Shearwater Group (LSE:SWG) — Results for the six months ended 30 September 2022

0:02 Good afternoon, and welcome to the SHEARWATER GROUP PLC investor presentation for the six months ended 09/30/2022. Today's recorded presentation, investors are being in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of the screen. Simply click q and a, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today and publish responses where appropriate to do so. Before we begin, would you like to submit the following poll?

0:31 I'd now like to hand you over to Phil Hagin, CEO and Paul McFadden, CFO. Good afternoon. Thank you, Paul, and welcome, everyone. Let me take you through to the first slide. Just a brief introduction on SHEARWATER. And just to remind you that we're we supply cybersecurity services, managed security services, and professional advisory to the corporate market space. We divide our company into two divisions. We have a services division and a software division. Within our services division, we have Broadcore Solutions, which delivers high end solutions, Exena Consulting, which delivers professional advisory, and Pentest, which delivers our penetration testing consultancy. On the other side of the fence, we have our software business where we have GMA, which was acquired as a prereq, and a secure envoy, which is an established authentication solution provider.

1:19 In the software division, we actually own the IP. So it's our technology that we develop over over the years. And we deliver that business there through what's known as two tier distribution. So we sell to distributors who then sell onto a global network of resellers. Historically, we've been servicing this through in excess of 350 resellers very well. And very recently, we've signed two major contracts with one with Ingram Micro in The US, and the other one with TD CENEX in in Canada. This gives us an additional 200 plus resellers to add to our partnership, extending our relationships now to in excess of 550 resellers. On top of that, today, we're currently covering in excess of 50 countries, and, obviously, part of our strategy moving forward would be to extend that even further.

2:10 Just to give you a little bit of detail as to why the customers come to us. Well, first of all, we are a multi award winning group. Individually, the companies have all excelled in their own divisions. But as a company, as a as a shareholder itself, it's it's also won numerous major awards. And the way we've done that is we we deliver very high capability in technical resourcing. We deliver our guys who've got a high level of expertise and many years of experience. And this is what sets us apart from the competition. We deliver our high level quality engineering and consultants to the customer to the front edge. We don't send them on the junior. We send them on the mature experienced individual. We also tailor our solutions to the customer's environment. It's not one box. It's all. This is a case of, well, how do you work? And let's fill around that. And that could be restricted by location or or resource availability by the client, and we'll fill in those gaps. So we tailor our solutions to meet the customer needs.

3:09 From our solution side of the business, what we deliver is the leading edge next generation technologies. The off the shelf stuff that you generally see available, there's plenty of avenues you can see that you can obtain that from other companies. What we get involved with is the more complex technologies, the ones which are little bit more difficult. And in that space, it gives us the benefit of working for long term relationships with the customer. It allows us to attract long term contracts. And because there's a there is a skill set shortage and what it allows for the customer to do is actually lock in a managed service or a solution with us for a long period of time. Typically, we'll be involved with dark web. We'll be involved with delivering threat feeds. They could also be cyber defense solutions or be internal network monitoring solutions that we we get involved with.

4:01 We also excel with our international business offering. We compete on the global stage, and the way we do that is quite simply. We provide a single point of contact, single point of negotiation, and control. We can reduce our costs accordingly and whereas our competition do tend to actually apply their methods by having resources located in every single country. This just adds additional cost to the customer. So well, price comparison, we're obviously come out as a very competitive alternative And we with many years of experience and reference point, we've built confidence with corporate tier one leading firms. And, course, we use that as reference as we canvas new customers. So our customers, they do see us as being more agile, more specialized, and more focused.

4:46 It's quite simple as that. And also at the bottom there, you see a couple of logos. Across the group, we've won in excess of third awards altogether and two we're very proud of, the two queen sports for innovation and XCOR. So just moving on to the highlights today. We are very confident about delivering our revenues in line with full year market expectations. Just to touch on a couple of points here. Paul will go through some in greater detail on on some of these. I'll just give you some of the highlights. Our revenue is slightly up on this time last year, and we do have a a good visibility into h two. And h two typically is our heavier half year with particular focus around q four.

5:31 But today, we can see 30% of our contract and schedule orders are with are available to us. That does not include bids that we're working on or proposals that are in the pipeline at the moment. These are scheduled contract results. And on the adjusted EBITDA, we were impacted by the FX issues, and Paul will give you a little bit more detail on that later on. Leading the charge this year was our services division. 85% of our revenues come from our services, and we're glad to say we have a very strong and robust client base of blue chip customers who have long standing contract frameworks with us, and we have got multiple contracts that sit underneath those. And they're they do provide us obviously a good amount of security in our future revenues.

6:21 Also on the cash position, as of September 30, cash was down at 900,000. But if you actually look at that as of October 31, it resolved it came back to 1.5, and we do expect to see further improvement during the course of h two. And Paul will give you a little bit more detail on that as we go through the the cash bridge later on. Just a little bit on our customers. Customer sectors and manufacturing, top stocks, they normally would be headed up by technology and finance. Our services, we've got we secured some more business for our services contracts. We've extended into our our clients even further, and we've won new customers.

7:06 And I'm very pleased to say that we've also managed to put ourselves onto g cloud, and we've already received our first set of orders from that, which we're very pleased. And and one last thing on here is obviously the long term relationships with our clients. We we have an excess of 64% of our clients with greater than three year relationships. We do have a large number of clients, top 10, top 10 that have been with us for greater than five years and some even up to ten years. Just to give you a little bit of breakdown on our services, 5% of our clients, are new to the business, which I'm very glad to see. But, also, you'll see on our renews and our contracts with the existing customers, those numbers will juggle around from year to year and quite simply because as old solutions expire, we then rip and replace and put a new solution in. So some of those renewals might might lessen and we get more contracts in. What we have seen is more contracts coming through to us from manufacturing.

8:05 Our banks have said that they've been buying all the way through COVID and and they've been well prepared for for the cyber threats of today. They will continuously expand as we'd expect them to. So therefore, we you can sort of see that we do an awful lot with the banking telco and technology sectors. And but I'm also very pleased that we've actually extended into the UK government. Another thing we've actually done with our services this year, we've actually just developed some of our own. We've taken some enterprise grade solutions. We've come up into small chunks. We've put management around them along with some AI, and we've now got a a service that we can actually deliver them to tier two and tier three. Typically, after large banks and large corporates does does take some energy and and time and effort. We will continue to do that. We will continue to go after those big customers, but it's also important for us now to actually start picking up on some of those smaller companies.

8:58 Those companies are now familiar with cyber, more aware of some of the challenges today. This is our new client base. So we're going after also that tier two and tier three with our own very margin rich service offerings. This is all underpinned, of course, by many years of experience. We've got a very strong client relationship for great references, a very supportive board. And one of the things we have done is obviously make sure that to maintain our staff with inside their roles is we we create some great staff incentives to focus their activities on setting out, firstly, our own technology as well as setting out our solutions consulting.

9:37 Just moving on to the software side. I mentioned early on that we had signed two new contracts. The the ink is very dry on those now, and there are some further opportunities to extend with these two contracts. Historically, we've been supplying our US client base from from Europe. And now, of course, we have two distributors who can actually make that representation for us in country. So now we go east to coast east to west coast on in The US and in Canada and we're using both Ingram and TD Select. And, also, we've developed additional features in terms of geolocation with inside our software, which they will be representing, allowing the the enterprise to actually control where a customer or where a user can actually log in from. This obviously adds additional security to to the enterprise.

10:25 We've also opened up an opportunity for our distribution and resellers to actually white label that product set. So we can remove our logo and put theirs on, and obviously that creates a more tighter partnership between us and and the partner. And it also means that we'll be looking for longer term relationships with that reseller and that client base. Moving on to Geolang, we're very pleased to announce that we launched our optical character recognition. Historically, it's been very difficult to actually search for keywords with inside scanned images, PDFs or print scanner, And we've cracked it. We've got that now, and I'm glad to say it's out and operational. And we we do see this as well. We're gonna actually gonna be picking up on some of our EBITDA during the course of h two.

11:14 Very margin rich, 80% margins. It's our own software. We own the IP, and I'm glad to say what we have done is over the last couple of years, we've been we sold this to a a UK bank under the development program, and what they've been doing with us is helping us actually develop it further, picking up picking up all all of their features that they've been looking for, and we've been adding that technology into the solution stack. And what has resulted in is a a very high quality enterprise grade software. And for this particular customer, what it did, they had an audit point under regulation which they had to address. Historically, they were doing it with people, big teams. It's costing millions of dollars a year. And as a result of a I'm glad to say it's a 300 sorry. It's a £250,000 per year three year deal that we agreed with the customer, and it saved them a significant amount of time, effort, and money.

12:14 And with that reference, it's now allowed us to actually go and build a pipeline of of magnitude. We have a number of opportunities and that we're currently demonstrating the solution to. And I'm glad to say we've already started to actually conclude sales in and around this service. With that, I'm gonna pass over to Paul, and Paul's gonna give you a run through of our financial track record today. Paul? Thanks a lot, Phil, and good afternoon, everyone. This first slide provides some some history of our track record to date that all the way back to fiscal year twenty twenty, and it's worth noting on the the the graph on the left hand side. Our revenue has historically always been second half weighted.

12:59 In the previous year, fiscal twenty two, it was a thirty seventy split. This is a similar trend that we expect to see in in in in this year as well. The primary reason behind this is due to the spending patterns of some of our larger clients where they have year ends in maybe December or March, and this historically is a trend that that we've seen over many years. Phil mentioned, obviously, that we have confidence of delivering our full year revenue numbers. And just to to add a few points to this, we have seen some very encouraging signs not only from our security solutions business, managed managed services businesses, but also within our advisory revenue line whereby we have seen significant increases in pipeline.

13:49 We've seen additional visibility. So just to give you an idea, maybe twelve months ago, our visibility on some of our advisory engagements would have been potentially six to eight weeks out. Whereas today, we have scheduled work for March 23 already scheduled. So we have seen towards the end of q two a significant increase in the amount of demand for our our advisory services, and it's really positive to see, obviously, real improvements in visibility, increase in pipelines, and material increases in pipelines, which has led us to increase our revenue generating capacity by circa 20%, to to to service demand.

14:35 And whilst we've seen some cost in in h one, we now have that that that resource in place, which will support h two incremental revenue growth. In addition to that, on our software side of the business, the release of recent products and and additional functionalities of our own own own own IP softwares does give give us a wonderful opportunity to add high margin incremental revenues within the software divisions. In addition to this, we have invested in h one within additional sales resource internally as well as obviously expanding our our global channel network within our secure and void business. All of these things provide us with optimism that moving forward and in the second half of the year, we have a number of drivers that will allow us to show some good h two revenue improvement.

15:34 On the the next slide, our adjusted EBITDA. Over the past three years, we have seen improvements on an annual basis with our full year adjusted EBITDA. And in h one, whilst we did have lots of positive trends, we were impacted by an isolated FX impact, which which resulted in a 900 k impact to the p and l on h one. I'd like to say this this was due to US dollar liabilities, which are unrealized, which are due for payments in May 23, May 24, which were revalued at that point, here with that September. It's worth noting that as we start the second half of the year, an element of this position has unwound, and we have also put in place contracts to to mitigate against any further downside risk. So moving forward, we have protected our our liability, and and we have an opportunity to realize some further unwinding on on the SDS deal.

16:40 In addition to this, we have increased our investments in h one, adding headcounts across the board, which supports our targets and the opportunities available to us for h two. These two items aside, we would have been our underlying EBITDA would have been broadly in line with the previous period. The next slide provides a breakdown of our p and l for the period, and it's worth noting revenue was 2% ahead in the year in the half year, general as a result of full good performance from our services division, which saw security solutions revenues and advisory revenues perform well. This is slightly softened by some reduction within our software division.

17:29 And whilst we have seen solid performance from our renewals revenue basis, which was slightly ahead on a year on year basis, we have suffered declines within new business sales for our legacy on premise products. Obviously, the the introduction of additional products and functionalities at the start of h '2 provides us with some good opportunities in which to recover that h one delta and show some good good high margin revenue growth in the second half of the year. Gross profits of 2,700,000 is suppressed from the previous year as a result of FX and additional investments into sales resource and some temporary technology increases in costs, which will revert back down to original rates in the second half of the year. And just very quickly, the reason behind the temporary increase in technology cost was to ensure that we had were able to deliver to market our products, additional functionalities so we can benefit from from upper incremental revenues in h two and beyond.

18:36 Excluding the two items mentioned, the gross profit margin would have been around about 35%. So underlying trading is still performing well. Our overheads, for the business, we have seen a 7% reduction in overheads in the period period, and this is primarily driven by administrative efficiencies made not only across our trading businesses, but also within our shared services function and head of head office functions. This we have continued to invest. And and as mentioned, previously, we have invested in an an additional 20% in in advisory and revenue generating consultants, which we hope to see the benefits of in the second half of the year.

19:22 Adjusted EBITDA of circa 100 k takes into account the one off FX impact and an additional circa $2,300 k of year on year incremental investments. I won't go through every single line on here. We have noted finance small savings within finance charges and depreciation. Amortization of computer software assets has reduced on a year on year basis, and this is due to a one off project back from March 20 being written off in the previous year.

19:56 The next slide provides some more granularity around the divisional performance of both our services division and our software division. Starting with our services division, which did see a revenue growth of 5% in the first half of the year. And as mentioned, this is due to strong security solutions sales within the first half as well as in q two and towards the end of q two, an increased level of demand for our advisory services, which we now look to see, continuing through into the second half of the year. This was slightly impacted by, managed services revenues, and warranties, which was slightly reduced on a year on year basis. And this is as a result of some delays in a in a number of contracts whereby the shape of the contracts and and the clients' requirements changing and evolving slightly, which has created some delay. We expect to see a chunk of this recorded in the second half of the year contributing to additional revenues in h two.

20:57 Gross profit mark of 1,600,000 for our services division does include the impacts of the 900 k FX charge in period, which otherwise would have maintained our gross margins at around about 30% on a year on which is in line with the previous year. Our overheads for our services division have have remained flat on a year on year basis. However, as mentioned above, this does include, additional investments, to increase our revenue generating capacity within our business and add additional headcount to support opportunities for for top line growth in the second half of the year. The what the adjusted EBITDA loss during the period is is primarily impacted by FX and additional investments in headcounts.

21:46 As we look at before I go on to the the the software division, it's worth just highlighting a few points, which I I feel will put us in a good position for the second half of the year, Primarily, obviously, within our revenue streams across our services division, we continue to have loyal client base. 64% of of our revenues come from long standing clients. We have seen the opportunities to grow out our existing clients' revenues with us, we see looking forward good opportunities to to increase security solutions, managed services, warranties revenue in the second half of the year. In addition, it's worth mentioning that it's very pleasing to see the increase in pipelines, the increasing demand of

22:34 our advisory revenues, which is worth highlighting the growth the the gross margins of this revenue stream delivers of circa 40 to 50% is in excess of some of those other revenue streams. So this does give us an opportunity to convert this additional demand into higher margin profitability profitable work, which will help, obviously, cover some of that h one profit. As we move on to our software division, we have seen revenues, soften slightly in the first half of year. And as mentioned, this is as a result of reduction in new business sales of the on premise products, which was expected. And pleasing to say, now we have new product sets and functionalities live and in a just a number of of of opportunities which are currently being demoed, it does provide us a good foundation and a good opportunity to recover the the h one delta.

23:31 In addition, it's worth noting that our renewals of our of our legacy products have performed strongly and this was slightly ahead on a year on year basis. The gross profits of 1,100,000 is slightly suppressed from the previous year, and the margin has been impacted slightly as a result of some additional increase in in technology, which will reduce in the second half of the year in terms of the cost and also additional headcount in in in sales and marketing, which has been put in place to support

24:02 the opportunities we see, which drive our h two revenue position. Our overheads for our software division are reduced by 20% on a year on year basis, and this is a result of administrative efficiencies we have been able to realize from our BAU parts of our business and and things such as consolidation of processes as a result of the shared services operation, which has resulted in in in the savings here. As mentioned before, we constantly look to review our our cost, and we always look to try and make efficiencies where we can. Adjusted EBITDA of 700 k is slightly down than the previous year and, again, incorporates the additional investments made on sales resource plus the the slight softness in in new business revenues in the first half of the year.

25:00 As we move into the second half of the year, I think it's worth noting in terms of our central opportunities to grow to add high margin revenues, which, again, as similar to the advisory revenue lines, our software revenue lines yield high gross margins of circa 70 to 80%. With opportunities that's currently being demoed with existing enterprise size clients, we have a number of opportunities where we can add some material improvements in in revenue in h two. Moving on to our cash position at the half year, and and and h one cash was was slightly down on where we would have liked it to be. And there are a number of items which explain this movements in at period end. Firstly, we we've had to circle 1,100,000

25:52 of of delayed customer receipts whereby remittances were received price at the end of period. The cash didn't hit the council early October. In addition to this, we we had a 1,800,000 operating cash outflow as a result of material contracts from the previous year, which which was with a key client, which we had as a result of this, we had some slightly prolonged payment terms. However, what's worth noticing here is this outflow of 1,800,000 now starts to unwind. And over the next two and a half years, we'll we'll see operating cash inflows of 3,700,000 coming through, and we have costly payments in place, which will show gives us good visibility of future operational, cash inflows.

26:42 Finally, we have increased our investments to drive, one, deliver our software products to market, add the sales resource around that in order to to go and maximize our opportunities to to deliver incremental revenues, and that's resulted in circa 500,000 of additional spend in the first half of the year. This next slide is a summary of our cash flow for the period. And as mentioned in the last slide, we have seen an operational cash outflow of circa 3,900,000 in the first half of the year, mainly impacted by the two items mostly on the cash bridge. In addition to this, historically, the business has seen an outflow in the first half of the year, and then with strong recovery in the second half of the year. It's predominantly due to our our our key clients' spending patterns, and we do expect to see h two

27:40 operation cash inflows in the second half in line with with what we've seen in the past. In addition to this, an an additional circa 50% increase in development costs has allowed us to make sure that we can deliver our new softwares in the market. And now as we start h two, we actually feel feels good with confidence. We have a product that has been road tested. We have additional functionalities. We have the sales resource in place and an increased channel partnership on a global basis in which to to maximize out on our opportunity that we have. In addition to these items, it's worth mentioning the group maintains a a £4,000,000 revolving credit facility, which today has been unutilized.

28:30 In addition to this, we have a very clean balance sheet with no no debt. So as we move forward into the second half of the year and beyond, we have a clean balance sheet. We have an RCF facility in place that remains

28:43 untouched, and both these items are in place to support future organic and inorganic growth. Thank you, Paul. Now I'm just gonna quickly take you through the strategic direction. There's two two components in play here. One is, obviously, organic growth, and one is the M and A. But let me start with organic growth. Obviously, we've just expanded our territory into North Americas, and we're now looking to actually build and benefit from that in in q four and the outlying years. Adding an extra sort of 200 resellers to our our army of resellers is is hopefully will yield good returns.

29:28 We also continue to expand our services. In Brookhorn, we've actually taken a enterprise grade service. We cut into smaller chunks, and we're now going off that tier two. So we're expanding our market and and the opportunities for us. We've also done the same thing with Exena Consultant. We've created a third party supply chain compliance monitoring service and, you know, to to address the needs of compliance today, and then making that available now. Once again, you know, going after that high revenue, high profitable market space. We're gonna continue with our r and d. Very pleasing to actually be able to announce our GeoLang OCR software feature is now available and obviously the the features from Secure Envoy as well. Cross selling at the moment, it represents about 1% of what we do, and we will continuously to drive that. The good thing about our cross selling is we do get a lot of repeat business opportunities there. There's a lot of advisory, a lot of consulting, and a lot of the type of advisory consultant we deliver is annualized and workloads.

30:30 So we do get a good a good opportunity there to repeat that on an ongoing basis. So every new client, we look to have them for years after year. And, obviously, we're we're still investing. We've been investing in our staff now. We've been managing the the demand on our staff. We have seen some people leave. During the the COVID period, we were recruiting, and we were a safe haven, and we did see a little bit of churn just as COVID finished. I'm glad to say we've managed to replace those. We've now got we've increased by circa 10% on the headcount. As Paul mentioned, these are consulting capacities and for sales. We will continue to look for additional growth there to combat the cost of the rising cost of staff, we do also look outside of The UK.

31:22 So we're actually recruiting people for further refill, and we will continue with that strategy. And obviously, what we're looking to do is actually expand upon our our existing business and get our repeatable business in. And so more managed services, focusing more on our softwares that we we own and getting more penetration, going deeper with our customer base, our sister companies, that is what we're looking to do to build those long term client relationships. All of this, of course, is underpinned by key pillars on the side there. A few years back, Paul and I started off in reorganizing the group in terms of getting it giving it a very clearly defined strategy, realigning everyone, getting everything equal and fair, and creating an opportunity for people to actually, you know, build. We bought back the profitability growth to to the company, and we're very pleased with all that. But now we gotta move on. Now we gotta move on to the m and a. It is part of our our strategy as a group to actually deliver m and a.

32:20 Over the period, we have been looking at numbers of opportunities. So much so, we actually built a m and a committee to actually review these with us. We're not gonna be buying anything. We're only gonna be buying what's the strategic fit. It's gotta be it's gotta present itself a pretty value to the group. We do want to encourage any dilution. As Paul mentioned, we have a very clean balance sheet allowing us the different options on how we wanna fund these. There is an active pipeline, and I'm glad to say that that that committee has been reviewed by chairman, some meds, Paul and myself. And we will continue to do that, and we hope we're able to actually bring an m and a in the near future. And with that,

33:06 just to give you insight into looking forward. So q three, so where are we now? So far, we're doing really well. Our new software got released and quite surprising. We've seen a quick uptake. We've got a good pipeline. So q three is looking very good at the moment, and it's in line with our expectations. We've got 30% visibility into h two as we mentioned earlier on, and that doesn't include those the the proposals, the new deals that we've been working on. And obviously, it doesn't have any scheduled software sales in there yet from our new release product set. And so we're hoping to actually pick up on q four with that. So the the 30% represents our contracting and our scheduled work. Don't forget all the other stuff that we've been working on throughout the year and our new software opportunities and service opportunities, which we're now taking to market.

33:56 Paul mentioned about the the foreign exchange currency exposure, and that's been mitigated. It's a it's a one off. It's been realized. It's an unrealized FX change. And, you know, this study unwinding itself and but moving forward, we've got hedging on that to help control that one. As I mentioned, we do support and invest in people, and we'll continue to do so. And very much so on the sales generations or the sales delivery side of business, the revenue generators. That's what we're looking for. We've got a great core set of staff. And as the as the company customer demands increase, of course, we'll increase our back office. We're very focused on actually growing at our front office as well. So the opportunities remain to continuously grow with that blue chip client base. We have a great set of customers, and those customers are helping us attract other blue chip customers. But we're also stepping down into that tier two and tier three. So outside of the the fourteen three fifty, we are looking at some of those smaller companies as well. They do have send good value, good opportunity for us, and there is a quicker turnaround in terms of bringing them on board as a client.

35:06 So we will also expand our software just because we just made some releases recently. There's a lot more to come, and we will have more releases available in q four. Between now and then, obviously, we're be working very closely with our US and Canadian partners in the in those markets and looking to build up our revenue stream. It's something, as I said, we did from Europe previously. Now we're we've got feet on the ground over there, and it allows us actually to to be more more responsive to the customers and actually promote our software and services over there. We're also gonna do them carrying with their cost fertilization. It's been working really well. It's a it's it's a method to actually reduce the time to market. It reduces the cost of sales, beneficial for the customer, and we have good reference in moving into an opportunity.

35:55 So we will continue with that. And, obviously, the main focus is obviously to increase the the annual people revenues We're with the shortage of staff globally, what we are seeing is our corporate client base is extending their contract with us. They're giving us more from terms of an outsource or co source opportunity. But most importantly, the the one year contract are moving extending into three or five years, which is really helpful. Obviously, it gives us great confidence for this year, but it also gives us confidence in the upcoming years. So h one has been a challenging part of the year, but also without the FX, if you actually look back at numbers, you actually see we actually would have been in line, which gave us some great confidence in terms of the business that actually did it once you deliver it.

36:44 One thing that we do see is obviously h two is a more favorable environment for us. It's a busier period for us. It's an exciting period. We've got a lot to do during this period, and it does give the board, myself, and the management team great confidence in moving forward for a very prosperous age too. And with that, I would like to pass back to Paul, if I may in control. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated in the right hand corner of your screen. Just while the team take a few minutes to review those, I would like to remind you the recording of the presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Phil Paul, we've also had a number of questions both pre submitted and throughout today's meeting.

37:29 And if I may, I'll just perhaps start off with this one, which I think I'll address to you, Phil, if I can. You mentioned what sets you apart at the start of the presentation. Please can you provide some more detail about the services and software you do provide? Yes. The services we're providing now, they consist of we've we've actually taken some of our consulting services that we we deliver internally. We actually patched them up so we can actually now market those externally as well. We've also saw a great need for and a big gap in the market where enterprise grade high level cyber software wasn't being made available necessarily at affordable rates to to to the tier two and tier threes. So we've initially brought a number of licenses And with agreement with the manufacturer, it's now allowed us to actually break those down into smaller chunks.

38:28 And we can actually we've wrapped that in service with using our own staff. It's we we've made a purchase with that very simple. It's a it's a monthly reoccurring cost base, and we can now sell that to the 500 to the 3,000 c type client. That is all things that we've been doing now. So we've we've got, you know, the stuff that we sell to corporate tier one banks. We've moved that down the stack a little bit and opening up that new market space. The same thing with our our products. Our new products that we have, they we're going after all markets. So we've taken our Geolink product, and we're making that available also through to our our reseller base at that Secure Envoy have.

39:14 And they can obviously, that instantly gives it a global recognition in terms of its footprint. But also, we're also selling that through to large corpus and solution providers, Brookhorn, doing that at the moment. We're building out resellers as well for that. So there's a whole lot going on with that. We're we're discovering new markets. We're opening up the the product set. We're taking new services and bringing those to market. Hopefully, that gives you a little bit of a flavoring of of what we're doing there. That's great. Thanks indeed, Phil. Perhaps another one for you actually. With the new North American agreements, what's the scale of the opportunity? And when do you expect to see a transaction? Well, as you can appreciate, they're very large distribution companies, and we're very pleased to have them both on board with us. And they wouldn't do this unless they saw an opportunity themselves to earn money. It's basically That's what their business for.

40:06 We see circa 200 plus resellers being available to us in in that region. And if they all got one salesperson each, that's that's an awful lot of people now promoting our our technology at local level. And the incentive programs are are there. The the market is very competitive in The States, and we've got a very good incentive program and a good commission base and and discounts for for the reseller. So we'd like to think that it will become a a very attractive offering for them to take to their existing customers. I would like to think that we'd start benefiting from that in q four. Fantastic. Thank you indeed, Phil. Next question we've got here, which I think is more one for you actually, Paul. Would the Board consider using some of the cash on hand to buy back shares while they're at such a depressed level in order to enhance EPS?

41:03 Well, it's this is definitely that's something that's has has been considered. I think it's worth mentioning this, obviously, this is one option. There is an importance to retain cash in the business. In fact and the reason behind this, it keeps on the front on the front foot should the right acquisition come along. We want to be in a strong position whereby we are in a position to execute on on the ad plans. So that that that's a consideration that's the book. Obviously, have to look at this. We do continuously review all options. At the moment, retaining cash for acquisitions is obviously what what what then you can see. That's great. Thank you indeed, Paul. And and next one we've got here again, think, is more one for you. You say in your interims that you're confident of meeting revenue expectations for the year. What are your expectations for EPS for the year?

42:01 Well, I I believe, obviously, there's a a notes out by Progressive, and that that notes fulfills fair. And, yeah, we're we we what's we can't best we give give a a forecast. We I think the note is how it gives some some sensible guidance. Fantastic. Thank you. Alright. Next question we have here is you say we've moved into h two with confident higher levels than we were this time last year. Yet at this stage last year, just scored 50% of forecast h two revenues. This year, you've only secured 30%. Why is greater confidence merited? And I think that's one for you, Phil. Well, we have a lot more on offer this year, quite simply. We were coming out of COVID last time, and now we're clearly out of COVID from that perspective.

42:52 We see more corporate activity. We got higher confidence from our consulting teams. We got higher utilization rates. We've had to build in additional headcount into that space. We've got our new software from GeoLAN, our enhancements from Secure Envoy. We're opening up new markets. We've got additional service offerings. And none of that has been included in the 30% number that we spoke about earlier in terms of our visibility into h two. The the 30% refers to the the contracted and the scheduled and all the other sales activities that we've been involved with and the new product releases and everything else, we're starting to see some some traction there already. So that's obviously given us a lot more confidence moving into h two.

43:43 Thank you very much indeed. The next question we've got here is despite only 5% h one revenue growth, receivables and payables have grown 150127% respectively. Please explain. That's very similar as well to Scott's question, Scott H. So thank you for that. And perhaps there's one for you, Paul. Yes. Of course. Obviously, the the increase in receivables and payables is primarily due to two large deals whereby the payment profile will be discharged over a period of time moving forward. And and, obviously, this links into the cash bridge, which I meant which I I ran through earlier, whereby we had the 1,800,000 of outflow in in the first half of the year, and we will now start seeing the unwinding that results in, you know, an inflow of circa 3,700,000 over the next two two to two and a half years.

44:35 Thanks, Paul. Perhaps another one for you, actually. Your accrued income revenue recognition and revenue recognized, apologies, but not your invoice rose from 370,000 to 3,300,000. Why was there so much unbilled work at the end of the period? Yes. And, again, this this actually follows on slightly from the previous question. So, again, this is in relation to some large clients, which are large client sales where the the billing will be billed over a a three year period. The work actually has been delivered all up front, so we have we have delivered the work. But the profile of this agreement, which just meant that there has been some some some timing in terms of the bill the billing of of those those deals.

45:23 And I I I think it's important to mention that that we won't necessarily always see this type of profile with our larger deals. So, again, it's we we look at our deals on a deal by deal basis. The the the two that I've referenced here, we have seen some some slightly prolonged payment profiles, which and and billing profiles. However, we moving forward, it's not necessarily something we would always expect to see. Fantastic. Thank you, Paul. I think another one for you, actually. Your trade receivables increased from 5,600,000 to 14. Why is this figure so high, and why has it grown so much? How much of the 14,000,000 do you expect to collect and when? Okay. So in terms of the the receivables at the end of March, we've obviously had a a very a very healthy end into the fiscal year, which has resulted in, obviously, some significant billings at at the end of the or in at the start of q one.

46:22 Of the 14,000,000, I would expect circa 8,000,000 to be collected before the end of March twenty three with the balance coming through in in sort of h one following. Thank you very much, Paul. Next one, I think, is probably more likely for you actually, Phil. Is the Amsterdam office functional, and has it been productive? If so, are there indications what this would be worth opening other offices or has Brexit crushed this area of expansion? Okay. It would Amsterdam, yeah, it has been successful. It was put in place predominantly to actually assist in a number of large contracts that we're we're delivering for some of our our key clients.

47:08 And it hasn't sort of dampened our our our mood over Brexit. We have, since then, opened up another office as well in q one. We opened one in the Southern Islands. And should the opportunity arise where we can open up additional offices in different territories, then we will seize opportunity. That's great. Thank you very much indeed, Phil. Next question we've got here, Richard, thank you very much for that. I know I know you've increased your headcount by 11 to 99. When do you expect this to feed through to significantly higher revenues? Well, maybe I can answer that one. So, obviously, with them, there's a couple of different types of results we've been acquiring here. If you're looking at salespeople, obviously, they've they've gotta come in, they've gotta establish themselves, and there's the training and and and and that that needs to to take place.

48:02 And where we've invested nearly part of h one, we're now starting to see the benefits that come through. And it takes a little bit of time for people to to to to come in. They don't instantly hit the ground running, and and we have to help them, you know, understand the company, understand our values, and our propositions before they can actually start the selling process. I'm glad to say that that that process now is is is active, and we're we're seeing reward coming from there. In terms of the consulting, once again, typically with the consultants, they're they're they're prequalified people. They're professionals in in what they do. And so it's where they can deliver in capacity. That's fine. They can be instantly active. If it's a case of that they're they're coming in for scheduled work, it it depends on where their skills is being used. But typically, we'll see them them being contributing to our our efforts and our activities very early on. But the salespeople would say, do take a little bit of time to to get up the curve.

49:05 Thank you very much indeed. Next one we've got here is from Patrick. Thank you, Patrick. How do you manage service workload with a thirty seventy split across the year? Do you have slack in very busy periods for your consultants? Well, going back to COVID, when we was on lockdown, we had lots of the consultants and obviously, we we were locked down. We weren't able to actually go out and do do the work. So during that period, we had all the costs without the without the income. What we try and do is actually, you know, measure and monitor where our business is coming from and obviously try and, get resources in line and at the right moment. But, yes, every now and then, we what we have seen in h one during during the year is quite a high demand for for our consulting in penetration testing, for example. So they've they've been stacked up. We we've seen a very robust pipeline there.

50:02 So then we've been paying catch up. Other parts of the business, yes, at times, we we do see those engineers moving from being a a a consultant to being more reactive engineering. And so, yeah, the different parts of business will see a a slacking off. But we do expect, obviously, as we go into h two, we do see all hands on deck, and it becomes very, very busy. That's great. Thank you very much indeed, Phil. Thanks for addressing those questions as we come through. And of course, the company review all questions submitted then. We will publish responses where appropriate to do so on the investor meet company platform. So perhaps before redirecting investors provided their feedback, which I know is particularly important to you, I just ask you perhaps for a few closing comments, please. Yes. Certainly. Thank you. And first of all, thank you very much for listening, everybody. Hopefully, you found it useful and insightful.

50:54 So just to recap on just a couple of key points. Obviously, you know, as in previous years, we're we're actually weighted. We we've been like that for for for many years now. We as we enter q three, we're we're we're very encouraged, obviously, by what's been happening so far in the quarter. And, it gives us great visibility into into, the rest of h two. As mentioned, we got 30% of what we, need to invoice, already, in our sites. We have a very good pipeline of visibility from other bids that we've been working on. We've added additional new services to the portfolio. We've added additional new products and features to the portfolio. We're targeting better quality revenues, and we're targeting a a not just the large corporate market space, but we're also going off that tier two and tier three space.

51:43 We've expanded our distribution footprint. We've got another additional 200 plus resellers now representing our secure invoice software. And we've also expanding our client base. We're further and deeper penetration into our existing customers. And, of course, lastly, we're we're not forgetting our m and a. It's very much the focus. We have an established committee that's very active in reviewing everything we're doing, and I'm hoping that will actually yield good results in the the time to come. And all of this adds to our confidence. We got more available to us this year than we did last year. And so you I'm hoping that you would actually sort of see these benefits coming through. But needless to say, this is this is why we are so confident about this h two period. We have had a couple of challenges, as I mentioned, and all Scott reviewed during h one.

52:41 But those aside, the company is a very strong company. Got a great team, got a great management team, great advisory board, and we're very pleased to be part of it. And I'm glad that you are also. And with that, I'd like to say thank you once again for your time for listening to us today. Phil, Paul, thanks indeed for updating investors. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the 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 SHEARWATER GROUP PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you and good afternoon to you all. Thank you.