Shearwater Group (LSE:SWG) — Final Results for year ended 31st March 2022

0:01 Good afternoon and welcome to the SHEARWATER GROUP PLC final results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. Have the company all review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll.

0:28 I'd now like to hand you over to Phil Higgins, CEO Paul McFadden, CFO Marcus Willett, member of the SHEARWATER GROUP's Advisory Panel. Good afternoon to you. Thank you, Alexandra, and welcome everybody to this year's results presentation. We've got a short presentation for you today, which we'd like to get through as quick as we possibly can so that we can save some time for Q and A at the end. So just quickly to remind you as to who we are, SHEARWATER GROUP PLC provides cybersecurity technology solutions and professional advisory and consulting services. We do this to help companies to be more secure and compliant online whilst doing business. We have two distinct divisions. We have a software division and a services division. Our services division sell to Fortune companies both domestically and internationally, and we do that directly.

1:20 Software division, we actually sell through a two tier distribution. We have a network of circa 350 plus resellers around the world who actually sell and represent our software for us in within country. Today, we're covering around 50 countries, and we do that through circa 90 employees through five offices. Now coming to the main event. Obviously, I'm very pleased to be able to report for the first time ever that we've come in above expectations on both revenue and EBITDA. 186 new customer wins, 20 new client wins via cross selling and some extremely substantial service contracts have all contributed to a year on year revenue growth of 13% and an adjusted EBITDA improvement of 19%.

2:11 And during the year, and Paul will come on to a little bit more detail later on, we're in a very strong financial position after paying off and paying down some residual debts that we had. Just moving on, just to give a little bit of color about where those revenues came from. On our services side, as you can see there, 40% of our revenues come in from renewals. This is from existing customers that we have where they've placed orders with us previously, and they come up for scheduled renewal. We also see 54% of our business in our services division actually came from our existing customers who actually either extended their relationships with us. We won new business inside that customer, or we've been able to cross fertilize with other parts of the group.

2:57 And, ultimately, we've managed to actually grow our client base by 6% additional new clients. These clients don't I know it's a small number, but please don't underestimate the the quality of that client that actually sits behind that 6%. So all in all, our our strength in our numbers this year did come from our services division, and we will give you a little bit of detail as to what's going on with our services later in the presentation. On the other side of the fence of our software business where we have our secure Envoy, progress has been really good this year. Very pleased. We whilst we did have a a slight softening of our top line numbers, and we will we'll give you the details on that. That's mainly to do with the transitioning from a an on prem solution into a more sustainable model of a service based and cloud based technologies.

3:48 We haven't been we have been busy, though, during the year. What we have been doing is obviously looking for new methods of revenue generation. We've been busy on the r and d. Our MSSP model is in its final test. What that allows us is to to sell our software through to the MSP community, allowing them to rebrand this technology as their own and sell on to their client base. This is a huge step forward. Not many people do this, so we're looking for this to actually provide us with future revenues.

4:18 Also, from a technical perspective, we've now been able to enhance our identity access management by introducing true location functionality. What this does, it's it allows us to actually restrict the geographical location from where someone can actually log in to your network. So for example, it could be restricted down to London. So anyone working in London or if you have have your office connection there, you can connect through the into your corporate LAN. Anyone from outside London wouldn't be able to. So, obviously, that strengthens the the corporate's resilience against cybercrime. One of the things that we also been doing in terms of Geolang, we have been very busy in enhancing the products there. Over the last twelve months, we've been working very closely with a leading client who acquired the software from us.

5:09 What we've also been doing is actually increasing the features. And what I'm very pleased to be able to report is recently, we have got the ability to scan optical character recognition. This is something that's been very, very difficult before. So you take a a document, put it on the scanner, and to actually identify sensitive data inside that has been extremely difficult. Images and PDFs and so forth. And what we're able to do now is actually overcome that challenge. All of these new softwares that we've been working on, Paul will be able to talk about the r and d investments in those later on. But needless to say, these will all be out and available later on in the year. And they all contribute to us becoming what we want to be is a security as a service converged platform provider. And as you can see there from the little table, we have a number of those boxes already ticked. And the boxes where it's got acquired and developed, those present us an opportunity in the future to either acquire a company or to develop the software ourselves.

6:05 Now with that, I'm gonna pass over to Paul that's gonna give you a bit of a rundown and a hashtag on our historical revenues. Paul? Brilliant. Thanks, Phil, and good afternoon, everyone. Before I go into a bit more detail on the the fiscal year '22 numbers, I just wanted to show this slide, provides a picture of our our financial performance over the past few years. Just started in April 2019 when Phil and myself started working together. Within those first ninety days of working together, we decided there was the business wasn't in need of reorganization. And as a result of that subsequent reorganization, we look to remove and discontinue some revenue streams that historically never yielded the required returns.

6:52 We look to introduce a shared services function function to the group to serve all existing businesses, which would provide commonality of control and also allows to drive further if cost efficiencies across the group. That exercise, once completed, saved around about £3,000,000 of annualized cost savings. And and and the results in movement movement forward has been we've had a a much slimmed down group, which is a a lot more structured and and and with with our businesses are working together. They know what each other does, and that has allowed us, I'm pleased to say, to deliver profits profitability improvements as each of the reporting periods up to fifth this year, March 22.

7:48 Okay. As we move into fiscal twenty two, so this is just a a summarized version of our p and l. So the key points to to note here is obviously revenue growth of 13% up to 35,990,000 for the period. And this has been driven, as Bill mentioned earlier, by by strong performance within the group services division, which has offset and some softness within the software division during the period. In terms of margins, we've maintained our gross profit margins at around about 30%, and I'll explain on the next slide some of the dynamics behind how that's been achieved. And adjusted EBITDA of $4,400,000 is up 19% on the previous year. And again, the EBITDA margin of 12% is maintained in the period.

8:39 Other items on the summarized p and l include a disproportionate high tax charge. And I think it's just worth mentioning of the the 1,200,000 tax charge, 1,100,000 of this relates to a deferred tax adjustment, which was processed which was expensed during the year. And this is in relation to recent budget announcements to increase corporation tax rates up to 25% in in the future. So this this 1,100,000 is a noncash item, which has been included in the p and l for the period. And, obviously, the the improvements in trading during the year has has resulted in an improved adjusted EPS up from 10p to 11p during the period.

9:32 Okay. This next slide provides a little bit more of a breakdown of each of the group's divisions, our services division and our software division. So it starts with our services division. As mentioned on the last slide, a lot of the group's revenue growth in the period came from the services division. And and more specifically, security solutions revenue line and advisory revenue lines saw strong performance during the period. In terms of gross margins, the services division saw an improvement from 23% up to 26% during the period. And this improvement in gross margins in our services division has been driven by, obviously, improved profitability from those advisory revenue streams, which generally yield a slightly higher gross margin than less of some of the other revenue streams within the division.

10:24 Overhead costs of 3,900,000 are ahead of the the prior year, and this incorporates additional headcount costs as we look to try and invest into additional sales resource during the period and some additional administrative shared services cost in the year as we've introduced additional departments and functions within that department. Adjusted EBITDA of $4,700,000 represents a 52% year on year increase and delivers a 14% adjusted EBITDA margin, up from 11% previous year. Moving on to our software division. It's worth noting that we have seen some softness in top line revenues within the software division in in fiscal twenty two. And of this £1,000,000 deficit, this can be broken down into three distinct areas.

11:15 Firstly, we have seen some delay in in new new new product sets coming available, and this shift to the to the right has resulted in new business opportunities reduced in the period, and that has resulted to 300 k of

11:31 of the delta that we've seen in the period. A further 300 k would be as a result of the impact of multiple year subscriptions. And what what these are would be for our on premise products whereby we sell a multiple year subscription, say, in fiscal twenty one for a three year period, and this doesn't repeat, and the renewal opportunity doesn't come around till fiscal twenty four. And so, therefore, that has created

11:58 a gap in the renewal opportunity during period. However, it's worth noting that our renewal rates within our software division have remained stable at circa 8%. So of the potential opportunity of renewals, we've continued to see us at at a good level work of renewal from our client base. Thirdly, the other parts of the the revenue delta has been where where in fiscal twenty one, we we achieved a a large enterprise deal, sort of a leading high street bank within our geo lending products. And this deal was we have we won't we didn't repeat a synthesized deal in fiscal twenty two, where we are today, we feel this first real enterprise size deal with a client has has given us some confidence whereby this client has has has been an early adopter.

12:52 They've worked with us and but we've road tested the product set to a point now where we feel very confident that we have a a good product that we can go out in in the coming years, and we can actually drive sales to other enterprise clients. So this creates a a good opportunity for the business. And, obviously, the margins from these hub sales is is rich. So, again, it provides an exciting opportunity for us moving forward. Gross profit margins within our software division are reduced as a result of some of that top line delta, and, obviously, some of that being as a result from times and lots of years that we still have the clients. However, renewal opportunities will not come was not stable in fiscal twenty two. Overheads have reduced significantly on on a year on year basis. The two main factors here is we have repurposed some of our technical resource, they're more they're more focused on driving development of new product sets, which has resulted in, obviously, some savings in some type of business as usual technical spend. And, also, we have been able to realize some administrative efficiencies during the period.

14:03 Adjusted EBITDA of 1,500,000 is slightly behind the previous year with the the EBITDA margin reduced. However, I think it's very important to mention that as we look move forward, we feel we have software products that provide us a good foundation and good opportunity to see growth in in in the future years. And and and, again, we have have existing clients that we can upsell to. And, also, with new functionalities coming available, this opens up a a market of potential new clients who are looking for some of the products that we hope to have available in in in the coming periods.

14:47 This next slide then provides a summary of our cash flow for the period, and think it's important to mention our operating cash flows after two years where we saw strong cash conversion well in excess of a 100%. We did see some unwinding of working capital in in the year, and this is predominantly due to timing of year end client receipts, which have moved from q four into the the next fiscal year. We have repaid 1,300,000 of deferred VAT during the period as well, which is is reflected within the operating cash position. Other items on on the cash flow statement include an increased investment into our r and d spend. So spending more money on on supporting development of our internal internal developed software products.

15:38 In addition to this, we have repaid circa 700 k of legacy loan liabilities in the period, which was repaid in advance of the the the the this was repaid early.

15:58 Just sorry. Just before I I finish on that part, I have missed off. We still have an unused RCF facility. We have a a very clean balance sheet. We continue to collect debts efficiently. And where we sit at following year end, we feel we're we're we have a solid foundation as we look to move forward to drive growth for organic and inorganic growth. Thanks very much, Paul, for that. We'll be able to, no doubt, there'll be some questions queuing up for the finance later on. But before then, I would like to I've got great pleasure in actually introducing you to Marcus Willett, CBOBE, who is a part of our advisory panel members at at SHEARWATER.

16:46 And today, Marcus will be presenting an update on the threat landscape. And Marcus comes from a a great pedigree, thirty three years inside the as deputy head of GCHQ. I mean, you can't get anyone with more knowledge than than that. Currently, he's held posts across the the intelligence community, and currently, that's with he has a role with the as adviser for the cyber of the International Institute of Strategic Studies. And with that, I would like to pass over to Marcus who's gonna give us an overview on the on the threat environment today. Marcus, thank you. Thank you very much, Phil, and good morning to everyone. In June, the Biden administration warned that more frequent cyberattacks are the new normal for companies and individuals. They said that the pace is unlikely to slow and that in today's complex dynamic and dangerous cyber threat environment, the answer is that our shields will likely need to be up for the foreseeable future.

17:43 You'd have seen similar warnings from The UK and other alliance states, almost all of them focusing on the threat of ransomware attacks by cybercriminal gangs and or the spillover from the cyber dimension to the war in Ukraine. We're consequently in the middle of a seismic shift in cybersecurity's role that began a few years ago from, as one US article put it, an occasional and wonky concern for government and industry to one that often drives policy in the White House and number 10, and I personally saw that in the prime minister's nationals, security councils, in congress, and parliament, and, of course, among top industry leaders and boards. What sits beneath this? I will cover the two big threats, criminal ransomware first and then the cyber dimensions to the Ukraine war, particularly the risk of spillover.

18:37 There have been some high profile ransomware attacks conducted by Russia based criminal gangs last year and this. Perhaps most prominent was the attack by the dark side group that hit US colonial pipeline, causing it to shut down operations for five days and leading to temporary fuel shortages on The US East Coast. But we've also seen the r evil group hit the JBS meat producer and hit hundreds of organizations simultaneously by infecting The US software management company, Kaseya, in what amounted to a complex supply chain operation. And we've seen the Conti group attack the Irish health service and Costa Rica so extensively that it declared a national emergency with the gang rather sinisterly declare declaring it was just a demo version. But behind the headlines are a host of other victims, large and small.

19:26 Between 2016 and 2020, the average ransom payment in The US rose from 400 to 315,000 US dollars, with overall payments last year estimated to be 600,000,000 US dollars, four times higher than in 2019.

19:43 Meanwhile, The UK reported twice as many ransomware attacks last year as in 2020, with 2020 seeing a threefold increase on 2019. One study claimed that a third of global companies said they were victims of ransomware attacks in 2021, and not all companies fess up. The number of ransomware incidents per month globally so far this year is reported to be even higher than in 2021. You'd have seen the various measures designed to combat this from sanctioning individuals, multimillion dollar awards relevant information, debates about whether to outlaw the paying of ransoms, an insurance industry grappling with its underwriting policies to cyberattacks on criminal groups by US Cyber Command and the UK's National Cyber Force.

20:29 In the middle of it all, Biden confronted Putin on the issue at a summit in Geneva in June last year after the colonial pipeline hack. Subsequently, and in retrospect, probably for their own diversionary reasons, the Russian authorities arrested 14 members of the r evil group in January this year. Of course, come The US and NATO response to Russia's invasion of Ukraine, all charges against the r evil members were dropped with the prosecutors allegedly contemplating hiring them to work for the state against Ukraine. On that note, most Russia based cybercriminal groups pledged to support Russian interests in cyberspace at the outset of the war in Ukraine, adding to Western cybersecurity unease. For the Conti group, though, this backfired spectacularly since it had affiliates in Ukraine, one of whom leaked the source code for its core program to aid its detection.

21:23 Ironically, a private pro Ukraine hacking group called Network Battalion fifty sixty five modified the code and used it to attack Russian networks. Indeed, today, Russia is probably the most attacked state in cyberspace with a host of private individuals and groups going after it, with one assessment saying that in March, more credentials were leaked online connected with Russian emails than for any other nation, a position normally held by The US. This has all rather laid bare the miserable state of Russia's own cybersecurity. But the rapid growth of widespread cyber vigilantism, 300,000 individuals doing stuff associated with the war on any one day, of course, supporting both sides, is also a worry for Western governments adding to the risk of unpredictability, spillover, and false attributions leading to retaliation and escalation.

22:15 But the bottom line on ransomware is it remains endemic and will for the foreseeable future, which brings us to the cyber dimensions of the war in Ukraine. Firstly, of course, states have been conducting cyberattacks for a long time. Most of it is for espionage purposes with last year's Russian SolarWinds and Chinese Microsoft Exchange hacks, notably recent examples. China especially conducts cyber espionage on an industrial scale. Meanwhile, even states employ ransomware, the North Koreans for financial gain, the Russians and Iranians for disruptive effect. States have also developed and used other disruptive techniques from the cyber vandalism of distributed denial of service attacks and web defacement to the highly damaging malware employed by Russia against Ukrainian critical infrastructure between 2014 and the present. And, of course, states have in the past lost control of such attacks with Russian and North Korean examples from 2017 causing worldwide damage.

23:13 Think the Maersk shipping line and the UK National Health Services too amongst many. All of this has come into play during the Ukraine war. The Russians opened the campaign in a relatively restrained way. Lots of cyber vandalism, lots of information operations, lots of cyber espionage, and the seeding of Ukrainian networks with wiper malware. The notable exception to that restraint was a hack on the eve of the invasion into the European network of The US owned satellite system ViaSat, which carried Ukrainian military command and control. The spillover was extensive with all sorts of Internet users in Central Europe impacted and, for example, 5,800 wind turbines in Germany taken offline. But generally, Russia did not attempt to disrupt Ukraine's critical infrastructure at the war's outset, presumably trying to keep it intact for its own use in anticipation of rapidly taking Kyiv and a quick victory.

24:10 When the Russians failed to do that and their focus reverted to supporting the Donbas separatists, they turned to an all out cyber offensive on all sorts of Ukrainian targets, including critical infrastructure, especially energy grids and telecommunications, using all the tactics and capabilities they've been using since 2014 as well as new ones. This cyber offensive is described as enormous by US officials, and I won't bore you with the details and stats. But just one example, the Russians have penetrated part of Ukraine's electricity

24:41 grids management system and were planning to activate the destructive malware on the April 8 until the attack was disrupted. Suffice to say, it is all designed for strategic effect to significantly disable Ukraine's national capacity to resist the Donbas offensive. Some attacks have got through with short lived effect, but many more were detected and repelled. Overall, the Russians are failing. The reasons, tons of support to Ukraine from US and allied governments and agencies in the run up to and during the war. Likewise, game changing levels of support from the private sector like Microsoft,

25:15 but also considerable Ukrainian expertise. For years, the Russians have been crawling all over Ukrainian networks. So for years, Ukraine has been learning a lot about Russian cyberattacks. And there have been plenty of examples of poor Russian planning and, frankly, operational ineptitude. Whatever, I believe we are discovering what cyber war between two cyber capable states looks like. It is highly attritional. Defense will win most of the time if the basic tenets of cybersecurity

25:43 are followed, but much depends on the nature and impact and the defenders' resilience in the face of the few attacks that get through. Please note as an example that Ukraine has begun to either shift or mirror the data that matters most to it to cloud services hosted out of country, for example, in Poland. There is, of course, also a huge and all pervasive online information and propaganda dimension of the war, but that is for another day. All of the above carries the risk of unintentional spillover onto global networks, But I'm afraid the most recent Western government warnings are focused on something else, intentional spillover. The warnings are pretty explicit. We know the Russians have the intent and the preposition capabilities to damage Western critical infrastructure. As a US warning from June makes clear, we know such attacks are actively planned with only the timing of their execution in question.

26:37 I'll give you one example detected by the US government and cybersecurity companies called Pipe Dream, new malware that could shut down critical machinery, sabotage industrial processes, and disable safety controllers in energy plants, thereby potentially causing explosions with an apparent focus on the production of liquefied natural gas. Well, that is when it was found. The fact that the Russians may deliberately attack the Ukraine's allies together with the high risk of unintended spillover from the Ukraine war and the rampant use of ransomware by criminal groups, some of which might be in support of the Russian state, is why shields need to be up now and for the foreseeable future right across the public and private sectors. So that is a picture of doom and gloom, but Shields Up is not rocket science. It is assiduously implementing basic cybersecurity, like being up to date with patching, using multifactor authentication, having good password protocols, good network monitoring, engaging staff on the phishing threat, and the like.

27:37 That will stop the vast majority of attacks. And then it is about planning for those few attacks that will get through, building resilience into networks and data storage like Ukraine is doing, concentrating on the data that matters most to the organization, and ensuring robust recovery plans are in place and tested regularly.

27:55 All that too must become the new normal. And all of that is where the help of a company like SHEARWATER is crucial. And with that, I'm going to hand back to Phil. Thanks, Phil. Thank you, Marcus, for that very insightful view on the threat landscape. And as you can see from Marcus' commentary there, where SHEARWATER and its products and services fit in. So I want to build a little bit more upon the strategic direction of the company in terms of where we're going.

28:30 So all the bullet points there, one to five on the left hand side, have already been played out. We were we're currently delivering organic growth in sales. Our revenues are up, and but we're not stopping there. Obviously, we're gonna continue to drive on new territories, gonna continuously develop new service offerings and and product set, and we will carry on with our cross selling and expand accordingly. We're also going to be adding this year with the more with our strengthened balance sheet, we'll be able to afford more in proactive sales campaigns and marketing. So we're going to be looking to see to push our brand and our products and skill sets more internationally, just our domestic markets, we're pushing this out through our reseller channels. And we're trying to engage the whole community to actually help us build our sales pipeline.

29:19 One of the key components of our group is obviously to acquire companies, and this now comes on to our key focus for this year moving forward. We have got two divisions. We have a software division and a services division, and we're looking for organic we're looking for acquisition in both. We're looking for from a software position where we can actually buy technologies which will fit on our existing platform and or technologies that will sit alongside that platform. What we also have the opportunity on on our services side would be to consolidate the market space, and there we'll be looking for consolidation where we'll be acquiring additional customers to actually fit in to to our group, which will allow us obviously to increase our cross fertilization. Moving on.

30:10 Ah, there we go. Just to look forward,

30:15 currently, current trading position at the moment, well, obviously, we're we're we're in line with management expectations. So we're very pleased that q one has signed off so well. The enthusiasm of the staff, the teams, the inquiries are up, the activity is up, the bid response is up, and we're hitting the Q1 expectations. We could already see in Q1 $14,500,000 of revenues ready to be deployed and

30:40 received during this year, which is quite early on for us and it's quite a sizable number for this stage of the game. Obviously, are tail end heavy with our revenue streams, but we do see that as a good indicator moving forward. And with our newly established m and a committee, it now allows us to actually focus on the m and a activity. So a lot of the activity started now. We do have a pipeline. We are already engaging in conversations with with companies. We do review all sorts of companies. We do, however, have an extremely strict criteria. And with that, what we're looking at is to make sure that the whatever acquisition we make fits our organization. It is earnings accretive. It's profitable or near term to to profitability.

31:25 We wanna make sure that the acquisition is works well for all stakeholders. So obviously, the opportunities inside the group. We're obviously going to look to actually try and drive that, that continues to drive that organic growth. We're going to look to actually improve our product sets, increase the features on their software to allow them a growth in our recurring revenues. We are on a software is currently circa around 80%, and we'd obviously would like to improve that. And as we bring new features to it, it allows us to upsell to our existing community, generate an additional revenues and income, and also make our product more sticky, meaning that more clients will stay with us and renew with us in the years going forward. Obviously, what we're looking to do is build out new services as well. So So what we'll be seeing is more more services being offered from a collection of not just an individual perspective from a group company, but we're we're bringing some of those together now where we're representing each other, and we're looking to try and take more of those revenues off the client desk. Before historically we'd knock on the door and we would sell one of our products from one of our companies but now obviously we're we're the cross fertilization it's allowed us actually to take more revenue dollars out.

32:42 We're incentivizing the team to do so. So it's very active, very proactive, and we're reporting on that as we move forward during the year. Obviously, we're looking to increase our geographical reach as well. What we want to do there is we are recruiting internationally, not just domestically, and we're also expanding we've expanded into Holland to assist in the development of client base for Brookhall Solutions. We're also doing expanding into Ireland for for pen test to allow them to to capture the market there, but also to to recruit. As we look at the acquisitions, some of those will be international, particularly on the software side. There's not many software companies in The UK that are where we would like them to be in terms of the price point. So it does mean that we do have to look further fulfilled, but we're not frightened about that. We will embrace that. We will see the opportunity to actually expand our geographical location at the same time.

33:47 And with that, I would like to conclude that that we're very pleased obviously with today's results. We've come in above market expectations. We're very pleased with that. We've got a great team and I would like to thank the team. And with that I'd like to pass back to Alexandre. Phil, Paul, Marcus, thanks very much for your presentation. And if I may just ask you to bring your cameras up for Q and A that'd be great. Ladies and gentlemen, please do continue to submit your questions just using the Q and A tab situated at the right corner of your screen. I just saw the company take a few minutes to review those questions submitted today. I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Received a number of questions today from investors, and I'd like to thank all the investors for submitting their questions today. I just want to start off the q and a session with this question, which asks, what type of m and a opportunities are you looking at, and is there anything in the pipeline?

34:39 Right. Let me just build upon that a little bit. We are we've recently established a m and a committee inside the group chaired by a German and attended by Ned and Paul and myself. And what that allows us to do is now focus. Now we've our organic play working. It's allow allowing us to actually focus on our business of m and a activity. On our software side of the company, we can buy tactical based companies, which are small, which will could be pre rev. What we're interested in there are the is the technology itself to actually fit that onto our platform. However, we're also happy if the accretive values of the target are are correct. We're happy to acquire a company that would sit alongside or even sit on top of our current platform and allow us to expand. Our point is we're looking to drive that service of that that software offering to to address the opportunities within the market.

35:39 On the services side of the business, it's very much about market consolidation. We'll be looking for companies that we could actually bolt on to our existing portfolio of service companies. And and with that, the there there's very active pipeline in that we're reviewing. During COVID, we did see all sorts of companies, and I'm glad to say now that we're now starting to see some more quality companies come through. And with the working committee, it allows us the time to actually focus and actually drive those acquisitions, hopefully, through to completion. That's great, Phil. The next question here reads as follows. Can you please provide color on the increased accrued income at year end? Has this now been invoiced and how much has been paid? Maybe that's one for you, Paul. Yes. Of course. So, obviously, q four historically has always been a busy busy period for the for the business, pleased to say of the 14,800,000 accrued income number, circa just under 13,000,000 was billed in third thirty April.

36:40 With around about 30% of that number's week has been paid. It's worth mentioning q one cash has been in line with plan as well. Perfect. Thank you very much, Paul. The next question here is from Simon who says, having just touched on the increase in the potential for significant cyber attacks, particularly with the current Russia Ukraine conflict, what is the size of the opportunity here for SHEARWATER GROUP, and who have you offered your services to? Oh, maybe I can help with that one. So it depends. If you if you if you Google IT security, I think you get about 8,000,000,000 hits on Google. The market's huge. When you look at some of the the the the the fan finances behind that, they estimate the market anywhere between 130 to 180,000,000,000, and and it's growing. In The UK, some of the conversation sits around 7 to £9,000,000,000 mark.

37:36 And in that and that covers the whole breadth, you could say, of that cybersecurity space. Now we activate we're part of a a a, obviously, a segment of that. We don't do it all. What's addressable for us is that would vary from our authentication space. That's probably looking between globally, I would say that's a a a $10,000,000,000 market space. If you if you account for authentication all the way through to PAM into CAS into IGA and so forth, the whole suite, that's it's quite a sizable space for us. In in The UK markets, that could be we could be looking at circa. It's very difficult to say. You're be looking at a a circa billion dollar market space there.

38:27 And when you look at the services side, once again, as people migrate from a an application or an appliance based computing into a more software and service based computing, we're seeing, obviously, those service revenues. There's an opportunity for those to grow. We're seeing a lot more software subscription, a lot more as a service coming available, more cloud based. So obviously we expect those to grow. It's very, very difficult to actually say what that's worth. Globally, I've seen numbers in excess of 30,000,000,000. Thank you very much for that Phil. Next question here from Robert M. Thank you for your question. The two largest customers account for an aggregate 59% of group revenues. Can you share any thoughts that mitigate this concentration risk, for example, single or multiple contracts, twelve months or multiyear duration, etcetera?

39:16 Okay. I think it might be another one for me. So, yes, we do have a some large customers, and they do like our services, and they keep on buying, and we don't stop them. We do have large frameworks in place, which would sit up above all of the subcontracts. So below the master framework agreements, which some of them are international by their nature, we have multiple new other contracts which exist and and and and work. So at any one time, we're not dependent upon any one contract. These contracts move in and out as technology gets refreshed when we will be replacing it with new ones, new technologies come available, and they'll always be competing. So we do expect some movement inside those clients on a year to year basis.

40:03 We also do expect, because of the type of technology we get involved with, a high recurring rate of of repeatable business. Because it's specialist technology and it's not generalized, what we're seeing is that we we do have a long term sticky relationship with the customers. So those frameworks get very, very big. The the contracts below them are are are quite large. Does that answer all the question? I don't know, Paul, if there's anything more you want to add on that in terms of what the concentration has moved from. But I think probably I think probably just the other thing to bear in mind that just to echo your points, Phil, around, obviously, yeah, obviously, the mass services and then multiple contracts that that we have in place. I think also that the nature of what we sell, it's not so nice to have. Obviously, this stuff is stuff that people that clients need to have.

40:53 And I suppose just the last thing, as as we've added new clients into the group, this will continue to look to and dilute some concentration in in the future. Thank you very much for that. And, Phil, another one for for you. John asked, did you say that q one revenues are circa 14,000,000? Yes. So no. It's it's this q one revenues are not 14,000,000. What we see is the visibility of of repeatable opportunities coming along. That currently sits at 14,500,000. So what we see is as we go through the year where we've got multiple year contracts, technologies that get refreshed, the software licensing that gets renewed, all of those types of things bring all that together.

41:41 They they present themselves as an opportunity for us to to to renew. That this year is quite high at 14,500,000. So that's opportunity that we're seeing. Obviously, we still got to build upon what we did last year. So but that's a good start to actually sort of see those types of revenues numbers already in the q one. But that is not the the number that we have delivered in q one. Thank you very much. Got another one here from Paul B. Is acquiring the best folks to rebuild shareholder confidence slash value would need to find immediate earning enhancing deals? Are these deals out there? Yes. They are. So the if you go pre rev, if you're looking at technology, bear in mind, over the last couple of years, we have spent a couple of million sterling on on r and d.

42:30 We've been focusing heavily on get making sure the product set works and it's right. It's enterprise grade. We've increased the features. And one of those features is that we we've we've built a platform. And this platform is currently being serviced by some of our technologies, and there are opportunities to add additional technology into that platform. Those types of technologies can be pre rev because what we're after there is the tech. We don't necessarily need a com a software house that has been that's got twenty years trading history where the acquisition costs will be extremely high. So, yes, we do have an opportunity there. But at the same time, if we do find a the right type of company in the software field that we can we can demonstrate true shareholders' value, true accretive value to the group, and then they will become a target. And we will obviously be looking at those types of companies as well.

43:28 Staying with the software side of the business, we've had a question which asks, how does SHEARWATER compete with the bigger players in the market? Well, it's a David and Goliath situation. We do obviously, we we have we compete against on the global stage. We have global customers. We have some of the most prestigious brands that you can imagine come to us, and they've been doing so for long term. And we have some relationships which extend beyond ten years. So the quality of our service is one thing. Also, the the diversity. One of the biggest companies that that that the hackers go after is Microsoft. Everyone's got it. So if you're if you then start deploying holistically and start overlaying with other technologies, more specialist technologies, our Secure Envoy, they focus in one area of the business, and they're experts in it. And that that gives comfort to some people. Our service that we wrap around it allows more personal delivery.

44:30 And the same with our our specialist solution side. You know, we we have to compete against some very big players. Now a lot of our our channel that we come across, they that the way they actually deliver is on a a thirty, sixty, 90 re reward basis. And that puts them at a disadvantage. We the types of technologies we we get involved with, there's not many resellers involved. There's quite unique. They're very specialist. They're big end. They're high value, good double digit margins. And with all of that, what it allows us to do is be specialist. And those specializations now are becoming more in demand as compliance and security gets more complex and more demanding on the business. And so we actually have a role to play, and we advertise ourselves into that space.

45:21 Perfect. Thank you very much for that. And the final question here is how much of the legacy loan liabilities are left to repay? Paul? I can say this one. Of the the answer is zero. So during the year, we repaid 700,000 of legacy loans related to the Pentest acquisition. Those loans were repaid early. They weren't due for repayment through fiscal twenty three, and an opportunity came available to repay and and there were some benefits in terms of interest savings, etcetera. So, yes, they will no longer repay than the yes. No legacy loans. Phil, Paul, thanks for that. I think you've addressed those questions you can from investors. And, course, the company will review all questions submitted today and will publish those responses on the investor meet company platform.

46:10 We've just had one more come in. How does SHEARWATER attract staff in the current market, and are there plans to increase employee numbers? Okay. So just go back a little bit into the the start of COVID. What we chose to do as an organization is not furlough anyone. So during that period, like everyone else, we worked from home. We kept all the staff on. We did have, obviously, have the cost of consulting, but without the opportunity of the the revenues coming through. But as a group, the stability of the group was would allowed us to actually still deliver on our EBITDA numbers and and retain our staff. That year, we I'm afraid to say we didn't offer pay rises out. However, what we have been doing, we've enhanced our salary package.

46:58 Pay rises have been issued to try and meet some of the demands of increasing inflation. We're doing we have a more flexible working environment. At the moment, obviously, we've in this new hybrid mode, and it seems to be working well for us. So what we offer our staff is more flexibility. We believe that our we're we're delivering our salaries with inside the higher end of the market rates. Our benefits packages that sit behind it are continuously getting reviewed. And at the moment, they they offer all sorts from share option schemes, saves you earn schemes, pension enhancements, and down to the basics of cycle to work and all sorts. So I'd like to think that we're doing as much as we possibly can on on that. We're still exploring more.

47:47 Hopefully, there will be some let up from the government at some stage that we can deliver even more. But today, we also expand beyond The UK market. We also look at internationally for staff, where labor rates could be more more advantageous for certain jobs and certain functions. We obviously look to expand into those areas and bring those staff remotely in and connect them into our network, which will allow us to obviously take advantage of that as well. So we're doing many things to maintain an equal balance. We've improved our efficiencies. We're more focused in what we what we need to deliver. The the people that we have are a great team, and they're the ones who I need to thank for for today's results. They did it, and they we have the capacity to do more. And we also got an expansion plan in place to increase our headcount, especially around sales and marketing and, obviously, on consulting delivery. So with all of that in place, I like to think that we're offering we're a good employer, offering more choice, more flexibility, and and a decent wage at the end of it.

48:53 That was great. And just before redirects investors provide you with their feedback, which I know is particularly important to the company, so the last thing to do is I could could I just ask you for a few closing comments? Certainly. Well, first of all, thank you very much for everyone listening today and and joining us. Today has been obviously, despite all the headwinds that you've you you know about from from Brexit to COVID to the war to even the chip shortages that's that's been been in the news. Well, we came in above expectations both from revenue and an adjusted EBITDA. We've we've done what we had to do on that, and it now allows us to go and do the things that we want to do. We want to grow also by acquisition. The service market space is growing. You heard from Marcus there. It's it's the the numbers that you Google, it's not conclusive as to the size of the market space. The only thing I can say, the numbers seem to be getting bigger every single year, be it attacks or be it the cost of recovery.

49:50 And we fit in that space of actually helping companies defend and prevent the the the daily leakage, the security re breach. And as regulations and the law tightens up, it's this is gonna become more important to to industry and individuals. We are all gonna be affected by this at some stage. All companies will get affected at some stage, and it's about the recovery, and that's what we do. We help companies recover. We help advise them. We help test them to make sure they're solid. We provide them with technology, homegrown, which is very, very margin rich, and also we bring together specialist solutions. We have long term customer base. We have got a bit very big blue chip client base. And on top of that, we have now got a very good strong financial base to work from.

50:40 So we've got some great successes. We've now got an all a a committee in place to to focus on around acquisitions. We've got we've been reviewing. We've been busy during the last couple of years looking and reviewing. We're now seeing some clarity in in that space, and we'll be looking to actually close them. So you have choices where you buy your stock. I'd like to think that the cyber market space is an exciting one. It seems to be a growing one, and we're in that space. So I would like to think that you would also consider us. And, obviously, on top of that, we've got there's various reports and notes out there, and I think you'll find that later today, it may already be there. But on our website, you'll see the the most recent note, which was published this morning from from Progressive, and you'll be able to read their their opinions and their viewpoints about the company, our achievements, and the direction in which we're going.

51:39 And I think that really sums up where we are, and that just leaves me to thank the my panel members and the company for the contribution they've made in getting the company to where it is today. Thank you. Phil, Paul, Marcus, thanks very much for updating investors today. If I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few minutes to complete, and I'm sure it'll be 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, and good afternoon to you all. Thank you.