Operator: Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll.
Operator: I would now like to hand you over to Phil Higgins, CEO. Good morning, sir.
Phil Higgins: Good morning, and thank you. Hello, everyone, and welcome to today's presentation. With me is John Hall, who is CFO of the group. We would like to take you through today, obviously, our results. This year we are doing it slightly differently. We are actually going to show you our closing slide, our executive summary. What we are hoping for you to take away today is obviously these key points. Firstly, obviously, our sector that we are in is growing constantly, as you can see from what is coming out in the news on a regular basis. We have got a proven track record. We have got over 40 awards to the group, and we have got our own proprietary software. We have got our own award-winning consulting business, and we have got our own solutions business.
Phil Higgins: As you can appreciate, we specialize in a certain type of technology and services that we deliver through to blue-chip customers. Over the last 12 months, we have been delivering good, strong organic growth, and this is our second year of good growth, and we will be able to give you some more details on it later on. The 34% revenue growth is obviously an annualized number. Do not forget, fiscal 2025 was a 15-month period, and fiscal 2026 was our first 12 months. So on an annualized basis, the numbers are up. Obviously, we have still been focusing on our organic growth. We have been looking at improving the efficiencies of the company, improving our balance sheet, and also improving the service offerings to actually help grow the company. But that is not all we are doing.
Phil Higgins: Obviously, what we want to do is deliver the value for the shareholders, and hopefully, you will see that today as we walk you through the process. Moving on. A little bit about the group. The group consists of two divisions. We have got a services division, where Brookcourt and Pentest, both well-recognized within the industry, both award-winning, as I mentioned. But inside Brookcourt, we sell the next generation cybersecurity solutions and services, and within Pentest, we sell red team and blue team consulting. These are professional hackers who actually test your network. We also own a software division where we got our own proprietary software. We supply authentication solutions for on-prem, in the cloud, and hybrid. We sell that through our resellers and a distribution channel as well.
Phil Higgins: It is sold in roughly around 50 countries collectively when you consider our services and our software businesses. When you look at, obviously, the numbers there, the services represent 96% of our revenues and software 4%. We will give you a little bit more detail around those numbers later on. Some of the key points that you need to be aware of, obviously the group, we supply cyber security solutions and services into large blue-chip corporates. You would know all the logos. We service banks, high street banks, investment houses, telcos, mobile operators, as well as retail and local government and central government as well. Very recently, we responded to the RFP request for the G-Cloud 15, and we actually grew our services significantly from there from circa 30 odd on G-Cloud 14 to over 50 in G-Cloud 15.
Phil Higgins: We will come on to a little bit more about that later on. Basically, we are in a very good market space, and we have great momentum. The highlights of the day, the numbers. Revenue is up 34%, adjusted EBITDA up. Obviously one of the questions down there is obviously on net cash position. John will give you a little bit more detail on that as to why our net cash is where it is and the timing of our cash, which is most important. The bottom line is obviously on a year-on-year basis, our revenue and our business is growing, and we are growing above market rates at the moment, which we are very pleased with. We got strong momentum. We came out of fiscal 2025 very good.
Phil Higgins: We entered 2026 very good, and obviously our confidence so far into 2027 is looking very good as well. Just a little bit about the market opportunity. Outside of what you read in the press and what you see on TV, it is not a case of if we are going to get hit, when we are going to get hit, and how can you stand up. There is a lot more talk around now about the resilience of a company, and it is known and it is expected that there will be a lot more hacks which will be spoken about in the press. The fines are increasing, regulatory compliance is increasing, and we are responding to that market space. We are providing new technologies, and some of those technologies are AI-based, but we are also looking forward.
Phil Higgins: Part of what we do as an organization is look at the next generation, and we are already in the space of looking at quantum-based technologies. They are on our portfolio, and we are talking to clients for those. Obviously, they will become more of a requirement as the year goes on. The bad actors are not going away. When the economy gets tight, when there is war, the bad actors, state actors, they increase. The activity there is increasing, and I am sure we have all received those spam emails asking for money and threatening our data. We are responding in as that is market space. Death, taxes, and cyber, and we are in it to stay. Take the next slide, John. A little bit about our positioning. There are three logos there. They are group companies. Brookcourt, we supply the next generation. We sit above a lot of the noise.
Phil Higgins: We do not sell the day-to-day stuff. We are selling the specialist stuff, and that is why you will see on the RNSs, multi-year contracts, multi-million dollar deals, and there is an awful lot of renewals and expansion. We see it in the government, we see it in our banks and our telcos. The commoditized technologies tend to be lower margin. They tend to be highly competitive, whereas we have less competition in the space. However, the solutions that we get involved with, as you can see in the closing month of FY26, we did a GBP 25 million deal. That took a year in negotiation, that one deal. They do take longer. We do have a good pipeline, and we do win on the global stage for those types of techs. Pentest, obviously, they also specialize in that area as well.
Phil Higgins: Once you have spent all this money, you need someone to actually test it, and this is where the Pentest red teamers and blue teamers come in, and it is a compliance requirement. It is a legal need, and you cannot ignore it anymore, and you do not want to be caught out, so this is why you test. Then you come into how do we actually maximize even further. You start selling the same services and these consultings through the distribution channels. This is where we sell to distributors, who then sell on through to other resellers, who then sell on to end user customers. We are able to do that obviously with Pentest and with our SecurEnvoy products there. More so to do with SecurEnvoy, which is why we can touch so many countries around the world. Today, we are touching around about circa 50 countries.
Phil Higgins: A little bit about where the revenues have come from. Obviously, there you see the contractual highlights. These are some of the deals that we actually announced last year. When you do not see an announcement, it is because the deal is probably sub GBP 1 million. We have an awful lot of run rate that is going on constantly. These are the headline deals that came out. GBP 25 million of which half of that was seen in 2026. The rest of it will be discharged over the period. It is the first phase of a deal. That was for a telco provider. The GBP 9 million was for a financial institution, once again, trying to secure the email framework of their global network. As you appreciate, a lot of the viruses and hacks transfer the networks via emails.
Phil Higgins: Then we had another contract extension and expansion with another mobile network. We are servicing all the mobile networks now in the UK, all the majors. Obviously, that has contributed to our growth line. What we do have is obviously we are working hard to actually build out more of our services. So they are homegrown. We have got a good, strong consulting base where our engineers are fully engaged constantly. Our utilization rates are up, and we are looking to obviously to expand as our client base expands, we expand our engineering to meet that demand. From a gross profit perspective, the services segment is the major contributor to that. John, you can just move on. Okay, so on to the software side. Still, whilst there is some negatives there, you have still got to look at the positives. We have been building out our software.
Phil Higgins: We have got enterprise-grade software, both in identity access management and Data Discovery. We can service both on-prem and in cloud. When you look at some of our competition, they have all been investing time into the cloud. We are seeing also activity coming back down to the on-premise, where some of our corporate clients and some of our government departments don't trust the cloud. They want that data back, and they want it under their control. So there is a place for us to play. It is a boutique, it is a unique space, but we have also got a proprietary technology which has got two Queen's Awards. It has got multiple quality awards, and it is still on the global stage today, and it is still being used by some very significant organizations.
Phil Higgins: When you look at the numbers, they are still contributing to the bottom line, and we are seeing it is a good quality revenue. While we have been investing in that over the last couple of years, we do have a new technology that is now in POC, which is coming through, and we are expecting to see some revenues of that come through towards the end of this fiscal year.
Phil Higgins: With that, I am going to pass over to John, who will take you through a little bit more detail around the numbers. John, over to you.
Jonathan Hall: Thank you. Good morning, everyone. As Phil has already touched on, the highlight is probably really strong growth year on year. So revenue up 34% on an annualized basis to GBP 42.3 million. That builds on really strong growth we had in FY25 too. We were 29% up in FY25. When you compound that up, that is top-line growth of more than 70% in two years. As Phil has touched on, that was really driven by the strength of our services business. Our gross profit was up 9.4%. Percentage margin down, which is really a mix effect, builds out of where the growth has come from, and I will come onto a little bit more granularity in what is happening between the services and the software side of the business on the next slide. Adjusted admin expenses, very small increase, or sorry, a very small reduction year on year.
Jonathan Hall: We have effectively been able to do more for less, and that is pleasing. There are really two things at play there. Firstly, we did some restructuring activities in the end of FY25, and we have really had the first full year effect on that. Just trying to keep our cost base as lean as possible to make sure we are getting value or as much value for shareholders from everything we do. The second thing we have been able to do is we have invested in our own technology, our own proprietary technology, our own AI tools. That is enabling us to get more for less. So we were the second organization to get our ISO for use of AI, or second organization in the UK, 16th globally, to get our ISO for use of AI within the business.
Jonathan Hall: We have built our own proprietary AI tool, and that is helping us distill what are often quite complex briefs we get from clients and shape the responses. It cannot do all the work, but it can break the back of it, and it helps us respond to a lot more, be a lot more efficient in what we do. It is great for us that we have been able to deliver that top-line growth without actually increasing our cost base. All of that helps us deliver an adjusted EBITDA number, which is 44% up year on year to GBP 2.6 million. If you take out the depreciation on our own development spend and add back the finance income, that is an adjusted profit before tax of GBP 1.4 million. Small number of exceptionals this year compared to last year, there was a fairly sizable write-down, non-cash write-down in the value of intangibles.
Jonathan Hall: Much smaller this year, just again, a small restructuring just to make sure we stay as lean as possible in what we do, and principally affecting the services, the software side of the business rather, which I will come onto in a second. The amortization you see below the adjusted EBITDA is the more sort of conception amortization of that we were required to create on the intangibles we bought as part of acquisitions, which are just coming through, but again, that is a sort of non-cash item. Which takes us down to a loss before tax of GBP 0.3 million, which is 97% improved year on year. As Phil has touched on, we have a very different picture across the services and the software side of the business. Firstly, just in the scale of the two businesses.
Jonathan Hall: The services side of the business is now 96% of our revenue, 90% of our gross profit, and that has been the real growth engine of what we have seen year on year. Some big, high-value, multi-year contracts from some of our blue-chip client base. You still see within the services side of the business, the gross margin down slightly year on year. That is a reflection of the fact that even within the services side, there are two distinct business models to what we do. We sell our own people, we sell our own engineering services, we sell penetration testing, we sell our own governance and compliance consulting, and that is good, strong margins on selling our own people. We also sell top-end cybersecurity solutions encompassing third-party software and third-party hardware.
Jonathan Hall: Those are, again, better margins than you would see for a typical reseller because it is quite specialist stuff, which we are taking to and introducing to our clients. But it does have a more significant cost of sale. While across the services side of the business, all those different components showed improvement year on year. The largest single element of the growth engine was those big multi-year contracts Phil spoke about, which encompass third-party IP. So what that meant is, on a percentage basis, we had a little bit of dilution in the gross margin, but actually still a gross profit number that was up 18% year on year from GBP 6.4 to, GBP 6.4 annualized, to GBP 7.6 million of gross profit.
Jonathan Hall: And that, again, with admin expenses that were essentially static in real terms, dropped down to an adjusted EBITDA of GBP 3.7 million, which is 40% up year on year. So really strong performance out of the services side of the business. Software side, a lot of competitive pressures in that side of the business, in particular for those organizations that the SecurEnvoy product was a real early adopter, market leader in the multi-factor authentication space. A number of the clients who've had weren't using all the full functionality of it, and where they've been able to use products like Microsoft Authenticator that they may have been able to get as part of a wider bundle, which they weren't having to pay extra for, they've done that, and we've seen a bit of attrition there.
Jonathan Hall: But I think where we are seeing some real wins now is in that on-premise side, where actually the people who need our product, the people we have left, are those who have the need for the additional functionality that our product can provide. So we expect to see that stabilizing and actually growing back into in FY27, particularly with the potential upside of the Data Discovery product, which we hope to see more of coming in H2. There's a little bit of a different classification between the cost of sales and the admin expenses this year. But what you're essentially seeing there is a relatively static cost space within the software side. Revenue down GBP 0.3 million year on year on an annualized basis, dropping through to an EBITDA that's down GBP 0.3 million year on year.
Jonathan Hall: So while we do see opportunity there, we didn't want to just stay static on that, so we have also implemented a restructure in the tail end of this financial year. So not particularly impacting these numbers, but impacting the numbers going forward. So GBP 0.8 million reduction in annualized spend on software. More than half of that will be CapEx, so won't impact the P&L other than the amortization you'll see in future years, but also GBP 0.3 reduction in OpEx. And we've also restructured that business to simplify our distribution channel, take out some of the layers of distribution, which will mean that on every deal we're selling in some of our key markets, we're actually going to retain about 20% higher value of that deal into our revenue line than we've seen before. It's been a more challenging space in the software market.
Jonathan Hall: It is the smaller part of what we do, but we do see some reasons, and we've taken some good steps to set us up for more success going forward in that side of the business. From a cash flow side, we continue to grow our cash up to GBP 5.6 million at the year end with no debt. So it's a really strong balance sheet. The cash growth does lack or lag the profit growth a little bit. Principal reason for that is the largest single deal we signed during the year, the GBP 25 million deal with GBP 12 million of that impacting FY26, we signed in June. So none of the cash on the profit element of that deal would've been collected at year end. But ultimately, we're seeing a strong cash position, strong balance sheet, and that's creating opportunities for us.
Jonathan Hall: I think one of the questions that always comes up for us is, you are holding quite a lot of cash, what are you doing for that, and how are you going to make sure you are giving shareholders best returns for that? I think we have tried to be very consistent in how we have answered that. It is important for us to have a strong balance sheet. It enables us to do a couple of things. Firstly, I am sure you can appreciate, if you are signing multi-year deals with Her Majesty's government, with big banks, big telcos for mission-critical pieces of software for them, you need to demonstrate a strong level of resilience. They need to be very confident you are going to be around in a few years, and having a healthy amount of cash on our balance sheets enables us to do that.
Jonathan Hall: It also enables us from time to time to cash flow certain deals. Investors who have been paying close attention to our regular results and looked at the half-year numbers will have seen our cash was down at half year because we did exactly that. We paid out around $2 million on a deal, which we did not collect the cash on until the other side of the half year. So having a healthy balance sheet enables us to show that resilience. It enables us to drive additional margin by occasionally cash flowing certain deals. But I think we have also always been consistent in that having up to GBP 5 million of cash allows us to do all those things. Beyond that, it opens up new opportunities for us. The primary thing we will always look at is how do we use that to drive growth.
Jonathan Hall: If we can find great growth opportunities, we will look to take advantage of that. But we also want to have the flexibility to return value to shareholders in other ways. A number of you would have picked up on the fact that we have already started a capital reduction process, which will give us the flexibility to either declare a dividend or buy back our own shares in the future. There are two stages for that. One is to get the shareholder approval for it, and the second is then you have got to go through a High Court approval process, which is primarily there to protect creditors to validate and complete the process before you are then able to declare a dividend.
Jonathan Hall: We have been through the first part of that. You would probably have seen we had a general meeting of the company about 2 weeks ago. Pleased to say we had 99.8% of shareholders of the company approving that process. We are now in the process of preparing the documents we need to for the High Court process. We will finish that process, I suspect, around the end of the calendar year. So we will go into FY, go into 2027 as a calendar year with the flexibility to look at those different ways we can deliver value back to shareholders.
Jonathan Hall: That is all I was going to do from the financial side.
Phil Higgins: Thank you, John. Just some of the key drivers as to where we are today. Obviously, you have seen the results, you have seen the numbers. But where are we going? Obviously, there are two phases to what we are looking at. One is obviously continue with our organic growth. Our sector is growing, and that is contributing well, and we are very much in that space. We have been successful with our public sector, and we have now got a significantly greater offering inside our G-Cloud 15 with the government. We are responding to more bids. We are using our own AI internally to get more throughput from the teams. We are being more efficient. We are not using AI to reduce the headcount. We are using AI to actually increase our output.
Phil Higgins: So hopefully we are going to get more bang for our buck. With that, we do see a good growth opportunity inside the public sector. We have also got quantum on the horizon. We have been talking about quantum now for a good three or four years. Now we are starting to see new technologies come available. We have already got two in our kit bag that we are working with. One of them is around, obviously, front-end security and the other is around data security.
Phil Higgins: The quantum computing isn't necessarily publicly available at the moment, but obviously there are nation-states that do have it, and there will come a time when it becomes more of headline news, and we are all going to have to respond differently to how we do things today. Until then, we are obviously working with our large corporate clients to actually bring to their attention our capabilities and the technologies we have got today. They are in discussion. Data Discovery, obviously, with the compliance rules, they are only getting tighter. The more bad actors that steal our data, the more we have to respond to it. The more regulation comes in, the more fines and penalties will be bestowed upon large corporates. So we are in that space with our own proprietary software, and we intend to build on that.
Phil Higgins: We have our Data Discovery, but also we have got our data access management as well to validate who is touching data, who is moving the data, and those control mechanisms are going to be a key significant part of what we do moving forward. Data sovereignty. Who owns it? Where does it sit? These are all the things we need to know now as individuals, and the governments are making sure of it. So, with some of the technologies we have got, it helps control that data sovereignty, who owns it, where it sits. You have got the UK data laws, you have got the European data laws, the American data laws.
Phil Higgins: Even in Europe, you have still got certain principalities that are insisting on the higher level of data control, and we are addressing those needs and wants with a very diverse set of technologies. A lot of our blue-chip customers, they are international by nature, so we are very used to actually dealing with not just the laws and the systems of the UK, but further afield. We will continue to develop that. It is all going to be around the data, who sees it? Who touches it? How do you secure it? How do you audit it? How do you make sure it doesn't get in the hands of the bad people? That is what we are all about. That is on the organic side. So we are going to carry on doing that, but what is actually going to help us accelerate really quickly is obviously inorganic target acquisitions. We are looking for organizations.
Phil Higgins: When you consider if you are buying a software company with 20 years experience, with a developed client base, developed a product set, they are expensive. As John mentioned about our cash position at the moment, we want to bring best value to the shareholders. It does give us choice, but what we are looking for is to obviously inorganic growth. I imagine there is quite a few opportunities coming available at the moment in the market space. I imagine, for us, focusing around the services sector would be a key priority for client acquisition and actually seeing the company grow that way. It is on the agenda again. We are now in a good position and we have got a very strong footing, and we can see a pathway through over the next few years of how do we actually get to that GBP 100 million target.
Phil Higgins: Coming back to the executive summary. Hopefully from today's presentation, you can see obviously there is a major opportunity in the market sector. We are a company with proven ability. We have got awards to our name. We have built our individual brands over the last 20 years. They are recognized in the market space, and they are used by large global organizations today. The relationships with some of these customers extend back north of 20 years. I am pleased to say that the type of market space that we sit in, we are seeing a lot of repeat and expansion inside in those clients. The last couple of years, we have delivered strong growth, and we are feeling confident about FY27. We have already announced a couple of large deals. Obviously, we are presenting ourselves on G-Cloud 15. We have also won a recent deal which we published on the RNS.
Phil Higgins: We are feeling confident about our growth in the government as well as our major corporate banks and telcos. We have got a good, strong financial position, zero borrowing. We have got good balance sheet. We will continue to use our cash to help fund and drive some of the larger deals. We need to make sure that we can stay in the game, and we appear and we act financially robust with that. At the same time, the reason that John has been doing his recent work is obviously to free up some capital to see how we can best return some value back to the shareholders. Inorganic growth is on the agenda. We are not just going to be buying anything.
Phil Higgins: We are only going to be buying something which is accretive, and they are actually going to add value to the organization, and something that we can actually show good value and good synergy to our shareholders. That is all going to hopefully give our shareholders back the value that they have been searching for over the last few years, both in the growth of the company from the top line and its EBITDA position, and also with expansion by acquisition as well.
Phil Higgins: With that, I would just like to thank you for listening today, and I would just like to pass back to control.
Operator: That's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab situated on the right-hand corner of your screen. As you can see, we have received a number of questions. If I may just start off with the first question here, which reads as follows. Where do you see growth within the company coming from in the next 12 months?
Phil Higgins: Okay. Growth, obviously, we're seeing a lot of investment being made at the moment in basic email security from our financial institutions. We're also seeing packet and forensic monitoring in our telcos. At the end of the day, they're all having to invest. The larger the firms, obviously the bigger the numbers, and we're seeing that in some of the RNSs we're releasing at the moment. We're also seeing a lot of threat intelligence requirements coming through. This is information from the dark web. That's all being coupled with one of the challenges is not having the resources available with our client base. For us, we're actually selling those services as well. It's not just a product and solution.
Phil Higgins: We're wrapping those in services, and that's where we're seeing the majority of our major growth coming from all sectors, government, telco, and finance that we operate in.
Operator: That's great. Just turning here to the next question. I consider share buybacks reduce liquidity in small caps. Therefore, I prefer a dividend. What are the views of the board and your Nomad?
Jonathan Hall: Shall I pick that up? First thing, I guess, to address there is why would we consider a share buyback. Historically, we are sometimes seeing some quite big fluctuations in the share price off the back of some very small volumes in trading. If we go back to even the very tail end of last financial year, back in May, June, some of those sales were happening at share prices around 35p, 40p, which we felt fundamentally undervalued the company. If we do go down the share buyback route, it is not going to be a significant proportion of the company's cash. We are not using it as a route to take a load of shareholders out of the market.
Jonathan Hall: It would be used as a route just to smooth some of those fluctuations, which can be distracting for shareholders and create a slightly artificial picture of how the company is doing just because someone suddenly dropped some shares on the market on a particular day. That would be the logic if we had a share buyback. It would not be of huge scale. In instances where the board sets the dividend is the one that would be more attractive to shareholders. We have not formally approved that as a board policy yet. As we clear the way and go through the process, the board will then formalize our decision on that front. We do not have, I guess, a policy to announce on that front yet. What I can say is obviously there is quite a bit of work to do to go through a process like that.
Jonathan Hall: We have been through a general meeting. I have now got to prepare some analysis and there are witness statements to take to the High Court. We have got to get a barrister to go through that process with us to submit the application. It is not something you would do if, just on the off chance you might want to do something at a point in the future. Hopefully that positions where without quoting a board policy that does not exist yet, it probably gives you a flavor of what we are thinking on those fronts.
Operator: That is great. Just moving on. As threat actors increasingly leverage AI to automate and scale sophisticated attacks, and with quantum computing on the horizon threatening traditional encryption standards, how are you evolving your proprietary software, such as your identity access management and Data Discovery tools, and managed services portfolio to help blue-chip and public sectors clients future-proof their cyber resilience against these next-generation risks?
Phil Higgins: Well, that's a big question. We've been talking about quantum now for a while. It's on the agenda with our software division. When quantum becomes available, the world's going to change, if we believe what people are saying about it. A lot of those old traditional methods probably won't be used anymore. They will change. That's right across the board, and that's from Microsoft all the way down. What we will see is, we are reviewing that space. We are working with our customers as well, and we do have a couple of technologies where we're defending from quantum at the front door, but also in data management in terms of where it's stored and how it's stored. We're looking at those sorts of things in terms of identity access management and Data Discovery.
Phil Higgins: Data Discovery and some of those things will sit behind those security fences, and they will sit inside the network. As long as we've got a good, strong perimeter, then we'll have more capability to actually still use some of those identity access management components inside our networks. IAM does need to evolve, and the answers to that yet are not available, to be honest with you. They're being worked on, and the people that have been working in this space now for the last 25-odd years, they're the guys who are leading this conversation inside our organization. We will be coming back once we're ready. We're still a few years away before quantum's out there. Rest assured, it's on our agenda and it's being worked on at the moment.
Operator: Thank you. Just then turning to the next question. Going to all the effort to generate distributable reserves and then not declaring a small dividend or declaring a buyback today seems like a massive own goal. What is the thinking behind this?
Jonathan Hall: That's probably one for me. The process to completing that transfer of reserves has to go through two stages. I think I touched on this. We've been through the first half of that, was to get the shareholder approval. We've now got to go to the High Court to ratify that. We then file that High Court decision at Companies House, which completes the process. Once that is done, we're in a position to then announce. That's something that, depending on how long it takes us to get a court appointment, will either happen just this side or just the other side of the new year. Essentially from the start of FY27, we'll be in a position to advise on that front.
Operator: Thank you. Just moving on.
Jonathan Hall: Sorry. Calendar year 2027, sorry.
Operator: Congratulations on a fantastic year. I am a fairly new investor. Can you help me understand your position in the market? Are you in competition against much larger businesses, or would you say you are the market leader in your niche?
Phil Higgins: Well, I do not like using the word or the phrase market leader. The market evolves too quickly for us to be a market leader. What we are is we sit at the top of the triangle, and we invest time and effort in new technologies and leading-edge technologies. We work with some very large banks and telcos where we do share thoughts and ideas with them. We do review technologies with them, and we do bring on new technologies because of them. In terms of our competition, we all know the names, the WWTs, the Computacenters, the SCCs. Some of those are actually clients of ours. Others are also We do go toe to toe with them, big global organizations. Some of them move at glacier speed, where we are more nimble, we are more agile, and we can actually respond because we are bringing new technologies to the table.
Phil Higgins: Our client base and the people that we talk to are very interested in having a meeting with us. Some of the big broadliners, they are talking about the same things that their competition are talking about on a daily basis. We try and move ourselves out of that space. We only sell good, strong technologies with good, strong double-digit opportunities, with good repeatability, and that is what you see in some of our own RNSs. Those deals are multi-years with blue chips, and we have beaten global organizations to them, both in domestic capability and internationally. That has also expanded into the government as well. We are going toe-to-toe with the largest companies, and we are winning in our area, which is a niche area. As for market leader, that continues to be evolving, but we are up there and we are winning the deals.
Operator: That is great. The company still has large contracts as the backbone of sales, which makes working capital flows particularly large for a company of this size. What was the max, minimum, and average cash balance during the year, and how do you expect these cash figures to develop in the current year?
Jonathan Hall: Shall I pick that up? Because you are right, it fluctuates a lot, and there are days when you look at the cash balance and you feel incredibly wealthy. If we collect on one of those major contracts where let us say we are invoicing GBP 4 or GBP 5 million a year, and we are collecting that in advance of paying it out, there have been days when I look at the cash balance at over GBP 10 million and I am thinking we are in an incredibly luxurious position. You have got to pay the supplier who supplies all the software and hardware as part of those deals. There are big fluctuations. I would say typically, you have seen us start a year with around GBP 5 million. I think in the previous year, we started somewhere around similar level. The cash will drop to its lowest underlying level, typically around the H2.
Jonathan Hall: I think had we not been sort of cash flowing a particular deal at the H2, this year would have been at around GBP 3.7 million. It tends to get to a high point, often around the end of the financial year, sometimes just after in the case of this financial year, because we had not collected on that one major deal. Typically, the end of the year would be a stronger period for us because our busiest period historically is in around the end of what is now our Q3, in around March kind of time. It is one of the reasons, the main reason we moved our financial year end was to take it out of that kind of peak.
Jonathan Hall: On an underlying basis, we would probably average somewhere around GBP 4 million through the year, historically, with a low point around H1 and a high point at the period end. It is really hard to say what the high and low points are within that, because they are so contract specific to when particular deals are landed and when particular suppliers get paid. As a general trend, you will continue to see those sort of fluctuations up and down, but you should see the overall level of cash steadily rising year on year. Fluctuations around are sort of, I guess, an ever-increasing underlying level.
Operator: That is great. The next question we have got here reads: Shearwater has consistently demonstrated top-line growth and healthy cash generation. Yet statutory pre-tax profitability has historically been eroded by exceptional restructuring charges, impairments, and high amortization. Moving into FY27, what specific operational milestones must be crossed to ensure that top-line revenue growth reliably flows through to statutory net profit, rather than being absorbed by these reoccurring below-the-line items?
Jonathan Hall: Feels like an accounting question, which is probably me again. I think firstly, part of that will come with just scale because if we strip out the exceptionals, which I will come back to, a lot of those things are relatively constant. The depreciation amortization we look at probably more meaningfully is the depreciation and amortization on the spend we are making on our product, which is somewhere around GBP 1 million a year, just over at the moment. That will come down slightly. As I think I have touched on, we are going to slightly reduce the rate of investment in some of the new products because we understand where our core product can win, and we have been through a relatively intense phase.
Jonathan Hall: That will start to come down slowly, but inevitably with depreciation and amortization, if you reduce spend now, it takes a few years before you get the full effect of that. We are not expecting significant exceptional items in future years. Last year, we had a big number, which again, it was a non-cash item on impairment. A little bit of that, the answer to that will depend on where the growth comes from and where the success comes from year on year. We feel like there are no impairments this year because we tried to do a proper job on clearing books this year.
Jonathan Hall: We did feel it was the right thing to do in the performance of the software business to do a restructuring towards the end of this year to position us for success going forward. We are not anticipating that being a recurring year-on-year item that shareholders would have to get used to seeing. I think a combination of the depreciation and amortization are non-cash items. They take a while to clear. We have actually reduced our level of CapEx, so in terms of how quickly it translates to cash, that will improve.
Jonathan Hall: The amortization, I guess, attached to the historic acquisitions, it exists and it will flow through slowly, but it also needs to be taken with a pinch of salt into how much that is genuinely impacting on our underlying trading performance. As I say, I do not think we are going to see consistently high levels of exceptional items year on year. We have tried to, I guess, clear the decks to set ourselves up for consistent growth and improvement in that bottom line performance going forward.
Operator: That is great. The next question we have got here reads: How should we expect to see gross margins develop in future years? Obviously, gross margins in the teens suggest reselling remains of the bulk of the company's activities, but a shift to higher margin activities would be transformational for the company.
Phil Higgins: Totally agree with you. Maybe I can answer part of that. What obviously we are doing is developing more of our own in-house services. As the technology product set and solution set narrows, our clients are looking for, there is too much product sprawl, and they are looking for fewer products to do more. They do not necessarily have the resources, so we are obviously lining up our resources, and we are growing out our engineering and our consulting side to actually meet that demand. What we are seeing is a lot more opportunity for good, strong, reliable, long-term contracts where we are actually delivering more service value inside the solution itself.
Phil Higgins: The problem when you are delivering to large corporates is they want to do it themselves. But now, because of some of the complexity, they need to outsource certain functions, and we are getting involved in those. We have got a number of contracts today, and some of those are extending and expanding, and we are hoping to actually see more of those come through. We are also using more AI, as I mentioned previously. We are getting more throughput, so we are getting more done with the same amount of people. And once again, we are expecting to see big growth opportunities from that. And obviously, John has been good at keeping the efficiencies inside the company. Obviously, we have to look at inflation and the impact it has on our staff, and we have to address those needs and spend money there.
Phil Higgins: But we are doing, obviously, very cautiously, and what we are doing is making sure that our investments internally are adding value to the business and to the shareholders. So, we are very much focused on, obviously, margin growth and making sure that our solution mix is right. Should any of those solutions not be strategic, then they will get cut. If there is inefficiencies inside the business, they will get addressed. So that is what we have been doing over the last few years, and that is what we will continue to do.
Operator: That is great. Then the final question we have got here reads, given your recent G-Cloud 15 expansion and the new GBP 1.7 million central government win, how well-positioned is Shearwater to capture a larger share of upcoming public sector defense and critical infrastructure spending over the next year?
Phil Higgins: Well, I think there is a lot of departments, I think you have seen it on the news, where they are all complaining because the government is not spending the money at the moment. But the areas in where they are spending it, and they see the bigger threats, is in security. Obviously, we are well positioned. We have got north of 50 solutions and services in G-Cloud 15, up from 31 from G-Cloud 14. We are using AI to get through. If we get delivered an inch worth of paperwork, which we then got to digest. Before, it was a team of people who would have to read it in three or four times. It would take a week to review it, then a week to respond to it, and then we would have to wait months for it to come through. Now, what we are seeing is that we can ingest this paperwork very quickly.
Phil Higgins: Within 30 seconds, we know if we are going to bid it or not. Then we can start actually with preparing our response for it. Once again, we are using AI on this. So with our own homegrown technologies and services and solutions, it is great. We have also got our partners there, where we are representing their technologies. So we are not just advertising our name inside G-Cloud, we are also advertising the name of our technology vendor partners. So any opportunities that come through for them, there is an opportunity for that to flow through us. So we have got a very big net. So we do expect to see some good growth out of central and local government through the G-Cloud 15 platform. It was good for us the last time, and we are expecting to see growth on it this year as well.
Operator: That is great. Thank you for answering those questions you have from investors. Of course, the company can review all questions submitted today, and we will publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Phil, could I please just ask you for some closing comments?
Phil Higgins: Certainly. First of all, I would just like to thank the shareholders for their patience, and hopefully that you can see the journey that we have come from and where we are going. The market is growing at phenomenal rate. We are growing as well. You can see it in our numbers. We got a good team. We got a good, strong board now. We got a new chairman in who is very pro-growth, and he is assisting us. We are very active, and we have got a great leadership team. So the company itself is in very good position. Moving forward, FY27, we started off well. We are confident. We are on target. Obviously, we have got great opportunities in front of us, and we are hoping that in the future, we will be able to bring some of those stories in an RNS to you so you can be able to gauge our performance today.
Phil Higgins: With that, I would just like to thank you all for taking the time today to come and listen to us.
Operator: That's great. Thank you for updating investors today. So I please ask investors not to close the 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 may take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation and good morning to you all.
