Results for the six months ended 30 September 2022

RNS Number : 8501H

Shearwater Group PLC

29 November 2022

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014 (as amended), which forms part of domestic UK law pursuant to the European Union (Withdrawal) Act 2018. Upon publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

29 November 2022

SHEARWATER GROUP PLC

("Shearwater", or the "Group")

Interim Results for the six months ended 30 September 2022

Continued confidence in delivering revenue in line with full year market expectations

Shearwater Group plc, the cybersecurity, advisory and managed security services group, is pleased to announce its unaudited results for the six months ended 30 September 2022.

Financial highlights

· A strong pipeline of second half opportunities across both Software and Services underpins confidence in delivering full year revenue in line with market expectations.

· The Group has delivered a robust first half trading performance despite challenging economic conditions with revenue increasing to £10.8 million (H1 FY22: £10.6 million), driven by new client wins and successful contract renewals.

· Adjusted H1 FY23 EBITDA¹ was down at £0.1 million (H1 FY22: £1.3 million), reflecting the impact of the weaker Sterling against the USD during the first half period and primarily relating to a £0.9 million unrealised FX charge on future USD liabilities at 30 September 2022, of which £0.2 million had unwound by 31 October 2022. Excluding the H1 FX impacts underlying profit performance would have been in line with the prior year.

· Net cash at 30 September 2022 was down at £0.9 million reflecting the expected working capital absorption during the period, which is expected to reverse in the second half. As at the end of October 2022 Net Cash was £1.5 million with further improvement forecast in the balance of the year.

Business highlights

· Significant progress in the Software division with new GeoLang product launch and enhanced functionality at SecurEnvoy provides confidence to the second half outlook, with strong levels of interest from the marketplace following an initial purchase of GeoLang products by an international bank.

· Signed a global distribution network agreement with Ingram Micro Inc, one of the world's largest providers of technology, to promote the Group's identity and access authentication product solutions.

· Robust performance in the Services division, including securing an expanded contract with a multinational blue-chip organisation.

· 20% increase in revenue generating security consultant capacity during the period, reflecting continued investment to support ongoing demand.

· 52 new customer wins during the period across the group, with encouraging traction in Software at the period end.

^{1. Adjusted EBITDA is defined as profit before tax, before one off exceptional items, share based payment charges, finance charges, impairment of intangible assets, fair value adjustments to deferred consideration, other income, depreciation and amortisation.} 

Phil Higgins, Chief Executive Officer of Shearwater Group PLC, commented: "The Group has delivered a solid trading performance amidst a challenging trading environment. As we move into the traditionally weighted second half, we are bolstered by a pipeline of further advisory work, penetration testing and managed security services opportunities, as well as the launch of our new Software capability which have been received well. With good visibility of revenues and an expanded, global footprint, there is growing momentum across the Group as we move into a more favourable macroeconomic environment in H2, with confidence levels higher than they were this time last year."

Enquiries:

Shearwater Group plc David Williams, Chairman Phil Higgins, CEO	www.shearwatergroup.com c/o Alma PR
Cenkos Securities plc - NOMAD and Broker Ben Jeynes / Max Gould - Corporate Finance Alex Pollen / Michael Johnson - Sales	[phone]
Alma PR Justine James / Joe Pederzolli	[e-mail]   [phone]

About Shearwater Group plc

Shearwater Group plc is an award-winning group providing cyber security, managed security and professional advisory solutions to create a safer online environment for organisations and their end users.

The Group's differentiated full service offering spans identity and access management and data security, cybersecurity solutions and managed security services, and security governance, risk and compliance. Its growth strategy is focused on building a scalable group that caters to the entire spectrum of cyber security and managed security needs, through a focused buy and build approach.

The Group is headquartered in the UK, serving customers globally across a broad spectrum of industries.

Shearwater shares are listed on the London Stock Exchange's AIM under the ticker "SWG".  For more information, please visit  www.shearwatergroup.com .

Chief Executive's review

Overview

Cyber security has expanded to encompass every aspect of our digital society, we are at the precipice of a time when every facet of society will need to be protected and defended against the constantly expanding threat of cyber-attack. This situation offers considerable opportunities for Shearwater and underpins our Group-wide confidence in future growth. In the period we experienced increased customer account penetration expanding our Services delivery, most notably to our larger telco, banking and retail customers, in addition to securing new blue-chip customers.

We are pleased with the sales performance of our Services division, including the recent improvements in utilisation across our consulting offerings driven by a growing client base. Confidence across Services remains high for the second half underpinned by the increased visibility from our contract pipeline.

Although Software revenue performance in H1 was modest we have made good progress launching new features in both GeoLang and SecurEnvoy which have been well received by the marketplace. Additionally, we have expanded our geographic reach in SecurEnvoy, having signed an agreement with a North American distributor, Ingram Micro Inc, one of the world's largest providers of technology. These developments have received strong client feedback which has resulted in a growing pipeline of customer opportunities, which we aim to convert to revenue in H2.

As a result, the Group expects to benefit from a strong and growing pipeline of Software and Services opportunities in the second half. The Group continues to serve blue-chip customers globally across a broad spectrum of industries, and with an expanded footprint in Europe and North America, and a strengthened team, there is a strong sense of optimism across all our businesses.

The Group has delivered robust financial results amidst a challenging trading environment with revenue, in the traditionally quieter first half, of £10.8 million (H1 FY22: £10.6 million) and adjusted EBITDA of £0.1 million (H1 FY22: £1.3 million). Adjusted EBITDA was impacted by the weaker Sterling against the USD during the first half period, primarily relating to a £0.9 million unrealised FX charge related to future USD liabilities at 30 September 2022. Excluding the impact of these significant FX movements the underlying performance of the business would have been in line with the prior year. The strengthening of the pound since the half year has already unwound this 30 September 2022 impact by £0.2 million as at 31 October 2022. Furthermore, forward contracts have been put in place, post the period end, which protect 75% of the exposure against further downside should sterling weaken again.

Net cash was £0.9 million as at 30 September 2022 (30 September 2021: £4.4 million) reflecting the expected working capital absorption in the period which is forecast to unwind in the second half. As at 31 October 2022 net cash had increased to £1.5 million, with further improvement forecast by the year end. The Group continues to maintain a strong balance sheet and continues to benefit from its revolving credit facility of £4.0 million, which remained undrawn throughout the first half period.

Current trading and outlook

Trading in the second half has started strongly with the Group 6% ahead of the prior year for the 7 months ended 31 October, and the Board remain confident, based on delivering the existing pipeline of opportunities, of a full year revenue performance in line with market expectations.

Our Services division, having been bolstered by a number of H1 wins with multinational organisations, continues to benefit from an increasing number of opportunities which our expanded and experienced team are well-equipped to deal with as the pipeline grows. Confidence across the Software division is also strong as we continue to expand our footprint and launch new products to market.

As we move into the typically weighted second half, we have good visibility of H2 revenue opportunities including those identified from existing contract renewals. Furthermore, p rojects that were delayed due to the pandemic have restarted and are progressing well. Our consulting utilisation rates are increasing with a healthy orderbook, professional advisory enquires are growing and our solutions business is strong.

Growth strategy

The market opportunity which lies within the cybersecurity space has never been more apparent and provides us with a strong degree of confidence moving forwards. With the number of businesses being compromised steadily increasing, trends such as ransomware and DDOS attacks are only set to become more prevalent moving forwards. The growing need for our services, coupled with Shearwater's global reach and established reputation in dealing with such issues, underlines the market opportunity for the Group.

Our vision remains unchanged in becoming the provider of choice, delivering professional advisory, cyber security services and solutions, and next generation cyber technology. Within our award-winning Services division, we aim to be the partner of choice delivering managed security solutions, test and advisory consulting; again, providing an end-to-end offering.

Within our Software division we aim to deliver a 'must have' next generation converged access management and data discovery platform. We continue to invest in our software to bring new service offerings to market whilst seeking potential software acquisitions in order to further build out the capabilities.

Alongside organic growth, our M&A strategy remains, highlighted by the newly established Mergers & Acquisitions Committee, who continue to search and review potential opportunities with a clear strategic fit. We have an active pipeline of acquisition opportunities in the pursuit of a business that would add to our Software portfolio, add scale in Services, or drive synergies across the Group.

Operational review 

Our Group comprises of two divisions, Services (85% revenue) and Software (15% revenue). Our Services division clients are largely blue chips, and we have particular strength in the banking, telco and technology sectors. Our Software offerings are sold through distributors to the global reseller channel.

We continue to invest in talent globally, to enhance performance and support our vision across both the Services and Software divisions. We now have an expanded footprint, winning clients in new territories while retaining long-term clients. During the period we increased our total headcount by 11 to 99 while also investing in staff training which will benefit the Group in the second half and beyond.

We continue to promote cross-selling across the Group, with momentum in H2 expected to gain traction following the latest software product launches. We are pleased to report that c.70% of cross-sales from 2021 are still clients today and we aim to continue to build upon this strong performance. There remain great opportunities to further expand cross-selling across the Group with significant opportunities identified in both the Services and Software businesses.

KPI Review

-  52 new customer wins in the period (30 September 2021: 90)

-  New software revenue of £0.2 million (30 September 2021: £0.4 million)

-  Good visibility with c.30% of H2 revenues identified from either contracted, scheduled or existing contract renewals, this excludes the pipeline of cross-selling opportunities and other new projects currently in the pipeline from new and existing customers.

-  1% of revenues are now generated through cross-selling (2021: 2%) with an element of this being repeatable in nature

Services

We have been encouraged by a number of wins within our Services division which have helped drive the strong H1 revenue performance, most notably securing an expanded contract with a multinational blue-chip organisation. Our solution business has also expanded  having won new enterprise clients as well as becoming a supplier on the UK Governments G-Cloud approved suppliers list. Confidence across Services remains high to deliver a strong second half performance.

As reported above, earnings in the period were impacted by the weakening of sterling against the USD and particularly a £0.9 million charge relating to revaluation of US dollar liabilities due in May 2023 and May 2024. Adjusting for the impact of FX related movements in the first half would have resulted in gross margins in line with the prior year.

Additional year-on-year investment into recruitment and training of revenue generating consultants has provided an additional 20% of revenue generating capacity to service the increased demand for advisory services going forward. 

	H1 FY23	H1 FY22	YOY	12 months to 31 March 2022
	£ (000)	£ (000)	%	£ (000)
Revenue	9,136	8,689	5%	32,540
Gross profit	1,571	2,639	(40%)	8,602
Gross profit margin %	17%	30%		26%
Overheads	1,738	1,735		3,939
Adjusted EBITDA	(167)	905		4,663
Adjusted EBITDA %	(2%)	10%		14%

Software

We have continued to expand our geographical footprint within our Software division, successfully securing our first north American distributor, Ingram Micro Inc (NYSE:IM), one of the world's largest providers of technology to promote identity solutions. With Ingram Micro Inc having o ffices and representatives in 61 countries, SecurEnvoy authentication products are now available to their partner network globally.  Furthermore, we have also secured a contract with TD SYNNEX (NYSE:SNX), a leading Canadian distributor. These new distributor agreements provide an additional c.200 partners across North America with access to SecurEnvoy solutions and provide a fantastic opportunity to further expand our client base in the world's largest market, North America.

GeoLang's optical character recognition ("OCR") feature allows customers to search scanned documents and PDFs for sensitive data and it is now being used by a leading international bank with a number of scheduled presentations to other leading corporates. SecurEnvoy's newly released geolocation enhancement allows customers to control and restrict the geographic location someone can log in to the corporate network giving greater control over network access. SecurEnvoy's new distribution agreements extend our market beyond our c.350 resellers, increasing it to c.550, allowing both managed service providers (MSP) and managed security service providers (MSSP) to represent our software as their own to their client base on a white label basis.

Additional investment in new sales roles, in addition to a temporary increase in cloud platform hosting costs have impacted gross profitability in the period which otherwise would have been in line with the prior period. Cloud platform costs will return to their previous levels early in H2.

	H1 FY23	H1 FY22	YOY	12 months to 31 March 2022
	£ (000)	£ (000)	%	£ (000)
Revenue	1,654	1,887	(12%)	3,336
Gross profit	1,144	1,462	(22%)	2,221
Gross profit margin %	69%	77%	-	67%
Overheads	441	552	(20%)	686
Adjusted EBITDA	703	910	(23%)	1,535
Adjusted EBITDA %	43%	48%	-	46%

Finance review

Revenue

Revenue of £10.8 million (H1 FY22: £10.6 million) is marginally ahead of the prior year with increased spending from long term Services clients contributing to the year-on-year improvement.

The services division has delivered 5% year-on-year revenue growth in the period with the Group's advisory revenues having performed robustly delivering an improvement, which, in addition to the continued growth of security solutions revenues has offset some delays which have impacted managed services revenue, which we now expect to occur in H2. Software revenues for the period of £1.7 million were, as expected, £0.2 million behind the prior year (H1 FY22: £1.9 million) due to a prior year GeoLang revenue that was not due to repeat in the current period and a year-on-year reduction in new business revenues from our legacy product-set. As we move into H2 it is pleasing to see a significant increase in interest for our newly developed software products which creates some exciting opportunities to add highly profitable incremental revenues to the Group's software division.

Adjusted EBITDA

Adjusted EBITDA of £0.1 million (H1 FY22: £1.3 million) was down on the prior year driven by the impact of the strengthening USD against sterling in the first half of the financial year. Excluding the FX impacts the Group would have delivered an Adjusted EBITDA in line with the prior year.

The FX impact includes a £0.9 million unrealised foreign exchange charge relating to US dollar liabilities due in May 2023 and May 2024 that have been revalued at 30 September 2022 which has impacted the Group's Service Division in the period. At 31 October 2022 this exchange impact had unwound by £0.2 million. Post the reporting date, forward contracts have been put in place which protects 75% of the exposure against further downside should sterling weaken.

The income statement below details both statutory and alternative measures which, in the Directors' opinion provides additional relevant information to the reader in assessing the adjusted performance of the business.

H1 FY23 H1 FY22 Change 12 months to 31 March 2022 £ (000) £ (000) % £ (000) Revenue 10,790 10,576 2% 35,876 Gross profit 2,715 4,101 (34%) 10,823 Gross profit margin % 25% 39% 30% Overheads 2,653 2,840 7% 6,425 Adjusted EBITDA 61 1,261 (95%) 4,398 Adjusted EBITDA margin % 1% 12% 12% Finance charge 31 56 110 Depreciation 127 136 263 Amortisation of intangible assets - computer software 396 526 1,050 Adjusted (loss)/profit before tax (494) 543 2,975 Amortisation of acquired intangible assets 1,050 1,050 2,099 Share based payments 82 31 10 Other income - (20) (70) (Loss) before tax (1,625) (518) 936 Taxation (credit)/charge (306) (138) 1,228 Loss after tax (1,319) (380) (292)

Finance charges

The year-on-year reduction in Finance charges reflects savings on interest on loan balances that were fully repaid in the prior year.

Depreciation

Depreciation, which includes Right of Use assets is tracking in line with the previous year.

Amortisation of intangibles assets - computer software

A reduced amortisation charge in the period reflects assets that were fully written off in the prior period.

Adjusted profit before tax

Adjusted loss before tax of £0.5 million (H1 FY22: adjusted profit before tax £0.5 million) driven by lower Adjusted EBITDA offset by savings in amortisation of intangible computer software, finance charges and depreciation.

Amortisation of acquired intangible assets

Amortisation of acquired intangible assets of £1.1 million (H1 FY22: £1.1 million) is in line with the previous year.

Other income

Other income in the prior year consists of the early repayment discount relating to a £0.3 million loan liability which was repaid in April 2021.

Share based payments

A charge of £0.1million (H1 FY22: £0.03 million) has been incurred in relation to long-term incentive plans. 

Earnings per share

Adjusted basic and diluted loss per share of £0.01 (H1 FY22: earnings per share £0.02) incorporates the year-on-year reduction in adjusted profit/(loss) after tax. Reported basic loss per share of £0.06 and diluted loss per share of £0.05 (H1 FY22: basic and diluted loss per share £0.02) includes the year-on-year reduction in adjusted profit/(loss) after tax, increased share-based payments less other income recognised in the prior year.

Loss before tax

A reduced loss before tax in the period of £1.6million (H1 FY22: £0.5 million) recognises the year-on-year reduction in adjusted profit/(loss) before tax plus increases in share-based payments less other income recognised in the period.

Statement of Cash flow

The Group saw an operating cash outflow in the first half of the year of £3.9 million which is primarily driven by an operating cash outflow associated with a large contract won in the prior year, which will become cash positive going forward and an expected client receipts that were remitted before the period end but not received until early October. As in previous years H2 is expected to generate an operational cash inflow. 

During the period the Group increased its investment into the development of internally created software and services with expenditure up 58% on a year-on-year basis. As we move into H2 it is pleasing to see a number of these products and services now live and creating new sales opportunities for new and existing clients. 

	2022	2021		12 months to 31 March 2022
	£ (000)	£ (000)		£ (000)
Adjusted EBITDA	61	1,261		4,398
Movements in working capital	(3,959)	(3,523)		(4,656)
Cash used / generated from operations	(3,898)	(2,262)		(258)
Capital expenditure (net of disposal proceeds)	(686)	(433)		(1,146)
Tax paid	-	(31)		(62)
Interest paid	(26)	(35)		(70)
Payments of lease liabilities	(108)	(112)		(220)
Loan repayments	(-)	(250)		(724)
FX and other	13	(3)		6
Movement in cash	(4,705)	(3,126)		(2,474)
Opening cash and cash equivalents	5,575	8,049		8,049)
Closing cash and cash equivalents	870	4,923		5,575
Loans	-	(520)		-
Net cash / (debt)	870	4,403		5,575

Despite the operating cash outflow reported in H1, the Group continued to collect cash in an efficient manner, maintaining strong cash collection with minimal bad debts.   Unaudited net cash was £1.5 million as at 31 October 2022.

Alternative performance measures

This review includes alternative performance measures ('APMs') alongside the standard IFRS measures. The Directors believe that alternative measures provide additional relevant information regarding the adjusted performance of the business. APMs are used to enhance the comparability of information between reporting periods by adjusting for one off exceptional and other items that affect the IFRS measure. Consequently, the Directors and management use APM's in addition to IFRS measures to assess the adjusted performance of the business. 

Alternative performance measures used include:

§ Adjusted EBITDA

§ Adjusted profit before tax

§ Adjusted profit after tax

§ Adjusted earnings per share

Adjusting items include:

Exceptional items which are one off by their nature such as acquisition costs or re-organisation costs and do not form part of the underlying operational cost of the business.

Share based payment charges awarded form a long-term remuneration incentive to certain staff. Despite this plan not having a cash cost to the business, a share-based payment charge is taken to the statement of comprehensive income which we believe does not form part of the underlying operating cost of the business.

Other income in the prior year generated from early repayments discounts for loan liabilities is one off in its nature and therefore not a consistent income stream.

Acquisition amortisation of identified intangible assets acquired as part of an acquisition are charged to the statement of comprehensive income but do not form part of the underlying operating cost of the business.

A full reconciliation between adjusted and reported results is detailed below:

Six months to 30 September	H1 FY23	H1 FY22
	£ (000)	£ (000)
Adjusted EBITDA	61	1,261
Share based payments charge	(82)	(31)
EBITDA	(21)	1,230

Six months to 30 September	H1 FY23	H1 FY22
	£ (000)	£ (000)
Adjusted (loss)/profit before tax	(493)	543
Acquisition amortisation	(1,050)	(1,050)
Share based payments charges	(82)	(31)
Other income	-	20
Reported loss before tax	(1,625)	(518)

Six months to 30 September	H1 FY23	H1 FY22
	£ (000)	£ (000)
Adjusted profit after tax	(298)	570
Acquisition amortisation	(939)	(939)
Share based payments charge	(82)	(31)
Other income	-	20
Reported loss after tax	(1,319)	(380)

Six months to 30 September	H1 FY23	H1 FY22
	£ (000)	£ (000)
Adjusted basic & diluted EPS	(0.01)	0.02
Acquisition amortisation	(0.04)	(0.04)
Share based payments charge	(0.00)	0.00
Other income	0.00	0.00
Reported diluted EPS	(0.05)	(0.02)

Principal risks and uncertainties

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's principal risks and uncertainties, as detailed in the financial statements for the year ended 31 March 2022, are all still considered to be valid. Over the past six months these risks and uncertainties have remained very much in place. 

Statement of Directors' responsibilities

We confirm that to the best our knowledge that:

§ The condensed interim set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the United Kingdom;

§ The interim report includes a fair review of information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

§ The interim report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and any change therein).

Phil Higgins  Paul McFadden

Chief Executive Officer  Chief Financial Officer

Consolidated statement of comprehensive income

for the 6 months to 30 September 2022

		2022	2021
		(unaudited)	(unaudited)
	Note	£ (000)	£ (000)
Revenue	3	10,790	10,576
Cost of sales		(8,075)	(6,475)
Gross profit		2,715	4,101
Administrative expenses		(2,736)	(2,871)
Depreciation and amortisation		(1,573)	(1,712)
Other operating expenses/income		-	20
Total operating costs		(4,309)	(4,563)
Operating loss		(1,594)	(462)
Adjusted EBITDA		61	1,261
Depreciation and amortisation		(1,573)	(1,712)
Exceptional items		-	-
Share-based payments		(82)	(31)
Other operating expenses/income		-	20
Operating loss		(1,594)	(462)
Finance cost	4	(31)	(56)
Loss before taxation		(1,625)	(518)
Income tax credit	5	306	138
Loss for the period and attributable to equity holders of the Company		(1,319)	(380)
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		14	1
Total comprehensive loss for the period		(1,305)	(379)
Earnings / (loss) per ordinary share attributable to the owners of the parent
Basic (£ per share)	6	(0.06)	(0.02)
Diluted (£ per share)	6	(0.05)	(0.02)
Adjusted basic and diluted (£ per share)	6	(0.01)	0.02
Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator of the Group's financial performance.
The results above are derived from continuing operations.

Consolidated statement of financial position

as at 30 September 2022

					2022		2021
					(unaudited)		(unaudited)
			Note		£ (000)		£ (000)
Assets
Non-current assets
Intangible assets					51,779		53,461
Property, plant and equipment					213		281
Trade receivable					7,094		-
Total non-current assets					59,086		53,742
Current assets
Trade and other receivables			7		13,960		5,580
Cash and cash equivalents					870		4,923
Total current assets					14,830		10,503
Total assets					73,916		64,245
Liabilities
Current liabilities
Trade and other payables			8		11,712		5,153
Total current liabilities					11,712		5,153
Non-current liabilities
Creditors: amounts falling due after more than one year			9		7,221		2,952
Total non-current liabilities					7,221		2,952
Total liabilities					18,933		8,105
Net assets					54,983		56,140
Capital and reserves
Share capital			10		22,278		22,277
Share premium					34,581		34,581
FVTOCI reserve					-		14
Other reserves					24,468		24,407
Translation reserve					37		25
Accumulated losses					(26,381)		(25,164)
Equity attributable to owners of the Company					54,983		56,140
Total equity and liabilities					73,916		64,245

Consolidated statement of changes in equity for the 6 months to 30 September 2022
	Share capital	Share premium	FVTOCI reserve	Other reserves	Translation reserve	Accumulated losses	Total equity
	£ (000)	£ (000)	£ (000)	£ (000)	£ (000)	£ (000)	£ (000)
At 31 March 2021 (audited)	22,277	34,581	14	24,376	24	(24,784)	56,488
Loss for the period	-	-	-	-	-	(380)	(380)
Other comprehensive profit for the period	-	-	-	-	1	-	1
Total comprehensive loss for the period	-	-	-	-	1	(380)	(379)
Contribution by and distribution to owners
Share based payments	-	-	-	31	-	-	31
At 30 September 2021 (unaudited)	22,277	34,581	14	24,407	25	(25,164)	56,140
Profit for the period	-	-	-	-	-	88	88
Other comprehensive loss for the period	-	-	(14)	-	(2)	14	(2)
Total comprehensive profit for the period	-	-	(14)	-	(2)	102	86
Contribution by and distribution to owners
Issue of share capital	1	-	-	-	-	-	1
Share based payments	-	-	-	(21)	-	-	(21)
At 31 March 2022 (audited)	22,278	34,581	-	24,386	23	(25,062)	56,206
Loss for the period	-	-	-	-	-	(1,319)	(1,319)
Other comprehensive income for the period	-	-	-	-	14	-	14
Total comprehensive loss for the period	-	-	-	-	14	(1,319)	(1,305)
Contribution by and distribution to owners
Share based payments	-	-	-	82	-	-	82
At 30 September 2022 (unaudited)	22,278	34,581	-	24,468	37	(26,381)	54,983

Consolidated cash flow statement

for the 6 months to 30 September 2022

					2022	2021
					(unaudited)	(unaudited)
				Note	£ (000)	£ (000)
Cash flows from operating activities
Loss for the period					(1,319)	(380)
Adjustments for:
	Amortisation of intangible assets				1,446	1,576
	Depreciation of property, plant and equipment				127	136
	Share-based payment charge				82	31
	Other income				-	(20)
	Finance cost				31	56
	Income tax				(306)	(138)
Cash flow from operating activities before changes in working capital					61	1,261
Decrease/(increase) in trade and other receivables					(726)	4,031
(Decrease)/increase in trade and other payables					(3,233)	(7,554)
Cash used / generated from operations					(3,898)	(2,262)
Net foreign exchange movements					12	(3)
Finance cost paid					(26)	(35)
Tax (paid) / credit					-	(31)
Net cash used / generated from operating activities					(3,912)	(2,331)
Investing activities
Purchase of property, plant and machinery					(25)	(12)
Purchase of software					(661)	(421)
Net cash used in investing activities					(686)	(433)
Financing activities
Proceeds from issue of share capital					-	-
Repayment of loan liabilities					-	(250)
Expenses paid in connection with share issues					-	-
Repayment of lease liabilities					(108)	(112)
Net cash used in financing activities					(108)	(362)
Net increase/(decrease) in cash and cash equivalents					(4,706)	(3,126)
Foreign exchange movement on cash and cash equivalents					1	-
Cash and cash equivalents at the beginning of the period					5,575	8,049
Cash and cash equivalents at the end of the period					870	4,923

Notes

1.  General information

The interim consolidated financial information was authorised by the board of directors for issue on 29 November 2022. The information for the six-month period ended 30 September 2022 has not been audited and does not constitute statutory accounts as defined in section 434 of the Companies Act 2006, and should therefore be read in conjunction with the audited financial statements of the Company and its subsidiaries for the year ended 31 March 2022, which have been prepared in accordance with UK Adopted International Accounting Standards (IFRS). The interim consolidated financial information does not comply with IAS 34 Interim Financial Reporting, as permissible under the rules of AIM.

2.  Statement of accounting policies

The significant accounting policies applied in preparing the financial statements are outlined below. These policies have been consistently applied for all the years presented, unless otherwise stated

a)  Basis of preparation

These interim consolidated financial statements have been prepared in accordance with UK adopted International Accounting Standards ('IFRS') and with those parts of the Companies Act 2006 applicable to companies reported under IFRS.

The consolidated financial statements have been prepared under the historic cost convention. 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 (£'000) except where otherwise indicated.

b)  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 publication of these interim 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 into account its current business activities, performance to date against budgeted targets and the factors likely to affect its future development which include the Group's strategy, principal risks and uncertainties and its exposure to credit and liquidity risks.

The business maintains a strong balance sheet with net assets of £55.0 million (H1 FY22: £56.1 million) which if you exclude intangible assets, PPE and deferred taxation leaves an increased net asset position of £6.7 million at 30 September 2022 (H1 FY22: £5.3 million). At 30 September 2022 the Group had net cash of £0.9 million ( H1 FY22 : £4.4 million).

The Group's £4.0 million 3-year revolving credit facility with Barclays Bank plc, signed on the 25 March 2021 remains in place which can provide working capital support if required. To date this facility remains un-utilised.

The Directors have reviewed a detailed reforecast of trading which includes a cash flow forecast for a period which covers a period of trading to March 2024 and have challenged the assumptions used to create these forecasts. This forecast demonstrates that the Group is able to pay its debts as they fall due during this period.

The Directors have reviewed a highly sensitised reverse stress test scenario which has factored in what the Directors believe would be an extreme scenario which incorporates the removal of all new business revenues across both segments of the Group including a reduction of renewal rates in our software division and a scaling back of revenues within our Services division. Costs have also been scaled back in line with the reduction in revenues. 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 2024.

c)  Critical accounting judgements estimates and assumptions

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the reporting date.

The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.

Revenue recognition

Management make judgements, estimates and assumptions in determining the revenue recognition of material contracts sold by the Groups Services division. The Group work with large enterprise clients, providing services and solutions to support the clients' needs. In many cases a third-parties products or services will be provided as part of a solution. Management will consider the implications around timing of recognition, with factors such as determining the point control passes to the client and the subsequent fulfilment of the Group's performance obligations. In addition to this management will consider if it is acting as agent or principal.

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.

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.

Leases

Management make judgements, estimates and assumptions regarding the life of leases. Management continue to review all existing leases, which all relate to office space, and will look to reduce the number of offices across the Group if they are not sufficiently utilised. For this reason management have assumed that the life of leases does not extend past the current contracted expiry date. A judgement has been taken with regard to the incremental borrowing rate based upon the rate at which the Group can borrow money.

d)  Basis of consolidation

The group's interim consolidated financial statements incorporate the results and net assets of Shearwater Group plc and all its subsidiary undertakings made up to 30 September each year. Subsidiaries are all entities over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All inter-group transactions, balances, income and expenses are eliminated on consolidation.

e)  Business combinations and goodwill

Business combinations are accounted for using the acquisition accounting method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities of the acquired business at fair value.  Any excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets and liabilities is recognised in the consolidated statement of financial position as goodwill and is not amortised. To the extent that the net fair value of the acquired entity's identifiable assets and liabilities is greater than the cost of the investment, a gain is recognised immediately in the consolidated statement of comprehensive income.

After initial recognition, goodwill is stated at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. Goodwill assets considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash-generating units or groups of cash-generating units. Where the recoverable amount of the cash-generating unit is less than its carrying amount including goodwill, an impairment loss is recognised in the consolidated statement of comprehensive income.

Acquisition costs are recognised in the consolidated statement of comprehensive income as incurred. 

f)  Revenue

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.

The Group's revenues are comprised of a number of different products and services across our two divisions, details of which are provided below:

Software

§ Software licences whereby the customer buys software that it sets up and maintains on its premises is recognised fully at the point the licence key / access has been granted to the client. The Group sells the majority of its software products through channels and distributors who are responsible for providing 1^st and 2^nd 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 80% of the subscription is recognised at the point that the licence key is provided to the customer with the remaining 20% recognised evenly over the length of the contract. This deferred proportion represents the obligation to maintain and support the platform that the software runs on.

Services

§ Sale of third-party hardware, software, warranties and internal support:

a)  Where the contract entails only one performance obligation to provide software or hardware, revenue is recognised in full at a point in time upon delivery of the product to the end client. This delivery will either be in the form of the physical delivery of a product or the 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.

g)  Use of additional performance measures

The Group presents adjusted EBITDA information which is used by the directors for internal performance analysis and may not be comparable with similarly titled measures reported by other companies. The term "adjusted EBITDA" refers to operating profit or loss excluding amortisation of intangibles, depreciation and impairment, share-based payments charge, exceptional items, income tax expense, finance income, finance expenses or fair value adjustments to deferred consideration provisions and contingent consideration paid.

h)  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. Please see note 3 for more details.

i)  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 (including in-house developed software)  2-5 years straight line basis

Customer relationships     1-15 years straight line basis

Software    10 years straight line basis

Tradenames    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.

j)  Property, plant and machinery

Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Plant and machinery	20-33 per cent per annum
Office equipment	25 per cent per annum
Right of use assets	Shorter of useful life of the asset or Lease term

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised, as adjusted items if significant, within the statement of comprehensive income.

3.  Segmental information

In accordance with IFRS 8, the Group's operating segments are based on the operating results reviewed by the Board, which represents the chief operating decision maker. The Group reports its results in two segments as this accurately reflects the way the Group is managed.

The Group is organised into two reportable segments based on the types of products and services from which each segment derives its revenue - software and services.

Segment information for the 6 months ended 30 September 2022 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.

	Six-month period ended 30 September
	2022	2022		2021	2021
	Revenue	Profit		Revenue	Profit
	(unaudited)	(unaudited)		(unaudited)	(unaudited)
	£ (000)	£ (000)		£ (000)	£ (000)
Services	9,136	703		8,689	905
Software	1,654	(167)		1,887	910
Group total	10,790	536		10,576	1,815
Group costs		(475)			(554)
Adjusted EBITDA		61			1,261
Amortisation of intangibles		(1,446)			(1,576)
Depreciation		(127)			(136)
Share-based payments		(82)			(31)
Other income		-			20
Finance cost		(31)			(56)
Loss before tax		(1,625)			(518)

The Group is domiciled in the United Kingdom and currently the majority of its revenues come from external customers that are transacted in the United Kingdom. A number of transactions which are transacted from the United Kingdom represent global framework agreements, meaning our services, whilst transacted in the United Kingdom, are delivered globally. The geographical analysis of revenue detailed below is on the basis of country of origin in which the master agreement is held with the customer (where the sale is transacted).

		Six-month period ended 30 September
		2022	2021
		(unaudited)	(unaudited)
		£ (000)	£ (000)
United Kingdom		6,888	7,698
Europe (excluding the UK)		2,667	1,964
North America		972	550
Rest of the world		263	364
		10,790	10,576

4.  Finance expenses

		Six-month period ended 30 September
		2022	2021
		(unaudited)	(unaudited)
		£ (000)	£ (000)
Interest payable on bank revolving credit facility		26	35
Interest payable on lease liabilities		5	6
Interest payable on loan balances		-	15
		31	56

5.  Income Tax

The tax expense recognised reflects managements' estimates of the tax charge for the period and has been calculated using the estimated average tax rate of UK corporation tax for the financial period of 19%.

6.  Earnings/(loss) per share

Basic loss per share is calculated by dividing the loss attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted loss per share, the weighted average number of shares in issue is adjusted to assume conversion of all the potential dilutive ordinary shares. The potential dilutive shares are anti-dilutive for the six months ended 30 September 2021 as the Group is loss making.

Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation but before amortisation of acquired intangibles after tax, share based payments, impairment of intangible assets, exceptional items after tax, fair value adjustment to deferred consideration and contingent consideration.

Adjusted earnings per share is potentially anti-dilutive in the six months to 30 September 2022 and potentially dilutive in the six months to 30 September 2021 and for the 12 months to 31 March 2022.

The calculation of the basic and diluted earnings per share from total operations attributable to shareholders is based on the following data:

			Six-month period ended 30 September
			2022	2021
			(unaudited)	(unaudited)
			£ (000)	£ (000)
Net profit / loss from total operations
Earnings for the purposes of basic and diluted earnings / loss per share being net loss attributable to shareholders			(1,319)	(380)
Add/(remove) Amortisation of acquired intangibles			939	939
Share based payments			82	31
Other income			-	(20)
Fair value adjustment to deferred consideration			-	-
Adjusted earnings for the purpose of adjusted earnings per share			(298)	570
Number of shares			No	No
Weighted average number of ordinary shares for the purpose of basic and adjusted earnings per share			23,818,059	23,809,739
Weighted average number of ordinary shares for the purpose of basic and adjusted diluted earnings per share			24,604,916	23,954,771
Earnings/(Loss) per share			£	£
Basic loss per share			(0.06)	(0.02)
Diluted loss per share			(0.05)	(0.02)
Adjusted Basic and diluted (loss)/earnings per share			(0.01)	0.02

7.  Trade and other receivables

	Period ended 30 September
	2022 (unaudited)	2021 (unaudited)
	£ (000)	£ (000)
Trade receivables	10,043	4,798
Accrued income	3,267	372
Prepayments and other receivables	469	410
Deferred tax asset	181	-
	13,960	5,580

8.  Trade and other payables	Period ended 30 September
	2022	2021
	(unaudited)	(unaudited)
	£ (000)	£ (000)
Accruals and other payables	6,709	1,480
Trade payables	2,757	2,027
Other taxation and social security	1,261	637
Deferred income	454	295
Corporation tax	444	36
Lease liabilities	87	158
Loans	-	520
	11,712	5,153

9.  Creditors: amounts falling due after more than one year

	Period ended 30 September
	2022	2021
	(unaudited)	(unaudited)
	£ (000)	£ (000)
Deferred tax	3,744	2,927
Accruals and other payables	3,461	-
Lease liabilities	16	25
	7,221	2,952

10.  Share capital

The table below details movements in share capital during the year:

	Six-month period ended 30 September
In thousands of shares	2022	2021
In issue at 31 March	23,810	23,810
Options exercised during the period	-	-
Share issue as part of acquisition consideration	-	-
Share issue for deferred consideration	-	-
Share placing	-	-
In issue at 30 September	23,810	23,810

	2022	2021
	£ (000)	£ (000)
Allotted, called up and fully paid
Ordinary shares of £0.10 each	2,382	2,381
Deferred shares of £0.90 each	19,896	19,896
	22,278	22,277

The Company did not issue any shares in the six-month period ended 30 September 2022.

11.  Related party transaction

The Directors of the Group and their immediate relatives have an interest of 18% ( H1 FY22 : 17%) of the voting shares of the Group.

12.  Events after the reporting date

There are no material events after the reporting period to report.

13.  Cautionary statement

This Interim Report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for these strategies to succeed. The Interim Report should not be relied on by any other party or for any purpose. The Interim Report contains certain forward-looking statements with respect to the financial condition, results of operations and businesses of the Company. These statements are made in good faith based on the information available to them up to the time of their approval of this report. However, such statements should be treated with caution as they involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. The continuing uncertainty in global economic outlook inevitably increases the economic and business risks to which the Company is exposed. Nothing in this announcement should be construed as a profit forecast.

 

END

 

 

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