Shearwater Regulatory News (SWG)

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 £23.5 million (2018: £6.2 million) - only 5.5 months of trading from Brookcourt Solutions

o £3.9 million (2018: £3.4 million) from owned software products (17%)

o £19.6 million (2018: £2.8 million) from provision of services (83%)

§ Group underlying EBITDA[1] loss of £1.4 million (2018: loss £0.8 million)

§ Brookcourt Solutions materially outperforms expectations - £29.2 million of revenue and £3.4 million of EBITDA for the 12 month period ended 31 March 2019

§ Group pro forma revenue of £37.5 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 £1.7 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:

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 £17.3 million to £23.5 million (2018: £6.2m) reflecting only 5.5 months of contribution from Brookcourt Solutions, and good organic growth at SecurEnvoy.

The Group reported an underlying EBITDA loss of £1.4 million (FY18: £0.8 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 £1.7 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 £23.5 million (2017/18: £6.2 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 £1.4 million (2017/18: £0.8 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 £0.6 million (2017/18: £2.5 million) reflecting continued investments made in portfolio companies which we will see the benefits of in the new financial year.

The portfolio companies contributed £0.7 million of underlying EBITDA (2017/18: £1.1 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 £2.7 million (2017/18: £1.0 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 £6.8 million (2017/18: £2.9 million). Of the £2.7 million exceptional items, £1.5 million related to the acquisition of Brookcourt Solutions, £0.2 million to the acquisition of GeoLang and £1.0 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 £3.9 million of revenue (2018: £3.4 million), representing 12 months of trading from SecurEnvoy and 11.8 months of trading from GeoLang. Software contributed £0.5 million of EBITDA towards a total Segment EBITDA of £0.7 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™ 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 £19.6 million of revenue (2018: £2.8 million), representing 12 months of trading from Xcina and approximately 5.5 months of trading from Brookcourt Solutions. Services contributed £0.3 million of EBITDA towards a total Segment EBITDA of £0.7 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 £4.2 million of revenue for the twelve months ended 31 March 2019, generating £0.2 million of underlying EBITDA, compared to £2.4 million of revenue and an underlying loss of £0.1 million for the pre-acquisition period.

On a pro forma basis, Brookcourt Solutions generated £29.2 million of revenue for the twelve-month period ended 31 March 2019, and £3.4 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 £0.9 million in addition to existing client revenues. In December 2018, the Group paid the final earn out consideration owed to Newable Consulting of £0.02 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 £1.9 million to £0.6 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 £31.7 million to £52.9 million at 31 March 2019 reflecting £33.4 million from the acquisitions made in the year and £0.6 million from computer software additions, of which £0.2 million is internal development. This is offset by amortisation of £1.3 million and a £1.0 million impairment charge for legacy mining assets.

Property, plant and equipment increase reflects £0.2 million of acquired tangible fixed assets plus £0.1 million of other additions. This is offset by depreciation of £0.1 million.

Trade and other receivables increased by £14.2 million to £16.2 million at 31 March 2019 reflecting acquisitions which contributed £13.9 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 £15.6 million to £17.4 million at 31 March 2019. Acquisitions accounted for £10.4 million of the increase as at year end. This included £1.3 million utilisation of debt finance facility which was settled in full in April 2019. Also included within the balance is £1.1 million of deferred income. Other material balances include £3.0 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 £9.4 million to £19.0 million which includes £4.9 million from the placing and open offer plus £4.5 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 and Company financial position

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 (£'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:

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 £7.4 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 £6.7 million of consideration) and an unsecured loan note of £0.7 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.