Shearwater Group (LSE:SWG) — Final results for the year ended 31 March 2021

0:02 Good afternoon, ladies and gentlemen, and welcome to the SHEARWATER GROUP PLC investor presentation for the final results for the year ended 03/31/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time. Just click on the q and a tab at the top right hand corner, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where appropriate to do so. These will be available on your investor meeting company dashboard, and you'll be notified once they're

0:33 ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Phil Higgins, CEO and Paul McFadden, CFO of SHEARWATER GROUP PLC. Good afternoon. Good afternoon, and thank you very much, and welcome, everybody, to our final results presentation for the year ending March 31. I'm, just gonna take you through a few first of all, let's go through the disclaimer, and quickly moving on into a little bit more about, SHEARWATER. Just reminding you as to who we are and what we do. So in a in a sentence, SHEARWATER is a group that provides technology solutions and professional advisory services. We focus around the cybersecurity and registry requirements of corporate clients, simple as that.

1:23 The vision of our group is we want to become a provider of choice, and we believe that our offerings will help our clients identify and manage their risk and maintain their compliance against a constant barrage of cybersecurity threats. We deliver our business through two different divisions. We have a software division consisting of secure endpoint and GLA. And our software division, here, we design and build the Net software, which helps our clients secure and make their corporate environments more compliant. Collectively, this division delivers 14 of group revenues and 41% of operating profit. Our software is sold through a two tier distribution model. We we currently have in excess of 350 global resellers who represent our products internationally.

2:14 The group is our international footprint has been growing even during the pandemic. We've managed to add a few more locations where the resets are now representing our software to their client base. On the other side of the business, we have our services side. Here it consists of Brookhull, Exena, and Pentest. Here we focus on delivering our groups managed services, our security, cyber solutions, our professional advisory and consult suite as well as our penetration test. We also manage our third party strategic partners. Here collectively the group contributes 86% of group revenues and 59% of operating profit. Our services sold to FTSE three fifty and Fortune five hundred also governments adding some local SMEs.

3:03 And whilst we do remain largely a UK based company, we do service our customers across 46 countries globally at the moment. And we deliver all that via about 90 employees operating from currently five offices. And you can see there in the little blue box some of the core services that we actually deliver to that client base.

3:28 Moving on. Obviously, it's all about today. Yeah. I am so pleased to be able to report that, fiscal twenty one delivered ahead of expectations. We improved our margins with good cash control. It allowed our EBITDA to come in ahead of analyst expectations. We had improved margins. We had saw a bit of a shift in terms of the type of transactions we were engaged with. We saw a reduction in the appliance based computing with the shift multiple software and subscription based computing. It did soften our top line in h one last year, but more importantly, we did manage to pick some of that up during H2. But what it did do, it actually gave us back a better quality of revenue.

4:15 Obviously, we're a Brazilian based company ourselves, so would be wrong for us not to be able to cope with the COVID situation. We did so. Our teams are fantastic. They managed to very quickly adapt to the new working environment, working from home. I'm glad to report that we didn't take a bunch of the government furlough system. We kept all of our staff employed. In fact, we were actually recruiting during the period. But one thing we we did do is take advantage of the the government's VAT deferral, and Paul will come on to that later on. One of the key initiatives that we started two years ago was a cross selling program inside the group, where we previously were leaving so much opportunity on the table, we want to take some of that off. So within particularly inside our services side of the business,

5:04 we looked at a mechanism to reward our staff, to actually share client base and to make introductions and so forth. In the first year of operation with that, we delivered circa £100,000 just shy of £100,000 worth of revenues. Glad to report fiscal 'twenty one delivered in excess of GBP 700,000. These will generate from group leads, so the cost of selling is extremely low. It's done through introduction. And of course, we're hoping that moving forward, we'll be able to see some repeat business from those transactions reoccurring in years to come. Obviously, as we close out the year, we ended up in a very strong financial position. Adjusted net cash of $6,000,000 as at the March 31. Very pleased to be able to report that considering some of the challenges of the COVID year, which puts us into the position of our organic growth now. We've got a very clear strategy. We've got a great team and well supported from the group and from the Board. And we have now got our acquisition inside the industry. We're recognized.

6:12 And so we do have a great opportunity for organic growth moving forward, and which now allows us to focus more on the on acquisition during this coming year. Moving on. Just to give you a little bit of flavoring on some of our KPIs. During the I mentioned about that our cost fertilization, but collectively, we've also had some very proactive sales where where we've been able to attract a 155 new customer wins, slightly up on previous years. But nevertheless, these are opportunities where not only do we get the the transaction in the first year, but the way we actually build out our service models and our delivery mechanisms allows us the opportunity to potentially get repeat business from these clients moving forward.

7:00 One thing to note there is our software division. We generated 1,300,000 of new uplift sales, which included the first set of sales from our new product offerings, which is very pleasing. Obviously, you'll notice that there's a slight delta from from fiscal twenty where we actually concluded 2,100,000 sales. This is a this is down to a bespoke large contract that we produced during fiscal twenty that wasn't repeated last year. It's for a foreign government and it's a one off. We do own the asset, which means that we do have the opportunity should we choose to further explore opportunities in that vein. I mentioned about the recurring revenues sorry, the revenue generated from cross selling. And moving on to the recurring revenues.

7:50 In fiscal twenty twenty, it's 40% recurring revenues. That's blended across the group. Just FYI for our software division, it's 8%. This year, we're glad to report that we're slightly up on that. So it's going strong. It's going well, which obviously is very important for us to get to catch the recurring revenues. New business that we sell and we wait, we obviously want to retain and grow in years thereafter, Which is very important when you come on to the point, the last point there, on 60% of our clients have a three year old growth relationship with us. Now what that means is that we must be positioning ourselves extremely well. We have a professional team that's delivering client services that are on point and required and that customer services is second to none. We expect that when you look at our organization that we have a high opportunity to repeat on audits, on testing and on some of our software renewals as well as we go forward. Obviously, we would love to see that number grow as we report throughout the year.

9:06 And with that, I am going to hand over to Paul who's going to take you through some of the detail around our financial results. Paul, if I can pass over to you, please. If if I can, take you through this first slide, which, provides, looks at the the key metrics that we use to to to manage the business. On the whole, despite the challenges, that many businesses have faced over the previous year, the group has delivered a solid set of numbers with underlying EBITDA significantly ahead of the prior year. Revenue in the year of thirty one point eight million is slightly behind the prior year, and it's worth really noting the the dynamics around the the revenue movements in the period.

10:03 It very much was a year of two halves whereby in the first half, the business was impacted by the initial lockdown measures, which impacted our advisory businesses and did actually cause, some delays in decision makings from from from our client base, which which translated into a half year revenue delta of circa 30%. I am very pleased to to to report this in the second half of the year. The group, saw recovering revenues, with h two revenues 24% ahead of the prior year, as we saw returning confidence from from from, app businesses. And, obviously, the the the those delayed decisions, started to come through and, allowing us to to deliver on engagements.

10:52 It's worth noting that, throughout the whole of the year, our businesses have always been able to provide the service. However, services, even advisory businesses. However, on the past of some of our clients, there has been that that they have taken decisions, let's say, during the initial the COVID lockdown measures that that that the client chose to defer some of these engagements. So, I think it's worth mentioning that, the business, we're always in a position to to deliver on all these services. As we move through the second half of the year, we did improve our our revenue position and with q three reporting the the pickup from some of those delayed orders and q four then delivering some solid year on year revenue growth.

11:41 Other things that have impacted the revenue, as Phil mentioned, the change in within revenue mix within our services business, whereby we have seen a greater proportion of of managed service software type sales, which are characterized by a lower revenue point, but so much higher margin, replacing some of those appliance based hardware sales, which are characterized by high revenue, but single digit margins in many cases.

12:11 Other impacts, so the full year would have would have incorporated, a one off software sale in the previous year, which hasn't been replicated in the year to March 21. It it is worth noting that, we did create an asset. We still have these assets, and we and we definitely believe there is an opportunity to resell these these assets in the future. However, the challenges of COVID did mean mean that wasn't wasn't possible in in the year just just ended. Moving on to second graph, our underlying EBITDA, very pleased to report an improvement of 9% year on year, delivering $3,700,000 of underlying EBITDA, which is was ahead of the market's expectations.

12:58 With that, we we posted improved underlying EBITDA profit margins of 12%, up 2% from the previous year. What's very encouraging and very pleasing to see is that both of our divisions, both our services division and our software divisions delivered improved profit margins, underlying EBITDA profit margins in the year to to March 21 with our software where margins of 50%, up slightly from by 1% from the prior year, and our services margins 11% compared to 8% in the previous period. As we move on to underlying profit before tax, which takes obviously the the the year on year improvements within underlying EBITDA, but also incorporates items such as finance charges and the amortization from some of our computer software developments.

13:56 And I will come on to a little bit more detail around the movements in those figures in a in a later slide. What's worth noting is in in the year to March 21, the group delivered its first reported profits before tax, and and as a result, delivered its first reported e positive EPS, delivering an adjusted EPS of 10 p, which is 27% ahead of the prior period. If I can just move on to the next slide, please. This the table that you're looking at is a a summarized version of our our income statement for the year. So in terms of the the revenue position, obviously, I've already mentioned the impacts of COVID in h one, reducing those h h one revenues. However, we have seen a strong recovery in h two.

14:51 Throughout this period, we have benefited from some some solid reoccurring revenues, which have us in excess of 40% now. A few other points that's worth noting, and I think this is something that as we look forward to the coming year and future years, it's things that obviously fit do provide some optimism for us. Within the period, we we saw our first sales of our new softwares being delivered, which as we look to grow those sales out in future years, will help drive revenues, but also help push our margins forward. The recovery in advisory, so it's worth noting that, whilst we did see a reduction in our advisory revenues of of 27% in the year, our services division still delivered its revenue in line with the prior year, which really sort of shows the benefits of of the group position.

15:47 And and within this, we saw some improved gross margins as well as EBITDA margins. The change in the revenue mix within our services division has again, it's it it has possibly caused us some some more challenges around the loss of some of that that hardware revenue, which was obviously always of a slightly lower quality of profitability and obviously has impacted the top line. And very finally, obviously, the the the software revenues, one off costs, which sorry, one off revenues in the prior year, which wasn't repeated in in the year to date. Moving down to the gross profit line. Gross profit margins of 33% is ever so slightly ahead of the prior year, but it's worth noting that that both of our our divisions, our services and software divisions, did did reports improved gross margins in the year. So firstly, our our software division saw their gross margins increase from 75% up to 80%, say, for the period, and that's down predominantly to two factors.

16:53 Firstly, in the previous year, we conducted a and completed a a small reorganization of our sales and marketing function, which did lead to some efficiencies being realized, which has which we reported at half year, and I'm pleased to say that has continued across the full year. And secondly, in the second half of the year, as we started to see some sales coming through cross selling opportunities from our services clients selling into our software divisions, The sale of some of those new products has again supported that improvement in gross profit margin on a year on year basis. On the services side of our businesses, our gross margins grew modestly from 22% to 23, and and that's that obviously incorporates the the change in mix within our revenue base within our services division.

17:42 And and I think it's worth worth mentioning that we we've we've been able to achieve improved gross margins despite the fact that our advisory businesses had lower utilization rates than we would in normal times have have expected. So as we move out some of h two and into the current year, and we still obviously see improvements within utilizations and and the demand for our advisory businesses, that provides us an opportunity that we can build on on those gross margins moving forward.

18:13 If I moving down to the next line, the overhead line. So we have made a a 600 k saving within our overhead base during the year. And this this can be attributed to two main factors. Approximately half of of this saving is the full year run flow through of the reorganization that took place in the first half of the previous fiscal year whereby Phil and myself looks as to the business as a whole and did make and and some changes were were made. The other half of the savings, so for 2 to 300 k, has been has been achieved as a result of, some delays to replacing a a headcount, which through natural attrition as people have left as we've seen, COVID approaching and the subsequent impacts on our advisory revenues, we have taken decisions to maybe defer the replacement of some of those those, those vacancies and, again, some of the discretionary expenditure on things such as smart SIM just for that period.

19:14 It's worth noting, however,

19:16 that, during the period the the year to March 21 and even in the first half, where we did where we identified the need to recruit, for positions, we did still recruit for for for some positions.

19:31 Up now, underlying the EBITDA of 3,700,000, which obviously demonstrates a 12% underlying EBITDA margins for the year, which incorporates both the small improvement in gross, the blended gross margin, and the overhead savings that have been made in the year. Below the underlying EBITDA line, we have seen made savings, within our finance charge. This is due to, in fact, we've repaid a significant chunk of legacy debts at the first half in the first half of the year, which has subs which has significantly reduced that finance charge. Additionally, during the year, we we swapped out an

20:10 older debt factory in that facility previously used with the group's new RCF facility, which is a more efficient way of financing.

20:21 This saving has been offset by an increase in our amortization charge of computer software as a result of the go live of some of our new software products now coming going live and being sold. We are now starting to to write that development off, over a period of three years. This has contributed to an underlying profit before tax of 2,400,000, 9% ahead of the prior year and demonstrates some some good year on year improvements. Below this line, I'm I'm not going to do a line by line

20:53 walk through, but it's worth noting that we have that it's a lot cleaner than previous years. And we have seen a tidy up of deferred consideration in terms of we now have no outstanding deferred share consideration owing at the end of March twenty one. If I could ask you to move on to the next slide, please.

21:18 Okay. This next slide provides some detail of our cash flow for the period. As per last year, we I'm very pleased with, we've we've been able to achieve strong cash flow, in the periods of March 21. We have maintained cash conversion in excess of a 100% during the position during the period. And we have noted that despite the challenges on some of our customers from COVID, bad debt levels have have remained very small. Cash collection has has has has remained efficient.

21:54 We have put put in additional practices to ensure that we maintain good cash collection across the group. And and, obviously, due to the the clients that we currently work with whereby without mass software side where we have a a loss of resellers. We're we're not chasing lots of individual end users, which does help when it comes to cash collection. And on our services side of businesses, we're dealing with blue chip clients,

22:21 which predominantly they are made mainly within financial services and telcos, which possibly haven't been impacted to the same degree as, say, the retail or leisure businesses over the past twelve months. I would like to just draw your your attention to the the yellow box in the middle of this this chart this table. Just highlights, I have added in an adjusted cash generated from operations, which is at 5,300,000. So there's a 1,300,000 delta. And I I thought it was important that we incorporate this in. And this the the adjusting item is a VAT deferral, which we took advantage of in in the previous year. That 1,300,000 of deferred VAT will be repaid in the coming in the current year.

23:09 This is worth noting that that will obviously create some softness in the operating cash flows in the current year. Other items on on on this chart to notice, obviously, we are we are very much committed to investing in r and d within our software divisions. It's it's a it's a it's a big part of our strategy strategy. And we have spent circa 700 k on on our on capitalized development in the year. Other items of of notes include a 3,800,000 of proceeds from the issue of SHEARWATER, and that was from a fundraise, which took place in April 20. With and the the purpose of that was to provide us funds for our next acquisition.

23:55 As I'm pleased to say, we we we retain those funds, and, yeah, our our our we we are still planning on using that, obviously, for for our next acquisition. Other items, 4,200,000 represents loan repayments during the year. It's worth noting that at the at the 03/31/2021, our loan balances had dropped from 4,900,000 the previous year down to about 700 k at the end of the period. So significant reduction in in in debts year on year. Just moving on very, very quickly, other items worth noting is that in addition to a strong financial position that we we we found ourselves in at the end of March twenty one, we have added a group RCF facility during the period, which provides us additional contingency and to support the second our next stage of our growth.

25:00 I think to conclude on our financial performance for the period, I think it's worth highlighting that the group has delivered profits ahead of expectations. We've delivered underlying EBITDA 9% ahead of the prior year. We've delivered improved adjusted EPS of ten ten p compared to eight p in the prior period. We now find ourselves with a solid financial platform. We're we're well capitalized. And with the addition of an RCF, which is currently unutilized, we're in a good position as we look to now move on to the next stage of our development. And I think very finely, as whilst delivering, these results for this period, we have obviously identified some opportunities that went for further growth in the year ahead.

25:50 Thank you. Phil, back to you. Thank you, Paul. And, first of all, I must, say Paul's actually working very remotely today, and he's only able to join us via conference call. So apologies that you can't actually see Paul, on screen. And let me just take you through a few more slides now. First of all, a little bit about our vision and our strategy. Obviously, what we're looking to become is a provider of choice. We still got two sides of our strategy in that we're obviously looking to build a profitable company organically cross fertilizing and sharing where we can and actually growing our position inside the market space turning to a profitable organization.

26:37 We'll continue to develop, as Paul said, with our r and d into our software division and building out that platform, and I'll come on to that note in a in a few moments. And but, obviously, one of the key areas for us is the focused acquisition. We are looking to obviously to continue with our key strategy of buying organizations that have that are either feature rich in software, which we can actually add to our software platform, or they are services based companies, which will add to our client base. Obviously, we're looking for cash generative and accretive organizations that we can blend in. Moving on just to a little bit on our services side of the business in terms of some of the new wins.

27:25 The little chart there on the right hand side, you can you can see what that is. It's just giving you a little bit of a breakdown of the numbers of of where our business is is is currently located. As you can see, the we're we're very high percentage of our businesses within the telco space followed by that banking. And these are couple of two key components which actually dragged us through, obviously, COVID to actually produce the the the the that we have today. Key activities, key strategic contracts with with organizations in this space, critical infrastructure. Everyone still wants to use their mobile phone. Everyone still wants to use their mobile banks. So you can understand why that we're we're very keen to actually continue to really develop this area.

28:10 In cloud report, we deliver to the telco and banking sector, not just domestically, but internationally as well. And within inside the business in the the banking business, we tend to deliver an awful lot of cyber threat security based solutions, whereas in the telcos, there's a lot of monitoring and side effects. Just to give you a little bit of a breakdown, obviously, when we can, we do announce our RNS. You don't hear from us on an RNS. We're it means that we're still still winning clients. We mentioned earlier, up from 55 new clients came to the table. So we're still winning, and it's obviously if there's anything notable, we will let you know. Also, during the pandemic, we we had to think of that thing pretty quickly, And I'm glad to say that whilst parts of the organization were suffering, we've managed to to do a workaround with with other parts. Our advisory business together had a soft start to the year, And, obviously, they started moving from a face to face to I mean, the second half of the year where they're able to to work via video conferencing.

29:14 And, likewise, with our penetration testing division where they weren't able to actually go out and visit the clients, what they did, they deployed them drone laptops. So they sent the client a a laptop, connected through that into the client's network, and able to continue with their work. That obviously contributed to picking up some of the the slack inside our utilization rates. And, also, one of the things that we've already previously mentioned is obviously our cross selling. It's in checking to who we are and what we're doing. And I'm I'm very pleased to report that not only are we sharing businesses and and and opportunities, we're now actually bidding collectively for new deals. So the this obviously, it reduces the cost of sale, which means we can maximize our efforts, and, we can we can take more of the client revenue off the table.

30:03 Just to give you some idea of some of the leads that we've been transferring around. For example, with Pentest, we supplied 15 leads into the SHEARWATER GROUP PLC companies, and they received 28 of those leads, which were a combination of staff incentive program and generated leads and and obviously existing established customers. On the back of that, they won 10 of those. And and obviously, in the type of business that they're in, same with our advisory, there's an opportunity for repeat business to come along in the following years. As with the specialist solutions of of Brookle where they engage with on key infrastructure, obviously, there's a tendency where we have an opportunity to to get repeat business.

30:51 Moving on. Just take you through a little bit of our on our software. You may remember this slide from from last year. It's slightly changed a little bit. And one of the things that we've we have here is obviously our competitive landscape. And you can see it on the top here, some very big players. There you know those names. They're out there. They get very deep. CyberArk is a very big heavy lift. It's a pretty good product, very well established. It sits in Gartner's top right hand corner, and they do target for the Fortune 100. They fight it out amongst those other giants there. But inside that Secure Envoy platform. What we're looking to do is actually continuously build upon what we have.

31:39 And today, when on the acquisition of Secure Envoy, we required the more practical verification. At the time, that was just a a disk based product. It turned up as a as a single license, and you installed it on your in your data center. Now let's say they have developed into a cloud also platform. So now we have a tone in both caps, which is obviously meets the the requirements of a lot of organizations to that. And we have identity access management's been developed there. So two leading products. This organization had to get one queen's awards for innovation and for export. So we're very proud of the quality of the work that these guys can produce. On top of that, we acquired GeoLang. And GeoLang, they they focus around the DLP, and they we've now got the ability to actually ingest some of their their codes onto our platform, allows us to actually represent that to our 350 plus resellers around the world. Also, we sell that technology from the directly through to our corporate client base, and I'm glad to report that some of those £700,000 worth of sales actually contributed from GROUP.

32:49 You can also see in there the PAN, the CAS and the IGA. Those areas there are the areas where we have the opportunity to either acquire a company or we will develop that software ourselves in past. Obviously, to to acquire will be quicker than the development, which can can take some a period of time. And the reason we're doing this, this is all referring now to these components, the MFA all the way through to the IGA, and Gartner is now citing this as being the converged platform. And it's the SaaS delivered target that we're going after, and this is where we want to position ourselves. We want to be that that company of choice in providing the the authentication as a service in that new market space. And Gartner ratified our strategy and saying that this will be a key component by the year 2023.

33:45 Moving on. We'll take you now just through a couple of slides. First of all, in terms of the current trading. Well, first of all, the yeah. Know, what's driving all of this? The the current trade now, the market drivers haven't changed. You know, cyber threats are up. Their regulation is increasing. And and according to the government, there are shortages on staff. And, we address those key components. So what we did see is a softness and a changing of our revenues in H1 of last year. We saw some of that recovery of the revenue in q three. And but more importantly, in q four, we saw strong optimism coming back, not only to our teams, but also to our client base. And we saw utilization rates increase and we saw the activity, the number of bids coming through. And we even saw some deliverables being pulled forward because the customers had more confidence about the the effects of the vaccination on the on The UK.

34:47 As a result of that, that obviously allowed for that optimism to to flood over into q one, and I'm very pleased to be able to report that current trading in q one, once again, was was on was very strong and on plan. And would like to think that, obviously, with COVID disappearing into the rearview mirror, that confidence will grow on a continued basis. Furthermore, we're seeing, obviously, a need for to grow our business out and to actually increase our headcount. And this is obviously to support future growth in fiscal 'twenty two and to build upon our current pipeline of opportunities that we have in front of us at the moment.

35:36 So in terms of the outlook, Paul mentioned earlier on the underlying profit before tax is up 9%, adjusted EPS is up 27%. Underlying EBITDA is up 9%. So we're building upon some very solid foundations now. The the companies that are very in a very good financial position is well capitalized. We've cleaned up an awful lot of the issues and challenges that we had previously, and we're now very confident about moving forward. We have now got planned investment for headcount across sales and from technical. So we're looking to actually add more people into development and support as as well as salespeople across the group to actually go out and increase their activity. We're not only developing ourselves in in The UK, but we're also looking to actually push some of that out into into The US.

36:28 Obviously, we got now the opportunity where we've been developing our software over the last couple of years, and it's now on the in cloud as well as on prem. We've also been adding new features to it, new applications, new methods and and technologies. We've also had, obviously, the first set of revenues coming through from these softwares. And, obviously, we can look forward, hopefully, to seeing an increased realization of some of that investment in the years to come. Also, we've been very much focused on growing our our reseller base from our software side and making sure that we can actually meet the the needs of the the reseller and grow that footprint. The more of those resellers we have, obviously, the more points of presence that we can generate and potentially win new client business in country in that territory.

37:22 As we move through, obviously, we expect to see some of our margins may change, may shift with the the adjustment of COVID and now working in working environment. You'll appreciate, you know, fifteen, sixteen months ago, we we went from working in an office environment to working at home. We saw four years of digitalization in four weeks. As a result of that, that may change in shifts on their margins in the future years, but we're well adjusted to actually accept and work with that. Most importantly, obviously, we had to get our company in order to get our foundations working well, get a good cash position. That now allows us to the organic strategy is working well. We've proven that. It's we're now breaking net profit. We're very pleased with that position. It's well supported from the top all the way down.

38:18 Our policies and procedures are well maintained inside the group, a breaking company. And now it now does give us time to actually now focus on m and a, which I know is something that we're all looking forward to. And with that, you know, it comes down to some some closing remarks. As I mentioned, the cyber threats are increasing, regulation is increasing. We are a company that deliver into that space. We have our own product set where we own our IP and we have high recurring rates of repeat business there, circa 80% as a a as a number. And then in the cost of business, our services side contribute a large amount of client base, large amount of corporate clients, a lot of repeat business, circa 45% ish or 40%, 45% ish as blended number.

39:09 We're in a place where the market is growing and we're as we come through this COVID period, I'm pleased to report that all of our senior leadership teams are very enthusiastic about this coming year and they're meeting it with heightened enthusiasm and confidence. And I'm pleased to report that the management team and the Board of Directors therefore think the the future is very bright for our organization as do I. And with that, I believe I've come to the end of our presentation. And with that, I would like to pass back over to the invigilator. Phil, Paul, thank you again for your presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. To click Q and A, type your question, and press send. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that recording this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard on the Investor Me company platform.

40:12 I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. Phil, Paul, we have received a number of pre submitted questions from investors, perhaps we could start the q and a session, with these. If I may, I'll read out the first one. The first one reads as follows. I believe there was mention of a 2,000,000 contract signed last year around Christmas time to be fulfilled this year. Is that still happening? And perhaps, Phil, I can address that to you, please. Yeah. It's certainly yeah. And we actually had it was actually in September. We had the client had some challenges. It's a it's a big deal. It needed a lot of sign off. And the client was also a bit concerned by by COVID and working from home. So they placed the order with us. They needed a portion of that was delivered at the tail end of September, I believe.

41:07 Probably about $303,100 k. What we didn't then saw, obviously, with the the increased confidence in q four, the client decided to bring some of that forward. They brought around about 3,000,000 of that forward, and it left circa 600,000 which we expect to actually deliver during h one of this year. So hopefully that answers your question. Fantastic. Thank you, Phil. The second one, I think, again, I'd like to address to you actually. There's been a progressive drop in the share price over the past three months today. Would the board like to comment, please? Unfortunately, I'm I'm I can't. I'm not allowed to comment on on on the the share price of the organization. The only thing I can say is that, you know, the the company has delivered its best results ever, and I'm surprised. And that's all I can really say on it.

42:01 Thanks very much. Thank you, Phil. The next one we've got here, I think, is perhaps one for Paul, actually. You highlighted a 39% increase in revenue in October, November compared to the previous year. In the December update, after a drop of 30% in revenue in the preceding months, how well did the following months in 2021 perform compared to the previous year? Obviously, we've we've noted them. We have seen a a a a blended year on year improvement in h two of 24%. And and and as per the previous r and s, we October and November, revenues grew by 39%, which incorporated some benefits from some of that catch up from from h one.

42:46 I I don't have a a month by month breakdown to share, but I can say that q three's revenues were circa 30% ahead of of the prior year. And, obviously, that's incorporated probably a larger proportion of that catch up, from from h one. Q four revenues, which obviously is a is a bigger quarter, for the business, they they grew by circa 20%. Fantastic. Thanks so much, indeed, Paul. Phil, perhaps another one for you. You mentioned 700,000 revenue achieved from cross selling. Is this the first significant amount, open and close brackets? Clearly, the Brookhawk acquisition is the backbone of the company. Will be will you be expecting cross selling to grow more quickly? And is this the main reason behind acquisition, both past and future?

43:40 First of yeah, Brookhall is a a significant contributor to to the group. It's a specialist company, sales solutions. And the types of clients they engage with, they do generally have long sales cycles. So, obviously, wherever we can, we make sure that we can introduce other parts of the organization. When we do get the opportunity to cross sell and we do when we do win those opportunities, And what you're you're seeing is is obviously hopefully an opportunity to repeat business. So that very, very first sale we did, as small as it was in in the first year, was the most important one because that means that we've got capability in house to actually do it. So will it grow? It's certainly it's one of our KPIs. So we're we're gonna be measured against it. We're looking at that, and we're driving against it.

44:31 I've we're we have an incentive program, which we're at relaunch and room to the company. And we're hoping obviously as we get better understanding of each other in the portfolio companies, we'll be able to represent that. And our sales teams will be able to act more effectively with, obviously, better knowledge and and experience of of dealing with some of these other new service offerings. So I do expect it to grow, and I would like to think it will grow. I would like to think that we will get a repeat business out of that as well on an ongoing basis. And, obviously, if we acquire another company inside the service space, we'd like to think that they'd be able to add additional client to that list as well. So but once again, feeding that opportunity for cross fertilization. Fantastic. Thanks again, Phil.

45:18 One for you actually, Paul here. We've got, why are you no longer breaking out the revenue for the separate trading companies? I think it's worth noting. We have always presented our our our revenues by by by segments, our software segments, our and our our services segments. I think over the last two years as well, and I think it's more appropriate that we've really tried to sort of adopt the culture of collaboration amongst our individual entities, and especially if you look at our services division whereby each of the businesses work very closely with each other. So I think it's possibly more appropriately that we, that we report this way. We always have them, reported based on those division divisions. And, as as companies are working closer working closer than they ever have before, it's a sensible way of reporting.

46:14 Thanks very much, and Paul. The final one we've got here presubmitted, perhaps one for both of you, but perhaps I can start with Phil. What is the ambition for the business? At the moment, we've got a small group of operating businesses, none of which are growing very fast, if at all, in a sense that's growing fairly rapidly? It will you know, I'll Paul talk about the the the growth side of it because, you know, the the company had been great. It's demonstrated in in the in the numbers. In terms of what is the the purpose of it, the, we've got two sides to an organization. We've got a software side and a services side. We're in that site space, and we and advisory supporting services around that. And what we want to do is we want to build our platform out. We believe that that is an unpolished gem, which will compete on the global stage.

47:08 It has a very good position. It has a very good reputation in the market space. It's it's it owns a number of patents, and we're very proud of what they're able to achieve. The team worked extremely hard, and they demonstrated that year after year. And they have a good grasp on where the market space is going. It's very much in tune with where Gartner's suggesting it's going, and the strategy is is defined on that. So that software division will become a we will add add additional features to that as we either acquire companies or we develop that software ourselves internally. On software side, we're award winning. We've won a number of recognized industry awards for what we do. I believe it's in excess of 27 of them to date, so pretty significant.

48:00 We are looking to develop our our skill sets further and become a key component for our clients, which is a must have. You have to order. You have to protect yourself from a GDPR perspective. These are key components. So, obviously, we're looking to grow that, and we will be a an organization with with two heads. We will develop a a software strategy and a services strategy. I would like to think that that would derisk many investor knowing that we have those two different types of offering inside our organization. In terms of the numbers, Paul, hopefully, can you give us just a little bit of flavoring from the the growth line on what we've experienced?

48:47 Yes. So so in terms of our our growth over the the year to March 21, obviously, we've mentioned we've seen improvement in underlying EBITDA of 9%, underlying profit before tax improvements of 9%. Also, I think in addition to this, the adjusted EPS growth of 27% does demonstrate some some improvement on a year on year basis. And I think it's worth noting that, actually, as we look look forward, obviously, we we we we can look at things that today, we're we're starting to see those first sales from our soft new software products, which we we there is an opportunity for incremental growth both to our existing clients, as we were able to offer for our reseller channels, addition additional functionality, which will, gives an opportunity for incremental, revenues in our existing client base. But as well as, obviously, we're looking to invest in sales and marketing across all of our businesses that will drive further further revenues and further new businesses as we move forward. So I think there there's the opportunity to grow get to grow the revenues from those new product sets, which isn't is it hasn't which we haven't seen the full full impact of yet. I think as we obviously become I can't say as we move away from COVID.

50:06 But as our advisory businesses see see improvements, and we have to obviously take see some very positive signs. Those utilization rates, which despite the year obviously, them them being suppressed in the year to March 21, that did the services division still improved delivered improved gross margins. As we start increasing those utilization rates, and we are seeing that, that will further provide, additional revenues, but in improved growth margins as we as we move forward. The cross selling that people's notice too is a is a is a KPI that we we do monitor. And, an important part of this is when we make that first sale, putting ourselves in a position where we can see repeat sales as we move forward. And as every year, we we get that the benefits of those repeat sale proportion of repeat sales from those cross selling opportunities. It does give us the the the the ability to to grow incremental revenues from that. But the more more important thing here is that that the introduction of more of those sales does further enhance our our gross profitability.

51:13 So it gives us opportunities where double digit revenue growth in the future is there are opportunities for us to to to to to deliver that. And and, obviously, with that improve and also, there's opportunities for improvement in in in the margins that the business is making. And and we and over I think in the year to to March 21, those improvements in margins has has has started. And as we move forward, it's something we we we would like to we we we'll be sure there's opportunities where where we can we can progress that in the future. Fantastic. Thank you very much indeed, Paul. Phil, Paul, we have had a number of questions submitted during the presentation today. Perhaps if I may just pick a few of these out as we come into the close of the meeting and just, read them out where appropriate to do so, and you can just give your response.

52:04 The first one we've got here is, how does your offering differ from Darktrace whose sophisticated software helps detect breaches and who also supply to The UK's major companies? Yeah. The Darktrace, good company. Yeah. Good product. And we know it. We they our software, and there's always a Secure Endpoint and geoLang focus obviously around authentication and and DLP. What we we have we're we're in a different sector today. What they're looking for is obviously looking for a non behavior. They're looking for the the the threat coming into the network. And so it's very, very different from our software. However, on our service side of the business through Brookhorn, we actually do sell solutions that will be in the existing in the same customers as as one of the dark trace.

52:55 And there, we provide a lot of threat feeds, a lot of we build a lot of, you know, side solutions for for leading firms, banks, and telcos. And one thing you will find is with a lot of those types of customers, they won't buy one solution. They they buy two or three of them. They they like to be holistic, like an overlap, overlay different technologies to make sure that they're protecting their assets accordingly. And Darktrace itself, we've I will say we haven't lost the deal to Darktrace, but there again, I haven't necessarily come across Darktrace on the head to head bidding environment. So but I have seen Darktrace are in existence in some of our customer base as we are in there. So it appears to me that customers in both investing in in both sides of of that type of technology.

53:45 Within side of our solutions, we don't just do one thing. We do multiple things. So we will have different ways of looking at the problem and whereas obviously Darktrace, you know, they they have their their chosen methods. And I will say they work it very well. It's a very good product. Fantastic. Thanks very much indeed. Next one we've got here, do any of your historic acquisitions require any further cash payouts? Maybe I can take answer that one. So so, obviously, during the the the year to March 21, we did repay a significant amount of of legacy loans, which were related to to historical acquisitions. At the end of March twenty one, all deferred share considerations had been had been repaid.

54:36 So there's no further share considerations, Owen. And in terms of remaining cash payments, there was circa 700 k, which was in relation to the Pentest acquisition that took place in April 19. Please say we have repaid some of that in the first quarter of the year with a balance repayable in April 22. Thank you very much, Paul. And I think probably we've got time for one more. I would like just to remind, the, attendees, of course, the company review all questions submitted today. So thank you very much for for submitting those. Final one we've got here is, would you be looking at organizations that are not UK based to integrate within the SHEARWATER GROUP, or are you looking at UK based cash generative businesses only? We're looking at cash generative businesses.

55:24 We are you historically, we're a a UK based company, a lot of our active these are here. But we are looking to to, obviously, at the opportunity itself. So and we're not restricted to The UK. We are we're restricted to make sure that we're buying the right company for our organization, that we're getting the right value. So it's accretive value. So it's earnings enhancing. And if that's in this country or further filled, then then that's fine by us. That's great. Thank you very much indeed, Phil. If I may, Phil, just perhaps a few final words just before we redirect the investors to give you some feedback. Yes. Thank you. First of all, I'd like to thank you once again for for taking the time out of your day to actually visit us.

56:11 Yeah, we will try and then to make a a you know, give you a an update on that from our and when they're they're appropriate. And, obviously, the if you need to to reach out to us and talk to us, please do so. The email address, best one to contact us on is at SHEARWATER@ALMA.co.uk. They they'll be able to hand that for you and make sure that we can actually respond to them if, of course, we can. And with that, I would just like to say thank you very much once again. Thank you very much for your support in in helping us grow this organization. And, hopefully, that we will be able to report positive things for you in the h one moving forward and thereafter.

56:58 And back to you. Thank you very much. That's great. Thank you very much, Phil, Paul, for updating again investors today. Could I please ask investors not to close the session? It should be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and is greatly valued by the company. On behalf of the management team of SHEARWATER GROUP PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you. Good afternoon.