Bytes Technology Group plc

Good morning everyone and welcome to the bikes technology group H1 interim results update. Where we will consider our results up until 31st of August of this year, so it's half one results. Before we do this, let me just take you through the running order of today's update. And just to remind any analysts and investors on the call that we've got a Q&A tab on the screen you'll have in front of you. And you can put your questions on there and we'll answer those at the end of the presentation. Okay. So many of you know me, and for many of you who know the Bytes story, I'm the CEO and I've been working at Bytes now for 25 years. I'm pleased to still be going pretty strongly. I'll be sharing today's duties with Andrew, our CFO. And I've got here in brackets in my script, it says, he's only one bad haircut away from being a Boris Johnson lookalike, close brackets. So there's a bit of jesting first thing in the morning. I'll take you through the high level performance and overview before Andrew goes into a bit more detail on the financial results for the period under review. I'll then take a bit of time to remind the audience of our strategic imperatives. Followed by a summary of the half and then give you an outlook on the remainder of the financial year, which I know will be great for all of you. So let's just get into the meat and veg of this presentation. If I was to pick one word to describe this slide, I'd probably use the word continuity. At IPO almost two years ago, we talked about our commitment to delivering year on year double digit growth and what we're presenting today is a continuation of that theme. This performance reflects robust demand from both corporate and public sectors, with our customers showing continued appetite to invest in their IT requirements, despite the macroeconomic environment. A key reason for these results can be traced to the high-quality customer service that sits at the center of our business and makes us so competitive in our markets. And for this, I'd like to extend my thanks to the people at Bytes who do an outstanding job supporting our clients. But let's just spend a few moments and go through the headlines on the slide. I'm especially pleased with the continued strong double digit growth in grossed invoiced income or gross sales is another way of describing it. This reflects the very strong sales engine that we have built up in the group over the years. And just to put this into context and to illustrate our recent years growth, these half year sales at 786 million are delivered in just six years. But in the entire financial year to February 2020, which is just two and a half years ago, we did 722 million. So we've grown the sales engine quite considerably in just a very short period of time. Our almost 24% growth in gross profit reflects the quality of the work we do with our customers and indicates a healthy demand for our products and services. And it also further supports our decade-long double-digit CAGR track record. Obviously we delighted to report AOP up by 19.2%. It's a very pleasing number. It is below our GDP growth and that's due to the increased costs in the past year, which Andrew will talk about in his section. But it's an indication also of the continued investment we're making in the company and our people. Earnings per share up at 17.7% reflects another good year of organic profit growth for the group. Our AOP to GP ratio at 45.5% is a metric that reflects the efficiency of the business in terms of the efficiency model that we have in our operation and our ability to convert gross profits into adjusted operating profits. Whilst I often talk about the simplicity of our business, it's fair to say that our accountancy friends like to complicate things. And so the revenue number in our case is a good example of this added complexity. And it reflects the accounting principles of British 15. Again, Andrew is going to touch upon that a bit later. For businesses like Byte, GII is a much more relevant metric to measure our sales performance by rather than revenue, and we're happy to take questions about that at the end. Although you'll see in Andrew's section that our cash conversion is lower than the comparative period last year, in previous years to that, H1 has typically been a low-performing cash conversion half for the company. If I go back to it was very, very low in both of those years of 47% and no percent. There's not an uncommon thing for the company to have a difficult first half and cash conversion. It always makes it up. Makes great. Progress in the second half. So as a consequence of that, I'm pleased to announce a 20% increase in the interim dividend of 2.4 pence per share, which will be paid in early December. Now moving on to the how we move on to the how element of our success this last six months. This slide is really about our key stakeholders, employees, customers and vendors. It's fair to say that much of our success in this half is comes from the work we've done over many years and we continue to build upon these foundations. Our simple strategy in business has taken many years of investment and planning, and we believe we have a formula which works and is based upon these three core components. However, we will never be complacent, and we will keep a continual watchful eye on every moving part of these three pillars. Sustainability and continuity in these areas drive long-term value and growth. When it comes to employees, left-hand side, I'm often asked, how many people work at Bites? And I jokingly reply, about half of them. This is quite a well-known joke in the organisation, but of course, it's not true. It's probably more like two-thirds. But anyway, when we report our group employee MPS result at year end, I'm confident of continued good news in terms of staff satisfaction. We've increased our headcount by 13% this year as we continue to invest in the business and to build for future growth. We actively encourage a culture with a growth mindset, and in fact most of our staff advice have only ever known the business deliver double digit growth. small steps every day has allowed us to add 300 new customers as net new logos in our business in h1 with around 5 000 customers now in our portfolio and at the same time we have a gross profit renewal rate of 120 percent from a like-for-like customer set in the corresponding prior period the focus on customers is relentless And to help us with this focus, we ask ourselves various questions such as, are we meeting our customers' needs consistently? What's going on with our clients and our clients' clients? What impact is the energy crisis having on our customers? What about the inflation and interest rates? What about supply chain woes, logistics issues, continued COVID lockdown in China, etc., etc.? How are these things affecting our customers? that to better understand our clients, we must put ourselves in their shoes as customer service is at the core of our business philosophy. Again, we will report our group NPS for customer satisfaction at the end of the year, and I'm confident we'll be pleased with the outcome. I'm grateful also to our clients for their continued confidence in us as a value-added part of their own ecosystem of partners. And as far as our vendors are concerned, we continue to work with the world's biggest and best to provide our customers with first-class IT solutions. And in recognition of the strength of our partnerships, we won the Microsoft Worldwide Award for Operational Excellence. This was awarded to us in July just a few months ago, where we were selected from over 3,900 Microsoft partners globally. This is no average award. Microsoft said at the time, this achievement highlights your truly exceptional work in delivering solutions built on the Microsoft Cloud and platforms. Solutions that positively impact our mutual customers across the globe. Many other awards from vendors such as Minecast, Darktrace, Checkpoint, Barracuda, and Dell demonstrate our capability and strength of relationships with vendors. who see us as an integral part of their go-to-market channel. Moving on to the next slide, our high-quality customer service is at the center of our business. The holy grail of customer service is often defined by the willingness of customers to keep coming back to you. We've worked hard at this element of our business over many years so that we've become a trusted advisor to our clients. This is an iterative process. But once again, culture is at the heart of this. We believe we have built an organization that is a fun place to work where people can build a successful career and also build great friendships. We have an environment that is collaborative and teams-based, supported by highly experienced management teams where staff take responsibility for their actions and also take great pride in their work. It takes multiple activities and endeavours to get the right culture, but this includes elementary items like enrolling as many staff as possible into the company share-save scheme, where over 58% are now enrolled. These people now feel invested, both from a financial perspective and, of course, emotionally. Directors and managers are very conscious that the word care is a vital component of management currency. These efforts have recently been recognized with both operations in the business becoming certified as great places to work in 2022. Investing in the future by recruiting more people in order to scale the business to take advantage of the strong market opportunity is, of course, nothing new for Bytes. That's why in the past six months we've increased our headcount by 13%. and expanded our customer-facing headcount with 40 new technical people and more sales staff to ensure we continue to grow at double digits. We're confident that these additional costs will pay off in the medium and long term, just as they have done in recent years. We've also invested in skills development and training. We sincerely believe that by investing in our people, we are indirectly investing in our customers. This is significant because it helps us build long term sustainable customer relationships. As a sales driven business, 53% of staff are involved in customer facing roles and we will continue to build our sales engine through the rest of this financial year and further invest in our high performance and high reward sales culture. Our highly focused sales engine concentrates on where to play and how to win. I like to think of them as consultative salespeople, but with a degree of coin operation. Some of them, I must confess, are like Labradors who want the quickest and easiest meal. But like a pet dog, they are loyal and we have lost only one of our top 50 sellers in the last six and a half years. This is very significant for our business and is integral to our customer longevity story. And that's a lot of the fluffy stuff, but very important stuff. And I'm now going to turn to Andrew's section so that Andrew can cover the first half of the financial year at a financial overview. Thanks, Andrew.

Thanks a lot, Neil. And as Neil introduced me, I was... One bad haircut away from Boris Johnson. I'll remember that to keep the same hairdresser I've got. So straight on to the income statement. We can see our gross income is up $148 million to $786 million, which is a growth of just over 23%. And in Lionel's prior years, our sale of software solutions makes up most of our sales at 94%, with the sale of hardware and services coming in at 2.4% and 3.5% respectively. Our public sector grew by 20% from 416 to 500 million pounds, and this equates to 64% of our total GII, with a balance of 36% or 286 million pounds coming out of the corporate sector. This in turn equates to a 29% growth. As far as revenue concerned, our judgment around the way we recognize revenue has been updated since we published our full year results at the end of February 2022. This updated judgment is in line with our peer group in both the UK and the rest of Europe. In the past, we've seen ourselves as an agent when selling cloud solutions and security solutions, as well as some externally delivered services. In the period under review, we have changed this judgment to recognize all software sales and all externally delivered services as agent that is on a net basis. So where we only recognize the gross profit as the revenue. We have restated the prior year in line with this change. Our gross profit, which for us is one of the best measures of the company's performance, is up 23.8% to £65.5 million, and this in turn gives us a GP to GRI ratio of 8.3%, which is in line with the performance of the first half of the prior year. For the full year of 2022, this ratio reflected 8.9%, and at first glance, it would seem that we continue to face margin contraction. However, in the first half of our year, we see the majority of our lower margin public sector business, while the second half is dominated by a higher margin corporate market. In contrast, Our gross invoice income ratios, we see most of our profit coming from our corporate sector, and the sector grew at 22% to £41.3 million, representing 63% of our total gross profit, whilst the gross profit from our public sector grew 28% to represent £24.2 million. From an administrative cost point of view, we have a growth of 28.6%. And to get a clearer view of these costs, we need to break it down a little bit further. And so if we look at employee costs, which make up 78% of our total cost base, this grew at 19.8% to 29.7 million. And if we were to exclude share-based payments, this increase was 17.6%, which is notably lower than that of the 23.8% growth in gross profit. During the reporting period, we've seen total staff numbers increase from 773 to 871, and this equates to 13%, which is sort of the underlying reason why our remuneration cost has grown. The rest of our administration costs increased by £3.6 million to £8.5 million, and these included several staff-related costs such as welfare, entertainment, recruitment and so on. As predicted in the prior reporting period, our travel and entertainment costs have not reverted back to pre-lockdown levels, but have increased compared to those experienced in the corresponding period in H1 last year by £0.3 million. Also in line with our ageing debtor profile, in our debtors book, we've increased our doubtful debt provision by £1.15 million, which is included in the £3.5 million increase in administrative costs. This means that adjusted operating profit, which excludes AMORT and other acquired intangibles and share-based payments, is up 19.2% to £29.8 million, And at half-year, our efficiency ratio of just operating profit divided by gross profit is 45.5%, slightly down from the 47.3% in the prior period. So moving on to the balance sheet. And focusing on three key messages. Firstly, we continue to be a lot from a capital nature. We own our own buildings, the bigger buildings in Leatherhead and York, and with the smaller premises in Reading and Manchester are either leased or are shared office spaces. We have no intention of changing this model and prefer the flexibility of shared environments as we continue to look at expanding up the print to match opportunities, whether it be in the customer base or the skills base. From an IT and application perspective, all our contract management modules, cloud management platforms, software and asset management capabilities are all developed in-house with our own resources and in line with priority as we continue to expense these costs. If we spend a little bit more time on receivables and payables, and as Neil alluded to in his opening remarks, the cash balances of the first half show we've converted none of our operational profits into actual cash. So trade receivables increased from £102 million to £177 million, partly due to the increased trade, but mostly due to our average debtors' days increasing from 32 days to 38 days from the comparable period. Some of the positive attributes of the cloud include flexibility and agility. However, the downside of these positives are often complex and variable invoices, resulting in queries and different approval processes that in turn delay our payment processes. Trade payables also increased from £150 million to £199 million on the back of increased trading. Average creditor days are consistent with prior years and always. We continue to ensure that we remain within contract terms for all our partners and vendors. The last comment on the slide is around cash, and given the size of our monthly collections and patents, even a small movement of a few days would surely affect this number. We end the reporting period with cash of £35.8 million, which means a negative cash conversion for the first half. The group continues to target a sustainable cash conversion of over 100% over the longer period, and management are confident that we've returned to higher levels of H2 this year. So onto the cash flow. If we look at the cash generated from operations we've gone through, so I'd just like to spend a little bit of time around the trade receivables and more time around the trade payables. So we've already gone through the trade receivables of 30 million, and that represents, well, 30 million out of the 30.6 million pounds that we've absorbed into working capital. The balance of 18 million pounds are more cyclic in nature, include statutory, so i.e. VAT and bonus payments. And we've had a slight increase reduction in receipts in advance, and then our trade payables as such is also reduced by $8 million. So that makes up the $18 million that we've absorbed into working capital via the trade payables. We are currently and we are still in debt-free. We do have access to a revolving credit facility of 40 million pounds, which we have not utilized at all. However, the setup and maintenance cost of this facility is reflected as interest paid of 200,000 pounds for the half year. We've been asked before how much cash we need to keep in the balance sheet, and the answer is currently around the 40 million pound mark. as holding this amount of cash will enable us to navigate the monthly movements in working capital and ensure that we remain in a position to pay all our liabilities when they fall due. The factors that influence this cash flow include cash conversion and the planned reduction in our debt facilities. And as management are confident that we will return to higher cash conversion rate, only the revolving credit facility will alter the amount of cash that we need to hold. Onto the last side of my section, and our dividend policy is to return 40% of our post-tax adjusted operating profits to shareholders via ordinary dividends. I'm therefore pleased to announce that our board has approved an interim dividend of 2.4 pence per share, which is 20% up in the prior period of 2 pence per share. So with that, I'm going to hand back to Neil to cover that outlook. Thanks.

Typical user error. I was on mute so apologies for that and that'll teach me to play around with the mouse whilst Andrew's talking. So anyway, thank you Andrew for that. I'm going to talk about our ESG roadmap and also an update on the strategy before I go on to the outlook and summary. So just slight technical hitch there. But I think we're back to normal now. Apologies for that. All the best movies have technical hitches during the production process, I'm told. So as a business, we can't stand still. And so our biggest challenge really is how to transform the business whilst also running the business. And for us, transform means tiny incremental changes on a constant basis. A gradual measured transition over multiple years. So when we look back and join up the dots, we can see what we have achieved and how we've achieved it. When we do this at bytes, we see a pattern and a formula which is repeatable and which has longevity. You could describe it as more of the same and you would not be wrong. Small steps every day has allowed us to add 300 new customers as net new logos into the business in H1. Our organic growth continues to be at the heart of our business and our simple but repeatable strategy of expanding our customer base and increasing wallet share is a familiar story. We'll continue to pursue the simple but repeatable strategic goals by increasing the size of our sales engine with more feet on the street covering more ground and addressing the massive opportunity in our total addressable market. We'll be creating more regional sales capability across the UK and Ireland. We'll be collaborating with high growth vendors to harvest the maximum opportunity to help clients adopt the very latest technology. We'll be increasing share of wallet because we have low single digit market share and so we have plenty to go after. And we will be reporting on customer GP growth at the end of the financial year when we have a full 12 months of measurement. Whilst we focus on our organic growth, we always maintain the option of M&A to complement our future growth potential. There is opportunity for accretive growth in adjacent technology areas or other geographies. We always keep this under review, as you know, but we're extremely happy with our organic growth focus, and that continues to be the core focus of our strategic growth going forward. I would like to turn to the subject of sustainability in ESG. Let's start with the E as much talk about this, but let me give you an update on the subset of some of these very important topics and what we're doing about them here at BITES. We're progressing our environmental targets under our low carbon action plan. And while given the very nature of our business, our carbon footprint is relatively small. Reducing this further nevertheless remains a really key focus for the group. We've continued with our actions around scope one and two reductions, and we're engaging with our supply chain around scope three emissions reductions as well. As the initiatives under our low carbon action plan develop, we'll be partnering with environmental specialists to work with us in driving our net zero goals. And as part of this, we aim to align our plans with the science based targets initiative to ensure that these have maximum beneficial impact on the environment. Secondly, our carbon disclosure project. In H1, we completed our first CDP submission as a listed group. We view this as another important platform through which we are able to disclose to stakeholders the positive work we do around managing our environmental impact, and we're going to continue to mature our reporting in this regard. And finally, on the environmental points, in line with regulation, the start of this year was the first instance where we produced our TCFD, or Task Force on Climate-Related Financial Disclosures, report. We support the broader adoption of TCFD reporting, as we believe it will accelerate business efforts towards the net zero future we all strive for. As such, we follow the TCFD recommendations closely. And as our progress in this regard develops, I've identified areas for additional disclosure which is being attended to. Let's just look at the S. So hereby it's, you know, countless actions and activities were undertaken by staff to provide social and environmental support and charitable work. I never fail to be amazed at how much our staff do for good causes and for people in need. We supported dozens of charities and staff continue to donate a day per year to good causes. whilst the company once again continues to contribute up to 1% of post-tax profits to charities and good causes. In our last annual report, we highlighted our own Women in IT initiative, where the group takes positive steps to recruit, promote and retain more women in the business by offering a more structured succession planning and development programme. Both operations join together to form Women in Technology, It's a group which provides mentorship and buddying to female colleagues across our entire operation. And then finally, under S and social and in supporting staff through mental health and other well-being initiatives, we're further emphasising that care is the new currency of leadership and is an important part of our overall business philosophy. Then from a governance perspective, we continue to strengthen all components of our regulatory and framework obligations, and we continue to keep close supervision on risk management across our operations and very and are very pleased with the progress we have made across all of our operations. Now I'll turn to the summary slide. We've got another very positive start to the year with strong double digit growth in high teens or early 20s percentages in all our important financial metrics and all of it is entirely organic growth. Our customers in both the public sector and private sector continue investing software and services that we provide and we still see strong sector tailwinds in cyber security, hybrid data center and crowd based IT solutions. Much of this is provided by bytes by way of annuity type contracts, providing repeatable business for our group. We've continued to invest in the business, its people and the culture so that we can do just more of the same and scale up our operation to continue our medium and long term growth. Now let's just turn to the outlook as we complete the presentation this morning. With almost two months of H2 now under our belt, we've seen a continued momentum in our business across private and public sector verticals with demand across our entire range of products and services. Post COVID new ways of working are here to stay. We believe we are now operating in the new normal and our business, frankly, is thriving in this environment. We continue to be well-placed to capitalize on the demand for software services and IT solutions in a market where we have low single-digit market share. We continue to work in close partnership with the world's most successful IT vendors to grow our business. Yes, there is an uncertain economic and political landscape today. Business will not be without its challenges. We remain vigilant and will certainly not be complacent. but we remain confident that we will continue to deliver double-digit gains in line with our strategy. So that concludes today's presentation. You'll find further notes on the system on the screen for your benefit, and you also have other sources of material. But let's just turn to the questions in our Q&A box. Question one, I think, Andrew, is probably focused towards yourself. A question about cash flow from Alex Neugen.

So, hi, thanks, Neil. So, Alex, I answered some of the questions, but if we look at the question around how we recognize subscription contracts, so typically subscription contracts are, we have two elements of it, customers, almost commit to their annual spend, but they get billed monthly. And then it is still a variable account. So let's say Azure and Azure consumption or AWS and AWS consumption. That would be the variable account that they receive on a monthly basis. So we only recognize as our cost is recognized. So in line with our cost expense, so it will be recognized on a monthly basis. as opposed to the old EA, which was built upfront for a year, and your cash would have come in sort of 30 days later. So that is a big change. Neil, I haven't answered the second part of the question, because it's around vendor prices for product price and FX and so on. You want to cover that off as well? So, yeah. So typically, Alex, what we have seen in the last couple of months that has created a little bit of volatility in the pound versus the dollar is that two things have happened is that the validity process or the validity period of the quotes that we've been getting from our distributors have reduced down to seven days sometimes. So they hold the dollar price or the pound price for seven days and then it will adjust. And then as far as we're able, we pass the risk of FX back into our client base. So we will give them the same sort of period of seven days. And so we hardly take a risk on the FX side. Where we do, we tend to buy in dollars and transfer in dollars straight away. So we're not overly exposed to the FX price.

Okay, then just turning to some other questions. Andrew Ripper at Liberum asks, is it possible to say how much benefit to GAR you got from the Microsoft and other vendors price increases in H1? Can't give you specific numbers, Andrew, on that other than to say we would have benefited economically from Microsoft price increases on Office during H1. They will see the full benefit of that during a full 12 month period next year because of course customers renew their contracts at different monthly stages through the course of the year and those price rises only came into effect March the 14th of this year. So you'll see partial benefit as you go through the 12 month period. But I couldn't give you numbers specifically on that. Just turning to some of the other questions from Tintin. There's another question there about cash conversion, Andrew, about corrective measures we're taking to drive down receivable days and a further question about consumption based billing. Andrew, that's question five.

Okay, so basically I'll combine it with a couple of other answers. Post the year end, we have seen an improvement in our cash collection. However, there's much work to do, and that would be internal training and maturing the customer's expectation to what's going to happen. So we would like to see our average letters days down by three or four days by the end of the year. And then on the absorption into the trade, payables and other payables, some of those are cyclic, so by the end of the year for arguments like statutory bonuses and that will recover to the previous level. So it's a bit of a two-edged sword that we are focusing on, both debtors and creditors.

And then, Andrew, another from Tintin there, a question really about a couple of things we might do if we had to flex the cost base. Should there be a significant weakening in the economy? What are the sort of two or three things we could do? What labours do we have in that regard? And how important is it to keep EBIT as a percentage of GP at circa 40%?

I think the... As I called out in my section, our remuneration costs are at about 78% of our total costs. Obviously, that would be where we would look to reduce costs if we need to. However, around A good percentage of our remuneration cost is flexible, and that flexibility relates directly to the GP. So as we see our GP either increase or decrease, that portion would automatically decrease. And then because we have a natural churn within the business and recruitment, we would slow down the recruitment or stop the recruitment, and that would give us an automatic headcount reduction over the period of time. I think it is important that we try and keep our efficiency ratios up, but efficiency ratios are also to do with scale. And so if our scale drops significantly, obviously we would expect that 40% ratio to also drop. However, there's no indications that we are struggling.

And good morning, Kevin. M plus one singer. A question really there about has progress been made I mean, as we sit here at the end of September, cash conversion was already back up 75%, so we've made a lot of progress. And Andrew and his team have implemented other measures, as you just alluded to, there to improve the cash collection thing. From a CSP perspective, billing clients on a monthly basis in the cloud, just rather than having an annual query, I guess you probably now have 12 queries as you're billing customers monthly rather than annually. And as customers have moved to that kind of billing solution, it has thrown up just a greater quantity. Kevin, which has meant we have actually, we've hired a few more people to help us resolve some of those queries and so on. I don't know if there's anything else you want to add to questions, Stephen there, Andrew, in terms of answering that one?

No, I think the sort of underlying behaviour, I don't think that we have a risk in our debtors book that is an unwillingness to pay the bills. It is just a process of answering queries, maybe having POs changed in line with the new invoice and then getting them paid. So we don't see a risk increasing over a period of time.

James from Barclays asked, how is the continued shift to subscription changing the way bytes engages with customers, including under Microsoft CSP program? And what are the opportunities and challenges from the shift? importantly there james and others microsoft have asked bytes and other large partners to deal with smaller microsoft resellers because microsoft don't want to do it themselves so as a constant we've become a sort of an omni-channel player where we're providing these monthly subscription-based software services to our direct clients but also to resellers who have their own clients so that is giving us a whole range of new opportunities to reach a broader client base through those resellers. That is also challenging, of course, because that now throws up two sets of additional administration for us in terms of dealing with invoice queries. That is the short answer. So a good business opportunity provides to expand our business, but a bit more work to do at the back end to administer it. So how large is, another one from James, how large is the CSP opportunity selling in small resellers? I guess that sort of answers that to a degree. But how sick is it compared to the corporate business we do? It is... Probably just as sticky as dealing with corporate clients because once you're engaged with that whole billing process and client engagement with a retailer with multiple partners and multiple customers, it's very difficult to untie that. So I would say, in answer to that question, that the business we have with corporate clients and with resellers probably is of an equal level of stickiness for want of a better description. And then yes, I will do that. I am trying to read out those questions before answering them. Is that a slap on the wrist for me? Question from Zain Commandant. Are there any acquisition opportunities in the UK, Europe that might fit our business? The answer is there probably are, but we don't have any on our desk at the moment. We're always on the lookout for good opportunities and they We get opportunities presented to us all the time, but we're very choosy and we're pretty risk averse when it comes to M&A. And we will only look at that if it makes sense for us at a number of different levels. Given that I said in my presentation that our organic focus is the core of our sort of strategy today. And then from a geographical focus, our focus is UK and Ireland. In answer to the earlier question. And then Andy asks, recruitment of talented and culturally matched staff has been integral to our growth. How difficult it is to find the right people, particularly in sales? Not difficult, to be honest with you. We hire people who have no experience in our market. We sheepdipped them in our operation for six months and manage them on KPIs before we let them loose on real live customers, although they do a bit of that during the training period. But we don't have a problem finding talented people. Going further up the list. Are the payment delays an early indication that customers will try to negotiate services downwards during a recession? We've seen no evidence of that, Toby. I'm pleased to say. Now James Andrew, could you elaborate on the rationale for the doubtful debtors provision increase?

Yes, it's just. It's a technical increase in the sense of under IFRS 9, what we do is you evaluate the buckets of 30, 60, 90 days and so on. So as our debtors have aged slightly and our average debtors, obviously the buckets have expanded and the percent that you're taking from that bucket as a doubtful debt gives that sort of technical increase. increase in your doubtful letters in days gone by you know you would have to assess each data on its own merits and we were to assess each data on its own merits we probably wouldn't have made the the sort of the technical adjustment and then the question 16 how are share based payments going to increase over time noting they are up more than earnings in h1 So I think James it's a good question and that's why we measure on adjusted operating profits because we are in a normal cycle that we grant shares or share options to staff they would best in a three-year cycle so we have just issued round two this year around one being June last year, around two this year. So I expect that we'll issue around three next year and then it will sort of stabilise to being replaced. So your new issue, so issue four would automatically replace the vested one and so on. So over the next year we will continue to see an increase.

And there's a question from Alex, which is really about the different types of subscription billing arrangements and the differences between those two that we talked about earlier. It's probably best, Alex, if you don't mind, if I get one of my Microsoft guys to just drop you a note on that one, because it would be quite a specific, detailed response. And then Kevin asks, can you please clarify the comment that cash conversion is now back to 75% and do you mean monthly run rates? I'll pass that over to Andrew.

Yeah, so Kevin, no, it's a year to date number. And it's, as we point out, we are sort of very, very sensitive on the days movement. So typically, we are invoicing 120 million pounds a month, and therefore our creditors would be around the sort of 100 million pounds as well a month. So if those, so those debtors days for the month moves out by, or move, or that automatically, that's 10%, right? So that gives you 10 million pounds back that you didn't have a month before. So, and then the period of the year, just take our AOP for the half year at 29. So that 20, the 10 million movement that I've just used as an example, would change your cash conversion by 33%, just the three days. And likewise on the accredited days, if those move out three days or 10%, that would automatically give you another 30 odd percent on your cash conversion for the year to date.

And that really supports the statement earlier when we said the cash conversion in H2 is always much stronger than H1 traditionally. And then David Beggs asked the question, Andrew, have your expectations for average salary inflation this year changed from the 5% mentioned in the annual report?

So, David, we have seen, we obviously, we granted the salary increases across the broader spectrum of our staff as of the 1st of March. So that was already then a sunken cost. We have seen isolated instances of having to sort of counter bit, I guess, and particularly around the technical skills. And then some of the recruitment around the technical skills have been slightly higher than people leaving those roles. So we have seen a little bit more of a salary inflation, but we haven't had a general increase again to our staff. It's quite early for us. We would have the expectation of our staff and certainly from a management point of view is that we would review salary levels as of the 1st of March next year again. So it's very early on in the cycle to actually give you a guidance and a percentage for next year.

Thank you. Okay, there's no further questions coming through at this stage. I'd like to thank everybody for attending today's session. Hopefully we've answered all of your questions. Feel free to get through to your contacts at the various institutions should you have further information that's required. Other than that, one more coming through from Alex. We'll answer one more then and then we'll rush off to the train station to catch a train to London. Alex says how much was the annual travel cost benefit during COVID? Do you think the cost will return to normalised run rate by the end of this financial year?

Yeah, so we combine travel and entertainment costs, so those that the salespeople are typically running up and down between customers and vendors and so on. We think that it's sustainable at the current levels, and as indicated in my section of the report, that was about £300,000 higher than the prior comparative period. Obviously, H1 would... We were still very much in lockdown in FY22. H2 was more normal, and we haven't seen a substantial increase in the travel from H2 to now. So I think we've returned to our new normal, if you like.

Thank you, Andrew, or Boris. Thank you, Marie, for attending today. I look forward to speaking to some of you in the near future. Once again, thanks for your attention. Bye for now.