Shearwater : 11.12.18 Interim Financial Statements

11 December 2018

SHEARWATER GROUP PLC

Interim Results for the six months ended 30 September 2018

Shearwater Group plc (AIM: SWG, "Shearwater", the "Group"), the digital resilience group, announces its unaudited results for the six months ended 30 September 2018.

Financial highlights

• ▪ Group revenue up 118% at £4.5 million (2017: £2.1 million), reflecting six months of trading from SecurEnvoy, Xcina, and GeoLang.

▪	Group underlying EBITDA loss1 £1.6 million (2017: loss £0.1 million) reflecting continued
investment across the portfolio.
▪	Loss per share of 0.32p (2017: Loss per share 0.18p).
Events
▪	Post period end: transformational £30.3 million acquisition of Brookcourt - moving Group to
cashflow positive position and establishing fourth platform company.
▪	Expanded SecurEnvoy's US channel partnerships network.
▪	Acquired GeoLang and Crystal IT - rebranded Xcina Information Services.
▪	Inaugural contract wins for GeoLang - transitioned business to revenue generating position.

Outlook

• ▪ Solid organic growth coupled with strong performance in Brookcourt anticipated to deliver Group performance in line with full year expectations.

Board appointments

• ▪ Phil Higgins, co-founder and Brookcourt CEO appointed Executive Director on 11 December 2018 - see separate announcement.

• ▪ Paul McFadden appointed Finance Director on 17 October 2018.

1 Underlying EBITDA is defined as profit before tax, before one off exceptional items, share based payment charges, finance charges, depreciation and amortisation

David Williams, Chairman of Shearwater, said:

"We have continued to make good progress against our strategic aim of building a leading UK based digital resilience group.

"Our portfolio companies have shown good organic revenue growth, which we expect to continue into the second half and beyond.

"Brookcourt's acquisition has significantly increased our presence in our sector - this should lead to a number of benefits for the whole Group including scaling and cross selling opportunities."

Enquiries:

Shearwater Group plc	www.theshearwatergroup.co.uk
David Williams	c/o Instinctif Partners
Michael (Mo) Stevens
Cenkos Securities plc - NOMAD and Broker	[phone]
Max Hartley - NOMAD
1

Julian Morse / Michael Johnson - Sales

Instinctif Partners

Adrian Duffield / Chantal [e-mail] [phone]

This announcement includes inside information as defined in Article 7 of the Market Abuse Regulation No. 596/2014 and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

A copy of this announcement has been posted on the Company's website atwww.theshearwatergroup.co.uk.

Strategic overview

During the first half of the year, the Group continued to make good progress against its strategic aim of building a leading UK-based group, providing digital resilience solutions and services.

Through the application of its "buy, focus, grow" strategy, the Group continues to identify investment and acquisition opportunities where the target company has a leading product, solution, service or consulting capability, whose potential can be unlocked through active management and capital investment.

The Group is building a broad portfolio of information security, governance, risk and compliance, cyber and cyber security platforms, which aim to meet the ever-increasing digital resilience demands from its customers. This will provide Shearwater with exposure to a large and rapidly growing sector through a portfolio approach, which aims to balance risk and return in a highly dynamic and often unpredictable operating environment.

Acquisitions

In April 2018, the Group completed the acquisition of GeoLang, an award-winning provider of Data Loss Protection ("DLP") enterprise software. The acquisition has established the Group's position within a US$1 billion market which is growing at over 22% per annum.

Also in April 2018, the Group acquired the business and assets of Crystal IT, the Cardiff-based provider of cyber security and business information technology solutions. Crystal IT was rebranded Xcina Information Services on acquisition.

Post period end, the Group completed its most substantial transaction to date with the transformational acquisition of Brookcourt Solutions for £30.3 million.

This acquisition has transitioned the Group to a cash flow positive position, substantially broadened the

Group's cyber security solutions and services capability, providing access to a complementary client

base aligned to larger enterprises, and has created a strong platform of scale to effect consolidation at the portfolio company level.

Brookcourt has established the Group's fourth platform alongside SecurEnvoy, GeoLang, and Xcina.

Operational review

Product, service and solution development remain core priorities for the Group. The Group invested in

R&D across its software businesses, helping to develop GeoLang's new Data Discovery product, whilst also continuing to invest in the establishment of SecurEnvoy's cloud service offering. On the services and solutions side, Xcina's proposition has grown to include the business' new Xcina Academy. Xcina's

online cyber resilience, awareness and GDPR training solution.

As part of its thought leadership strategy the Group published a Digital Resilience white paper in association with University College London's Institute for Strategy, Resilience & Security.

In the Group's software business segment, SecurEnvoy benefited from the US infrastructure established during the financial year ended 2018. It expanded its network of US distribution and value-added reseller partners, bringing the total in region to 14. The business 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. SecurEnvoy also developed and launched a cloud service proposition.

Since joining the Group, GeoLang has won a number of customer contracts and is now revenue generating. The business has also launched a new Data Discovery solution which enables customers to address data topics such as GDPR Subject Access Requests.

In the Group's services and solution business segment, Xcina Consulting continued to deliver substantial double-digit organic growth. This has been driven by 17 new customer wins since the start of the new financial year as the demand for its technology risk assurance and advisory services continues to grow strongly.

The Xcina Academy, Xcina's online cyber resilience, awareness and GDPR training solution, was also established.

For the Group's full year results, the recently acquired Brookcourt will be reported within the services and solutions segment with Xcina, with SecurEnvoy and GeoLang constituting the Software segment.

Current trading and outlook

Shearwater continues to review its substantial pipeline of acquisition opportunities in line with its stated strategy, which could lead to the creation of a new platform within the Group or provide incremental scale to existing platforms already established.

In line with the historical trading seasonality within Brookcourt and substantial second half weighting in sales activity, Brookcourt's trading performance since it joined the Group has continued strongly including a solid pipeline of contracted work for the remaining months of the financial year.

The integration of Brookcourt into the Group continues to progress well, with a number of collaborative revenue and technical synergy opportunities identified as part of the transaction process already in process.

Since 30 September 2018, trading across all the other portfolio companies has stepped up and focus remains on driving through operational performance. While the Group still has much to do for the remaining months of the financial year given the second half weighting in performance, the Board remains confident of achieving full year expectations.

Finance review

Reported revenue in the six months ended 30 September 2018 of £4.5 million (2017: £2.1 million) increased 118% reflecting a full six months trading from SecurEnvoy and Xcina Consulting (Newable Consulting) plus 5.9 months trading from GeoLang and 5.1 months trading from Xcina IS (Crystal IT).

SecurEnvoy and Xcina Consulting (Newable) were acquired in the first half of the prior year and therefore prior year revenues only include 4.7 months trading from SecurEnvoy and 2.2 months trading from Xcina Consulting (Newable).

On a like for like basis revenue is 52% ahead year on year with both software and services revenue segments delivering good double-digit revenue growth.

Portfolio companies generated a segment underlying EBITDA loss of £0.7 million (2017: profit £0.9 million) owing to significant investment in the new regions and product development within SecurEnvoy and GeoLang, coupled with further investment within the Xcina portfolio. These position the Group appropriately for future growth.

At the Group level, the underlying EBITDA loss was £1.6 million (2017: underlying EBITDA loss £0.1 million).

Loss before tax of £3.2 million (2017: loss £1.5 million) reflects a £1.5 million movement in year on year underlying EBITDA loss plus an additional £0.1 million of amortisation reflecting a full six months charge for SecurEnvoy plus the addition of Geolang and £0.1 million of additional exceptional items.

The Group recorded a loss per share of 0.32p (2017: 0.18p). On this basis a dividend for this financial year will not be declared.

A summary of Brookcourt's revenue, underlying EBITDA1 and operating profit for the six months ended 30 September 2018 prior to the acquisition in October 2018 is shown below. Interim comparatives are not available.

Six months ended 30 September 2018 £'000
Revenue	9,473
Gross profit	1,769
Underlying EBITDA	647
Depreciation	27
Operating profit	620

At the period end, excluding Brookcourt, Group cash was £0.5 million (2017: £3.7 million) reflecting continued investment in portfolio companies being partially offset by the cash generation of SecurEnvoy.

Cash management continues to be a priority for the Group and actual expenditure compared to budget is monitored closely to ensure that the Shearwater maintains adequate liquidity to meet financial commitments as they arise.

Post the period end the Group received £1.6m cash on 19 October 2018 following the placing and open offer to fund the Brookcourt acquisition.

Consolidated statement of comprehensive income

Six- month period ended 30

Year ended

September

2018

2017

31 March 2018

(unaudited)(unaudited)

(audited)

Note	£ (000)	£ (000)	£ (000)
Revenue	4,506	2,068	6,240
Cost of sales	(2,905)	(620)	(2,604)
Gross profit	1,601	1,448	3,636
Administrative expenses	(4,763)	(2,957)	(6,520)
Operating loss	(3,162)	(1,509)	(2,884)
Finance income	-	53	2
Finance costs	-	(1)	-
Loss before tax	(3,162)	(1,457)	(2,882)
Income tax charge	-	(106)	(3)
Loss for the period	(3,162)	(1,563)	(2,885)
Attributable to equity holders of the Company	(3,162)	(1,563)	(2,885)
Operating loss analysed as:
Adjusted underlying EBITDA	(1,586)	(112)	(837)
Amortisation of acquired intangibles	(422)	(322)	(647)
Depreciation	(15)	(4)	(14)
Share-based payments	(141)	(180)	(366)
Exceptional items	(998)	(891)	(1,020)
Finance income	-	53	2
Finance costs	-	(1)	-
Loss before tax	(3,162)	(1,457)	(2,882)
Other comprehensive income
Items that may be reclassified to profit and loss:
Change in fair value of available-for-sale assets	(25)	(38)	(67)
Currency translation difference	(11)	-	-
Total comprehensive loss for the period	(3,198)	(1,601)	(2,952)
Loss per share
(0.32)	(0.18)	(0.31)

5

Basic and diluted (pence per share)