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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Shearwater Group Plc | LSE:SWG | London | Ordinary Share | GB00BKT6VH21 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 41.00 | 40.00 | 45.00 | 0.00 | 07:31:43 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Gold Ores | 26.69M | -8.18M | -0.3431 | -1.19 | 9.77M |
From Apr 2019 to Apr 2024
TIDMSWG
RNS Number : 7657U
Shearwater Group PLC
27 November 2019
27 November 2019
SHEARWATER GROUP PLC
Results for the six months ended 30 September 2019
Shearwater Group plc (AIM: SWG, "Shearwater", the "Group"), the organisational resilience group, announces its unaudited results for the six months ended 30 September 2019.
Highlights
-- Group revenue up 262% at GBP16.3 million (2018: GBP4.5 million)
o Underlying organic revenue[1] growth of 11%
-- Group Underlying EBITDA[2] of GBP1.0 million (2018: EBITDA loss of GBP1.6 million)
-- Adjusted earnings per share[3] of 2.23 pence (2018: loss 18.73 pence)
-- Acquisition of Pentest substantially expands security testing and "red teaming" capability
-- New software product developments, including launch of cloud hosted "as-a-service" offerings to complement on-premise solutions
-- Substantial number of live cross-selling opportunities generated - 19 converted into contract wins
Outlook
-- Double digit organic growth in H1 providing good momentum into H2
-- Secured multi-million-pound managed service contracts, underpinning revenue visibility
-- Group continues to trade well - in line with expectations for the full year
David Williams, Chairman of Shearwater, said:
"We made notably strong progress during the first half including transforming our operational structure, adding important capabilities to the group and reporting our maiden half year of profitable performance.
"We are now a cohesive group capable of delivering a comprehensive range of products and services to better serve the needs of our increasing roster of clients.
"The sector we serve is not only growing quickly but constantly evolving and we are alert to the potential to grow our business significantly, both organically and by selective acquisitions."
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 +44 (0) 20 7397 8900 Julian Morse / Michael Johnson - Sales 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
A copy of this announcement has been posted on the Company's website at www.shearwatergroup.com.
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.
Strategic overview
Shearwater made excellent strategic, operational and financial progress in the first half of the year following the appointment of Phil Higgins as Chief Executive Officer in April 2019.
The Group successfully completed a review of its operating structure resulting in the simplification of operations and the realisation of a number of efficiency gains. Following the reorganisation, intra-group collaboration yielded over 100 live cross-selling opportunities, of which 19 have been converted into contract sales in the period.
Financially, Shearwater made good progress with Group revenue of GBP16.3 million, which reflected organic growth in the period of 11%. The Group became profitable with Underlying EBITDA of GBP1.0 million (2018: Underlying EBITDA loss of GBP1.6 million) and adjusted earnings per share at 2.23 pence (2018: loss 18.73 pence).
In April 2019, the Group acquired Pentest for GBP7.4 million. Pentest is a leading provider of first-generation cyber security testing services that assess how attackers can exploit and penetrate weaknesses in operating systems, applications or services. In addition, the business provides advanced 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 Board is confident that Shearwater can continue its momentum in building a leading UK-based business, providing organisational resilience solutions to an international client base through the application of its "buy, focus, grow" strategy.
Current trading and outlook
Growth through acquisitions will remain an important component of the Group's strategy in augmenting organic growth. The Group will continue to evaluate selective M&A opportunities which are profitable, provide tangible synergies and fit within existing Group companies.
Since 30 September 2019, the Group has continued to trade well, with the benefits of a simplified operating structure and intra-group collaboration set to drive further performance and margin improvement in the second half of the year.
As a result of the progress made in H1, and given the Group's traditional second half weighting in performance, the Board anticipates announcing full year results in line with expectations.
Operational review
Software (13% of Group revenue)
SecurEnvoy posted a strong financial performance, with a large number of new customer wins on the back of the launch of its new Multi-Factor Authentication ("MFA") platform, SecureIdentity, and its Data Loss Prevention ("DLP") product offering, SecureDLP.
In addition, SecurEnvoy also launched its MFA-as-a-Service offering, providing cloud hosted Identity and Access Management ("IAM") software solutions which integrates with the business' on-premise MFA solution. This enables organisations to deploy a wide selection of methods to authenticate users accessing web and desktop applications, to ensure a seamless and secure single sign-on.
In October 2019, SecurEnvoy was awarded the Security Cloud-Delivered Security Solution of the Year award at the 2019 Computing Security Awards.
GeoLang, the Group's data security software company led by Dr Debbie Garside, the Group's Chief Innovation Scientist, made good progress, undertaking considerable product development activities, which continue to improve its overall data security software offering and underpinned the launch of its new Sensitive Data Discovery technology platform, Scan-as-a-Service in October 2019.
By leveraging its built-in machine learning algorithms, Scan-as-a-Service searches, locates and audits unstructured sensitive data across a multitude of data repositories, including endpoints, servers, external drives, cloud applications (such as Office 365) and cloud storage.
GeoLang was also awarded a place on the Government's G-Cloud 11 framework, gained an ISO 27001 accreditation, and established distribution and reseller partnerships with OBJECT in the DACH region and Northdoor plc within the UK and EMEA.
More recently, Dr Debbie Garside was awarded the Computing Security magazine's 'Contribution to Cyber Security' award.
Over the second half of the year, the focus will be on continuing to drive business development activities to support the scaling of the business following product improvements implemented since April 2019.
Services and solutions (87% of Group revenue)
Following the right sizing of Xcina and the removal of a number of loss-making initiatives, the business' focus is returning to the original core Xcina Consulting assets acquired in July 2017. Following these changes, Xcina Consulting now has a solid foundation from which to deliver its resilience and risk management solutions.
In the period, Xcina Consulting gained a number of net new customers, seven of which were secured through Group-wide cross selling opportunities, in addition to winning leading European and US global corporations as direct customers.
Acquired in April 2019, Pentest has been integrated into the Group exceptionally well. As a leading provider of next generation penetration testing, red team and offensive security consultancy services, Pentest's offering is in strong demand and complements a number of the Group companies' individual offerings. Increasingly the Group is seeing opportunities to develop and sell a combination of service and solutions to customers as a single proposition.
Notable events include a US$1 million, one-year contract with a global technology corporation, and gaining of ISO 27001, 9001, Cyber Essentials and Crest accreditations. Pentest also achieved a place on G-Cloud 11.
Brookcourt Solutions delivered a notably strong financial performance, with the business boosted by some significant new clients, including a major law enforcement agency, an international professional services firm and a world leading global bank.
Other significant wins include a GBP8.5 million, three-year managed services contract with one of the UK's largest telecommunications companies. Under the terms of the contract, Brookcourt Solutions will deliver bespoke managed support services around an advanced monitoring solution, which forms a key function within the organisation's global mobile infrastructure.
In October 2019, Brookcourt Solutions also won three industry awards, being named Security Company of the Year, Security Provider of the Year, and Reseller of the Year at the 2019 Computing Security Awards.
Finance review
Financial performance
The Group has delivered improved financial performance for the period ended 30 September 2019 and is well positioned for future growth.
The Group reported revenues of GBP16.3 million (2018: GBP4.5 million), a significant increase from the previous year. Group revenue incorporates approximately six months trading from Pentest which was acquired on 9 April 2019 and the business has performed in line with expectations.
The Group has achieved underlying organic revenue growth of 11% with both Software and Services segments contributing to this organic growth. The main contributors of the underlying revenue growth were Brookcourt Solutions and SecurEnvoy which have delivered a very positive first half performance.
The Group reported its maiden half year of profitable performance generating an Underlying EBITDA of GBP1.0 million (2018: Underlying EBITDA loss GBP1.6 million) which incorporates segmental trading improvements detailed above, as well as reductions in head office costs in excess of 40% year-on-year.
The Group's loss before tax was significantly reduced to GBP1.5 million (2018: loss GBP3.2 million) largely from the improved Underlying EBITDA operational performance. The Group recorded a loss per share of 5.91p (2018: loss 31.77p) and an adjusted earnings per share of 2.23p (2018: loss 18.73p). The Group is not proposing an interim dividend.
The table below details the movement between Underlying EBITDA and loss before tax;
Hot Features
Premium
Six-month period ended 30 September
2019 2018 Movement
(unaudited) GBP (000) GBP (000) GBP (000)
--------------------------------------- ------------- ------------ ------------
Underlying EBITDA 1,012 (1,586) 2,598
Amortisation of acquired intangibles (1,082) (422) (660)
Depreciation (143) (15) (128)
Share-based payments (196) (141) (55)
Exceptional items (796) (998) 202
Fair value adjustment to deferred
consideration (21) - (21)
Finance income 5 - 5
Finance costs (247) - (247)
Loss before tax (1,468) (3,162) 1,694
--------------------------------------- ------------- ------------ ------------
The Group has adopted IFRS 16 leases as of 1 April 2019. Further details are provided in note 8.
Cash and cash equivalents
Shearwater reported cash and cash equivalents of GBP1.7 million (2018: GBP0.5 million), which reflects the improved performance of the Group over the past six months.
Cash management continues to be a priority for the Group and actual expenditure compared to budget is monitored closely to ensure that Shearwater maintains adequate liquidity to meet financial commitments as they arise.
Share capital
In the six month period ended 30 September 2019, 292,292,565 new ordinary shares of GBP0.01 were issued to Secarma Limited to part fund the consideration for the Pentest acquisition that completed on 9 April 2019.
In addition to this, a further 14,388,567 new ordinary shares of GBP0.01 were issued to the sellers of GeoLang Holdings Limited under the terms of the share purchase agreement entered into at the time of the acquisition.
In September 2019, the Group completed a capital reorganisation under which Shearwater's shares were consolidated as a ratio of 100 to 1. Following this capital reorganisation, Shearwater's ordinary share capital now comprises 22,106,460 ordinary shares of 10 pence each. The Board believes that the capital reorganisation will result in a capital structure that is more conducive to attracting new institutional investors based both in the UK and in other overseas jurisdictions, and should increase the market liquidity of Shearwater's shares by reducing volatility and spread.
Consolidated statement of comprehensive income
Six- month period Year ended
ended 30 September 31 March
2019 2018 2019
(unaudited) (unaudited) (audited)
Note GBP (000) GBP (000) GBP (000)
--------------------------------- ------ --------------------- ------------- --------------
Revenue 16,337 4,506 23,452
Cost of sales (12,139) (2,905) (16,617)
---------------------------------- ------ --------------------- ------------- --------------
Gross profit 4,198 1,601 6,835
Administrative expenses (5,424) (4,763) (13,551)
---------------------------------- ------ --------------------- ------------- --------------
Operating loss (1,226) (3,162) (6,716)
Finance income 5 - -
Finance costs (247) - (164)
---------------------------------- ------ --------------------- ------------- --------------
Loss before tax (1,468) (3,162) (6,880)
Income tax credit 173 - 1,020
Loss for the period (1,295) (3,162) (5,860)
---------------------------------- ------ --------------------- ------------- --------------
Attributable to equity holders of
the Company (1,295) (3,162) (5,860)
------------------------------------------ --------------------- ------------- --------------
Operating loss analysed as:
Underlying EBITDA 1,012 (1,586) (1,394)
Amortisation of acquired
intangibles (1,082) (422) (1,325)
Depreciation (143) (15) (69)
Share-based payments (196) (141) (331)
Impairment of intangible
assets - - (1,005)
Exceptional items 4 (796) (998) (2,729)
Fair value adjustment to
deferred consideration (21) - 137
Finance income 5 - -
Finance costs (247) - (164)
Loss before tax (1,468) (3,162) (6,880)
---------------------------------- ------ --------------------- ------------- --------------
Other comprehensive income
Items that may be reclassified to
profit and loss:
Change in financial assets at fair
value through OCI (4) (25) (18)
Exchange differences on
translation
of foreign operations (3) (11) 20
Total comprehensive loss for
the period (1,302) (3,198) (5,858)
---------------------------------- ------ --------------------- ------------- --------------
Earnings/loss per share
Basic and diluted (pence
per share) 5 (5.91) (31.77) (41.63)
Adjusted Basic and diluted
(pence per share) 5 2.23 (18.73) (9.57)
--------------------------------- ------ --------------------- ------------- --------------
Consolidated statement of financial position
Six-month period Year ended
ended 30 September 31 March
2019 2018 2019
(unaudited)
(unaudited) (restated) (audited)
Note GBP (000) GBP (000) GBP (000)
---------------------------------- ------ --------------------- ------------- ------------
Assets
Non-current assets
Intangible assets 56,840 22,563 52,389
Available for sale assets - 26 33
Right of use assets 399 - -
Property, plant and equipment 222 96 248
Total non-current assets 57,461 22,685 52,670
---------------------------------- ------ --------------------- ------------- ------------
Current Assets
Trade and other receivables 9 12,541 1,970 16,220
Deferred tax asset 665 - 665
Cash and cash equivalents 1,680 507 597
Total current assets 14,886 2,477 17,482
---------------------------------- ------ --------------------- ------------- ------------
Total assets 72,347 25,162 70,152
---------------------------------- ------ --------------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables 10 15,297 2,870 17,389
Total current liabilities 15,297 2,870 17,389
---------------------------------- ------ --------------------- ------------- ------------
Non-current liabilities
Deferred tax 3,315 2,054 3,203
Loans 725 - -
Lease liabilities 205 - -
Deferred consideration 227 343 206
Total non-current liabilities 4,472 2,397 3,409
---------------------------------- ------ --------------------- ------------- ------------
Total liabilities 19,769 5,267 20,798
---------------------------------- ------ --------------------- ------------- ------------
Net assets 52,578 19.895 49,354
---------------------------------- ------ --------------------- ------------- ------------
Capital and reserves
Share capital 7 22,106 9,954 19,040
Share premium (restated) 7 34,580 22,446 34,578
Available for sale reserve 14 11 18
Other reserves (restated) 20,581 7,766 19,123
Translation reserve 17 (10) 20
Retained deficit (restated) (24,720) (20,272) (23,425)
Equity attributable to owners of
the Company 52,578 19,895 49,354
------------------------------------------ --------------------- ------------- ------------
Total equity and liabilities 72,347 25,162 70,152
---------------------------------- ------ --------------------- ------------- ------------
Consolidated statement of changes in equity
Share Other Retained
Share premium reserve Translation deficit Total
capital (restated) FVTOCI (restated) reserve (restated) Equity
GBP GBP
(000) GBP (000) (000) GBP (000) GBP (000) GBP (000) GBP (000)
----------------------- ---------- ------------- -------- ------------- ------------- ------------- -----------
At 31 March 2018
(restated) 9,644 22,446 36 7,127 - (17,110) 22,143
Loss for the period - - - - - (3,162) (3,162)
Other comprehensive
loss for the period - - (25) - (10) - (35)
Total comprehensive
loss for the period - - (25) - (10) (3,162) (3,197)
Contributions by and
distributions
to owners
Issue of share
capital 310 - - 498 - - 808
Share based payments - - - 141 - - 141
At 30 September
2018 (unaudited)
(restated) 9,954 22,446 11 7,766 (10) (20,272) 19,895
----------------------- ---------- ------------- -------- ------------- ------------- ------------- -----------
Loss for the period - - - - - (2,698) (2,698)
Other comprehensive
income for the
period - - 7 - 30 - 37
Total comprehensive
income for the
period - - 7 - 30 (2,698) (2,661)
Contributions by and
distributions
to owners
Issue of share
capital 9,086 12,658 - - - - 21,744
Merger relief reserve - - - 11,167 - - 11,665
Share issue costs - (526) - - - (455) (981)
Share based payments - - - 190 - - 1890
At 31 March 2019
(audited) 19,040 34,578 18 19,123 20 (23,425) 49,354
----------------------- ---------- ------------- -------- ------------- ------------- ------------- -----------
Loss for the period - - - - - (1,295) (1,295)
Other comprehensive
loss for the period - - (4) - (3) - (7)
Total comprehensive
loss for the period - - (4) - (3) (1,295) (1,302)
Contributions by and
distributions
to owners
Issue of share
capital 3,066 2 - - - - 3,068
Merger relief reserve - - - 1,262 - 1,262
Exercise of share -
options - - - - - -
Share based payments - - - 196 - - 196
At 30 September
2019 (unaudited) 22,106 34,580 14 20,581 17 (24,720) 52,578
----------------------- ---------- ------------- -------- ------------- ------------- ------------- -----------
A restatement has been made for merger relief as the company meets the criteria to realise which was not disclosed in the prior year. This has resulted in a reduction of GBP6.7 million to share premium reserve and an increase of GBP6.7 million to other reserves at March 2018 and a reduction of GBP7.0 million to share premium reserve, an increase to other reserves of GBP7.2 million and a reduction in retained earnings of GBP0.2 million at September 2018. Other reserves at 30 September 2019 include GBP19.7 million merger relief reserves plus GBP0.9 million capital and share based payment reserves.
Consolidated Cash Flow Statement
Six-month period Year ended
ended 30 September 31 March
2019 2018 2019
(unaudited) (unaudited) (audited)
Note GBP (000) GBP (000) GBP (000)
---------------------------------------- ------- ------------- ------------- ------------
Cash flows from operating activities
Loss for the period (1,295) (3,162) (5,860)
Adjustments for:
Depreciation of property, plant
and machinery 143 15 69
Amortisation of acquired intangible
assets 1,082 422 1,325
Finance income (5) - -
Finance expense 247 - 164
Impairment of intangible assets - - 1,005
Loss on sale of asset 2 - -
Fair value adjustment of deferred
consideration 21 - (137)
Share-based payment charge 196 141 331
Income tax (173) - (1,020)
Cash flow from operating activities
before changes in working capital 218 (2,584) (4,123)
Decrease/(Increase) in trade
and other receivables 3,452 81 (4,396)
(Decrease)/Increase in trade
and other payables (3,170) 1,101 5,119
Cash used in operations 500 (1,402) (3,400)
Net foreign exchange movements (5) (7) 1 Finance cost paid (52) - (10) Tax (paid)/credit 463 - (52) ----------------------------------------- ------- ------------- ------------ Net cash used in operating activities 906 (1,409) (3,461) ----------------------------------------- ------- ------------- ------------- ------------ Investing activities Acquisition of subsidiaries, net of cash acquired (677) (477) (14,264) Purchase of property, plant and machinery (33) (36) (81) Purchase of software (225) (76) (619) Proceeds from disposal of tangible assets 27 - - Gold exploration payments - - (19) Net cash used in investing activities (908) (589) (14,983) ----------------------------------------- ------- ------------- ------------- ------------ Financing activities Proceeds from issue of share capital 2 8 17,527 Loans drawn 1,177 - - Repayment of lease liabilities (96) - - Expenses paid in connection with share issues - - (981) Net cash generated by financing activities 1,083 8 16,546 ----------------------------------------- ------- ------------- ------------- ------------ Net Increase/(Decrease) in cash and cash equivalents 1,081 (1,990) (1,898) -------------------------------------------------- ------------- ------------- ------------ Cash and cash equivalents at the beginning of the period 597 2,493 2 Foreign exchange movement on cash and cash equivalents 2 4 2,493 Cash and cash equivalents at the end of the period 1,680 507 597 ----------------------------------------- ------- ------------- ------------- ------------
Notes
1. General information
The interim consolidated financial information was authorised by the board of directors for issue on 27 November 2019. The information for the six-month period ended 30 September 2019 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 2019, which have been prepared in accordance with EU Adopted International Financial Reporting Standards. 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 International Financial Reporting Standards ('IFRS') as adopted in the EU.
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.
The accounting policies are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2019 and are those which will form the basis of the 2020 financial statements, other than IFRS 16 - leases, which came into force on 1 April 2019.
IFRS 16 replaces existing leases guidance, including IAS 17 - Leases. The Group has adopted the standard in full using the modified retrospective approach, whereby the right-of-use asset is recognised at the date of initial application (1 April 2019) and the lease liability is measured based on remaining payments. There is no effect on prior year figures and no need to re-state comparatives (please see note 8 for further details).
b) Going concern
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these consolidated financial statements. The Group is forecast to achieve underlying profitability in fiscal year March 2020.
c) Critical accounting judgements estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the amounts reported for income and expenses during the year and that affect the amounts reported for assets and liabilities at the reporting date.
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, except for the new significant judgements related to the adoption of IFRS 16, which are described in note 8.
Business Combinations
Management make judgments, estimates and assumptions in assessing the fair value of the net assets acquired on a business combination, in identifying and measuring intangible assets arising on a business combination, and in determining the fair value of the consideration. If the consideration includes an element of contingent consideration, the final amount of which is dependent on the future performance of the business, management assess the fair value of that contingent consideration based on their reasonable expectations of future performance. Further information can be found in note 6.
Share based payments
Management make judgements, estimates and assumptions in determining the fair value of share-based payments costs. The judgement applied relates to the consideration of the incentive scheme and how it is settled. There is judgement in the inputs to the fair value model which is calculated using Black Scholes methodology.
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.
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
Revenue with customers is evaluated based on the five-step model under IFRS 15 'Revenue from Contracts with Customers': (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognise revenues when (or as) each performance obligation is satisfied.
Details of the material performance obligations for both our software and services businesses are detailed below:
Software licences whereby the customer buys a software that it sets up and maintains on its premises is recognised fully at the point the licence key / access has been granted to the client. The Group sells the majority of its services through channels and distributors who are responsible for providing 1st and 2nd line support to the client.
Provision for services is broken into two main areas;
1) Sale of third-party hardware, software and warranties:
a) Where the contract entails only one performance obligation to provide software or hardware, revenue is recognised in full at a point in time upon delivery of the product to the end client. This delivery will either be in the form of the physical delivery of a product or the e-mailing of access codes to the client for them to access third party software or warranties; and
b) Where a contract to supply external hardware, software and/or warranties also include an element of ongoing internal support, multiple performance obligations are identified and an allocation of the total contract value is allocated to each performance obligation based on the standalone costs of each performance obligation. The respective costs of each performance obligations are traceable to supplier invoice and applying the fixed margins, standalone selling prices are determined. Internal support is recognised equally over the period of time detailed in the contract.
2) Sale of consultancy services:
Consultancy services are provided on a range of topics including data protection, project management, governance and compliance. Client contracts stipulate a number of consultancy days that make up the contracted consideration and the group has an enforceable right to payment for work completed to date. 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.
Revenue recognised in the statement of comprehensive income but not yet invoiced is held on the statement of financial position within accrued income. Revenue invoiced but not yet recognised in the statement of comprehensive income is held on the statement of financial position within deferred revenue.
The Group reviewed the potential impact of IFRS 15 in the previous financial period and found that it's revenue recognition policies were in line with IFRS 15 which was adopted at 31 March 2019 year end and therefore no restatement is required for the prior year six months to 30 September 2018.
g) Use of additional performance measures
The Group presents underlying 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 "underlying 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.
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) Exceptional items
The Group's statement of comprehensive income separately identifies exceptional items. Such items are those that in the Directors' judgement are one-off in nature and need to be disclosed separately by virtue of their size and incidence. In determining whether an item or transaction should be classified as an exceptional item, the Directors' consider quantitative as well as qualitative factors such as the frequency, predictability of occurrence and significance. This is consistent with the way that financial performance is measured by management and reported to the Board. Exceptional items may not be comparable to similarly titled measures used by other companies. Disclosing adjusted items separately provides additional understanding of the performance of the Group. Please see note 4 for more details.
j) 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. Expenditure on material internally developed intangible assets is taken to the consolidated statement of financial position in the period in which it is incurred.
Intangible assets with a finite life have no residual value and are amortised over their expected useful lives as follows:
Computer software 3-5 years straight line basis
Customer relationships 1-15 years straight line basis
Software
10 years straight line basis
Trade names 10 years straight line basis
The amortisation expense on intangible assets with finite lives is recognised in the statement of comprehensive income within administrative expenses. The amortisation period and the amortisation method for intangible assets with finite useful lives are reviewed at least annually.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
k) Property, plant and machinery
Property, plant and equipment is stated at historical cost less accumulated depreciation. Cost includes the original purchase price of the asset plus any costs of bringing the asset to its working condition for its intended use. Depreciation is provided at the following annual rates, on a straight-line basis, in order to write down each asset to its residual value over its estimated useful life.
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Plant and machinery 20-33 per cent per annum
Office equipment 25 per cent per annum
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised, as adjusted items if significant, within the Statement of comprehensive income.
l) Share based payments
In order to calculate the charge for share-based payments as required by IFRS 2, the Group makes estimates principally relating to assumptions used in its option-pricing model.
The cost of equity-settled transactions with employees, and transactions with suppliers where fair value cannot be estimated reliably, is measured with reference to the fair value of the equity instrument. The fair value of equity-settled instrument is determined at the date of grant, taking into account market-based vesting conditions. The fair value is determined using an option pricing model.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions, the number of equity instruments that will likely vest, or in the case of an instrument subject to market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the statement of comprehensive income, with the corresponding entry in equity.
m) Leases
IFRS 16 replaces existing leases guidance, including IAS 17 - Leases. The Group has adopted the standard in full using the modified retrospective approach, whereby the right-of-use asset is recognised at the date of initial application (1 April 2019) and the lease liability is measured based on remaining payments. There is no effect on prior year figures and no need to re-state comparatives (refer to note 8 for further details)
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 2019 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 Year ended
ended 30 September 31 March
2019 2018 2019
(unaudited) (unaudited) (audited)
GBP (000) GBP (000) GBP (000)
----------------------------- ------------- ------------- ------------
Revenue
Software 2,088 1,928 3,880
Services 14,249 2,578 19,572
------------- ------------- ------------
Total revenue 16,337 4,506 23,452
------------- ------------- ------------
Underlying EBITDA
Software 726 (22) 468
Services 775 (655) 266
------------- ------------- ------------
Total segment underlying
EBITDA 1,501 (677) 734
Group costs (489) (909) (2,128)
Underlying EBITDA 1,012 (1,586) (1,394)
Amortisation of acquired
intangibles (1,082) (422) (1,325)
Depreciation (143) (15) (69)
Share-based payments (196) (141) (331)
Exceptional items (796) (998) (2,729)
Impairment of intangible
assets - - (1,005)
Fair value adjustment
to deferred consideration (21) - 137
Finance income 5 - -
Finance costs (247) - (164)
Loss before tax (1,468) (3,162) (6,880)
--------------------------------- ------------- ------------- ------------
4. Exceptional items
Exceptional items are those that in the judgment of the directors need to be disclosed by virtue of their size, nature or incidence, in order to draw the attention of the reader and to show the underlying business performance of the Group more accurately. Such items are included within the income statement caption to which they relate and are separately disclosed on the face of the consolidated income statement within administration expenses.
During the six months to 30 September 2019, GBP0.4 million relating to internal re-organisation costs, GBP0.3 million relating to the acquisition of Pentest Limited and GBP0.1 million for other M&A opportunities were charged to the interim consolidated income statement. This resulted in total exceptional items of GBP0.8 million.
5. 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 2019 and the six months ended 30 September 2018 as the Group is loss making.
The weighted average number of ordinary shares and basic and diluted earnings per share in the table below have been restated to take into account the share consolidation that was completed on 26 September 2019. Please see note 7 for more details.
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 Year ended
ended 30 September 31 March
2019 2018 2019
GBP (000) GBP (000) GBP (000)
-------------------------------------- ------------ ----------- ------------
Net loss from total operations
Earnings for the purposes of basic
and diluted earnings per share
being net loss attributable to
shareholders (1,295) (3,162) (5,860)
Adjusted earnings for the purposes
of basic and diluted earnings per
share being net loss attributable
to shareholders* 488 (1,864) (1,348)
Number of shares No No No
Weighted average number of ordinary
shares for the purpose of basic
and diluted earnings per share 21,904,526 9,953,195 14,074,839
Earnings per share Pence Pence Pence
Basic and diluted (5.91) (31.77) (41.63)
Adjusted Basic and diluted* 2.23 (18.73) (9.57)
---------------------------------------- ------------ ----------- ------------
* Adjusted earnings per share is defined as loss after tax but before amortisation and impairment of intangible assets, share based payment charges, exceptional items and fair value adjustments to deferred consideration divided by the weighted average number of ordinary shares.
6. Business combinations
Pentest Limited
On 9 April 2019, the Group acquired the entire share capital of Pentest Newco Limited ("Pentest"), a newly incorporated company which contained certain 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 sellers 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. The following table summarises the fair values of the assets acquired, the liabilities assumed and the total consideration transferred as part of this acquisition:
Provisional
fair values
recognised
on acquisition
GBP (000)
------------------------------------------- -----------------
Intangible assets 1,685
Deferred tax liabilities (286)
Total net assets 1,399
--------------------------------------------- -----------------
Consideration paid in shares 4,019
Consideration paid by way of a loan note 677
Total consideration 4,696
--------------------------------------------- -----------------
Goodwill 3,297
--------------------------------------------- -----------------
The net cash outflow arising from the acquisition was GBP0.7 million in the six months ended 30 September 2019, which was provided in the form of a loan note to the ex-vendor.
7. Share capital
Merger
Share relief
No of ordinary Ordinary premium reserve Total
shares of shares (restated) (restated) GBP
1p each GBP (000) GBP (000) GBP (000) (000)
--------------------------------- ---------------- ------------ ------------- ------------- --------
Issued and fully paid ordinary
shares
At 31 March 2018 964,359,200 9,644 22,446 6,727 38,817
Share issued 31,013,024 310 0 498 808
At 30 September 2018 995,372,224 9,954 22,446 7,225 39,625
Share issued 908,592,628 9,086 12,132 11,166 32,384
--------------------------------- ---------------- ------------ ------------- ------------- --------
At 31 March 2019 1,903,964,852 19,040 34,578 18,391 72,009
Share issued 306,681,148 3,067 2 1,262 4,331
--------------------------------- ---------------- ------------ ------------- ------------- --------
In issue at 25 September 2019
before consolidation 2,210,646,000 22,106 34,581 19,652 76,339
--------------------------------- ---------------- ------------ ------------- ------------- --------
In issue at 30 September 2019
after consolidation 22,106,460 22,106 34,581 19,652 76,339
--------------------------------- ---------------- ------------ ------------- ------------- --------
2019 2018
GBP (000) GBP (000)
Allotted, called up and fully paid
Ordinary shares of GBP0.01 each - 19,040
Ordinary shares of GBP0.10 each 2,211 -
Deferred shares of GBP0.90 each 19,896 -
Share capital at 30 September 2019 22,106 19,040
------------------------------------- ----------- -----------
The following issues of shares were undertaken in the six-month period ended 30 September 2019:
On 9 April 2019, 292,292,565 new ordinary shares of 1p were issued as part of the consideration for the acquisition of Pentest Limited.
On 13 June 2019 14,388,567 new ordinary shares of 1p were issued to the sellers of GeoLang Holdings Limited under the terms of the share purchase agreement entered into at the time of the acquisition.
Following approval at the Annual General Meeting on 25 September 2019, on 26 September the Group completed a capital reorganisation which was comprised of two elements:
1. Consolidation - Every 100 existing ordinary shares were consolidated into one ordinary share of GBP1 (a "Consolidated Share").
2. Sub-division - Immediately following the consolidation, each Consolidated Share was sub-divided into one new ordinary share of 10 pence (a "New Ordinary Share") and one deferred share of 90 pence (a "Deferred Share").
Pre consolidation the Company's issued ordinary share capital consist of 2,210,645,984 ordinary shares of 1 pence each. An additional 16 ordinary shares were allotted and issued making the total issued ordinary share capital 2,210,646,000.
As reported at the time of the capital reorganisation, only the New Ordinary Shares have been admitted to trading on AIM, and it is the Board's intention that, at an appropriate time, the Company may repurchase the deferred shares, cancel or seek the surrender of the deferred shares using such lawful means as the Board may at such time determine, as the Deferred Shares are, for all practical purposes, valueless.
8. Effects of IFRS 16
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.
For relevant transactions this has resulted in the group recognising right-of-use assets and lease liabilities in the statement of financial position, and finance costs and depreciation in the statement of comprehensive income.
The Group is applying the modified retrospective transition method under which comparative information has not been restated and has elected to use the following practical expedients permitted by the standard:
-- on initial application, IFRS 16 will be only been applied to contracts that were previously classified as leases;
-- lease contracts with a duration of less than 12 months, and/or leases for which the underlining asset is of low value, will continue to be expensed to the income statement on a straight-line basis over the lease term; and
-- the lease term has been determined with the use of hindsight where the contract contains options to extend the lease.
On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities in relation to leases of office space. The right-of-use assets were recognised by reference to the measurement of the lease liability on that date. Lease liabilities were measured at the present value of the remaining lease payments, including estimates for items such as dilapidation cost obligations under the lease, discounted using the Group's incremental borrowing rate (being the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions).The effects of adopting IFRS 16 for the periods ending 30 September 2019 are as follows:
Amounts without
adoption
As reported IFRS 16 adjustments of IFRS 16
(unaudited) GBP (000) GBP (000) GBP (000)
-------------------------- ------------- --------------------- -----------------
Revenue 16,337 - 16,337
Cost of sales (12,139) - (12,139)
-------------------------- ------------- --------------------- -----------------
Gross profit 4,198 - 4,198
Depreciation (143) 100 (43)
Administrative expenses (5,281) (108) (5,389)
-------------------------- ------------- --------------------- -----------------
Operating loss (1,226) (8) (1,234)
Finance income 5 - 5
Finance costs (247) 11 (236)
-------------------------- ------------- --------------------- -----------------
Loss before tax (1,468) 3 (1,465)
Income tax charge 173 - 173
-----------------
Loss for the year (1,295) 3 (1,292)
-------------------------- ------------- --------------------- -----------------
In addition, initially it was considered a liability of GBP0.5 million, with the following breakdown at the end of the period:
At 30 September
2019
(unaudited) GBP (000)
-------------- -----------------
Current 197
Non-current 205
-------------- -----------------
402
-------------- -----------------
9. Trade and other receivables
Six-month period ended
30 September
2019 2018
GBP (000) GBP (000)
------------------------------------ ------------ ------------
Trade receivables 9,042 1,046
Accrued income 1,867 474
Prepayments and other receivables 1,503 229
VAT recoverable 128 117
Corporation tax credit - 104
12,541 1,970
------------------------------------ ------------ ------------
10. Trade and other payables
Six-month period ended
30 September
2019 2018
GBP (000) GBP (000)
------------------------------- ------------ ------------
Trade payables 5,224 537
Other creditors 4,998 716
Accruals and deferred income 3,738 1,519
VAT payable 998 98
Lease liability 197 -
Corporation tax 142 -
15,297 2,870
------------------------------- ------------ ------------
11. Events after the reporting date
There were no material events occurring post the reporting date.
12. 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.
1 Organic revenue is calculated excluding Pentest that was acquired on 9 April 2019 but including a full 6 months of Brookcourt Solutions prior year revenue which was acquired on 17 October 2018
2 Underlying 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, depreciation and amortisation
(3) Adjusted earnings per share is defined as loss after tax but before amortisation and impairment of intangible assets, share based payment charges, exceptional items and fair value adjustments to deferred consideration divided by the weighted average number of ordinary shares for the purpose of basic and diluted earnings per share
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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