TIDMSWG
RNS Number : 3271H
Shearwater Group PLC
31 July 2019
31 July 2019
SHEARWATER GROUP PLC
Final Results
Shearwater Group plc (AIM: SWG, "Shearwater" or the "Group"),
the organisational resilience group, has published its results for
the year ended 31 March 2019.
Highlights
-- Completed acquisitions of Brookcourt Solutions, GeoLang and
Pentest (April 2019)
-- Group revenue of GBP23.5 million (2018: GBP6.2 million) -
only 5.5 months of trading from Brookcourt Solutions
o GBP3.9 million (2018: GBP3.4 million) from owned software products (17%)
o GBP19.6 million (2018: GBP2.8 million) from provision of services (83%)
-- Group underlying EBITDA([1]) loss of GBP1.4 million (2018:
loss GBP0.8 million)
-- Brookcourt Solutions materially outperforms expectations -
GBP29.2 million of revenue and GBP3.4 million of EBITDA for the 12
month period ended 31 March 2019
-- Group pro forma revenue of GBP37.5 million - calculated on
the basis of a full 12 months contribution of Brookcourt Solutions
for the financial year ended 31 March 2019
Current trading and outlook
-- Notably strong financial performance in Q1 2020 - in line
with expectations
o Maiden profit on an underlying EBITDA basis
o Strong cash generation - cash balance up 183% from 31 March
2019 to GBP1.7 million as at 30 June 2019
-- Group positioned for strong growth
o Material number of new customer wins since 31 March 2019
o Strategy yielding multiple cross sell opportunities
o Pursuit of accretive acquisitions, with tangible opportunities for revenue and cost synergies
David Williams, Chairman of Shearwater, said:
"The acquisition of Brookcourt Solutions and its subsequent
outperformance has materially transformed the Group and provides an
excellent foundation as we move forward.
"The market opportunity for our unique collection of technology
and solutions companies remains compelling, and we are now starting
to deliver on our strategy.
"We've made an excellent start to the new financial year,
delivering a quarterly profit and materially improving our cash
position. We are now set up for strong revenue growth and
profitability as the complementary nature of our group companies is
beginning to be realised."
Enquiries:
Shearwater Group plc c/o Instinctif Partners
David Williams, Chairman
Phil Higgins, CEO
Cenkos Securities plc - NOMAD and
Joint Broker
Max Hartley / Giles Balleny - NOMAD
Julian Morse / Michael Johnson -
Sales +44 (0) 20 7397 8900
Berenberg - Joint Broker
Matthew Armitt / Mark Whitmore +44 (0) 20 3207 7800
Instinctif Partners shearwater@instinctif.com
Adrian Duffield / Chantal Woolcock +44 (0) 20 7457 2815
About Shearwater Group plc
Shearwater Group plc is an award-winning organisational
resilience group that provides cyber security and managed security
services to help assure and secure businesses in a connected global
economy.
The Group's comprehensive cyber security solutions and services
maintain trust between users, provide assurance around the
protection of information assets and critical infrastructure, and
support organisations' operational effectiveness. Its capabilities
include identity and access management and data security, cyber
security solutions and managed security services, and security
governance, risk and compliance.
The Group is headquartered in the UK with offices in the US, UK
and Europe, serving customers across the globe who are active in 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.
Chairman's Statement
Overview
The financial year ended 31 March 2019 proved to be one of
substantial progress for the Group despite some specific
challenges, which have now been addressed. We had a significant
number of key strategic and operational successes, which will stand
us in excellent stead in the new financial year.
The highlights include the acquisition of Brookcourt Solutions
in October 2018, which has transformed the Group and materially
outperformed since its acquisition, the organic growth delivered by
SecurEnvoy, and the step up in revenue at GeoLang. However, the
financial performance of the Group overall was impacted by costs,
now removed, which were incurred in the pursuit of initiatives in
certain areas of the business which did not generate the expected
returns on capital we require.
We believe strongly in our strategy and the magnitude of the
opportunities we have in order to become a leading, UK based
operational and digital resilience group.
We remain highly ambitious, operating in a large, complex and
rapidly growing market. We believe we are well on the way to
establishing a number of highly complementary, leading businesses
and are now ideally positioned to improve our financial performance
in not only the current year, but also build value for the long
term.
Financial highlights
Revenues increased by GBP17.3 million to GBP23.5 million (2018:
GBP6.2m) reflecting only 5.5 months of contribution from Brookcourt
Solutions, and good organic growth at SecurEnvoy.
The Group reported an underlying EBITDA loss of GBP1.4 million
(FY18: GBP0.8 million underlying EBITDA loss) as a result of a
number of initiatives, largely within Xcina, which have since been
removed. However, Brookcourt Solutions outperformed in the short
time it has been part of the Group and SecurEnvoy and Xcina
Consulting made positive underlying contributions.
Operational highlights
In the last 18 months, good progress has been made on the
acquisitions front and also on product innovation.
Alongside the transformational acquisition of Brookcourt
Solutions, in April 2019 the Group also acquired certain assets of
Secarma, one of the UK's leading cyber security testing solutions
and services businesses, which was renamed Pentest on acquisition.
The acquisition significantly strengthened the Group's existing
cyber security testing services with world-leading "red teaming"
capability and has provided for multiple cross selling
opportunities, which are already being realised.
Within the Software side of the business, considerable product
development and innovation work has been undertaken both within
SecurEnvoy and GeoLang to advance the capability of our Identity
and Access Management and Data Security offerings. We are extremely
excited about the potential for these businesses in the new
financial year and beyond, and the increased levels of cash
generation and revenue visibility this will bring to the Group.
Board and our people
Over the course of the last financial year, it became clear to
the Board that Shearwater would benefit from new executive
leadership. Phil Higgins, who has substantial industry expertise
and experience growing and delivering value within a fast-growing
company environment, was appointed Chief Executive Officer on 12
April 2019.
Phil is ideally placed to drive the future growth of the
business, having initially been appointed to the Board as an
Executive Director on 11 December 2018 following the acquisition of
Brookcourt Solutions. Phil was the Chief Executive Officer and
co-founder of Brookcourt Solutions, which now forms the largest
business within the Group.
His transition to this role has been very smooth, and under his
stewardship we look forward to Shearwater capitalising on the
considerable opportunities for growth, which the business is
experiencing.
I would also like to take this opportunity to welcome Paul
McFadden to our Board, as Chief Financial Officer. Paul has been
with the business since May 2018 and joined the Board as a Director
in October 2018. Prior to this Paul was Group Financial Controller
at Wilmington plc.
Marcus Willett CB OBE also joined the Group's Advisory Panel in
January this year. He will work alongside Lord Reid of Cardowan,
the Advisory Panel's Chairman, and we all will benefit greatly from
Marcus' 33-year career in GCHQ, where he was most recently, deputy
head of the organisation. We are now fortunate to have a Board and
Advisory Panel with a wide range of contacts to draw on as we move
forward.
I would like to make a particular point of thanking our
employees, both long standing and those that have joined from
recent acquisitions. Their continued hard work and professionalism
is greatly appreciated. It is also important for me to thank our
loyal shareholders for their continued support.
Outlook
The market for leading operational and digital resilience
solutions remains compelling and with Shearwater, we have a unique
blend of owned proprietary security technologies and solutions,
which can help our customers protect, assure and manage their data
and information in the most demanding of environments.
We have started the new financial year with a new executive team
and renewed vigour and optimism. Over the last few months, the
Group's operational structure has been simplified and restructured
to ensure we have the right people in the right roles to allow us
to operate more effectively. This in turn has facilitated
intra-group collaboration and at present a total of 80+ cross
selling opportunities which are currently being reviewed and
realised.
We are making great progress and have delivered our maiden
quarter of profitable performance as a Group at an underlying
EBITDA level. This is a tremendous achievement across the business,
delivered at a time of considerable change, and as a result, we are
set up for strong revenue growth, profitability and cash generation
for the year as a whole.
Overall, after a strong Q1, the Group is trading in line with
our expectations and with a material improvement in cash
generation, our cash balance as at 30 June 2019 is up 183% at
GBP1.7 million.
We are looking forward with increased confidence in our ability
to execute our strategy and deliver shareholder value.
David Williams
Chairman
30 July 2019
Chief Executive Officer's Review
Strategic overview
With over 30 years IT industry experience and as Chief Executive
Officer of the Group, I can clearly see how uniquely Shearwater
sits within our industry. A true British independent company
operating in a world where we have an ever-increasing market space
with individual and corporate risk, governance and security threats
being the norm.
We are committed to building Shearwater into an established and
respected UK plc by providing our customers with agile and
innovative operational and digital resilience solutions.
Through the application of our "buy, focus, grow" strategy, we
aim to identify investment and acquisition opportunities where the
target company has a leading product, solution, service or
consulting capability whose potential can be unlocked.
We are witnessing Shearwater at its infancy. A company that has
strategic direction, and whose technologies and services help
companies and individuals reduce their risk footprint whilst
improving their operational and digital resilience.
The blend of our own proprietary security technologies alongside
market leading solutions means the business has an excellent
opportunity to capture substantial market share through each of its
businesses.
With very little client overlap we are now capitalising on the
80+ cross selling opportunities within the Group, seven of which
have already resulted in contract wins. Whilst this cross-sell
opportunity is substantial, it isn't just about driving revenues
for the Group - it's about how we improve our customer's overall
service experience, helping to solve their security needs and
keeping their data and information assets safe and secure, whilst
enhancing their ability to do business.
Acquisitions growth will remain an important component to
augment organic growth, and we will continue to evaluate selective
M&A opportunities which are profitable, organically fit with
existing group companies and provide tangible synergies as part of
Shearwater.
Following the change of executive leadership which occurred in
April 2019, I have led a review and subsequent reorganisation of
the Group in order to remove a number of initiatives which haven't
generated the requisite returns on capital we demand in an
appropriate timeframe. These initiatives, which substantially
resided within Xcina have now been removed, and as such, going
forward, Xcina will largely comprise Xcina Consulting which itself
remained profitable in the period on an underlying basis.
In addition to this, we have also sought to remove duplicative
back office functions across the Group by centralising certain
shared services including finance, HR, legal, IT and operations.
This has enabled us to create a more efficient operating structure
and generate a number of cost savings, which have already started
to be realised.
Whilst 2018/19 has been a challenging year on one hand, it has
also been filled with a series of positive developments across the
Group which will underpin our drive to profitability and cash
generation during the new financial year.
Delivering on these growth objectives, alongside the benefits of
the reorganised and simplified Group, will support Shearwater in
achieving its goals for this year and beyond.
Market opportunity
The market opportunity for Shearwater is considerable. Industry
reports estimate total addressable markets across our businesses
worth in excess of $36 billion globally, with tailwinds driving
blended 12% plus compound annual growth rates, which the Group is
focused on exploiting. We believe we are uniquely positioned as one
of the few true independents left in our chosen markets, with an
offering underpinned by patented technology, and market leading
services and solutions.
We will continue to invest in technology and solution innovation
to protect and enhance our key differentiators and seek to drive
further value from our largely untapped, substantial client
base.
Through continued digitalisation and the rapidly growing
interconnectivity of enterprises, functions, people and devices,
organisations face unprecedented levels of pressure in needing to
evolve their business models so that they can digitally engage
effectively with all stakeholders and manage and protect their
critical data and information assets. All of this is occurring at a
time when attacks are increasing, and the sophistication of threats
is outpacing the capability and capacity to respond.
As a result, organisations are having to rethink traditional
approaches to data and information security and move beyond
standard protection measures aimed at meeting minimum levels of
compliance. They now have to consider how information security can
be embedded within business processes and operations to manage,
monitor and protect data and information assets, while still
competing effectively in an increasingly globalised and
interconnected world.
We believe that developing this operational and digital
resilience is key for all organisations irrespective of size. The
resilience of these systems is paramount as digital technologies
have become increasingly interwoven and inseparable from business
processes that are operating with decreasing human oversight and
interaction.
In this connected digital environment, the organisations'
failure of any single underlying point, whether through malicious
activity or human error, can cascade and have catastrophic effects
across an organisations entire network.
Operational and digital resilience is therefore a foundation for
any organisation that wants to compete effectively in an
increasingly interconnected world. It is an organisation's ability
to manage the interaction between technology, process and people so
that they remain operationally resilient, combined with peace of
mind that their information assets and critical infrastructure are
protected, and they have the means to recover and rebound if things
go wrong.
This presents an attractive market opportunity for those
providers of digital resilience solutions which maintain trust
between users, provide assurance around the protection of critical
information assets, and support operational effectiveness.
Group overview
Shearwater is an award-winning operational resilience group that
provides cyber security and managed security services to help
assure and secure businesses in a connected global economy. At
present, we have:
-- 400+ customers including FTSE350 multinational organisations,
Fortune 500 companies, SMEs, charities and Government
organisations.
-- Approximately 120 employees across ten offices located in the
US, UK and Europe ably serving our extensive customer base.
-- Won over 22 industry awards and 2 Queen's Awards for
innovation and international trade.
-- 10 technology patents granted with four patents pending,
which help enhance the Group's competitive position in core markets
through continued product and solution innovation.
-- Group companies holding relevant industry certifications
including, ISO9001, 22301, 14001 and 27001, and OHSAS 18001.
Our comprehensive cyber security solutions and services maintain
trust between users, provide assurance around the protection of
information assets and critical infrastructure, and support
organisations' operational effectiveness.
This suite of capabilities has been developed to support an
organisation's operational and digital resilience. Specifically,
these include:
Identity and access management, and data security - the
authentication of the individual enabling them to access the
organisational network, specific data and information assets, and
the movement and use of that data and information within and
outside of the organisation;
Cyber security solutions and managed security services - the
delivery of cyber security, networking technologies and managed
security services used to secure and protect organisations'
critical infrastructure; and
Security governance, risk and compliance - technology,
operational and regulatory risk testing, assurance and advisory
services in support of an organisation's operational and digital
resilience.
We believe it is important to offer this holistic approach to
security as an organisation's resilience is ultimately about
managing the interaction between technology, process and
people.
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.
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. Whilst the directors recognise that this is not
a standard UK GAAP performance measure they consider that this
alternative performance measure provides important additional
information to the reader regarding the adjusted performance of the
business including trends, performance and position of the Group.
The Board feel that this alternative measure enhances the
comparability of information between reporting periods by adjusting
for exceptional or uncontrollable factors which affect IFRS
measures, to aid the understanding of the Group's performance.
In addition, control of the bank and cash balances is a priority
for the Group and these are budgeted and monitored closely to
ensure that the Group maintains adequate liquidity to meet all of
its financial commitments as they arise.
Financial performance
The Group generated revenue of GBP23.5 million (2017/18: GBP6.2
million), which reflected almost 12 months of trading from GeoLang
and 5.5 months of trading from Brookcourt since acquisition
respectively. The Group generated an underlying EBITDA loss of
GBP1.4 million (2017/18: GBP0.8 million EBITDA loss) which
reflected strong performance from Brookcourt and SecurEnvoy offset
by disappointing performance from a number of initiatives within
the wider Xcina business, which have since been removed following
the reorganisation in April 2019. At the period end, Group cash was
GBP0.6 million (2017/18: GBP2.5 million) reflecting continued
investments made in portfolio companies which we will see the
benefits of in the new financial year.
The portfolio companies contributed GBP0.7 million of underlying
EBITDA (2017/18: GBP1.1 million underlying EBITDA) which included
significant investment in Xcina growth initiatives, as well as
investing in Group infrastructure which all Group companies will be
able to capitalise on moving forward. Brookcourt has added strong
underlying performance since acquisition and GeoLang has recorded
its maiden revenues within this financial period.
After exceptional items of GBP2.7 million (2017/18: GBP1.0
million), amortisation of acquired intangible assets, impairment of
legacy intangible mining assets, depreciation, fair value
adjustment on deferred consideration and share based payments the
Group made an operating loss of GBP6.8 million (2017/18: GBP2.9
million). Of the GBP2.7 million exceptional items, GBP1.5 million
related to the acquisition of Brookcourt Solutions, GBP0.2 million
to the acquisition of GeoLang and GBP1.0 million one off legal
fees. Due to the volatility of the share based payments charge,
which will vary year on year dependent on the level of completed
acquisitions, this is adjusted out in underlying EBITDA so as not
to distort year on year trading comparisons.
Please see note 2 which provides a reconciliation between loss
before tax and underlying EBITDA loss.
Segmental review (including activities after the financial year
end)
Software
Our software division encompasses our owned proprietary
technology solutions which centre around identity and access
management, and data security. This includes the authentication of
the individual enabling them to access the organisational network,
specific data and information assets, and the movement and use of
that data and information within and outside of the
organisation.
The Group companies which currently form this division
include:
-- SecurEnvoy, a provider of trusted identity and access
management solutions to millions of users in real-time.
SecurEnvoy's technology maintains trust between those users and
ensures the protection of organisations' critical data and
infrastructure; and
-- GeoLang, a provider of data discovery and Data Loss
Prevention solutions ("DLP"), services and technologies used to
discover, classify and protect sensitive data and information in
the cloud and on premise.
Financial performance
During the period, Software generated GBP3.9 million of revenue
(2018: GBP3.4 million), representing 12 months of trading from
SecurEnvoy and 11.8 months of trading from GeoLang. Software
contributed GBP0.5 million of EBITDA towards a total Segment EBITDA
of GBP0.7 million, reflecting strong performance at a SecurEnvoy
level offset by an underlying EBITDA loss at GeoLang. As GeoLang
further grows its revenue in the current year it is expected to
move to profitability.
Operational review
In April 2018, the Group acquired GeoLang. As an award-winning
provider of data discovery and data loss prevention software, the
acquisition established the Group's position within the rapidly
growing DLP market and augmented Shearwater's GDPR and cyber
security capability offering. The business is now revenue
generating and has created the Group a foothold within a US$1.1
billion market, growing at 19% per annum.
GeoLang's maiden contract win followed shortly after
acquisition, with the award of its first enterprise licence under
the G Cloud framework, an agreement between the UK Government and
its cloud-based services suppliers. This deployment enabled the
customer to detect all Payment Card Industry ("PCI") and Personally
Identifiable Information ("PII") held across endpoints and servers
via GeoLang's patented, keyword matching algorithm, which assisted
in the production of PCI and PII audit compliance reports and
facilitated General Data Protection Regulation ("GDPR") "Subject
Access" and "Right to be Forgotten" requests.
Further contract wins followed in the period, notably with
Alfresco, a leading international provider of Enterprise Content
Management and Business Process Management software solutions.
GeoLang provides Alfresco with a GDPR and PCI Compliance solution
that enables them to discover and protect PCI and PII across its
digital estate, including cloud sync folders, endpoints, servers,
email and Alfresco repositories.
Going forward, it is expected that GeoLang will continue to add
new client names to their roster, with sales efforts boosted by
accessing the Group's extensive customer base on a cross-sell
basis. This is expected to result in GeoLang making a profitable
contribution to the overall Software division in the new financial
year.
During the period, SecurEnvoy entered into an agreement with
XenTegra, LLC to represent the business as a new valued-added
reseller channel partner in the US, bringing its channel partners
in the region to over 15. SecurEnvoy was also appointed by Citrix
(NASDAQ: CTXS) as one of its first Premier Citrix Ready Partners
for the fast-growing Identity and Access Management sector. The
Citrix Ready designation is awarded to third party partners that
have successfully met test criteria set by Citrix before enabling
access to Citrix's extensive customer base and network of 10,000
resellers.
Post the period end, SecurEnvoy also made significant progress
with its previously announced product roadmap. This included the
launch of SecurHIVE, a new suite of security assurance and
prevention solutions for organisations to protect sensitive data,
and ensure administration, compliance and governance. This broadens
SecurEnvoy's offering into endpoint security, a top priority for
Chief Information Security Officers today.
Most recently, SecurEnvoy developed and launched its new data
security product, Multi-Factor Authentication ("MFA")-as-a-Service.
This new subscription-based product is a core component of
SecurEnvoy's recently launched SecurIdentity(TM) cloud platform,
which provides cloud hosted Identity and Access Management ("IAM")
solutions used by organisations to protect their critical data and
infrastructure.
The business is expected to continue its journey of transition
from the provision of MFA through to much broader Identity and
Access Management solutions, encompassing not only MFA but also
Privileged Access Management, DLP and Cloud Access Security Broker.
This will enable SecurEnvoy's current and future customers to
benefit from a total data security solution (available on premise
and in the cloud), which will protect their data and information
assets, without the need to transact with multiple vendors, thus
enhancing their overall security environment posture.
Services
Our Services division encompasses our services and solutions
businesses which centre around cyber security solutions and managed
security services and security governance, risk and compliance.
These businesses deliver cyber security, networking technologies
and managed security services used to secure and protect
organisations' critical infrastructure, and technology, operational
and regulatory risk testing, assurance and advisory services in
support of an organisation's operational and digital
resilience.
The Group companies which currently form this division
include:
-- Brookcourt Solutions, a provider of cyber security, network
monitoring technologies and managed security services to secure and
protect an organisation's critical infrastructure;
-- Xcina, a provider of technology, operational and regulatory
risk assurance and advisory services in support of resilience and
risk management;
-- Pentest, a provider of next generation penetration testing,
red team and offensive security consultancy services, designed to
uncover IT security vulnerabilities, support remediation efforts
and increase the digital resilience of businesses.
Financial performance
During the period, Services generated GBP19.6 million of revenue
(2018: GBP2.8 million), representing 12 months of trading from
Xcina and approximately 5.5 months of trading from Brookcourt
Solutions. Services contributed GBP0.3 million of EBITDA towards a
total Segment EBITDA of GBP0.7 million, reflecting the excellent
post acquisition performance of Brookcourt Solutions and positive
underlying contribution from Xcina Consulting, which in part has
offset underperformance across other Xcina business areas, which
have since been removed.
On a standalone basis, Xcina Consulting delivered GBP4.2 million
of revenue for the twelve months ended 31 March 2019, generating
GBP0.2 million of underlying EBITDA, compared to GBP2.4 million of
revenue and an underlying loss of GBP0.1 million for the
pre-acquisition period.
On a pro forma basis, Brookcourt Solutions generated GBP29.2
million of revenue for the twelve-month period ended 31 March 2019,
and GBP3.4 million of underlying EBITDA, of which only 5.5 months
of trading was reflected in the Group's results for period ended 31
March 2019.
Operational review
In October 2018, Shearwater completed its largest acquisition to
date through the acquisition of Brookcourt Solutions. As a
specialist provider of cyber security and network solutions within
complex, advanced threat landscapes, the acquisition was
transformational for the Group.
In particular, it substantially broadened Shearwater's cyber
security solutions and services capability, facilitated access to a
complementary, large enterprise client base, and has created a
strong platform to drive organic and acquisitions growth, within a
fragmented cyber security services and solutions market.
The Board is delighted with the performance of Brookcourt
Solutions since joining Shearwater, and the opportunities to
introduce other Shearwater Group companies to Brookcourt Solutions'
extensive, large corporate client base.
Since joining the Group, Brookcourt Solutions has benefited from
being part of a dynamic, forward thinking plc. Over the course of
the last 15 months Brookcourt Solutions has won 24 new corporate
relationships, which include some of the world's largest
telecommunications, ICT and retail companies, alongside substantial
renewals and new work with existing clients within the
telecommunications and financial services sectors.
Xcina Consulting won over 18 new customers in the period,
generating incremental revenues of GBP0.9 million in addition to
existing client revenues. In December 2018, the Group paid the
final earn out consideration owed to Newable Consulting of GBP0.02
million, which was settled through the issuance of 612,017 ordinary
shares of the Company.
Xcina Consulting also became a 'Platinum Member' to the British
Standards Institution ("BSI") Associate Consultant Programme. Xcina
Consulting's membership strengthens our existing relationship with
the BSI and demonstrates our expertise in helping clients attain
BSI certifications, including ISO27001, 22301, 20000, 9001 and
27018.
Post the period end, in April 2019, Pentest joined the Group.
Established in 2001, Pentest is a leading provider of cyber
security testing services and solutions. The business'
first-generation cyber security testing services assess how
attackers can exploit and penetrate weaknesses in operating
systems, applications or services. In addition, Pentest provides
advance threat analytics and monitoring, and tailored "red teaming"
operations through its highly experienced cyber security and
ethical hacking specialists, which can simulate an attack on a
customers' network environment to test its ability to withstand an
attack.
The Pentest team have already been working across the Group
providing security testing services to existing customers of
Brookcourt Solutions and Xcina, in addition to their own
long-standing customer base.
We expect that the reorganised Xcina business (largely comprised
of Xcina Consulting), will make a material contribution to the
Services division at an underlying EBITDA level, alongside nearly
12 months of contribution from Pentest. Once aggregated with
trading from Brookcourt Solutions, the Services division will
become the largest division of the Group at a revenue and
underlying EBITDA level.
Organic growth in the new financial year will continue to be
driven by new customer wins and a push to cross sell cyber security
solutions and services to existing Group customers, supported by
revised intra-group incentivisation structures. On the M&A
front, it is anticipated that further acquisition opportunities, if
realised, will bolt into our existing Services division capability,
providing complementary customer bases and / or a broadening of our
service and solutions offering.
Financial position
Cash and cash equivalents decreased by GBP1.9 million to GBP0.6
million at 31 March 2019 primarily reflecting investments made in
infrastructure that will allow the business to scale in the future
as well as one off exceptional costs that will not be repeated
going forward.
In the new financial year, it is expected that the Group will
generate positive cash flow as a result of a full year contribution
of operating cash flow from Brookcourt Solutions (along with other
Group companies) and the non-recurring nature of one off
exceptional items incurred in the prior period.
Intangible assets (including goodwill) increased by GBP31.7
million to GBP52.9 million at 31 March 2019 reflecting GBP33.4
million from the acquisitions made in the year and GBP0.6 million
from computer software additions, of which GBP0.2 million is
internal development. This is offset by amortisation of GBP1.3
million and a GBP1.0 million impairment charge for legacy mining
assets.
Property, plant and equipment increase reflects GBP0.2 million
of acquired tangible fixed assets plus GBP0.1 million of other
additions. This is offset by depreciation of GBP0.1 million.
Trade and other receivables increased by GBP14.2 million to
GBP16.2 million at 31 March 2019 reflecting acquisitions which
contributed GBP13.9 million as at year-end. Higher trading activity
from SecurEnvoy in the last three months has further increased the
balance.
Trade and other payables increased by GBP15.6 million to GBP17.4
million at 31 March 2019. Acquisitions accounted for GBP10.4
million of the increase as at year end. This included GBP1.3
million utilisation of debt finance facility which was settled in
full in April 2019. Also included within the balance is GBP1.1
million of deferred income. Other material balances include GBP3.0
million (excluding interest) of deferred completion cash owing to
the former shareholders of Brookcourt Solutions which is payable as
a result of the working capital and cash completion mechanism
contained in the share purchase agreement.
Share capital increased during the year by GBP9.4 million to
GBP19.0 million which includes GBP4.9 million from the placing and
open offer plus GBP4.5 million acquisition consideration on a
nominal basis.
The Group is exposed to foreign exchange risks, liquidity and
capital risks and credit risks.
Philip Higgins
Chief Executive Officer
30 July 2019
Consolidated statement of Group comprehensive income
for the year ended 31 March 2019
2018/19 2017/18
GBP (000) GBP (000)
------------------------------------------------- ---------- ----------
Revenue 23,452 6,240
Cost of sales (16,617) (2,604)
-------------------------------------------------- ---------- ----------
Gross profit 6,835 3,636
Administrative expenses (13,551) (6,520)
-------------------------------------------------- ---------- ----------
Operating loss (6,716) (2,884)
Finance cost (164) -
Finance income - 2
Loss before tax (6,880) (2,882)
Income tax credit /(charge) 1,020 (3)
Loss for the year and attributable to
equity holders of the Company (5,860) (2,885)
-------------------------------------------------- ---------- ----------
Operating loss analysed as:
Underlying EBITDA (1,394) (837)
Amortisation of acquired intangibles (1,325) (647)
Depreciation of fixed assets (69) (14)
Share-based payments (331) (366)
Impairment of intangible assets (1,005) -
Exceptional items (2,729) (1,020)
Fair value adjustment to deferred consideration 137 -
Finance cost (164) -
Finance income - 2
Loss before tax (6,880) (2,882)
-------------------------------------------------- ---------- ----------
Other comprehensive income
Items that may be reclassified to profit
and loss:
Change in financial assets at fair value
through OCI (18) (67)
Exchange differences on translation
of foreign operations 20 -
Total comprehensive loss for the year (5,858) (2,952)
-------------------------------------------------- ---------- ----------
Loss per share
Basic and diluted (pence per share) (0.42) (0.31)
Consolidated statement of Group and Company financial
position
as at 31 March 2019
Group Company
2019 2018 (restated) 2019 2018
GBP (000) GBP (000) GBP (000) GBP (000)
------------------------------- ---- ---------- ---------------- ---------- ----------
Assets
Non-current assets
Intangible assets (restated) 52,389 20,669 - 986
Investments in subsidiaries - - 58,667 20,221
Financial assets at
fair value through OCI 33 51 33 51
Property, plant and
equipment 248 76 17 18
Amounts owed by subsidiary
undertaking - - - 1,662
Total non-current assets 52,670 20,796 58,717 22,938
------------------------------------- ---------- ---------------- ---------- ----------
Current Assets
Trade and other receivables 16,220 1,949 4,554 47
Deferred tax asset 665 - - -
Cash and cash equivalents 597 2,493 1 540
Total current assets 17,482 4,442 4,555 587
------------------------------------- ---------- ---------------- ---------- ----------
Total assets 70,152 25,238 63,272 23,525
------------------------------------- ---------- ---------------- ---------- ----------
Liabilities
Current liabilities
Trade and other payables 17,389 1,755 13,713 597
Total current liabilities 17,389 1,755 13,713 597
------------------------------------- ---------- ---------------- ---------- ----------
Non-current liabilities
Amounts owed to subsidiary
undertaking - - - 646
Deferred tax (restated) 3,203 1,340 2 -
Deferred consideration 206 - 206 -
Total non-current liabilities 3,409 1,340 208 646
------------------------------------- ---------- ---------------- ---------- ----------
Total liabilities 20,798 3,095 13,921 1,243
------------------------------------- ---------- ---------------- ---------- ----------
Net assets 49,354 22,143 49,351 22,282
------------------------------------- ---------- ---------------- ---------- ----------
Capital and reserves
Share capital 19,040 9,644 19,040 9,644
Share premium 34,578 22,446 34,578 22,446
Available for sale reserve 18 36 18 36
Other reserves 19,123 7,127 19,123 7,127
Translation reserve 20 - - -
Accumulated losses (23,425) (17,110) (23,408) (16,971)
Equity attributable to owners
of the Company 49,354 22,143 49,351 22,282
------------------------------------- ---------- ---------------- ---------- ----------
Total equity and liabilities 70,152 25,238 63,272 23,525
------------------------------------- ---------- ---------------- ---------- ----------
Consolidated Group and Company Cash
Flow Statement
for the year ended 31 March 2019
Group Company
2018/19 2017/18 2018/19 2017/18
GBP
GBP (000) (000) GBP (000) GBP (000)
-------------------------------------------- ---------- -------- ---------- ----------
Cash flows from operating activities
Loss for the year (5,860) (2,885) (5,982) (2,746)
Adjustments for:
Amortisation of acquired intangible
assets 1,325 647 - -
Depreciation of property, plant
and machinery 69 14 7 4
Share-based payment charge 331 366 331 366
Impairment of intangible assets 1,005 - 1,005 -
Fair value adjustment of deferred
consideration (137) - (137) -
Finance income - (2) - (2)
Finance cost 164 - 135 -
Income tax (1,020) 3 2 -
Cash flow from operating activities
before changes in working capital (4,123) (1,857) (4,639) (2,378)
(Increase)/decrease in trade
and other receivables (4,396) (1,412) (585) 39
Increase/(decrease) in trade
and other payables 5,119 457 6,075 (1,149)
Cash used in operations (3,400) (2,812) 851 (3,488)
--------------------------------------------- ---------- -------- ---------- ----------
Net foreign exchange movements 1 (19) - -
Finance cost paid (10) - - -
Tax paid (52) (280) - -
--------------------------------------------- ---------- ---------- ----------
Net cash used in operating activities (3,461) (3,111) 851 (3,488)
--------------------------------------------- ---------- -------- ---------- ----------
Investing activities
Acquisition of subsidiaries,
net of cash acquired (14,264) (9,839) (17,911) (11,466)
Purchase of property, plant and
machinery (81) (72) (6) (20)
Purchase of software (619) (19) - -
Interest received - 2 - 1
Gold exploration payments (19) (50) (19) (50)
Net cash used in investing activities (14,983) (9,978) (17,936) (11,535)
--------------------------------------------- ---------- -------- ---------- ----------
Financing activities
Proceeds from issue of share
capital 17,527 9,020 17,527 9,020
Expenses paid in connection with
share issues (981) (530) (981) (530)
Net cash generated by financing
activities 16,546 8,490 16,546 8,490
--------------------------------------------- ---------- -------- ---------- ----------
Net decrease in cash and cash equivalents (1,898) (4,599) (539) (6,533)
---------------------------------------------- ---------- -------- ---------- ----------
Foreign exchange movement on cash and
cash equivalents 2 19 - -
Cash and cash equivalents at the beginning
of the period 2,493 7,073 540 7,073
Cash and cash equivalents at
the end of the period 597 2,493 1 540
--------------------------------------------- ---------- -------- ---------- ----------
Consolidated statement of changes in Group
and Company equity
for the year ended 31 March
2019
Share
capital Share Other
(Note premium reserve Translation Accumulated Total
18) (restated) FVTOCI (restated) reserve losses Equity
GBP GBP GBP
Group GBP (000) (000) GBP (000) (000) GBP (000) GBP (000) (000)
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
At 1 April 2017 5,353 15,962 103 39 - (13,976) 7,481
Loss for the year - - - - - (2,885) (2,885)
Other comprehensive loss
for the year - - (67) - - - (67)
Total comprehensive loss
for the year - - (67) - - (2,885) (2,952)
Contributions by and distributions
to owners
Issue of share capital 4,291 6,765 - - - - 11,056
Merger relief reserve
(restated) - - - 6,726 - - 6,726
Share issue costs - (281) - - - (249) (530)
Share based payments - - - 362 - - 362
At 31 March 2018 (restated) 9,644 22,446 36 7,127 - (17,110) 22,143
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
Loss for the year - - - - - (5,860) (5,860)
Other comprehensive loss
for the year - - (18) - 20 - 2
Total comprehensive loss
for the year - - (18) - 20 (5,860) (5,858)
Contributions by and distributions
to owners
Issue of share capital 9,396 12,658 - - - - 22,054
Merger relief reserve - - - 11,665 - - 11,665
Share issue costs - (526) - - - (455) (981)
Share based payments - - - 331 - - 331
At 31 March 2019 19,040 34,578 18 19,123 20 (23,425) 49,354
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
Share
capital Share Other
(Note premium reserve Translation Accumulated Total
18) (restated) FVTOCI (restated) reserve losses Equity
GBP
Company GBP (000) GBP (000) GBP (000) GBP (000) GBP (000) GBP (000) (000)
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
At 1 April 2017 5,353 15,957 103 39 - (13,976) 7,476
Loss for the year - - - - - (2,746) (2,746)
Other comprehensive loss
for the year - - (67) - - - (67)
Total comprehensive loss
for the year - - (67) - - (2,746) (2,813)
Contributions by and distributions
to owners
Issue of share capital 4,291 6,770 - - - - 11,061
Merger relief reserve
(restated) - - - 6,726 - - 6,726
Share issue costs - (281) - - - (249) (530)
Share based payments - - - 362 - - 362
At 31 March 2018 (restated) 9,644 22,446 36 7,127 - (16,971) 22,282
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
Loss for the year - - - - - (5,982) (5,982)
Other comprehensive loss
for the year - - (18) - - - (18)
Total comprehensive loss
for the year - - (18) - - (5,982) (6,000)
Contributions by and distributions
to owners
Issue of share capital 9,396 12,658 - - - - 22,054
Merger relief reserve - - - 11,665 - - 11,665
Share issue costs - (526) - - - (455) (981)
Share based payments - - - 331 - - 331
At 31 March 2019 19,040 34,578 18 19,123 - (23,408) 49,351
---------------------------- ---------- ------------ ---------- ------------ ------------ ------------ --------
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH
2019
1. Basis of preparation
The Consolidated and Company financial statements have been
prepared in accordance with International Financial Reporting
Standards ('IFRS'), including International Accounting Standards
('IAS') and interpretations ('IFRS ICs') issued by the
International Accounting Standards Board ('IASB') and its
Committees, and as adopted in the EU, and in accordance with the
Companies Act 2006 as applicable to Companies using IFRS.
The Consolidated financial statements have been prepared under
the historic cost convention, except for certain financial
instruments that have been measured at fair value. The Consolidated
financial statements are presented in Sterling, the functional
currency of Shearwater Group plc, the Parent Company. All values
are rounded to the nearest thousand pounds (GBP'000s) except where
otherwise indicated.
After making enquiries, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing these consolidated financial statements. The Group is
forecast to become profitable and cash generative in fiscal year
March 2020.
The statutory accounts for the year will be delivered to the
Registrar of Companies following the Company's Annual General
Meeting. The auditors' reports on those accounts was unqualified,
did not draw attention to any matters by way of emphasis, and did
not contain a statement under 498(2) or 498(3) of the Companies Act
2006.
2. 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 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 2019 and the
twelve months ended 31 March 2018 as the Group is loss making.
At the reporting date, there were 31,498,074 (2018: 18,815,074)
potentially dilutive ordinary shares. Dilutive potential ordinary
shares relate to share options.
The calculation of the basic and diluted loss per share from
total operations attributable to Shareholders is based on the
following data:
2018/19 2017/18
GBP (000) GBP (000)
-------------------------------------------------------- -------------- ------------
Net loss from total operations
Loss for the purposes of basic and diluted loss
per share being net loss attributable to Shareholders (5,860) (2,885)
Number of
shares No No
Weighted average number of ordinary shares for
the purpose of basic and diluted loss per share 1,407,483,914 917,725,525
Loss per share Pence Pence
Basic and
diluted (0.42) (0.31)
--------------------------------------------------------- -------------- ------------
3. Events after the reporting period
On 9 April 2019, the Group acquired the entire 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 consideration for the acquisition was GBP7.4
million, which was settled through the issuance of 292,292,565
ordinary shares of the Group at an issue price of 2.3 pence per
ordinary share to the Secarma shareholders (representing GBP6.7
million of consideration) and an unsecured loan note of GBP0.7
million. The loan note is to be repaid to the Seller in tranches on
the first and third anniversary of completion of the acquisition.
The unsecured loan note will attract interest of 6 per cent. per
annum. The acquisition brings an additional service that
complements existing businesses within the Group and is in line
with the acquisition criteria of the group. This acquisition meets
the requirements of IFRS 3 Business Combinations.
On the 12 April 2019, the Group announced that its then Group
Chief Executive Officer, Michael Stevens, had agreed to step down
from the Board and leave the business with immediate effect. Phil
Higgins, the Group's then Executive Director, and founder of
Brookcourt Solutions, was appointed Group Chief Executive with
immediate effect.
On the 12 June 2019, the Group announced that it had appointed
Berenberg as joint broker to the Company, to work alongside Cenkos
Securities, the Group's current nominated advisor and broker.
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.
[1] Underlying EBITDA defined as profit before tax, before one
off exceptional items, share based payment charges, finance
charges, depreciation and amortisation
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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