In
addition to this loan liabilities have reduced by £0.4m
following the settlement of the invoice financing facility
used by the Group in the prior year.
The prior year includes a restatement to deferred
income of £1m which is detailed in the trade and other
receivables note above.
Creditors: amount falling due after more
than 1 year
Creditor amounts falling due after more than 1 year
have increased by £1.0m to £4.4m as a result of the
addition of £0.7m loan liabilities in the period relating
to the Pentest acquisition which are repayable in April
2022, £0.3m lease liabilities arising for the first time
following the introduction of IFRS 16, £0.2m increase
in deferred tax liability (of which £0.4m is as a result
of the Pentest acquisition with the balance related to
movements on existing balances) less £0.2m reduction
in deferred share consideration for GeoLang Holding
which has moved to a current liability.
Share capital
During the year pre-share consolidation, 292.3m
ordinary shares of £0.01 were issued to Secarma as
share consideration for the acquisition of Pentest. A
further 14.4m ordinary shares of £0.01 were issued to
the previous owners of GeoLang Holdings for additional
consideration for hold back shares as detailed in
the sale and purchase agreement. These additions
increased share capital by £2.9m and £0.2m
respectively.
Operating cash flows
The Group has achieved strong operating cash flows
in the year of £5.2m (2018/19: £(3.5)m) owing to
significantly improved year on year trading performance
from both software and services businesses. In addition
to this, cost savings made from the reorganisation of
the Group in the first part of the year and improved
cash collection have contributed to the much improved
position at 31 March 2020.
Investing activities
A net outflow in investing activities of £1.4m in the year
is significantly reduced from the previous years’ outflow
of £15.0m of which £14.3m represented cash used to
acquire businesses including Brookcourt and GeoLang.
No cash outflows were recognised for the acquisition
of Pentest as this was funded via share consideration
and third party loans which are detailed in the note 9 of
the consolidated financial statements. Software spend
has increased by £0.8m to £1.4m which incorporates
capitalisation of internal development costs within our
software division (2018/19: £0.6m).
Financing activities
A net cash outflow from financing activities is
significantly reduced from the prior year inflow of
£16.5m which included proceeds from an equity
fundraise completed to fund the acquisition of
Brookcourt in October 2018. Outflows in the year
include £1.3m for the repayment of the invoice
discounting facility the Group used during the year
which was closed in March 2020 and £0.2m
repayments on lease liabilities. Cash inflows in the
year include a £0.5m loan taken to support the working
capital requirements of Pentest following its acquisition.
Key performance indicators
The Board 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. These are presented
within the Financial Highlights on page 8.
Underlying EBITDA is defined as profit before tax,
before one off exceptional items, impairment of
intangible assets, share based payment charges,
finance charges, fair value adjustments to deferred
consideration, depreciation and amortisation, and a
reconciliation from underlying EBITDA to loss before
tax is detailed in note 2 of the consolidated financial
statements.
Paul McFadden
Chief Financial Officer
28 July 2020
25
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Case studies
Park Now selects Xcina Consulting
Park Now, owned by the BMW & Daimler Group, specialises in
electronic and digital parking solutions and is the largest provider of
mobile parking services in North America, serving over 22 million
customers in more than 1000 towns and cities throughout the world.
In the UK it operates in over 400 towns and cities and processes in
excess of 80 million card payments per annum.
Xcina Consulting
Xcina Consulting provides an annual, qualified security assessment of
Park Now’s UK and Netherlands card data environment to ensure it is
compliant with the Payment Card Industry Data Security Standard (PCI
DSS). The engagement not only ensures that all card data related controls
are in place and operating effectively but also ensures that Park Now staff
understand their roles and responsibilities around protecting card data.
Pete O’Driscoll, UK Managing Director, commented:
“Xcina Consulting has been engaged by the Park Now European group to
perform the annual assessment for our UK and Dutch businesses for the last
2 years. Throughout this period Xcina Consulting has worked with us to revisit
our security standards and put in place a robust control, review and audit
process. As part of our contractual arrangement we have twice yearly check
in points to ensure that we are up to date with best practice. I have no
hesitation in referring Xcina Consulting to another business”.
Wates Group selects SecurEnvoy
When unexpected weather hits, forest fires rapidly spread across
a country or a global health pandemic occurs, businesses require
secure, remote access to their networks and applications. The
current outbreak of Covid-19 has resulted in a rising need for
remote working, globally. In the current times of change and
uncertainty, companies are needing to prepare and adapt in
order to collaborate with their employees and continue to work
as normally as possible.
This has been the case with Wates Group, a leading construction
company based in the UK. To help reduce the spread of the virus and
the impact on its employees, Wates Group needed to quickly enable an
increase in the number of their employees who could work from home.
Ensuring secure, remote access for them and a more flexible remote
working solution during a rapidly developing situation has been a priority.
SecureIdentity MFA licenses were purchased for a short period, to
accompany the existing installed base of remote users to accommodate the
increased number of employees working from home during the Covid-19
outbreak.
Matt Mann, Group Head of IT Operations states,
“The MFA licenses provided by SecurEnvoy enable our office-based em-
ployees to securely access our applications and networks allowing them
to carry on working in the same way as if they were in the office. At such
a challenging time, businesses like Wates are looking for flexibility from
trusted suppliers to allow us to keep working as effectively as possible.
SecurEnvoy has recognised the impact the Covid-19 pandemic is having
for people and companies alike and I have been impressed with how well
they have responded”.
The National Bank of Kuwait (also known as ‘NBK’) supports
UK and continental European corporate entities’ business flow with
Kuwait and the wider MENA region, as well as inward investments to
Europe and the UK.
Xcina Consulting planned, facilitated and executed against a
programme of work to ensure the National Bank of Kuwait
(International) established an effective Business Continuity
Management System, aligned to the ISO22301 international standard,
and to provide it with a strategic roadmap to enable it to align with the
Operational Resilience requirements of the Bank of England, Financial
Conduct Authority and Prudential Regulation Authority.
The engagement included: -
• Execution of the Business Impact Analysis process across all
business functions
• Documenting the Business Continuity Policy and Strategy
• Updating relevant Business Continuity Plans and IT Disaster
Recovery Plan; and
• Defining the longer term business continuity roadmap.
Paul Gospage, UK Chief Operating Officer, commented:
“We, at NBKI, engaged with Xcina Consulting to deliver this
important programme of work to ensure we implemented
and established improvements and practices to align
ourselves to the ISO22301 international standard. We have
engaged with Xcina Consulting on a number of assignments
and we have always found them to be professional SME’s in
their field and practitioners in the delivery of a programme of
work on time and within budget parameters.
We would particularly like to mention Mr. Rob Treacey whose
experience and knowledge was invaluable in ensuring
the phased elements were delivered on time and to the
standard we would expect from Xcina Consulting”.
26
27
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Principal risks and uncertainties
Identifying and responding to risks
The Board is responsible for ensuring that the Group has systems in place to ensure that the Groups’ principal risks
and uncertainties are identified, assessed and mitigating actions implemented in effective and timely manner.
Risk appetite
The Group works to minimise its exposure to operational, financial and other risks however in pursuit of achieving
its growth strategy there will always be an element of risk that needs to be considered. The Group takes
a zero tolerance to risks that relate to non-adherence to laws and regulations which it considers to be an
unacceptable risk.
Risk approach
The table below details the roles and responsibilities for managing its principal risk and uncertainties;
Responsible for setting the Groups policy on risk management and its
appetite to risk.
Cyber security
attacks
Responsible for advising the Board on risk exposure and review of internal
controls that are in place to mitigate risk.
Responsible for maintaining an effective system to identify and manage key
risks to the Group, understanding the materiality of each risk and potential
mitigations that can be put in place to reduce exposure.
Responsibility for maintaining an effective system to identify and manage
risk at a local level, implementing mitigating measures where possible.
The Company’s activities are carried out in the UK, Europe, and the US. Accordingly, the principal risks
and uncertainties are considered as follows:
Risk
Description
Mitigation
Change
since
2019
Increased
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.
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.
The Group owns a number of
software assets that it has created
and continuously developed over
a number of years. These form the
products that are sold within the
software segment of our business.
The Group maintain robust security
around its internally developed technology
and patents are filed where possible.
Employment contracts provide some
protection around the release of
information relating to its know-how.
No change
Intellectual
property
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
28
29
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Board Audit committee Executive Local businesses
Principal risks and uncertainties
Risk
Description
Mitigation
Change
since
2019
No change
In addressing this risk, the Group has a
number of Chief Technical Officers across
its group companies, whom are able to work
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. In the previous financial year
Dr. Debbie Garside was appointed to the role
of Chief Innovation Scientist for the Group.
No change
The Group looks to build strong, long-term
relations with its customers by taking the time
to understand our customers’ needs fully.
Key to achieving long term relationships with
customer is ensuring that as a minimum we
always deliver in line with customer
expectations.
The Group is actively looking to grow and
diversify its’ customer base and has added
some notable new customers in the past year.
Technology
Key contracts
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 line with other industry participants, the
Group relies on certain key customers for
a material proportion of its revenue. Whilst
the Group benefits from high customer
retention levels, there can be no
guarantees that all or any customers will
continue their relationship with the Group
beyond the existing contractual period
currently in place. Certain customers have
the right to terminate their contractual
arrangements with the Group or
discontinue using the Group’s services
without notice or on short notice. If the
Group was to lose one or more of its major
customer contracts, the resultant loss of
sales could adversely affect the
Enlarged Group’s business, financial
condition, results or future operations
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.
No change
Change
since
2019
No change
Risk
Description
Mitigation
The Groups’ Data Protection Officer 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.
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
Economic un
Economic
uncertainty and
Covid 19
Economic uncertainty can create challenges
which could impact some of the Group’s key
stakeholders. This could result in the loss of
customers and additional pressures on the
Group’s supply chain. The recent Covid 19
global pandemic has brought with it additional
challenges to the trading environment and
businesses which includes restrictions on
movement and our stakeholders are having to
adapt to this accordingly.
Owing to non-discretionary nature of many of
the Group’s products, the Group is in a robust
position however the Group works closely
with its key stakeholders addressing
challenges as they arise. To date the Group
has responded well to the additional
challenges brought by Covid 19 however it
acknowledges the enhanced level of
challenges faced by a number of our
stakeholders.
Increased
Failure to identify suitable potential
acquisitions or failing to properly integrate an
acquisitions will impact our strategy for growth.
Acquisition
The Board actively monitors the market for
opportunities and maintain a very active M&A
pipeline. Once a potentially suitable target
is identified it is vital that a thorough due
diligence assessment is undertaken.
No change
30
31
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCEFINANCIAL STATEMENTS
Board of Directors
The following is a list of the full names and positions of the current members of the Board:
The business address of each Director is 22 Great James Street, London, WC1N 3ES.
David Williams
Chairman
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. (LSE: ETO), Breedon Group plc (AIM: BREE) and Oxford
Biodynamics Plc (AIM: OBD). David serves as the chairman of the Remuneration
Committee and Nomination Committee and is a member of the Audit Committee.
Philip Higgins
Chief Executive Officer
Phil has over thirty years’ industry experience during which time he has been
instrumental in the delivery of next generation technology solutions to many leading
global FTSE 100 and FTSE 250 companies. Following a six-year secondment to
the US as International Business Director for Info Products Europe (now SCC), Phil
returned to the UK market in 2001. After a brief spell at NSC Global and three years at
Repton (now CDW), he co-founded Brookcourt Solutions in 2005. In December 2018,
Phil joined the Board of Shearwater as an Executive Director, and in April 2019 was
appointed as Chief Executive Officer of Shearwater Group.
Paul McFadden
Chief Financial Officer
Paul has over ten years’ experience in senior finance positions within market leading
digital information services, training and events businesses, creating and leading
scalable finance functions within both a private and listed environment. Most recently,
Paul was responsible for creating and leading a scalable shared service centre at
Wilmington plc as the business grew substantially organically and via acquisitions in a
five-year period.
Robin Southwell OBE
Non-Executive Director
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 Chairman of Linley Furniture, a Fellow of the Royal Aeronautical Society,
an Ambassador of the RAF Museums, 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.
33
GOVERNANCE
32
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Board of Directors
Advisory Panel
Stephen Ball
Non-Executive Director
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.
Giles Willits
Non-Executive Director
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. During his time at Entertainment One Ltd. the market capitalisation grew
to in excess of £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.
Rt Hon Lord Reid of Cardowan
Advisory Panel Chairman
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.
Marcus Willet CB OBE
Advisory Panel
In April 2019, Marcus Willett CB OBE joined the Advisory Panel. Marcus was
formerly the Deputy Head of GCHQ having served 33 years with the
organisation. He was also GCHQ’s first Cyber Director and has established and
led major UK Cyber Programmes. Marcus has held posts across the wider UK
intelligence and security community and is currently the Senior Advisor for Cyber
at the International Institute for Strategic Studies, a world leading authority on
global security, political risk and military conflict.
34
35
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Corporate Governance report
For the year ended 31 March 2020
Board Committees
The board of directors of the Company (the “Board”) adopted the Quoted Companies Alliance (“QCA”)
Corporate Governance Code (the “QCA Code”) on 27 September 2018 in line with the London Stock
Exchange’s changes to the AIM Rules. Under AIM Rule 26, all AIM-quoted companies are required to adopt and
comply with a recognised corporate governance code. The Board believe that the QCA Code is most appropriate
for the size, scale and complexity of the Company. How the Company complies with the QCA Code and where the
Board believe that a departure from the QCA Code is warranted, is provided on the Company’s website under the
following link: https://shearwatergroup.com/investor-overview/
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
Details of all members of the Board are set out on page 33.
The business address of each Director is 22 Great James Street, London, WC1N 3ES.
The Directors recognise the importance of sound corporate governance and the Company complies with the
principles and minimum disclosures of the QCA Code.
The main features of the Existing 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 three Non-Executive Directors who are considered by the Directors to be
independent for the purposes of the QCA Code, Robin Southwell, Stephen Ball and Giles Willits. Robin joined
the Board on 10 October 2016 and prior to this had no association with the Company. Stephen joined the
Board on 24 October 2016 and prior to this had no association with the Company. Giles joined the Board on 9
December 2016 and prior to this had no association with the Company. Accordingly, the Directors consider that
Robin, Stephen and Giles satisfy the independence criteria based on the judgement of the Board, with Stephen
appointed the senior independent Non-Executive Director of the Company.
• Director of the Company.
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 Group commenced implementation of a Group wide purchase to pay
system which will consolidate the Groups purchasing as well as enhance the internal control environment.
The Directors continue to review the Group’s systems of internal financial control as it grows to ensure that they
are appropriate to the size of business. 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.
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 two times a year, 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 with Stephen Ball as the other member of the Nomination Committee.
The Board are in the process of introducing a formal internal evaluation of its own members and each of its
subcommittees. The Board have noted that its’ diversity does not reflect the position across the Group and will
continue to look to address this. Succession planning has been informally discussed by the Board however no
formal plans have been drawn up as yet owing to the relatively short length of tenure of both existing executives.
The Board, through the nomination committee will look to complete a formal succession plan in the next
twelve months.
The Directors promote a healthy corporate culture of which further details can be found in the Social Responsibility
section on page 13.
36
37
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Audit Committee report
Dear Shareholder
On behalf of the Board I am pleased to present the Audit Committee report for the year ending 31 March 2020.
Roles and responsibilities
The role of the audit committee is to assist the Board in fulfilling its corporate governance responsibilities with
regards to the Group’s financial reporting, internal controls and risk management systems. The committee monitors
the integrity of the interim and annual financial statements and advises the Board as to whether as a whole they
are fair, balanced and understandable and provide the shareholder with the necessary information to assess the
Group’s strategy, position and performance.
The audit committee is also responsible:
•
•
•
•
•
•
for providing oversight and challenge to the financial reporting;
for providing the Board with its’ opinion as to the Group’s assessment of any new accounting standards;
for agreeing the remuneration for the audit and reporting to the Board the performance of external auditors;
for making recommendations to the Board regarding the appointment and removal of external auditors;
for assessing the requirement of an internal audit function within the Group;
for ensuring that the Group has suitable policies and controls in place to prevent fraud, bribery and other
compliance concerns;
Committee members
The committee consists of myself as chair, my fellow non-executive director Stephen Ball and the Group’s
chairman David Williams.
The committee meet twice during the year. The meetings are attended by committee members and by invitation,
the Chief Financial Officer, other senior management and external auditors. The table below details committee
members attendance over the past twelve months.
Giles Willits (Chairman)
David Williams
Stephen Ball
Key activities and actions over the past year
Committee
meetings attended
Committee meetings eligible
to attend
2
2
2
2
2
2
Financial statements
The audit committee reviewed and approved the unaudited interim financial statements for the period
ending 30 September 2019 and the full year audited financial statements for the period ending 31 March 2020 and
reported to the Board that in its view the statements were fair, balanced and understandable.
Significant areas
The significant reporting matters and judgements considered by the committee during the year included:
Acquisition accounting (IFRS 3 Business combinations) of Pentest acquisition
1.
The audit committee reviewed the accounting regarding the acquisition of Pentest Limited in the year and was
satisfied there were no issues arising.
The application of IFRS 16
2.
The audit committee considered the modified retrospective application of IFRS16 (Leases) from 1 April 2019
including reviewing judgements made and the presentation of the impacts which are set out in note 1 of the
consolidated financial statements.
Use of alternative performance measures
3.
The audit committee has considered the use of alternative performance measures included in the Annual report
to present underlying EBITDA and underlying profit alongside the statutory counterparts and believes that these
additional measures provide the reader with a more balanced view of the underlying performance of the Group.
Please see note 2 of the consolidated financial statements which provides a reconciliation of the underlying
measures to statutory counterparts.
Going concern
4.
The audit committee has considered the Group’s sensitised forward looking forecasts and believes it has adequate
resources to support the Group as a Going concern.
Impairment of intangible assets
5.
The audit committee has reviewed reports concerning the carrying value of specific goodwill and intangible assets.
The committee concluded that the assumptions and judgements applied by management were appropriate and no
impairments were required.
External Audit
The Audit Committee monitors the Group’s relationship with the external auditor, BDO LLP, to ensure that external
independence and objectivity has been maintained. As part of its review the Committee reviews the provision of
any non-audit services by the external auditor. During the year no non-audit work was completed by BDO. BDO
have provided audit services to the Group since incorporation in 2005. It has however only served the Group in it’s
current state as a digital and operational resilience business since March 2017. Performance has been reviewed
annually and audit partner rotation requirements have been observed.
Internal Audit
There is currently no formal internal audit function in place which the audit committee deem appropriate given the
size and complexity of the business and the mitigating controls in place. The committee will continue to review the
need for Group to introduce this function on an annual basis.
COVID-19
The audit committee has and continues to assess the ongoing challenges brought by the Covid-19 global
pandemic and has considered the potential impact on the Group’s financial position, cash flows and liquidity.
The committee has reviewed and challenged an extreme scenario of reverse stress test in order to support its
assessment that the financial statements should be prepared on a going concern basis. Please see page 47
and 61 for additional details on the Group’s going concern assessment. The committee has also reviewed and
challenged the Covid 19 related risks included within the principal risks and uncertainties section on page 31.
Approved on behalf of the Audit Committee by:
Giles Willits
Chairman of the Audit Committee
28 July 2020
38
39
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Annual bonus
The bonus opportunity for Executive Directors during the year was based on the achievement of an underlying
EBITDA target.
The Remuneration committee approves annual bonuses for executive Directors and retains a level of discretion
over the level of pay-out based upon the quality of financial performance in achieving the results
Share options
No additional share options were granted in the period.
Approved on behalf of the Remuneration Committee by:
David Williams
Chairman of the Remuneration Committee
28 July 2020
Directors remuneration report
Dear Shareholder
On behalf of the Board I am pleased to present the Remuneration Committee report for the year ending
31 March 2020.
Roles and responsibilities
The role of the remuneration committee is to review and agree with the Board the framework for remuneration
packages for Directors. The committee consider all aspects of the Executive Directors’ remuneration, including
pensions, bonus arrangements, benefits, incentive payments and share option awards.
The remuneration committee is also responsible:
•
for agreeing the policy and scope of any termination payments
Committee members
The committee consists of myself as chair and my fellow non-executive director Robin Southwell.
The committee met twice during the year. The meetings are attended by committee members and by invitation
other Directors. The table below details committee members attendance over the past twelve months.
David Williams (Chairman)
Robin Southwell
2
2
2
2
Committee meetings attended
Committee meetings eligible to attend
Review of the financial year ended 31 March 2020
Company Performance
As detailed within the strategic report section the Group has taken significant steps forward over the past twelve
months delivering a much-improved set of results for the period. The key financial objective of generating the
Group’s first underlying EBITDA profit since the inception was achieved with the Group delivering strong cash
generation for the period.
The Group uses adjusted measures to review the underlying performance of the Group and the Remuneration
Committee also use adjusted measures to determine the Executive Directors’ annual bonus along with long term
share options.
Key activities and actions over the past year
Executive Directors salary reviews
The Remuneration Committee decided that in light of the challenges the Group faced at the start of the year no
salary reviews were made.
40
41
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Year ended 31 March 2019
Executive Directors
M Stevens (resigned 12 April 2019)
P Higgins
P McFadden
Non-Executive Directors
D Williams
S Ball
R Southwell
G Willits
Total salary
and fees
£ (000)
Bonus
£ (000)
Benefits
£ (000)
Sub-total
£ (000)
Pension
£ (000)
Total
£ (000)
231
33
54
51
25
25
26
445
-
9
17
-
-
-
15
41
-
-
-
-
-
-
-
-
231
42
71
51
25
25
41
486
1
-
5
-
-
-
-
6
232
42
76
51
25
25
41
492
Directors’ interests in shares and share options are disclosed in the Directors’ report. In 2020 and 2019, key
management personnel are considered to comprise of Directors.
Annual report of remuneration
Introduction
The Remuneration Committee has established a remuneration policy for both Executive and Non-Executive
Directors which aims to:
• align remuneration with performance of the Group and the interests of shareholders. The policy looks to reward,
retain and incentivise Directors to perform to the high levels.
• apportion an element of Executive Directors remuneration to annual and longer-term performance targets.
Directors remuneration
A summary of Directors’ remuneration is as follows:
Wages and salaries
Social security costs
Pension costs
Share based payments
Total remuneration
Aggregate of all Directors
Highest paid Director
2019/20
£ (000)
2018/19
£ (000)
2019/20
£ (000)
2018/19
£ (000)
540
67
12
179
798
486
60
6
180
732
170
23
-
92
285
231
32
1
92
356
The remuneration of key management personnel during the year is as follows:
Year ended 31 March 2020
Executive Directors
M Stevens (resigned 12 April 2019)*
P Higgins
P McFadden
Non-Executive Directors
D Williams
S Ball
R Southwell
G Willits
Total salary
and fees
£ (000)
Bonus
£ (000)
Benefits
£ (000)
Sub-total
£ (000)
Pension
£ (000)
Total
£ (000)
83
110
119
51
26
26
26
441
-
60
38
-
-
-
-
98
-
-
1
-
-
-
-
1
83
170
158
51
26
26
26
540
-
-
12
-
-
-
-
12
83
170
170
51
26
26
26
552
* Figures include £76k for payment in lieu of notice.
42
43
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Nomination Committee report
Directors report
Dear Shareholder
On behalf of the Board I am pleased to present the Nomination Committee report for the year ending 31 March 2020.
For the year ending 31st March 2020
Roles and responsibilities
The role of the nomination committee is to review and ensure that the make-up of the Board comprises a diverse
and knowledgeable skillset from its members which as a whole create a balanced and appropriate Board function.
The nomination committee is also responsible:
•
•
•
•
for considering succession planning for Directors and other key senior management positions across the Group;
for assisting when required with the recruitment process for other senior management vacancies;
for reviewing the time commitment required for Non-Executive Directors;
for when required, identifying and nominating candidates to fill Board vacancies; and
• or making recommendation for the Board to consider regarding membership of the Audit and
Remuneration Committees.
Committee members
The committee consists of myself as chair and my fellow non-executive director Stephen Ball.
The committee met twice during the year. The meetings are attended by committee members and by invitation
other Directors. The table below details committee members attendance over the past twelve months.
David Williams (Chairman)
Stephen Ball
2
2
2
2
Committee meetings attended
Committee meetings eligible to attend
Key activities and actions over the past year
Appointment of a new Chief Executive
Following Michael Stevens’ departure as Chief Executive on 12 April 2019 the Nomination Committee met to consider
his replacement. Following review with the Board it was decided that another Executive Director Phil Higgins should
assume the role as Chief Executive of the Group. Following his acceptance of the role Phil Higgins took the position
from 12 April 2019.
Succession planning
The Nomination Committee acknowledges the need to review the succession plans for both Executive and
Non-Executive Directors as well as other key senior management positions across the Group. Whilst both Executive
Directors have only been in post for the past 18 months the committee acknowledges strong management below
the executive.
Other senior management representation
The Nomination Committee provided input into the recruitment of the new dual Managing Director position for the
Xcina Consulting business following a re-organisation of the business.
Approved on behalf of the Nomination Committee by:
David Williams
Chairman of the Nomination Committee
28th June 2020
44
The Directors present their annual report together with the audited financial statements for the year ended
31 March 2020.
Results and Dividends
Results of the year and financial position are detailed on pages 57 to 102. The Directors do not recommend the
payment of a dividend for the year (2018/19: £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 4 to 32.
Share consolidation
On 25 September 2019, at the Group’s AGM, shareholders approved the capital reorganisation to consolidate the
Company’s ordinary shares by a factor of 100.
The consolidation comprised of two elements:
• Consolidation, whereby every 100 shares were consolidated into one ordinary share of £1
(a “consolidated share”)
• Sub-division – immediately following the consolidation, each consolidated share was sub-divided into one
ordinary share of 10 pence (a “new ordinary share”) and one deferred share of 90 pence
(a “deferred share”).
Deferred shares for all practical purposes are valueless and it is the Boards intention to repurchase, cancel or seek to
the surrender these deferred shares using lawful means as the Board may at such time in the future.
Following the capital reorganisation 22,106,460 new ordinary shares of 10 pence each were admitted to trading on
AIM at 8am on 26 September 2019.
Details of the share consolidation are provided in the table below:
Immediately prior to AGM
Following close of business on the
date of AGM
Number of ordinary
issued shares
Number of issued
deferred shares
Aggregate nominal value
of shares in the company
(£)
2,210,646,000
-
22,106,460
22,106,460
22,106,460
22,106,460
45
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Directors report
Directors
The Directors of the Company who held office during the year are as follows:
Name of Director
D Williams
P Higgins
P McFadden
M Stevens
R Southwell
S Ball
G Willits
Chairman
Director;
Director;
Director; Resigned on 12 April 2019
Non-Executive Director
Non-Executive Director
Non-Executive Director
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:
P Higgins
D Williams
R Southwell
S Ball
G Willits
P McFadden
Number of shares held at
31 March 2020
2,251,667
1,381,674
155,000
119,444
67,717
1,715
Number of shares held at
31 March 2019*
2,129,167
1,306,674
112,500
119,444
67,717
1,715
* Further to the share consolidation detailed above the prior year figures have been restated to provide a like for like comparison.
The Directors’ interests in the share options of the Company as at 31 March 2020 were as follows:
Number of
options at
31 March 2020
P McFadden
7,875*
Exercise
price
£4.00
Date of grant
First date of
exercise
Final date of
exercise
07/05/18
07/05/19
30/09/23
As a result of the share consolidation the number of share options have been divided by 100 and the exercise price
multiplied by 100. The remuneration of Directors during the year is disclosed in the Directors remuneration report
on page 42.
Share capital and substantial shareholders
Details of the issued share capital, together with details of the movements during the year are detailed in note 18 of
the consolidated financial statements.
Details of share-based payments are detailed in note 19 of the consolidated financial statements and the Directors
remuneration report. No person has control over the Company’s share capital and issued shares are fully paid.
At 31 March 2020, the Company had been notified of the following substantial shareholders comprising 3% or
more of the issued share capital of the Company:
Secarma
Mr P Higgins
Schroders plc
Mr D Stacey
Mr D Williams
Killik & Co LLP
Mr S Watts
Fidelity International
% of issued share capital
13.22%
10.18%
9.56%
9.52%
6.25%
4.81%
4.04%
3.10%
Directors’ indemnities
The Company currently has in place, and had for the year ended 31 March 2020, 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, cash flow forecasts and future financing requirements which have
included a review of forecast cashflows to March 2022 which incorporate a sensitised reverse stress test (worse-
case scenario). In addition to this the Group’s financing facility has increased following the completion of a three-
year revolving credit facility which adds additional financing capacity to the Group.
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 consolidated financial statements.
Events after the reporting date
On 24 April 2020 the Group completed an equity fundraise to support future acquisitions raising £3.75m. In addition
to this on 22 June 2020 the Group, via its subsidiary Brookcourt signed a three-year, £4 million revolving credit
facility to support future organic growth. Further details of these events are included in note 22 of the consolidated
financial statements.
Research and development activities
Due to the everchanging competitive 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. Where specific internal development cost meets the required criteria under IAS 38 these amounts have
been capitalised at the cost incurred.
Political donations
No political donations were made during the financial year (2018/19: nil).
Employees
The Directors recognise the importance of ensuring effective communication to the Groups’ employees, ensuring
that they are updated on various factors including updates on the performance of the Group. The executive team
hold employee briefings at least twice a year with local management briefing their teams more regularly. The Group
conforms to current employment laws on the employment of disabled persons and, where we are informed of any
employee disability, management make all reasonable efforts to accommodate that employee’s requirements.
46
47
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Directors report
Statement of Directors responsibilities
Financial instruments
Details of the use of financial instruments by the Company are contained in note 20 of the consolidated financial
statements. The financial risk management policies and objectives are also set out in detail in note 20.
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 have provided audit services to the Group for over 5 years. During the financial year the Group
undertook an exercise to benchmark the cost of external audit work to ensure the Group was getting the best
service and value for money. Following completion of this exercise the Directors are satisfied that the Group is
receiving an effective audit in terms of service and value for money.
Annual General Meeting
The Company proposes to convene the Annual General Meeting for 11a.m on 24 September 2020. Notice of the
Annual General Meeting will be circulated shortly to Shareholders.
Covid-19
The Group has demonstrated its resilience during the first wave of the Covid 19 global pandemic having
implemented effective remote working practices across the Group. That said the Board continue to monitor
the everchanging landscape of the Covid 19 pandemic and challenges that this presents. Each of the Groups
businesses has worked closely with its customers to understand the challenges they face, not just in the short term
but also understanding the potentially changing landscape going forward. This has allowed each of our businesses
to review their service offering to ensure that it continues to meet the needs of the customer. To ensure that we
are able to meet the needs of our customers we have maintained regular contact with key suppliers, ensuring that
we understand in advance any potential challenges to the supply chain such as travel restrictions. Throughout the
current lockdown management have maintained regular contact with employees, ensuring that our staff are kept up
to date with events.
On behalf of the Board
David Williams, Chairman,
28 July 2020
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 financial statements in accordance with International Financial
Reporting Standards (‘IFRS’) as adopted by the European Union. The Parent Company financial statements have
been prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006. 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 the year ended 31 March 2020. 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
Group 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.
The Group’s Financial Statements can be accessed using the following link;
www.shearwatergroup.com/results-and-presentations/
48
49
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
FINANCIAL
STATEMENTS
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 2020 which comprise the consolidated statement of comprehensive
income, the consolidated statement of financial position, the company statement of financial position, the
consolidated statement of changes in equity, the company statement of changes in equity, the consolidated cash
flow statement 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.
The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard
101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
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 2020 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 United Kingdom
Generally Accepted Accounting Practice; 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.
50
51
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Independent auditor’s report to the members of Shearwater Group Plc
Key Audit Matter
How we addressed the key audit matter in our audit
Key Audit Matter
How we addressed the key audit matter in our audit
Revenue Recognition
The Group’s revenue recognition policy can
be found in note 1 “Revenue” to the financial
statements.
A summary of procedures performed to address
the risk include:
• A review of the revenue recognition policy for the
Group in light of the requirements of IFRS 15.
Several revenue streams exist across
the Group involving different timings and
recognition entailing a degree of complexity
as detailed in note 1. Therefore, revenue
recognition related to each deliverable requires
judgement over the assessment of the
separate contract deliverables.
We consider a significant risk of material
misstatement to arise from the recognition of
revenue throughout the year.
• Tested a sample of transactions from the revenue
listing by allocating transaction price to each
performance obligation and checked whether the
revenue was recognised appropriately at a point in
time or over time.
• Tested a sample of sales invoices raised before and
after year end to check that these were accounted for
in the correct period and accrued for, or deferred,
appropriately by agreeing to supporting evidence such
as delivery of license keys and statement of work
performed etc.
• Tested completeness of deferred revenue and
existence of accrued revenue by agreeing the sales
invoices to cash receipts, contracts with customers
and checking that revenue was appropriately
recognised during the year by agreeing to supporting
evidence such as delivery of license keys and
statement of work performed etc.
• For all samples tested our testing included inspection
of the contracts, proof of payments and checking
that revenue was recognised in accordance with the
accounting policy. We confirmed that the appropriate
trigger event i.e. performance obligation had
been satisfied in order to ensure that the revenue
recognition criteria had been met. This was done by
testing the corroborative evidence such as delivery of
license keys and statement of work performed etc.
• We also considered the adequacy of the Group’s
disclosures relating to revenue recognition in note 1.
Key observations
Based on procedures performed, we found management
judgements were appropriate and were supported by the
corroborative evidence.
Accounting for business combinations
The accounting policies are detailed in notes 1
and 9.
The Group completed its acquisition of
Pentest on 09 April 2019. In line with the
accounting standards, acquired assets and
liabilities are required to be measured at their
fair value at the date of acquisition. Acquired
intangible assets are required to be identified
and measured at fair value irrespective of
whether the asset had been recognised prior to
acquisition in the accounts of the acquiree.
Given the level of judgement involved in
assessing the fair value of the assets and
liabilities acquired, we have identified the
acquisition accounting surrounding this
transaction as one of the matters of most
significance in the audit of the financial
statements of the current period.
Our audit procedures involved 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 to
determine the fair value of the intangible assets acquired. We
performed the following procedures:
• evaluating the completeness and existence of
intangible assets recognised by agreeing to purchase
agreement, purchase consideration to compare
against the assets and liabilities acquired;
• assessment of the valuation methodologies applied by
consulting with BDO valuation specialists team;
• assessment of the key assumptions made by
management, such as discount rates and growth rates
compared to our independently calculated range;
• performing a sensitivity analysis to understand the
extent to which changes in key assumptions i.e.
discount rate and growth rates etc. may give rise to a
materially different valuation for the intangible asset;
and
• assessing the appropriateness 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.
Key observations
We found that the judgements and estimates made by
management in respect of business combinations were
reasonable, and disclosures were appropriate and in line with
the requirements of the accounting standards.
52
53
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Independent auditor’s report to the members of Shearwater Group Plc
Key Audit Matter
How we addressed the key audit matter in our audit
Going concern assessment
Our audit procedures involved:
The financial statements explain in note 1
how the Directors have formed a judgement
that it is appropriate to adopt the going
concern basis of preparation for the Group
financial statements.
The Group’s ability to continue as a going
concern has been subject to increased audit
scrutiny in line with the anticipated financial
impact of COVID-19 and its potential impact
on the markets as a whole and the Group
specifically. The Directors have considered
the impact of COVID-19 and have sensitised
their forecasts accordingly.
As the full economic effect on the Group
and the overall economic environment are
still uncertain there is a significant level of
judgement involved in anticipating results.
Due to the high level of judgement involved
in these assessments there exists a risk, that
inappropriate assumptions might be utilised
in the determination of the Group’s ability to
continue as a going concern.
• Discussing with management their assessment of the
Group’s ability to continue as a going concern.
• Critically evaluating the revenue and cost projections
underlying the model with reference to market
information as well as past performance of the Group.
• Assessing the reasonableness of projected cash flow
and working capital assumptions by comparing against
the Group’s past performance, any known post balance
sheet events etc.
• Assessing the impact of COVID-19 on the cash-flow
projections as well as the assumptions and sensitivities
relating to this.
• Performing analysis of changes in key assumptions
including a reasonable possible (but not unrealistic)
reduction in forecast revenue to understand the
sensitivity in the cash flow forecasts.
• A review of the appropriateness directors’ statement
in note 1 of the financial statements as to whether
it discloses all the relevant events and assumptions
made to adopt the going concern basis of accounting in
preparation of the financial statements.
Key observations
See the conclusions relating to going concern in the section above.
Our application of materiality
We apply the concept of materiality in planning and performing our audit and evaluating the effect of misstatement.
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, misstatement
below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of the
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 them all individual audit differences identified during
the course of our Group audit in excess of £24,700 (2019: £18,590). We also agreed to report differences below
these thresholds that, in our view, warranted reporting on qualitative grounds.
Group Overall Materiality
£494,000 (2019: £371,800)
Group Performance Materiality
(75% of Overall materiality)
£370,500 (2019: £278,850)
Basis for Determining (Group and
Parent)
Group – 1.5% of Group revenue (2019: 5.4% of Group loss before tax)
Parent – 1.5% of total assets (2019:1.75% of total expenditure)
Rationale for benchmark applied
(Group and Parent)
Group – The loss before tax has reduced significantly from prior
year and the group has generated significant revenues in the
current and prior year. Revenue was determined to be the most
appropriate benchmark and a key performance indicator in measuring
performance against the strategy set by the Group. Revenue has
therefore been used as the basis for materiality.
Parent – The Company is not generating any revenues and acts
mainly as a holding company for its investments. As a result, total
assets is a more appropriate benchmark for the parent.
Parent Company Overall Materiality
£122,800 (2019: £90,000)
Parent Company Performance Materiality
£92,100 (2019: £67,500)
Performance materiality was set at 75% (2019 – 75%) of the above materiality figures. 75% is based on our risk
assessment, together with our assessment of the Group’s overall control environment.
Component Materiality
Each significant component of the Group was audited to a lower level of materiality which is used to determine
financial statement areas that are included within the scope of our audit and the extent of sample sizes used during
the audit. We determined component materiality for three significant components to be £115,000, £213,000 and
£370,500. The range of component materiality is as follows:
Range of component materiality
23% to 75% 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 nine centrally controlled components, of which
three were deemed to be significant and subject to a full scope statutory audit. For the remaining six components not
considered significant, we performed full scope statutory audits on three and performed review procedures over the
remaining three components. All audit work was carried out by the Group auditor.
Other information
The Directors are responsible for the other information. The other information comprises the information included
in the annual report and financial statements, 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.
54
55
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Independent auditor’s report to the members of Shearwater Group Plc
Consolidated statement of comprehensive income
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 Statement of directors’ responsibilities set out on page 49, 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.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent
Company and the Parent 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, UK. 28 July 2020. BDO LLP is a limited liability
partnership registered in England and Wales (with registered number OC305127).
For the year ended 31 March 2020
Note
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Finance expenses
Finance income
Loss before tax
Income tax (charge) / credit
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
Impairment of intangible assets
Exceptional items
Fair value adjustment to deferred consideration
Contingent consideration
Operating Loss
Finance cost
Finance income
Loss before tax
Other comprehensive income
Items that may be reclassified to profit and loss:
Change in financial assets at fair value through OCI
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
Loss per share £
Basic and diluted (£ per share)
Adjusted basic and diluted (£ per share)
3
7
2
4
4
4
4
4
4
4
4
6
8
8
2019/20
£ (000)
33,004
(22,817)
10,187
(10,897)
(710)
(560)
8
(1,262)
(242)
2018/19
£ (000)
23,452
(16,617)
6,835
(13,551)
(6,716)
(164)
-
(6,880)
1,020
(1,504)
(5,860)
3,409
(2,418)
(316)
(329)
-
(678)
(69)
(309)
(710)
(560)
8
(1,262)
(1,394)
(1,325)
(69)
(331)
(1,005)
(2,729)
137
-
(6,716)
(164)
-
(6,880)
(4)
7
(18)
20
(1,501)
(5,858)
(0.07)
(0.08)
(0.42)
(0.10)
The results above are derived from continuing operations.
The notes on pages 61 to 93 are an integral part of these consolidated financial statements.
56
57
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Consolidated statement of financial position
Consolidated statement of changes in equity
As at 31 March 2020
For the year ended 31 March 2020
Assets
Non-current assets
Intangible assets
Financial assets at fair value through OCI
Property, plant and equipment
Deferred tax asset
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
Non-current liabilities
Creditors: amounts falling due after more
than one year
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
FVTOCI reserve
Other reserves
Translation reserve
Accumulated losses
Equity attributable to owners of the Company
Total equity and liabilities
Note
2020
£ (000)
2019
(restated)
£ (000)
10
11
12
16
13
14
15
18
56,767
-
692
186
57,645
10,505
3,343
13,848
71, 493
14,586
14,586
4,393
4,393
18,979
52,389
33
248
665
53,335
15,211
597
15,808
69,143
16,380
16,380
3,409
3,409
19,789
52,514
49,354
22,107
34,581
14
20,714
27
(24,929)
52,514
71,493
19,040
34,578
18
19,123
20
(23,425)
49,354
69,143
The notes on pages 61 to 93 are an integral part of these consolidated financial statements. The financial statements
on page 57 to 93 were approved and authorised for issue by the Board and signed on their behalf on 28 July 2020.
P Higgins, Chief Executive Officer
28th July 2020
Group
At 1 April 2018
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Contributions by and distributions to owners
Issue of share capital
Merger relief reserve
Share issue costs
Share based payments
At 31 March 2019
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Contributions by and distributions to owners
Issue of share capital
Merger relief reserve
Share based payments
At 31 March 2020
Share
capital
(Note 18)
£ (000)
Share
premium
£ (000)
FVTOCI
£ (000)
Other
reserve
(£ (000)
Translation
reserve
£ (000)
Accumulated
losses
£ (000)
Total
Equity
£ (000)
9,644
22,446
-
-
-
-
-
-
9,396
12,658
-
-
-
-
(526)
-
36
-
(18)
(18)
-
-
-
-
7,127
-
-
-
-
11,665
-
331
-
-
20
20
-
-
-
-
(17,110)
22,143
(5,860)
(5,860)
-
2
(5,860)
(5,858)
-
-
(455)
-
22,054
11,665
(981)
331
19,040
34,578
18
19,123
20
(23,425)
49,354
-
-
-
3,067
-
-
-
-
-
3
-
-
(4)
(4)
-
-
-
-
-
-
1,262
329
-
7
7
-
-
-
(1,504)
(1,504)
-
3
(1,504)
(1,501)
-
-
-
3,070
1,262
329
22,107
34,581
14
20,714
27
(24,929)
52,514
The notes on pages 61 to 93 are an integral part of these consolidated financial statements.
58
59
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Consolidated cashflow statement
Notes to the consolidated financial statements
For the year ended 31 March 2020
Cash flows from operating activities
Loss for the year
Adjustments for:
Amortisation of acquired intangible assets
Depreciation of property, plant and equipment
Share-based payment charge
Impairment of intangible assets
Fair value adjustment of deferred consideration
Contingent consideration
Finance income
Finance cost
Gain/loss on sale of asset
Income tax
Cash flow from operating activities before
changes in working capital
Decrease/(Increase) in trade and other receivables
(Decrease)/Increase in trade and other payables
Cash generated from/(used in) operations
Net foreign exchange movements
Finance cost (paid)/received
Tax paid
Net cash generating from/(used in) operating activities
Investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Purchase of software
Proceeds from disposal of held for sale assets
Proceeds from disposal of tangible assets
Gold exploration payments
Net cash used in investing activities
Financing activities
Proceeds from issue of share capital
Proceeds from issue of loans
Repayment of loan liabilities
Expenses paid in connection with share issues
Repayment of lease liabilities
Net cash generated by financing activities
Note
2019/20
£ (000)
2018/19
(restated)
£ (000)
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.
(1,504)
(5,860)
The Group is listed on the Alternative Investment Market (‘AIM’) on the London Stock Exchange. The Group
provides digital resilience solutions to a range of end user markets.
4
4
4
4
4
4
12
10
11
22
22
22
2,418
316
329
-
69
309
(8)
560
(1)
242
2,730
4,384
(2,239)
4,875
8
(62)
399
5,220
-
(20)
(1,409)
27
1
1,325
69
331
1,005
(137)
-
-
164
-
(1,020)
(4,123)
(3,387)
4,110
(3,400)
1
(10)
(52)
(3,461)
(14,264)
(81)
(619)
-
-
(19)
(1,401)
(14,983)
2
500
(1,341)
-
(236)
(1,075)
17,527
-
-
(981)
-
16,546
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.
Basis of preparation
The Consolidated 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.
Going concern
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to
continue in operational existence for at least twelve months from the date of signing these financial statements.
Accordingly, they continue to adopt the going concern basis in preparing these consolidated financial statements.
The Directors have reviewed the Group’s going concern position taking account of its current business activities,
budgeted performance and the factors likely to affect its future development which are set out in this Annual Report,
and include the Groups strategy, principal risks and uncertainties, its exposure to credit and liquidity risks and the
impact of the Covid 19 global pandemic.
The Group has recorded its first underlying profits in the year to 31 March 2020 and has posted positive operating
cashflows. As at 31 March 2020, the Group had cash and cash equivalents of £3.3m (2019: £0.6m) and net assets
of £52.6m (2019: £49.4m). In the year the Group generated net cash from operating activities of £5.0m (2019: cash
outflow £3.5m) realising a significantly reduced operating loss of £0.6m (2019: Loss: £6.7m). Subsequently the
Directors are pleased to announce that they have secured the following additional funding for the business:
• On 24 April 2020 the Group completed a fundraise raising £3.75m which it intends to use to fund acquisitions.
• On 22 June 2020 the Group signed via it’s subsidiary Brookcourt Solutions Limited a £4.0 million three-year
revolving credit facility with Barclays Bank plc which provides additional robustness towards the Group’s
short-term funding requirements.
The Directors’ have reviewed detailed budget cash flow forecasts for the period to at least 31 March 2022 and
have challenged the assumptions used to create these budgets. The budget figures are carefully monitored against
actual outcomes each month and variances are highlighted and discussed at Board level on a quarterly basis as a
minimum. The end of the fiscal year to 31 March 2020 has seen the Covid 19 global pandemic which has created
additional risks and uncertainties which the Board have considered. To date the Group has been able to adapt and
meet the challenges arising from of Covid 19 and as a result there has so far been limited impact on the Group’s
operational capacity.
Net increase/(decrease) in cash and cash equivalents
2,744
(1,898)
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
2
597
3,343
2
2,493
597
The notes on pages 61 to 93 are an integral part of these consolidated financial statements.
60
61
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the consolidated financial statements
1.
Statement of accounting policies continued
The Board has reviewed current trading to 30 June 2020 and are pleased to report that trading is tracking in line
with budget for the first quarter and the current view is that the Group is in a good place to meet its full year budget
targets.
In response to the additional challenges created by Covid 19 the Board have reviewed and challenged what it
believes to be an extreme scenario reverse stress test on the Group up to March 2022. The purpose of the reverse
stress test for the Group is to test at what point the cash facilities would be fully utilised if the assumptions in the
budget are altered.
The reverse stress test assumes significant adjustments to the Group’s budget which include the removal of all
new business revenue across both software and services divisions, reduction of renewal rates in our software
division to 50%, scaling back of revenues in our Services division leaving just critical managed services revenues
and already contracted revenues. Costs have been scaled back sensitively in line with the reduction in revenues.
In the event that the performance of the Group is not in line with the projections, action will be taken by
management to address any potential cash shortfall for the foreseeable future. The actions that could be taken by
the Directors include both a review and restructuring of employment related costs. Additionally, the Directors could
also negotiate to access other sources of finance from our lenders.
Overall, the sensitised cash flow forecast demonstrates that the Group will be able to pay its debts as they fall due
for the period to at least 31 March 2022 and therefore the Directors are satisfied there are no material uncertainties
to disclose regarding going concern. The Directors are, therefore satisfied that the financial statements should be
prepared on the going concern basis.
Critical accounting judgements estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions
that affect the amounts reported for income and expenses during the year and that affect the amounts reported for
assets and liabilities at the reporting date.
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. In determining
the fair value of intangible assets acquired key assumptions used include expected future cashflows, growth rates,
and the weighted average cost of capital. Further information can be found in note 9.
Impairment of goodwill, intangible assets and investment in subsidiaries
Management make judgements, estimates and assumptions in supporting the fair value of goodwill, intangible
assets and investments in subsidiaries. The Group carry out annual impairment reviews to support the fair value
of these assets. In doing so management will estimate future growth rates, weighted average cost of capital and
terminal values. Further information can be found on note 10.
Leases
Management make judgements, estimates and assumptions regarding the life of leases. At present management
are assessing all existing leases which all relate to office space as we look to reduce the number of offices across
the Group. For this reason management have assumed that the life of leases does not extend past the current
contracted expiry date. A judgement has been taken with regards to the incremental borrowing rate based upon the
rate at which the Group can borrow money.
Basis of consolidation
The Group’s consolidated financial statements incorporate the results and net assets of Shearwater Group plc and
all its subsidiary undertakings made up to 31 March each year. Subsidiaries are all entities over which the Group has
control (see note 2 of the company financial statements). The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
They are deconsolidated from the date that control ceases. Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All inter-group
transactions, balances, income and expenses are eliminated on consolidation.
Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting method. This involves recognising
identifiable assets (including previously unrecognised intangible assets) and liabilities of the acquired business at
fair value. Any excess of the cost of the business combination over the Group’s interest in the net fair value of the
identifiable assets and liabilities is recognised in the consolidated statement of financial position as goodwill and is not
amortised. To the extent that the net fair value of the acquired entity’s identifiable assets and liabilities is greater than
the cost of the investment, a gain is recognised immediately in the consolidated statement of comprehensive income.
After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value
being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the
carrying value may be impaired. Goodwill assets considered significant in comparison to the Group’s total carrying
amount of such assets have been allocated to cash-generating units or groups of cash-generating units. Where the
recoverable amount of the cash-generating unit is less than its carrying amount including goodwill, an impairment
loss is recognised in the consolidated statement of comprehensive income.
Acquisition costs are recognised in the consolidated statement of comprehensive income as incurred.
Revenue
The Group recognises revenue in accordance with IFRS 15 Revenue from Contracts with Customers. Revenue
with customers is evaluated based on the five-step model under IFRS 15 ‘Revenue from Contracts with
Customers’: (1) identify the contract with the customer; (2) identify the performance obligations in the contract;
(3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5)
recognise revenues when (or as) each performance obligation is satisfied.
Details of the material performance obligations for both our software and services businesses are
detailed below:
Software
• Software licences whereby the customer buys a software that it sets up and maintains on its premises is
recognised fully at the point the licence key / access has been granted to the client. The Group sells the
majority of its services through channels and distributors who are responsible for providing 1st and 2nd line
support to the client.
• Software licences for the new ‘Authentication as a Services’ product whereby the customer accesses the
product via a cloud environment maintained by the Company is recognised in two parts whereby 85% of the
subscription is recognised at the point that the licence key is provided to the customer with the remaining 15%
recognised evenly over the length of the contract.
62
63
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Notes to the consolidated financial statements
Statement of accounting policies continued
1.
Services
• Sale of third-party hardware, software and warranties:
a) Where the contract entails only one performance obligation to provide software or hardware, revenue is
recognised in full at a point in time upon delivery of the product to the end client. This delivery will either be in
the form of the physical delivery of a product or the e-mailing of access codes to the client for them to access
third party software or warranties; and
b) Where a contract to supply external hardware, software and/or warranties also include an element of
ongoing internal support, multiple performance obligations are identified and an allocation of the total contract
value is allocated to each performance obligation based on the standalone costs of each performance
obligation. The respective costs of each performance obligations are traceable to supplier invoice and
applying the fixed margins, standalone selling prices are determined. Internal support is recognised equally
over the period of time detailed in the contract.
• Sale of consultancy services are usually based on a number of consultancy days that make up the contracted
consideration. Consultancy days generally comprise of field work and (where required) report writing and
delivery which are considered to be of equal value to the client. Revenue is recognised over time based on
the number of consultancy days provided within the period compared to the total in the contract.
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.
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.
The directors consider that the acquisition of Pentest meets the aggregation criteria under IFRS 8 as they share
similar economic characteristics in terms of the nature of the products and services provided. Pentest is reported
within the Group’s services division.
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 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. Please
see note 4 for further details.
Current and deferred income tax
The charge for taxation is based on the profit or loss for the year and takes into account deferred tax. Deferred tax
is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax based in the computation of taxable profit or
loss and is accounted for using the balance sheet method.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the balance sheet date in the countries where the Group’s subsidiaries operate and generate taxable income.
Management periodically evaluate positions taken in tax returns with respect to situations where applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to
be paid to the tax authorities.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available in the
foreseeable future against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are measured at the rates that are expected to apply when the related asset
is realised, or liability settled, based on tax rates and laws enacted or substantively enacted at the reporting date.
Intangible assets
Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible
assets acquired as part of a business combination are recognised outside goodwill if the assets are separable or
arises from contractual or other legal rights and their fair value can be measured reliably. Material expenditure on
internally developed intangible assets is taken to the consolidated statement of financial position if it satisfies the 6
step criteria required under IAS 38.
Intangible assets with a finite life have no residual value and are amortised over their expected useful lives as follows:
Computer software
Customer relationships
Software
Tradenames
3-5 years straight line basis
1-15 years straight line basis
10 years straight line basis
10 years straight line basis
The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive
income within administrative expenses. The amortisation period and the amortisation method for intangible assets
with finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original
purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use.
Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to
its residual value over its estimated useful life.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
Plant and machinery
Office equipment
Right of use assets
20-33 per cent per annum
25 per cent per annum
Shorter of useful life of the asset or Lease term
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognised, as adjusted items if significant, within the statement of comprehensive income.
64
65
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the consolidated financial statements
1.
Statement of accounting policies continued
Financial liabilities
Financial instruments
Shearwater’s financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision for doubtful debts, determined as
set out below in “impairment of financial assets”. Any write-down of these assets is expensed to statement of
comprehensive income.
Equity investments not qualifying as subsidiaries, associates or jointly controlled entities are measured at fair value
through other comprehensive income (FVOCI), with fair value changes recognised in other comprehensive income
(OCI) and dividends recognised in profit or loss.
Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses
under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred
before credit losses are recognised. Instead, the Group always accounts for expected credit losses and changes in
those expected credit losses. The amount of expected credit losses are updated at each reporting date.
The new impairment model only applies to the Group’s financial assets that are debt instruments measured at
amortised costs or FVTOCI as well as the Group’s contract assets and issued financial guarantee contracts. The
Group has applied the simplified approach to recognise lifetime expected credit losses for its trade receivables and
contracts assets as required or permitted by IFRS 9.
Expected credit losses are calculated with reference to average loss rates incurred in the three most recent
reporting periods then adjusted taking into account forward looking information that may either increase or
decreases the current rate. The Group’s average combined loss rate is 0.3% (2019: 0.1%). This percentage rate is
then applied to current receivable balances using a probability risk spread as follows:
• 80% of debt not yet due (i.e. the Group’s average combined loss rate of 0.3% is discounted by 20%, meaning
a 0.24% provision would be made to debt not yet due);
• 85% of debt that is <30 days overdue;
• 90% of debt that is 30-60 days overdue;
• 95% of debt that is 60-90 days overdue; and
• 100% of debt that is >90 days overdue
Management have performed the calculation to ascertain the expected credit loss which works out to £26,377
(2019: £4,880). To date the Group has a record of minimal bad debts with less than £0.01 million being written off in
the past 3 years.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another entity. On derecognition of a financial asset measured at amortised cost, the difference between the
asset’s carrying amount and the sum of the consideration received and receivable is recognised in statement of
comprehensive income.
Trade and other payables
Financial liabilities within trade and other payables are initially recognised at fair value, which is usually the invoiced
amount. They are subsequently carried at amortised cost using the effective interest method (if the time value of
money is significant).
Loans are initially recognised at fair value, which is the amount stated in the loan agreement. Subsequently loan
balances are restated to include any interest that has become payable.
The Group utilised an invoice discounting facility in the current year. Advances under this facility have been initially
recognised at fair value, which is the amount advanced. Subsequently accrued interest has been recognised as
per the terms of the facility. The invoice discounting facility was closed on 20 March 2020 following the settlement
of all outstanding advances.
Lease liabilities have been recognised at fair value in line with the requirements of IFRS16. Please see additional
lease disclosure for further details.
Deferred consideration which relates to the future issue of ordinary shares has been initially recognised at fair value
based on the closing share price at the reporting date. Deferred consideration is revalued and recognised at fair
value based on the closing share price for all future reporting dates. Movements in fair value between periods are
reported in the statement of comprehensive income.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the
consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in
the statement of comprehensive income.
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 movement in cumulative expense since the previous
reporting date is recognised in the statement of comprehensive income, with the corresponding entry in equity.
Pensions
The Group operates a defined contribution personal pension scheme. The assets of this scheme are held
separately from those of the Company in an independently administered fund. The pension charge represents
contributions payable by the Company to the fund.
66
67
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Notes to the consolidated financial statements
1.
Statement of accounting policies continued
New standards and interpretations applied
Leases
Further to the introduction of IFRS 16 ‘Leases’ which supersedes IAS 17 ‘Leases’ and IFRIC 4 ‘Determining
whether an arrangement contains a lease’ for accounting periods beginning on or after 1 January 2019 the Group
has adopted the new standard from 1 April 2019 applying a modified retrospective approach. Under this approach
the Group has not restated prior year comparative information.
When applying the modified retrospective approach the Group has recognised right to use assets and equal lease
liability in the statement of financial position from the initial application date (1 April 2019). As a result there is no
impact on equity at the initial date of application.
The initial lease liability has been calculated based on the remaining payments discounted at the incremental
borrowing rate at the date of application. The discount rate under the modified retrospective approach is always the
incremental borrowing rate as at the date of initial application even if the rate in the lease is readily determinable.
Initial identification, assessment and measurement
Right of use assets
In order to identify all potential leases across the Group, management spoke with each local business to get
their input and separately a review of regular monthly payments across all bank accounts was completed as a
secondary sense check to ensure no potential leases were missed. Following this exercise management assessed
all agreements that in its view may have been or contained a lease. In determining if a lease existed management
considered if a contract conveyed the right to control the use of an identified asset for a period of time in return
for a consideration. When assessing whether a contract states a right to control the use of an identified asset
management considered:
•
•
•
If a contract involved the use of an identified asset, this could be specified explicitly or implicitly and should be
physically distinct.
If the Group obtained the right to gain substantially all of the economic benefit from the use of the asset
throughout the period of use.
If the Group had the right to direct the use of the asset.
Identified ‘Right of use assets’ have been valued at the date of inception (1 April 2019) on the discounted
lease liability.
Right of use assets have been depreciated on a straight-line basis from the commencement date (1 April 2019) to
the earlier of the end of useful life of the right of use asset or the end of the lease term. The right of use asset may
be subject to impairment following certain remeasurement of lease liabilities.
Remeasurement of a lease liability will give rise to a corresponding adjustment being made to the carrying value of
the right to use asset.
Lease liabilities are detailed in notes 14 and 15 of the consolidated financial statements.
Practical expedients
IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the
standard. The Group have applied the following practical expedients when applying IFRS 16 to leases previously
classified as operating leasing under IAS 17:
• Applied a single discount rate to all leases with similar characteristics;
• Applied the exemption not to recognise right of use assets and liabilities for leases with less than 12 months
of the lease term remaining as at the date of initial application
• Applied the exemption for low value assets whereby leases with a value under £5,000 (usually IT equipment)
have been classed as short term leases and not recognised on the statement of financial position even if the
initial term of the lease from the lease commencement date may be more than twelve months.
Incremental borrowing rate
IFRS 16 states that all components of a lease liability are required to be discounted to reflect the present value of
the payments. Where a lease (or Group of leases) does not state an implicit rate an incremental borrowing rate
should be used.
The incremental borrowing rate should represent what the lessee would have to pay to borrow over a similar term
and with similar security, the funds necessary to obtain an asset of similar value to the right of use asset in a similar
economic environment.
The Group applied an incremental borrowing rate of 3.5% which it used to discount all identified leases across the
Group. The rate is in line with the Group’s three-year revolving credit facility which it entered into post the financial
year-end. All leases held have a remaining term of between one to three years which is within the current term of
the Group’s revolving credit facility.
Effect of IFRS 16 on the consolidated statement of financial position
Right of use assets are included within property, plant and equipment on the statement of financial position and
balances at 31 March 2020 are detailed in the table below:
Property, plant and equipment
Office equipment
Right of use assets
Details of the Group’s right of use assets are detailed in note 12 of the consolidated financial statements.
Total property, plant and equipment (note 12)
Lease liability
Lease liabilities have been valued at the present value of remaining lease payments at the initial date of application
(1 April 2019) discounted at the determined incremental borrowing rate.
The lease liability is measured at the amortised cost using the effective interest method. Should there be a change
in expected future lease payments arising from a lease modification or if the Group changes its assessment of
whether it will exercise an extension or termination option the lease liability would be remeasured.
68
Total
£ (000)
174
518
692
69
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the consolidated financial statements
1.
Statement of accounting policies continued
Effect of IFRS 16 on the consolidated statement of cash flows
All of the Groups leases related to office property which has previously been classed as an operating lease.
The table below details the recognition of these leases as right of use assets in the year:
Balance as at 1 April 2019
Additions
Depreciation charge for the year
NBV balance as at 31 March 2020
There are no leases with a term of more than 5 years.
A reconciliation of lease commitments to lease liability as at 1 April 2019 is detailed below:
Operating lease commitments as at 1 April 2019
Impact of discounting
Operating leases with less than 12 months remaining (short-term leases)
Lease liabilities at 1 April 2019
An analysis of future lease liabilities is detailed below:
Lease liability (contractual undiscounted cash flows)
Less than one year
One to five years
Total undiscounted lease liabilities as at 31 March 2020
Lease liability included in the statement of financial position at 31 March 2020
Current
Non-Current
Total
£ (000)
508
232
(222)
518
Total
£ (000)
705
(34)
(164)
508
Total
£ (000)
304
278
583
524
280
244
Effect of IFRS 16 on the consolidated statement of comprehensive income
Amounts recognised in the consolidate statement of comprehensive income for the twelve months ended 31 March
2020 are detailed below:
Amounts recognised in the statement of comprehensive income
Interest on lease liabilities
Expenses related to short term leases
Depreciation - right of use assets (note 12)
Total
£ (000)
20
164
222
Amounts recognised in the statement of cash flows
Repayment of lease liabilities
Interest paid on to lease creditors
Total
£ (000)
236
20
Uncertainty over income tax treatments
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in
which there is uncertainty over income tax treatments. The interpretation requires:
• The Group to determine whether uncertain tax treatments should be considered separately, or together as a
Group, based on which approach provides better predictions of the resolution;
• The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
•
If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on
the most likely amount or expected value, depending on whichever method better predicts the resolution of
the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities
will examine amounts they have a right to examine and have full knowledge of all related information when
making those examinations.
The Group elected to apply IFRIC 23 retrospectively with the cumulative effect recorded in retained earnings as at
the date of initial application, 1 April 2019. The adoption of IFRIC 23 has had no impact on retained earnings or on
corporate tax liabilities.
New standards and interpretations not applied
The following new standards, amendments and interpretations have not been adopted in the current year.
International Financial Reporting Standard (IFRS/IAS)
Effective date
To be adopted by
the Group
IAS 1 ‘Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates
and Errors (Amendment - Definition of Material)’
IFRS 3 ‘Business Combinations
(Amendment - Definition of Business)’
1 January 2020
1 April 2020
1 January 2020
1 April 2020
Revised Conceptual Framework for Financial Reporting
1 January 2020
1 April 2020
The Group has reviewed the impact of these new accounting standards and amendments and believes the impact
is not material to the Group’s financial statements.
70
71
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the consolidated financial statements
2. Measure of profit
3.
Segmental information
To provide Shareholders with a better understanding of the trading performance of the Group, underlying EBITDA
and underlying profit before tax has been calculated as loss before tax after adding back the following items, which
can distort the underlying performance of the Group:
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.
Underlying profit / loss before tax
Impairment of intangible assets
• Amortisation of acquired intangibles
• Share-based payments
•
• Exceptional items (please see note 4 for further details)
• Fair value adjustment to deferred consideration
• Contingent consideration
Underlying EBITDA
In addition to the adjusting items highlighted above in the Underlying profit / loss before tax;
• Finance costs
• Finance income
• Depreciation
• Amortisation of intangible assets – computer software
Underlying EBITDA and Underlying profit / loss before tax reconciles to loss before tax as follows:
Loss before tax
Amortisation of acquired intangibles
Share-based payments
Impairment of intangible assets
Exceptional items
Fair value adjustment to deferred consideration
Contingent consideration
Underlying profit / loss before tax
Finance costs
Finance income
Depreciation
Amortisation of intangible assets – computer software
Underlying EBITDA
2019/20
£ (000)
(1,262)
2,095
329
-
678
69
309
2,128
560
(8)
316
323
3,409
2018/19
£ (000)
(6,880)
1,256
331
1,005
2,729
(137)
-
(1,696)
164
-
69
69
(1,394)
72
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 2020 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.
Services
Software
Group total
Group costs
Underlying EBITDA
Amortisation of acquired intangibles
Depreciation
Share-based payments
Impairment of intangible assets
Exceptional items
Fair value adjustment to deferred consideration
Contingent consideration
Finance income
Finance cost
Revenue
Year ended
31 March
2020
£ (000)
27,544
5,460
33,004
Profit
Year ended
31 March 2020
£ (000)
2,262
2,678
Revenue
Year ended
31 March 2019
£ (000)
19,572
3,880
Profit
Year ended
31 March 2019
£ (000)
266
468
23,452
4,940
(1,531)
3,409
(2,418)
(316)
(329)
-
(678)
(69)
(309)
8
(560)
734
(2,128)
(1,394)
(1,325)
(69)
(331)
(1,005)
(2,729)
137
-
-
(164)
Loss before tax (1,262) (6,880)
Segmental information by geography
The Group is domiciled in the United Kingdom and currently the majority of it’s revenues come from external
customers in the United Kingdom. The geographical analysis of revenue detailed below is on the basis of country
of origin in which the master agreement is held with the customer.
United Kingdom
Europe (excluding the UK)
North America
Rest of the world
2019/20
£ (000)
21,443
8,841
1,359
1,361
33,004
2018/19
£ (000)
20,872
1,642
704
234
23,452
73
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the consolidated financial statements
3.
Segmental information continued
The weighted average monthly number of employees, including Directors employed by the Group and Company
during the year was:
The majority of the Group’s non-current assets are held within the United Kingdom with the exception of £3,013
and £1,722 held in North America and Europe respectively.
Three customers within the Group each make up more than 10% of the Group’s revenue. These three customers
contribute £9.2m, £4.3m and £4.0m respectively to the Group’s Services division. In the prior year two customers
made up more than 10% of the Group’s revenue contributing £8.2m and £3.2m respectively to the Group’s
Services division.
4.
Expenses and auditor’s remuneration
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 Company financial statements
- Audit fee for annual audit of the Subsidiary financial statements
Share based payments
Impairment of intangible assets
Exceptional items
Fair value adjustment of deferred consideration
Contingent consideration
2019/20
£ (000)
2018/19
£(000)
316
2,418
-
53
109
329
-
678
69
309
69
1,325
519
41
95
331
1,005
2,729
(137)
-
Exceptional items relate to the internal re-organisation that took place early during the year (£0.3m), acquisition
costs for Pentest Limited (£0.3m) and additional one-off legal costs (£0.1m). Re-organisation costs include £0.2m
of exit costs relating to discontinued operations. In the previous year exceptional items of £2.7m included £1.7m of
acquisition costs relating to the acquisitions of Brookcourt and GeoLang plus £1m of one-off legal costs. No further
disclosure has been provided in either year for discontinued operations as due to the quantum this falls outside the
scope of IFRS 5.
5.
Staff costs
Total staff cost within the Group comprise of all Directors and employee costs for the financial year. The Group
totals below include 12 months of staff costs for Pentest Limited (acquired April 2019).
Wages and salaries
Social security costs
Pension costs
Share-based payments
2019/20
£ (000)
2018/19
£(000)
6,952
834
341
329
8,456
6,155
733
283
331
7,502
Administration
Production
Sales and marketing
6.
Interest costs
Interest payable on loan balances
Interest payable on invoice finance facility
Interest payable on lease liabilities
7.
Taxation
Current tax:
UK corporation tax at current rates on UK profit/loss for the year
Adjustments for previous periods
Foreign tax
Total current tax (credit)
Deferred tax movement in the period
Income tax (credit) / charge
Reconciliation of taxation:
Loss before tax
Loss multiplied by the average rate of corporation tax in the year of 19% (2019: 19%)
Tax effects of:
Deferred tax not recognised
Expenses not deductible for tax purposes
Foreign tax rate differences
Enhanced R&D relief
Fair value adjustment to deferred consideration
Adjustments for previous periods
Income tax (credit) / charge
2019/20
£ (000)
2018/19
£(000)
20
50
35
105
20
40
42
102
2019/20
£ (000)
2018/19
£(000)
470
70
20
560
136
28
-
164
2019/20
£ (000)
2018/19
£ (000)
351
(74)
277
7
284
(42)
242
(1,262)
240
4
666
2
(129)
13
(74)
242
(1,159)
-
(1,159)
18
(1,141)
121
(1,020)
(6,880)
(1,307)
(73
385
1
-
(26)
-
(1,020)
The Group has gross tax losses and temporary timing differences of £1.3 million (2018/19: £1.6 million) of which
a deferred tax asset of £0.2 million (2018/19: £0.7million) has been recognised based on expected utilisation in
the next twelve months.
74
75
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
8.
Earnings per share
9.
Acquisitions
Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation but before:
Impairment of intangible assets
• Amortisation of acquired intangibles after tax
• Share-based payments
•
• Exceptional items after tax
• Fair value adjustment to deferred consideration
• Contingent consideration
Acquisitions in the current period
Pentest Newco Limited
On 9 April 2019, the Group acquired the entire issued share capital of Pentest Newco Limited (“Pentest”), a newly
incorporated company which contained certain intangible assets of Secarma Limited (“Secarma”), one of the UK’s
leading cyber security testing companies. The acquisition brings an additional service that complements existing
businesses within the Group. Details of the fair value of identifiable assets and liabilities acquired, purchase
consideration and goodwill are follows:
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 not 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 2020 and the twelve months ended 31 March 2019 as the Group is loss making. Adjusted earnings per
share is potentially dilutive in the year to 31 March 2020. Please see note 18 and 19 of the consolidated financial
statements for more details.
The calculation of the basic and diluted loss per ordinary share from total operations attributable to Shareholders is
based on the following data:
Non-contractual customer relationships
Deferred tax liabilities
Total net assets
Fair value of consideration paid:
Unsecured loan note
Shares in Shearwater Group plc*
Total consideration
2019/20
£ (000)
2018/19
£(000)
Goodwill (note 10)
Book value
£ (000)
-
-
Adjustment
£ (000)
2,294
(390)
Fair value
£ (000)
2,294
(390)
-
1,904
1,904
£ (000)
677
4,019
4,696
2,792
Net loss from total operations
Loss for the purposes of basic and diluted loss per share being net loss
attributable to Shareholders
Add/(remove):
Amortisation of acquired intangibles
Share-based payments
Impairment of intangible assets
Exceptional items
Fair value adjustment to deferred consideration
Contingent consideration
Underlying earnings for the purposes of adjusted earnings per share
Number of shares
Weighted average number of ordinary shares for the purpose of basic and
diluted and adjusted basic earnings per share
Weighted average number of ordinary shares for the purpose of
adjusted diluted earnings per share.
Basic and diluted loss per share
Adjusted basic and diluted earnings/(loss) per share
(1,504)
(5,860)
1873
329
-
609
69
309
1,685
1,018
331
1,005
2,210
(137)
-
(1,433)
No.
No.
22,005,719
14,074,839*
22,158,427
14,120,632*
£
(0.07)
0.08
£
(0.42)
(0.10)
* prior year weighted average per share has been restated provide comparability following the share consolidation in September
2019. Further details can be found on note 18.
Post year end the Group issued of an additional 1,562,500 ordinary shares as part of a fundraise. Further details
can be found in note 23 of the consolidated financial statements.
* Share consideration has been valued at the 8 April 2019 closing market price of 1.375 pence.
Adjustments in the table above include £2.3 million for non-contractual customer relationships. The acquisition
has been recognised under IFRS 3 as a business combination which includes the addition of staff and customer
relationships.
The share consideration was made up of the issuance of 292,292,565 ordinary shares of the Group at an
issue price of 2.3 pence to the Secarma shareholders (representing £6.7 million of consideration). The share
consideration has been recognised at a fair value of 1.375 pence per share being the closing price of shares on
the 8 April 2019.
The unsecured loan note of £0.7 million is to be repaid to the seller in tranches on the first and third anniversary
of completion of the acquisition. The unsecured loan note attracts an interest of 6 per cent. per annum.
The goodwill recognised will not be deductible for tax purposes.
Acquisition costs of £0.3 million arose as a result of the transaction and has been recognised as part of
administration expenses in the statement of comprehensive income for the twelve-month period to 31 March
2020 within exceptional items.
Pentest Newco Limited was incorporated on the 4 April 2019 and acquired by Shearwater Group plc on 9 April
2019. The business generated revenues of £1.7 million in the current year and achieved an EBTDA loss of £0.5
million. There are no pre acquisition financials.
76
77
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
9.
Acquisitions continued
Acquisitions in the prior year
Brookcourt Solutions Limited
On 17 October 2018, the Group acquired the entire issued share capital of Brookcourt Solutions Limited
(“Brookcourt”), a multi-award winning, UK-based cyber security solutions company, focusing on the provision of
secure networking and cyber security solutions to corporate and public sector organisations. The rationale for the
acquisition is in line with the Group’s strategy to acquire complimentary digital resilience solutions businesses to
enhance the Group’s service offering.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are follows:
Goodwill has increased by £0.3m which incorporates an adjustment to the true up of net current assets statement
which was finalised in the current year.
GeoLang Holdings Limited
On 4 April 2018, the Group acquired the entire issued share capital of GeoLang Holdings Limited (“GeoLang”),
an award-winning UK-based provider of Data Loss Prevention (“DLP”) enterprise software. The rationale for the
acquisition is in line with the Group’s strategy to acquire complimentary digital resilience solutions businesses to
enhance the Group’s service offering.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill
are follows:
Property, plant and equipment
Tradename
Non-contractual customer relationships
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Total net assets
Fair value of consideration paid:
Cash
Shares in Shearwater Group plc
Deferred cash consideration
Total consideration
Goodwill (note 10)
Book value
£ (000)
160
-
-
190
10,184
4,417
(7,347)
(27)
Adjustment
£ (000)
-
6,826
4,282
(190)
1,120
(1,095)
(577)
(2,000)
7,577
8,366
Fair value
£ (000)
160
6,826
4,282
-
11,304
3,322
(7,924)
(2,027)
15,943
£ (000)
18,485
15,360
3,000
36,845
20,902
Adjustments in the table above include; £6.8 million and £4.3 million for the creation of intangible assets for the
tradename and customer relationships. Inventories have been written down by £0.2 million. Trade and other
receivables of £1.1 million represent a £3.0 million loan advanced to Shearwater Group plc less £1.9 million of
loans advanced to the Directors of Brookcourt plus £0.02 million addition to prepayments for services that have not
yet been recognised. Cash and cash equivalent reduction of £1.1 million represents the net cash paid to the parent
on acquisition. Trade and other payables of £0.6 million reflects deferred revenue at acquisition.
The cash portion of consideration of £21.5 million reflects £6.4 million of cash and cash equivalents which were
acquired on a £ for £ basis as part of the transaction which includes the £3.4 million as detailed in the table above
plus £3.0m loan which is repayable to the ex-owners which is detailed in note 15.
The goodwill recognised will not be deductible for tax purposes.
Acquisition costs of £2.0 million arose as a result of the transaction. £0.5 million of these acquisition costs related
to the issuance of new equity and has been charged to retained earnings in line with merger relief rules. The
remaining £1.5 million has been recognised as part of administration expenses in the statement of comprehensive
income for the twelve-month period to 31 March 2019 within exceptional items.
The business generated revenues of £23.9 million (2019: £15.2 million) in the current year and achieved an
EBITDA of £3.4 million (2019: £2.8 million).
78
Computer software
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Total net assets
Fair value of consideration paid:
Repayment of indebtedness
Shares in Shearwater Group plc
Holdback consideration shares
Total consideration
Goodwill (note 10)
Book value
£ (000)
-
115
15
(483)
-
Adjustment
£ (000)
1,220
-
310
148
(207)
Fair value
£ (000)
1,220
115
325
(335)
(207)
(353)
1,471
1,118
£ (000)
457
800
343
1,600
482
Adjustments in the table above include; £1.2 million for the creation of intangible assets for computer software.
Cash and cash equivalents of £0.3 million represents funds transferred into the company on acquisition to settle
remaining indebtedness.
Trade and other payables include £0.1 million which was related to indebtedness settled at the date of acquisition.
The goodwill recognised will not be deductible for tax purposes. All indebtedness was settled in full in the previous
financial year.
Acquisition costs of £0.2 million arose as a result of the transaction. This has been recognised as part of
administration expenses in the statement of comprehensive income for the twelve-month period to 31 March 2019
within exceptional items.
The business generated revenues of £0.2 million (2019: £0.1 million) in the current year and achieved an EBITDA
loss of £0.3 million (2019: loss of £0.5 million).
An additional 12,960,179 holdback consideration shares will be issued on 4 April 2020 on the basis that no
warranties within the sale and purchase agreement have been breached.
On the 13 June 2019, the Group issued 14,388,567 ordinary shares of the Group to the GeoLang sellers. These
additional consideration shares were issued pursuant to the acquisition of GeoLang Holdings Limited announced
on 4 April 2018, under which certain provisions were triggered by the share price performance criteria set out in
the sale and purchase agreement which were considered unlikely at the point of acquisition and as such were not
recognised on acquisition. This has resulted in a £0.3 million charge to the statement of comprehensive income.
79
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
10.
Intangible assets
11. Financial assets at fair value through OCI
6,826
1,005
62,163
On 4 October 2019 the Group sold all of its’ 715,000 ordinary shares in Plymouth Minerals Limited (ASX: INF
previously PLH) listed on the Australian Securities Exchange.
Goodwill
£ (000)
Customer
relationships
£ (000)
Software
£ (000)
Tradenames
£ (000)
Gold
ex-ploration
£ (000)
Cost
At 1 April 2018
Recognised on acquisition
Additions
At 31 March 2019
Recognised on acquisition
Additions
At 31 March 2020
Accumulated amortisation
At 1 April 2018
Amortisation for the year
Impairments
At 31 March 2019
Amortisation for the year
At 31 March 2020
Net book amount
At 31 March 2020
At 31 March 2019
At 31 March 2018
12,449
21,117
-
33,566
2,792
302
36,660
-
-
-
-
-
-
4,260
4,284
-
8,544
2,294
-
10,838
324
493
-
817
930
3,621
1,220
584
5,425
-
1,409
6,834
323
513
-
836
806
-
6,826
-
6,826
-
-
-
319
-
319
683
1,747
1,642
1,002
36,660
33,566
12,449
9,091
7,727
3,936
5,192
4,589
3,298
5,824
6,507
-
Total
£ (000)
21,316
33,447
603
986
-
19
1,005
55,366
-
-
5,086
1,711
-
-
1,005
1,005
-
1,005
647
1,325
1,005
2,977
2,419
5,396
-
-
56,767
52,389
986
20,669
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. Following the acquisitions of Pentest, the Group has five separate cash
generating units (‘CGU’). For all five cash generating units a weighted average cost of capital of 15% and a
terminal value, based on a long-term growth rate of 2 to 2.5% calculated on year 5 cashflow has been used when
testing goodwill.
Goodwill arising from the acquisition of Pentest consists largely of the future revenue opportunities of the service
offerings not yet realised, expertise within the acquired workforces as well as intra-group synergies and economies
of scale as a result of utilisation of the Group’s shared services function.
None of the goodwill is expected to be deductible for income tax purposes.
Goodwill additions in the year include £0.3 million for the net current asset true up for Brookcourt.
The Group has impaired £1.0 million of their legacy Gold exploration rights in the last financial year as a result of
delays in obtaining licences which has delayed the process of identifying a potential buyer.
Cost
At 1 April 2018
Fair value loss
At 31 March 2019
Revaluation
Fair value loss
Disposal proceeds
At 31 March 2020
Total
£ (000)
51
(18)
33
(2)
(4)
(27)
-
12. Property, plant and equipment
Right of use
assets
£ (000)
Office
equipment
£ (000)
Cost
At 1 April 2018
Recognised on acquisition
Additions
At 31 March 2019
Additions following Adoption of IFRS16
Additions
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the period
At 31 March 2019
Charge for the period
At 31 March 2020
Net book amount
At 31 March 2020
At 31 March 2019
At 31 March 2018
-
-
-
-
740
-
740
-
-
-
222
222
518
-
-
90
160
81
331
-
20
351
14
69
83
94
177
174
248
76
Total
£ (000)
90
160
81
331
740
20
1,091
14
69
83
316
399
692
248
76
Depreciation of property, plant and equipment is charged to administrative expenses within the statement of
comprehensive income.
80
81
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
13. Trade and other receivables
Trade receivables (restated)
Prepayments and other receivables
Accrued income
VAT recoverable
Corporation tax
2020
£ (000)
8,575
1,458
472
-
-
10,505
2019
(restated)
£ (000)
12,195
2,017
300
379
320
15,211
Other receivables include a £4,000 Directors loan which was repaid on 15 April 2019. The loan was interest free.
A prior year restatement of £1,009,000 is accounted for to remove trade receivables and deferred income in
relation to amounts invoiced but not yet due at 31 March 2019 where the performance obligation had not yet
commenced at that date. This restatement does not impact statement of comprehensive income for the Group and
Company only financial statements.
The movement for the provision in expected credit losses is stated below:
At 1 April
Movement in expected credit loss provision
At 31 March 2020
14. Trade and other payables
Trade payables
Loans
Accruals and other payables
Deferred income (restated)
Other taxation and social security
Lease liabilities
Deferred consideration
Corporation tax
2020
£ (000)
-
26
26
2020
£ (000)
6,093
4,054
2,603
425
844
280
275
12
14,586
2019
£ (000)
-
-
-
2019
(restated)
£ (000)
7,451
4,407
2,933
137
1,452
-
-
-
16,380
Loan balances include £3.0 million of delayed completion cash which is repayable on 17 April 2020 to the previous
shareholders of Brookcourt Solutions Limited. Interest has accrued on this loan at a rate of 10% per annum to 17
October 2019 rising to 15% after this date. At year end £0.5m accrued interest is included to leave a liability of £3.5
million. The repayment date of the delayed completion cash has been further extended and will be settled in full in
August 2020.
Deferred consideration of £0.3 million represents deferred share consideration owed to the previous owners of
GeoLang Holdings Limited. Under the terms of the sale and purchase agreement, following no warrantee claims
arising from the date of acquisition to the second anniversary of the acquisition an additional 129,601 ordinary
shares will be issued to the ex-vendors of GeoLang Holdings Limited.
A prior year restatement of £1,009,000 is accounted for to remove trade receivables and deferred income in relation
to amounts invoiced but not yet due at 31 March 2019 where the performance obligation had not yet commenced at
that date. This restatement does not impact statement of comprehensive income for the Group and Company only
financial statements.
15. Creditors: amounts falling due after more than one year
Deferred tax
Loans
Lease liabilities
Deferred consideration
2020
£ (000)
3,422
728
243
-
4,393
2019
£ (000)
3,203
-
-
206
3,409
Loan balances include £0.5m loan to Secarma for the acquisition of Pentest Limited which is repayable on
9 April 2022. The remaining £0.2 million represents a working capital loan to support the initial working capital
requirements of Pentest Limited. This balance is repayable on 9 April 2022.
16. Deferred tax
Non-current liabilities
Liability at 1 April
Deferred tax (credit) / charge in the statement of comprehensive income
Acquisition of subsidiaries
Total deferred tax
2020
£ (000)
3,203
(171)
390
3,422
2019
£ (000)
1,340
(373)
2,236
3,203
Deferred tax arising on acquisition includes £0.4 million for Pentest Limited which has arisen as part of the PPA
exercise to identify intangible assets (acquisitions of Brookcourt Solutions and GeoLang Holdings generated the
£2.2 million balance in the comparative year).
Non-current assets
At 1 April
Deferred tax asset created in year
Utilisation of deferred tax asset
Total deferred tax asset
2020
£ (000)
665
-
(479)
186
2019
£ (000)
-
665
-
665
In the prior year deferred tax was classified as current assets. This has been reclassified to non-current assets in
accordance with IAS 1. It has a nil impact on the statement of financial position.
As detailed in last year’s financial statements the Group has generated it’s first taxable profits in the current year
and has utilised £0.5 million of the deferred tax asset that was created in the previous financial year. The Group is
forecasting to deliver taxable profits in the year to 31 March 2021 and expects to fully utilise the remaining deferred
tax asset.
82
83
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
17. Deferred consideration
Liability at 1 April
Holdback consideration shares
Fair value adjustment to deferred consideration
2020
£ (000)
206
-
69
275
2019
£ (000)
-
206
-
206
The above balance represents deferred share consideration owed to the previous owners of GeoLang Holdings
Limited. Under the terms of the sale and purchase agreement, following no warrantee claims arising from the date
of acquisition to the second anniversary of the acquisition an additional 129,601 ordinary shares will be issued to
the ex-vendors of GeoLang Holdings Limited.
18. Share capital
On 25 September 2019, at the Group’s AGM, shareholders approved the capital reorganisation to consolidate the
Company’s ordinary shares by a factor of 100.
The consolidation comprised of two elements:
• Consolidation, whereby every 100 shares were consolidated into one ordinary share of
£1 (a “consolidated share”)
• Sub-division – immediately following the consolidation, each consolidated share was sub-divided into one
ordinary share of 10 pence (a “new ordinary share”) and one deferred share of 90 pence (a “deferred share”).
Deferred shares for all practical purposes are valueless and it is the Boards intention to repurchase,
cancel or seek to the surrender these deferred shares using lawful means as the Board may at such time in the
future. Following the capital reorganisation 22,106,460 new ordinary shares of 10 pence each were admitted to
trading on AIM at 8am on 26 September 2019.
Details of the share consolidation are provided in the table below:
Number of ordinary
issued shares
Number of issued
deferred shares
Aggregate nominal value of
shares in the company (£)
Immediately prior to AGM
Following close of business on the
date of AGM
2,210,646,000
22,106,460
-
-
22,106,460
-
22,106,460
22,106,460
The table below details movements within the year:
In thousands of shares
In issue at 1 April
Options exercised during the year
Share issue as part of acquisition consideration
Share issue for deferred consideration
Share placing and open offer
No of shares (pre share consolidation)
* Prior year comparisons have been restated to provide a like-for-like comparison.
Ordinary shares
2020
19,040
3
2,923
143
-
22,109
2019*
9,644
11
4,510
6
4,869
19,040
Allotted, called up and fully paid
Ordinary shares of £0.10 each (2019: £0.01 each)
2020
£ (000)
22,107
2019
£ (000)
19,040
The following issues of shares were undertaken in the twelve-month period ended 31 March 2020:
Pre share consolidation
On 9 April 2019 292,292,565 new ordinary shares of 1p were issued to the shareholders of Secarma at a price of
£0.023 per share to satisfy the share consideration as part of the acquisition of Pentest Limited.
On the 13 June 2019, the Group issued 14,388,567 ordinary shares of the Group to the previous owners of GeoLang
Holdings Limited. These additional consideration shares were issued pursuant to the acquisition of GeoLang Holdings
Limited announced on 4 April 2018, under which certain provisions were triggered by the share price performance
criteria set out in the sale and purchase agreement which were considered unlikely at the point of acquisition.
On 25 September 2019 as part of the approved share consolidation an additional 16 shares were admitted to trading
which increased the issued number of shares to 2,210,646,000. Following the consolidation the Group had 22,106,460
shares in issue.
Post share consolidation
On 2 March 2020 a further 2,857 options were exercised by an advisor to the Group.
Other reserves included:
Share premium
This comprises of the amount subscribed for share capital in excess of the nominal value less any
transaction costs incurred in raising equity.
FVTOCI reserves
This comprises of gains/losses arising on financial assets classified as available for sale. A fair value loss was
recognised in the year relating to Plymouth Minerals (see note 11).
Other reserves
These comprise of amounts expenses in relation to the share incentive scheme (see note 19) and merger relief from
shares issued as consideration to acquisitions.
19. Share based payments
Share options
Subsidiary incentive scheme
2019/20
£ (000)
129
200
329
2018/19
£ (000)
131
200
331
Following the share consolidation completed in the current year, share options have been consolidated whereby the
number of share options initially issued has been divided by 100 with the exercise price being multiplied by 100. There
is no net impact to options holders. The values in the tables in this note are all restated on a post consolidation basis.
84
85
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
19. Share based payments continued
Share options
The following options over ordinary shares remained outstanding at 31 March 2020
Options
at 1 April
2019
Options
issued
during the
year
Options
lapsed
during
the year
Options
exercised
during
the year
Options
at 31
March
2020
Exercise
price
Date of
grant
First
date of
exercise
Final
date of
exercise
Options’ -
Directors
P McFadden
Employees:
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Non-employees
Other
Other
55,033
44,519
1,063
15,536
27,500
82,778
44,444
12,500
-
-
-
-
20,000
2,857
8,750
-
875
-
-
-
-
-
-
-
-
25,000
12,500
9,000
12,500
2,100
11,213
-
10,656
1,500
12,778
9,722
9,846
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,875
£4.0
07/05/2018
07/05/2019
30/09/2023
52,933
33,306
1,063
4,880
26,000
70,000
34,722
2,654
25,000
12,500
9,000
12,500
£4.0
£4.0
£4.0
£4.0
£4.0
£3.6
£3.6
£1.6
£2.0
£2.0
£4.0
£2.0
09/05/2017
13/11/2017
08/01/2018
01/03/2018
04/04/2018
17/10/2018
17/10/2018
01/03/2019
09/04/2019
24/04/2019
01/06/2019
01/10/2019
09/05/2018
13/11/2018
08/01/2019
01/03/2019
04/04/2019
31/03/2019
31/03/2019
01/03/2020
09/04/2020
24/04/2020
01/06/2020
01/10/2020
08/05/2022
12/11/2022
07/01/2023
28/02/2023
03/04/2023
30/09/2021
30/04/2024
01/07/2024
30/09/2021
30/09/2021
30/09/2023
30/09/2023
-
-
-
-
-
2,857
20,000
-
£1.0
£1.0
03/10/2016
27/02/2017
03/10/2016
27/02/2018
03/10/2021
31/03/2020
Total
314,980
59,000
58,690
2,857
312,433
The following options over ordinary shares remained outstanding at 31 March 2019:
Options
at 1 April
2018
Options
issued
during
the year
Options
lapsed
during
the year
Options
exercised
during
the year
Options
at 31
March
2019
Exercise
price
Date of
grant
First
date of
exercise
Final date
of exercise
Options’ -
Directors
G Willits
P McFadden
Employees:
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Employees
Non-employees
Other
Other
5,217
-
69,500
15,000
45,577
5,000
19,286
-
-
-
-
20,000
8,571
-
8,750
-
-
-
-
-
27,500
82,778
44,444
12,500
-
-
-
-
5,217
-
-
8,750
£1.0
£4.0
09/12/2016
07/05/2018
09/12/2017
07/05/2019
30/06/2018
30/09/2023
14,467
15,000
1,058
3,937
3,750
-
-
-
-
-
-
-
-
-
-
-
-
-
55,033
-
44,519
1,063
15,536
27,500
82,778
44,444
12,500
£4.0
£4.0
£4.0
£4.0
£4.0
£4.0
£3.6
£3.6
£1.6
09/05/2017
28/09/2017
13/11/2017
08/01/2018
01/03/2018
04/04/2018
17/10/2018
17/10/2018
01/03/2019
09/05/2018
28/09/2018
13/11/2018
08/01/2019
01/03/2019
04/04/2019
31/03/2019
31/03/2019
01/03/2020
08/05/2022
27/09/2022
12/11/2022
07/01/2023
28/02/2023
03/04/2023
30/09/2021
30/04/2024
01/07/2024
-
-
-
5,714
20,000
2,857
£1.0
£1.0
03/10/2016
27/02/2017
03/10/2016
27/02/2018
03/10/2021
31/03/2020
Total
188,151
175,972
38,212
10,931
314,980
* The values in both tables above have been restated to provide a like-for-like comparison following the share consolidation which is detailed in note 18.
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
Exercised during the year ended 31 March
Outstanding at 31 March
Exercisable at 31 March
2019/20
2018/19
Number
314,980
59,000
58,690
2,857
312,433
152,708
WAEP
£
3.5
2.3
3.4
1.0
3.3
3.2
Number
188,151
175,972
38,212
10,931
314,980
45,793
WAEP
£
3.4
3.5
4.0
1.0
3.5
2.7
The weighted average share price of options exercised during the year was £2.33 (2018/19: £1.53).
The share-based payment charge for options granted to Employees and Directors has been calculated using the
Black-Scholes Model and using the following parameters
Share price at grant date
Exercise price
Expected option life (year)
Expected volatility (%)
Expected dividends
Risk-free interest rate (%)
Option fair value
2019/20
£1.38 to £4.30
£1.00 to £4.00
1 years to 6 years
10.6% to 40%
0%
0.60% to 1.53%
£0.0 to £2.9
2018/19
£1.60 to £4.30
£1.00 to £4.00
1 years to 6 years
10.6% to 40.0%
0%
0.79% to 1.53%
£0.0 to £2.9
The expense is recognised for share-based payments in respect of Employees, directors and consultant services
received during the year ended 31 March 2020 was £129k (2018/19: £131k).
This represented £129k in respect of share options and £nil in respect of share-based compensation (2018/19:
£131k in respect of share options and nil 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, new scheme options shares issued prior to April
2018 (bar those issued to the SecurEnvoy participants) have been issued utilising the 5-year volatility rate for the
AIM all share index. All new scheme option shares issued from April 2018 onwards have been issued utilising a 40%
volatility rate, which is in line with other market participants operating in the software and IT sectors.
86
87
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
19. Share based payments continued
Options held by Directors are disclosed in the Directors Report on page 46.
The market price of shares as at 31 March 2020 was £2.12 (31 March 2019: £1.59). The range during the financial
year was £1.375 to £2.95. At the date of signing the financial statements the share price was 1.98p.
The weighted average remaining contractual life of options outstanding at the end of the year was 3 years 5
months (2018/19: 4 years and 8 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. Following M Stevens resignation his shares were forfeited and following this a grant was made to
P Higgins who has joined the scheme. 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. In line with the rules of the scheme the
Directors have subsequently extended the vesting period 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:
Participation
in increase in
shareholder
value
7.5%
3.0%
7.5%
Issue price
£0.032
£0.032
£0.032
Nominal value
of incentive
shares
£0.000001
£0.000001
£0.000001
Number of
incentive
shares 1
April 2019
75,000
30,000
-
Number of
incentive
shares 31
March 2020
Number of
Shearwater
Group plc
shares issued
-
65,000
75,000
-
-
-
Share based
payment charge
£2,759
£83,291
£89,037
M Stevens
D Williams
P Higgins
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 £200,099 (2019: £199,560) 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.
20. Financial instruments
The Group uses financial instruments, other than derivatives, comprising cash at bank and various items such as
trade and other receivables and trade and other payables that arise directly from its operations. The main purpose of
these financial instruments is to raise finance for the Group’s operations.
The Group’s financial assets and liabilities at 31 March 2020, as defined under IFRS 9, are as follows. The fair
values of financial assets and liabilities recorded at amortised costs are considered to approximate their book value.
Financial assets
Cash and cash equivalents
Trade and other receivables
Equity investments
Total financial assets
Financial assets
Trade and other payables
Loans and borrowings
Lease liabilities
Deferred consideration
Total financial liabilities
Amortised cost
(loans and receivables)
Fair value through other
comprehensive income
(available for sale)
2020
£ (000)
3,343
9,074
-
12,417
2019
(Restated)
£ (000)
597
12,503
-
13,100
Amortised cost
2020
£ (000)
8,928
4,782
524
-
14,234
2019
£ (000)
10,384
4,407
-
-
14,791
2020
£ (000)
2019
£ (000)
-
-
-
-
-
-
33
33
Fair value through other
comprehensive income
(available for sale)
2020
£ (000)
2019
£ (000)
-
-
-
275
275
-
-
-
343
343
88
89
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
20. Financial instruments continued
As of 31 March the Group’s net exposure to foreign exchange risk was as follows:
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.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly
affecting the Group’s competitiveness and flexibility.
The Group is exposed to financial risks in respect of:
• Capital risk;
• Foreign currency;
•
Interest rates;
• Credit risk; and
• Liquidity risk.
A description of each risk, together with the policy for managing risk, is given below.
Capital risk
The Group manages its capital to ensure that the company and its subsidiaries will be able to continue as going
concerns while maximising the return to stakeholders through the optimisation of equity and debt balances.
The capital structure of the Group consists of cash and cash equivalents, borrowings, equity, comprising issued
capital, reserves and accumulated losses as disclosed in the consolidated statement of changes in equity on page 59.
The Board of directors reviews the capital structure on a regular basis. As part of this review, the committee
considers the cost of capital and the risks associated with each class of capital, against the purpose for which it
is intended.
The Group utilise a debt finance facility to fund further growth which has short term working capital requirements.
Debt is also secured to support the on-going operations and future growth of the Group.
Market risk
Market risk arises from the Group’s use of interest bearing, tradable and foreign currency financial instruments. It is
the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates (currency risk), interest rates (interest rate risk), or other market factors (other price risk).
Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are denominated in a currency other
than sterling. Exposures to exchange rates are predominantly denominated US dollars ($) and Euros (€). The
Group seeks to reduce foreign exchange exposures arising from transactions in various currencies through a policy
of matching, as far as possible, receipts and payments across the Group in each individual currency. Following the
acquisition of Brookcourt the Group exposure to foreign currency risk has changed due to it having a number of
clients and suppliers outside of the United Kingdom who trade in non-sterling denominations. The Group does not
currently use derivatives to hedge translation exposures arising on the consolidation of its overseas operations.
Net foreign currency financial assets / (liabilities)
Trade receivables
Trade payables
Cash and cash equivalents
Total net exposure
USD
EUR
2020
£ (000)
1,327
(5,163)
588
(3,248)
2019
£ (000)
345
(6,117)
116
(5,656)
2020
£ (000)
3,488
(19)
41
3,510
2019
£ (000)
2,493
(2)
140
2,631
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 an increase of the pre-tax loss in the year and a decrease in net assets of
£0.3 million. A 10% weakening in the exchange rate would, on the same basis, have decreased the pre-tax loss in
the year and increased net assets by £0.2 million.
The effect of a 10% strengthening of the euro (€) against sterling (£) at the reporting date on the euro (€)
denominated trade receivables, payables and cash and cash equivalents carried at that date would, all other
variables held constant, have resulted in a reduction of the pre-tax loss in the year and an increase in net assets of
£0.4 million. A 10% weakening in the exchange rate would, on the same basis, have increased the pre-tax loss in
the year and decreased net assets by £0.3 million.
Interest rate risk
The Group has minimal cash flow interest rate risk as it has no external borrowings at variable interest rates.
Other market price risk
During the year the Group disposed of it’s equity investment in Plymouth Minerals Limited (ASX: INF) listed on the
Australian Securities Exchange. Further details can be found in note 10 of the consolidated financial statements.
Liquidity risk
The Group manages liquidity risk by maintaining adequate cash reserves and credit facilities, by continuously
monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities
wherever possible. There has been no change to the Group’s exposure to liquidity risks or the manner in which
these risks are managed and measured during the year. Further details are provided in the Strategic Report.
The liquidity risk of each Group entity is managed centrally by the Group’s finance function. Each entity has a
predefined facility based on the budget which is set and approved by the Board in advance, which provides detail
of each 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 has a £153,900 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 £13,979 was utilised.
The maturity profile of the financial liabilities is summarised below. The table has been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required
to pay.
90
91
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
20. Financial instruments continued
As at 31 March 2020
Trade and other payables
Loans and borrowings
Lease liabilities
Total
As at 31 March 2019
Trade and other payables
Loans and borrowings
Total
Up to 3
months
£ (000)
8,192
2,587
32
10,811
Up to 3
months
£ (000)
9,791
1,271
11,062
Between
3 and 12
months
£ (000)
736
1,571
248
2,555
Between
3 and 12
months
£ (000)
593
3,136
3,729
Between 1
and 2 years
£ (000)
Between
2 and 5 years
£ (000)
Over
5 years
£ (000)
-
20
244
264
-
809
-
809
-
-
-
-
Between 1
and 2 years
£ (000)
Between
2 and 5 years
£ (000)
Over
5 years
£ (000)
-
-
-
-
-
-
-
-
-
Credit risk
The Group’s principal financial assets are trade receivables and bank balances. The Group is consequently
exposed to the risk that its customers cannot meet their obligations as they fall due. The Group policy is that the
lines of business assess the creditworthiness and financial strength of customers at inception and on an ongoing
basis. The Group also reviews the credit rating of its banks and financial institutions.
Ongoing review of the financial condition of trade and other receivables is performed. Further details are in note
13. The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum
exposure to credit risk. Whilst the Group’s exposure to credit risk has increased as the Group has grown however
to date actual bad debt has remained very low owing to the type of clients it contracts with as well as effective due-
diligence when issuing debt to its clients.
21. Related party transactions
The Directors of the Group and their immediate relatives have an interest of 18% (2019: 20%) of the voting shares
of the Group. The shareholdings of Directors and changes during the year are shown on the Directors report on
page 46. See the Directors remuneration report on page 42 for more details.
At 31 March 2020 £1,762,360 of deferred completion cash (including interest) relating to the acquisition of
Brookcourt Solutions Limited was owed to Phil Higgins.
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.
22. Notes to support cashflow
Cash and cash equivalents comprise:
Cash available on demand
Net cash increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents are held in the following currencies:
Sterling
US dollar
Euro
2020
£ (000)
3,343
2,745
597
3,343
2020
£ (000)
2,820
486
37
3,343
Reconciliation of liabilities from financing activities:
Non-cash changes
2019
£(000)
3,136
1,271
-
Cash
outflows
£(000)
-
(1,341)
(236)
4,407
(1,577)
Cash
inflows
£(000)
Pentest
Loan*
£(000)
Loan
Interest
£(000)
500
-
-
500
677
-
-
677
470
70
20
560
Addition
of Right of
use assets
£(000)
-
-
740
740
Other loans
Advance drawn on invoice discounting
Payment of principle on lease liabilities
Total
2019
£ (000)
597
(1,896)
2,493
597
2019
£ (000)
389
89
120
597
2020
£(000)
4,783
-
524
5,307
* As part of the acquisition consideration of Pentest a loan of £0.7m was provided by the previous owners. Please
see note 9 for further details:
23. Events after the reporting period
On 24 April 2020 the Group completed the fundraise which comprised of the placing of 1,562,500 ordinary shares
of 10 pence each with existing and new institutional investors at a price of 240 pence per placing share to raise
approximately £3.75 million (before expenses). As part of the placing Directors subscribed to 104,166 ordinary
shares.
On 22 June 2020 the Group (through its subsidiary Brookcourt Solutions) signed a three-year, £4 million revolving
credit facility with Barclays Bank plc. On publication of these results the Group intends to transfer this facility to
Shearwater Group plc.
Following the year-end and further to discussions with the ex-vendors of Brookcourt, it was agreed that the
outstanding balance which was due to be paid in full on 17 April 2020 would be extended with the final balance to be
paid in full by 31 August 2020.
92
93
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Company statement of financial position
Company statement of changes in equity
As at 31 March 2020
Assets
Non-current assets
Investments in subsidiaries
Financial assets at fair value through OCI
Property, plant and equipment
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
Non-current liabilities
Creditors: amounts falling due after more than
one year
Total non-current liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Share premium
FVTOCI reserve
Other reserves
Accumulated losses
Equity attributable to owners of the Company
Total equity and liabilities
Note
2
3
4
5
6
7
8
2020
£ (000)
63,668
-
10
63,678
7,150
7
7,157
70,835
17,936
17,936
729
729
18,665
2019
£ (000)
58,667
33
17
58,717
4,554
1
4,555
63,272
13,713
13,713
208
208
13,921
52,170
49,351
22,107
34,581
14
20,714
(25,246)
52,170
70,835
19,040
34,578
18
19,123
(23,408)
49,351
63,272
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 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 £1.8m (2019: £6.4 million).
The notes on pages 96 to 102 are an integral part of these company financial statements. The financial statements
on pages 94 to 102 were approved and authorised for issue by the Board and signed on their behalf by:
P Higgins, Chief Executive Officer
28 July 2020
Registered number: 05059457
94
For the year ended 31 March 2020
Company
Share
capital
£ (000)
Share
premium
£ (000)
FVTOCI
£ (000)
Other
reserve
£ (000)
Accumulated
losses
£ (000)
At 1 April 2018
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Contributions by and distributions to owners
Issue of share capital
Merger relief reserve
Share issue costs
Share based payments
9,644
-
-
-
9,396
-
-
-
22,446
-
-
-
12,658
-
(526)
-
At 31 March 2019
19,040
34,578
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Contributions by and distributions to owners
Issue of share capital
Merger relief reserve
Share issue costs
Share based payments
-
-
-
3,067
-
-
-
-
-
-
-
-
3
-
36
-
(18)
(18)
-
-
-
-
18
-
(4)
(4)
-
-
-
-
Total
Equity
£ (000)
22,282
(5,982)
(18)
(16,971)
(5,982)
-
(5,982)
(6,000)
-
-
(455)
-
22,054
11,665
(981)
331
7,127
-
-
-
-
11,665
-
331
19,123
(23,408)
49,351
-
-
-
-
1,262
-
329
(1,838)
-
(1,838)
(4)
(1,838)
(1,842)
-
-
-
-
3,067
1,262
3
329
At 31 March 2020
22,107
34,581
14
20,714
(25,246)
52,170
95
STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
General Information
Shearwater Group plc (the ‘Company’) is a company limited by shares and incorporated and domiciled in the UK.
1.
Statement of accounting policies - Company
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.
The Company financial statements present information about the Company as a separate entity and not about
the Group.
Basis of preparation
The Company financial statements have been prepared in accordance with Financial Reporting Standard 101, and
in accordance with the Companies Act 2006 as applicable to Companies using Financial Reporting Standard 101.
The Company financial statements have been prepared under the historic cost convention, except for certain
financial instruments that have been measured at fair value. The Company financial statements are presented in
Sterling. All values are rounded to the nearest thousand pounds (£’000s) except where otherwise indicated.
The company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and
has not presented its own statement of comprehensive income in these financial statements on the grounds that a
parent undertaking includes the Company in its own published consolidated financial statements.
The company has taken advantage of the exemptions allowed under FRS 101 which allow the exclusion of:
• A statement of cash flows;
• The effect of future accounting standards not yet adopted;
• The disclosure of key management personnel; and
• Disclosure of related party transactions with other wholly owned members of the Group.
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. Please see note 1 of the consolidated financial statements for
more details.
Going concern
After making enquiries, the directors have a reasonable expectation that the Company has 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. See note 1 to the Group accounting policies on page 61
for further details of the Group’s going concern position.
Investments in subsidiaries
Fixed asset investments, which all relate to investments in subsidiaries, are stated at cost less provision for any
impairment in value.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original
purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use.
Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to
its residual value over its estimated useful life.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
Office equipment:
25 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.
Financial instruments
Shearwater’s financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets
Trade and other receivables are measured at amortised cost less a provision for doubtful debts, determined as
set out below in “impairment of financial assets”. Any write-down of these assets is expensed to statement of
comprehensive income.
Equity investments not qualifying as subsidiaries, associates or jointly controlled entities are measured at fair value
through other comprehensive income (FVTOCI), with fair value changes recognised in other comprehensive income
(OCI) and dividends recognised in profit or loss.
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).
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or they expire. The difference between the carrying amount of the financial liability derecognised and the
consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognised in
the statement of comprehensive income.
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 movement in cumulative expense since the previous
reporting date is recognised in the statement of comprehensive income, with the corresponding entry in equity.
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
1.
Statement of accounting policies - Company continued
Current and deferred taxation
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.
Pensions
The Company operates a defined contribution personal pension scheme. The assets of this scheme are held
separately form those of the Company in an independently administered fund. The pension charge represents
contributions payable by the Company to the fund.
Leases
The Company has exercised the short life practical expedient and has not capitalised any leases held in the year
as all leases have ended during the financial year to 31 March 2020. The company has no lease commitments
at 31 March 2020. Further details of practical expedients are detailed on note 1 of the consolidated financial
statements.
2.
Investments in subsidiaries
Company
Investments in subsidiaries at 1 April 2018
Additions
Investments in subsidiaries at 31 March 2019
Additions
Investments in subsidiaries at 31 March 2020
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The following table gives brief details of the entities controlled and included in the consolidated financial statements
of the Group at 31 March 2020. Subsidiaries marked (*) are directly owned by Shearwater Group plc, all other
subsidiaries are indirectly owned.
Name of company
Shearwater Subco Limited*
SecurEnvoy Limited*
Xcina Limited
Xcina Consulting Limited
SecurEnvoy, Inc.
SecurEnvoy GmbH
GeoLang Holdings Limited*
GeoLang Limited
Shearwater Shared Services Limited
Brookcourt Solutions Limited*
Pentest Limited*
Country of
incorporation or
residence
England and Wales
England and Wales
England and Wales
England and Wales
USA
Germany
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Registered address
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
1209 Orange Street, Wilmington, Delaware
Freibadstr. 30, 81543, Munchen
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
22 Great James Street, London, WC1N 3ES
Percentage
owned
100
100
100
100
100
100
100
100
100
100
The Group have conducted impairment reviews for each of the above entities and have satisfied themselves that
no impairment is necessary.
3.
Financial assets at fair value through OCI
Cost
At 1 April 2018
Fair value loss
At 31 March 2019
Fair value loss
Disposal proceeds
At 31 March 2020
On 4 October 2019 the Group sold all of its’ 715,000 ordinary shares in Plymouth Minerals Limited
(ASX: INF previously PLH) listed on the Australian Securities Exchange.
Total
£ (000)
20,221
38,446
58,667
5,001
63,668
Total
£ (000)
51
(18)
33
(6)
(27)
-
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
4.
Property, plant and equipment
6.
Trade and other payables falling due within one year
Cost
At 1 April 2018
Additions
At 31 March 2019
Additions
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the period
At 31 March 2019
Charge for the period
At 31 March 2020
Net book amount
At 31 March 2020
At 31 March 2019
At 31 March 2018
5.
Trade and other receivables
Trade receivables
Amounts owed by Group companies
Provision for expected credit losses
Accrued income
Prepayments and other receivables
VAT recoverable
2020
£ (000)
5
7,528
(496)
-
44
69
7,150
Total
£ (000)
22
6
28
-
28
4
7
11
7
18
10
17
18
2019
£ (000)
91
4,245
(322)
94
134
312
4,554
Trade payables
Amounts owed to Group companies
Loans
Accruals and other payables
Other taxation and social security
Deferred consideration – Holdback shares
2020
£ (000)
553
12,201
4,054
853
-
275
17,936
2019
£ (000)
1,140
8,108
3,136
1,291
38
-
13,713
Amounts owed to Group companies are interest free.
Deferred consideration of £0.3 million represents deferred share consideration owed to the previous owners of
GeoLang Holdings Limited. Under the terms of the sale and purchase agreement, following no warrantee claims
arising from the date of acquisition to the second anniversary of the acquisition an additional 129,601 ordinary
shares will be issued to the ex-vendors of GeoLang Holdings Limited.
7.
Trade and other payables falling due after more than one year
Loans
Deferred tax
Deferred consideration – Holdback shares
8.
Share capital
Allotted, called up and fully paid
22,109,317 Ordinary shares of £0.10 each (2018: 1,903,964,852
ordinary shares at £0.01 each
2020
£ (000)
728
1
-
729
2020
£ (000)
22,107
2019
£ (000)
-
2
206
208
2019
£ (000)
19,040
Please see note 18 of the Group financial statements for details of movements during the above financial periods.
Amounts owed by Group companies are interest free and repayable on demand.
9.
Share-based payments
Please refer to note 19 of the Group financial statements for details of share-based payments.
10. Financial instruments
Please refer to note 20 of the Group financial statements for details of Financial instruments.
For company, the credit risk mainly relates to the risk that amounts owed by the Group companies are not
recoverable. The Directors’ believe that sufficient expected credit loss provision has been made against the exposure.
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STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the company financial statements
Advisors and corporate calendar
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
11. Accounting estimates and judgements
Management does not consider that there are any significant accounting estimates or judgements other than
those detailed in note 1 of the Company financial statements.
12. Events after the reporting period
On 24 April 2020 the Group completed the fundraise which comprised of the placing of 1,562,500 ordinary
shares of 10 pence each with existing and new institutional investors at a price of 240 pence per placing share
to raise approximately £3.75 million (before expenses). As part of the placing Directors subscribed to 104,166
ordinary shares.
On 22 June 2020 the Group (through its subsidiary Brookcourt Solutions) signed a three-year, £4 million
revolving credit facility with Barclays Bank plc. On publication of these results the Group intends to transfer this
facility to Shearwater Group plc.
Following the year-end and further to discussions with the ex-vendors of Brookcourt, it was agreed that the
outstanding balance which was due to be paid in full on 17 April 2020 would be extended with the final
balance to be paid in full by 31 August 2020.
Nominated advisor and joint stockbroker
Cenkos Securities plc
6-8 Tokenhouse Yard
London
EC2R 8HP
Joint stockbroker
Joh. Berenberg, Gossler & Co. KG
60 Threadneedle Street
London
EC2R 8HP
Independent auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Solicitors
Mayer Brown International LLP
201 Bishopsgate
London
EC2M 3AF
Registrars
Neville Registrars Limited
Neville House
Steelpark Road
Halesowen
West Midlands
B62 8HD
Registered address
22 Great James Street
London
WC1N 3ES
Company number
05059457
Corporate contact details
Alma PR
Caroline Forde/ Susie Hudson
E-mail: shearwater@almapr.co.uk
Tel: +44 (0) 20 3405 0205
www.shearwatergroup.com
Corporate calendar
Announcement of final results
29 July 2020
Annual general meeting
September 2020
Announcement of interim results
November 2020
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104