Bytes Technology Group plc

Good morning. I'd like to thank you for joining us for Byte's full year results presentation for the year ending February 2023. We're delighted to present another very positive set of results with strong double digit growth driven by contributions from all areas of the business. As we enter our 41st year of trading, I'm pleased to say that demand for IT across our entire customer base remains high and more on that shortly. Before we turn to the highlights, I just want to take a moment to reflect on what has been a cracking 12 months for the business. This success is built on the solid foundations we've laid over many years. It's built on long-term investments we've made in our systems, our relationships with customers, and our partnerships with the world's most successful IT vendors. And importantly, it's down to our people. Each and every member of the team who works in the business has played a crucial role. And without them, these results simply would not be possible. And I would just like to pay tribute to their passion, their commitment, and their hard work. Turning first to the headline results, as I said a moment ago, we've delivered another strong year of sales and profit growth, extending our track record of progress. Grossed invoiced income is up almost 20% at £1.44 billion, which is double the level of sales we reported this time three years ago. Looking at our other core metrics, gross profits are up by 20.7% to nearly £130 million and adjusted operating profit is up 21.8% to £56.4 million. This reflects strong demand for software, services and hardware from both our public and private sector clients. These results are also further evidence that we're continuing to grow our market share. Now, in terms of other headline figures, our AOP to GP conversion rate remains industry leading and ended up a little higher than the previous year, at 43.5%. Going forward, we think maintaining this ratio in the low 40s is sustainable. As far as cash conversion is concerned, after a very strong second half, we finished the year at 84.3%. Looking ahead, we're comfortable with delivering normalised cash conversion of above 100%. Now, for the benefit of those new to the company, I'd like to spend a few brief moments and turn to our track record of performance over the past 10 years and since IPO in December 2020. It's only when you look back and review the journey we've taken that you see the scale of the progress we have made and the consistency of our performance. The results you see today are the consequence of decades of investment in people, in systems and in culture. Layer upon layer of experience, skills, relationships, customers, contracts, projects and knowledge. We have a tried and tested business model that has stood the test of time. And our plan is to stay true to that strategy. It's well understood by management and it's well understood by our teams. The 10-year picture shows a CAGR that's even higher than the last three years. And this reflects the accretive benefit of our acquisition of Phoenix in late 2017. Now, turning to a key part of our business model, let's briefly look at the vendor partnerships we have. Our role as a multi-vendor reseller provides our customers with a leading selection of technology solutions to meet their specific needs. Our long-standing partnerships with vendors means we're also able to help our customers access those solutions on the best commercial terms. This makes us a trusted partner And together with our increasing range of value-added services, these client relationships stick. In turn, this supports a level of familiarity with clients that vendors cannot cultivate themselves. So we connect vendors with thousands of clients that they would otherwise find it challenging to reach. We have had long-term relationships with most of the vendors on this slide. We also have newer vendor partnerships that we hope to convert into key relationships over time, such as that with AWS. In addition, we will grow our business with the likes of Cisco, with IBM, and with Oracle, and other global success stories to offer our clients more choice. Winning awards from vendors is an important measure of success and a stamp of approval which our customers demand. This builds our brand not just with customers, but also with the sales and marketing functions at the vendors. That's crucial as those teams are often a rich source of lead generation and new business activity. They can be and are an extension to our own new business efforts. Now let's turn to our most important partnership and spend a few moments on Microsoft. While continuing to diversify through adding new vendors, There is no doubting the continued importance and benefit of a strong relationship with Microsoft. I think by most people's measure, the world's most successful software company and the go-to vendor for digital transformation. We first partnered with Microsoft in the 1990s and just over half our gross profit comes from the relationship with Microsoft and continues to grow at consistently healthy growth rates. Reflecting our focus, our work with Microsoft is firmly with their fastest growing segments, namely public cloud, cybersecurity, and productivity and data, all of which are growing in double digits. After almost three decades, there is a deeply embedded relationship and a mutual respect for one another's achievements in that time. Bytes was their first partner in the UK to pass one billion in Microsoft sales back in 2021. and we continue to be a key partner for them in the UK and Ireland. We also help to manage some of their very largest UK contracts. The success of this partnership was underscored by Bytes winning a global award last year for operational excellence. This was all the more remarkable as we were selected from over 3,900 partners globally. We continue to invest in the relationship by expanding our services portfolio and by achieving the very highest technical accreditations. This further strengthens and cements our relationship with Microsoft and a whole host of satellite vendors, and it also makes us even stickier to our customer base as they come to rely on us more for value added services. Looking ahead, we are well placed to further expand this relationship. Turning now to customers. They're at the heart of what we do. Our commitment here remains crystal clear to develop and maintain close, trusted partnerships over the long term. There are customers I remember dealing with a sales director back in 1997, and they remain customers of ours to this day. As they grow, so does the scale and sophistication of their IT requirements And so does the level of repeat or annuity business. Last year's performance illustrates the strength of these sticky customer relationships with the renewal rate of 116% of our gross profit coming from existing customers. This strong level of repeat business allows us to more accurately forecast our trajectory. The growth of our own IP in the form of Licensed Dashboard, Quantum for Azure and 365, and a whole host of cloud and security services has helped drive sticky customer relationships and an array of annuity-based software and services. This gives our business strong revenue visibility as we estimate between 60% and 70% of our business is now sold as software as a service or of an annuity type. In terms of historic growth in our customer base, you can see here the last 10 years' growth in the group's number of customers and the growth in gross profit per customer. Last year alone, we added 600 net new customers, taking the total to nearly 6,000 and growing gross profit from existing customers by 8.5% to nearly £22,000 per customer. And that's down to the fantastic work of our sales teams. We estimate that on average, we still have less than 20 to 25% of the available share of wallet in our client base, meaning there's a significant runway for further growth from these existing relationships. For some years now, we've run a program we used to call Seven Steps to a Million. It's a framework which guides new salespeople to optimal performance. laying out a seven-year path to delivering more than £1 million of gross profit for the business. We've now renamed it Five Steps to a Million, as we're finding that this level of achievement is being reached by newly qualified sales heads within just five years. And finally, we know our customer relationships are strong and meaningful because we validate them with customer satisfaction surveys to help guide us and to ensure we are supporting our clients appropriately. I'm pleased to report that our customer NPS score remains outstanding at 77, underlining our reputation as a trusted partner with a strong focus on the customer. I'll now hand over to Andrew to talk through the financials in a bit more detail.

Good morning. Neil has talked you through the headlines. In a moment, I'll take you through the financial results for the full year 2023. But first, a few words around our accounting policy in regard to revenue recognition. As announced at half year, we've aligned our judgment to our peer group across UK and Europe. We now record all our software sales and externally delivered services as agent. So here we record only the gross profit from those sales as revenue. We have also restated the prior year in line with this change. So turning now to the income statement, we saw strong growth across all our key indicators. Our gross invoice income is up £231 million to just over £1.4 billion, which equates to a growth rate of 19.1%. Due to the accounting policy change, revenue growth as a percentage is now better aligned to our growth recorded in the GRI figure. The difference in percentage reflects a higher growth in hardware and services than what we achieved in software sales. Our gross profit, which for us is one of the best measures of the company's performance, is up 20.7% to £129.7 million. This in turn gives us a GP to GII ratio of 9.0% for the full year. FY22, this ratio was 8.9% and the improvement reflects good work at both operations to add richer margin solutions and services to all of our customers. Adjusted operating profits, which excludes amortisation of acquired intangibles and shared base payments, is up 21.8% to £56.4 million. The efficiency ratio of adjusted operating profit divided by gross profit is at 43.5% up from the 43.1% in the prior period. This improvement is mostly due to the enhanced productivity arising from increased economies of scale. All of this gives me real confidence for the future. Underpinning our strong performance, is a real diversity in our market segmentation, our customer base, and our vendor partnerships. Software solution sales continues to make up most of our sales at 93.5%. Hardware and services come in at 2.7% and 3.8% respectively. Although hardware and services make up a small percentage of our total sales, The combined contribution to our GII is in excess of £90 million. That's a 29% growth year-on-year. Real progress has been made in creating value-added services surrounding our software solutions that assist our customers in getting the best value from their software estates. We continue our dual focus on both the small, medium, enterprise segments in the corporate market, as well as growing our public sector business. Our public sector business grew by 18%, from £727 million to £857 million. This equates to 60% of our total GRI, with a balance of 40%, or £583 million, coming out of the corporate sector, which grew 21%. We partner with over 100 vendors and take these solutions to our extensive customer base. As in the prior years, Microsoft and their products and solutions remain at the very core of our value proposition, representing 64% of our GRI and just over 50% of our gross profit. We are seeing major areas of growth in both the transition and the consumption of cloud-based technologies, modern workplace and our cyber security offerings. Cybersecurity pervades all that we do, so it's difficult to pinpoint cybersecurity's exact contribution to our gross profit. But when we look at the contribution of our cybersecurity-focused vendors and the nature of our Microsoft sales, we can confidently say that cybersecurity contributes in excess of 20% to our gross profits. So this all gives you a flavor of our diversity of our income streams across our market, our customer base, and from our vendors. Now, in their interactions with various stakeholders over the last year, the conversation has often turned to the current inflationary environment. It's true that in the last 12 months, we've seen various vendors increase their prices. But if anything, this has been a benefit to us as we've been able to generally pass these increases through to our customers. And so, our margins have been unaffected. Historically, in terms of cost, the bulk is in salary, commissions and other employee-related lines, making up over 80% of our administrative expenses. As you can see from the graph, over half of our employees are in sales and sales support. They benefit from a variable income linked directly to the gross profit they are responsible for. So as we grow, so do they. We continue our practice of promoting from within, continuing to train and develop our people to ensure that we have the right skills on hand when the opportunity arises. As we grow and people rise in seniority, vacancies are created at a more junior level, which we fill, focusing our selection criteria on a cultural fit, continuing our investment for the current requirements as well as investing for future growth, as seen with our headcount growing 20% from 773 to 930 people. With our continued investment in our people, we feel that we are well placed to win new customers and to continue to grow wallet share with the existing customers for many years to come. Our cash conversion has followed similar cycles for most of the last five years. A cycle where we have low cash conversion in the first half, followed by an excellent cash conversion in the second. After reporting a negative cash conversion for the first six months of FY23, The full year position reflects a very strong conversion in the second six months of 180%, moving the full year figure to 84.3%, which is back towards the group's target of 100%. Our average net as days for the year has moved out to 39 days. However, the focus over the last six months has meant that we've ended the year at 37 days, and this we see as a new normal. As you know, we have a capital light business, so it should come as no surprise to see a relatively small spend of £1.3 million on capex. After tax and returning £30.7 million to our shareholders, we are left with a cash balance of £73 million for the year. We have never drawn down on our revolving credit facility of £30 million, but we thought it prudent to renew this facility for a further three years, which was completed earlier in May. We have reviewed how much cash we need to keep in the balance sheet and are comfortable with around £40 million level. Holding this amount of cash will enable us to navigate our monthly movements in working capital and it ensures that we comfortably remain in a position to pay our liabilities as they're foredue. Our dividend policy is to return 40% of the post-tax adjusted operation profits back to our shareholders via ordinary dividends. So I'm pleased to announce that the board is proposing a final dividend of 5.1 pence per share in addition to the 2.4 pence per share that was paid as an interim dividend in December 22. After the year end, we spent £3 million in acquiring 25.1% stake in an AWS services business, CloudBridge. This enhances our multi-cloud capability whilst ensuring that the internal teams continue to focus on our core capabilities. We have stated that we will return excess cash to our shareholders. Therefore, the board also considers it appropriate to propose a special dividend of 7.5 pence per share, up 21% on the special dividend paid last year. As a responsible business, we recognise that we have a duty, not only to those who work for us, but also to those who work around us and with us. We are committed to protecting the planet by reducing our carbon emissions and helping our customers do the same. Our goal is to achieve net zero by 2040 at the latest. This year we have appointed our first Group Sustainability Manager, reduced our Scope 2 emissions by moving to renewable electricity, expanded our data collection in additional Scope 3 categories in which we have progressed significantly in the past year. Our people believe passionately in making a difference and giving back to our local communities. During the year, over 170 of our staff use their fully paid volunteer days to work for charities and other causes close to their hearts, all causes that are much needed and highly valued in our communities. Strong corporate governance remains the key focus for us, both at the board level and throughout the company. This year, We further strengthened our risk management processes and internal controls, and we'll continue to build on our engagements with both the internal and external auditors. So, from where I sit, the key messages from this past financial year are clear. We are seeing strong, consistent growth across all matrices, continued investment for our long-term future, significant business opportunities, and attractive returns to our shareholders. Neil.

Thank you, Andrew. Now let's turn to our strategy for growth. Many of you will be familiar with our strategy, but for those of you that are new to our story, I want to stress how firmly the customer is at the center of everything we do. Our focus is to achieve consistent profit growth while maintaining our focus on providing high quality services to our customers and maintaining a positive and dynamic workplace culture. We know that this works. To grow our business, we must carry on doing what we've done for years, increasing our scale along the way. So, we've increased our sales headcount and we'll do so again this year. We've opened a new London office to focus on new business opportunities in insurance, banking and professional services. And also, we've opened the office to attract more sales talent into the organisation. We've also grown our headcount in Manchester, in York and Reading. We've also expanded our Irish sales team as well. And we will continue to look at new regions for further growth, including a new Scottish office. We've shown over the years our ability to grow our market share and we will continue to see further gains as we invest in our business. A key part of this will be to work strategically with high growth software companies, especially in cloud and cyber, so that we're in the best possible position when it comes to helping customers with product selection. Increasing our share of wallet is the second key pillar of our strategy. IT is no longer a discretionary item for organisations. It's an absolute must. IT has been and will continue to be the most critical element in enabling the success of business strategy for all organisations. The push towards digitalisation, cloud and hybrid infrastructure, multi-cloud, AI and cyber security all represent tailwinds that we are well positioned to take advantage of. To give you an idea of the structural growth we're expecting, Microsoft expects technology spend as a percentage of GDP to double from 5% to 10% by 2030. With a market share of less than 4%, we see ample headroom for many more years of growth. Whilst we are delighted with our organic growth in recent years, we continue to monitor M&A opportunities, and if and when anything appropriate is identified, we'll take a look. But we see our organic growth as our biggest strategic opportunity, and that's where we're going to focus our energies. Now, let's turn to one of our key differentiators and talk briefly about our staff and our culture. We all know that our strategy is worthless without the right kind of culture. I've been working for Bytes for more than 25 years. I've seen remarkable change and growth in that time. But our culture has been and remains absolutely fundamental. Yes, we're proud of the headlines, of the awards and of the results. But at the end of the day, Culture is about much more than that and bleeds into what we are and how we operate every day with our customers, with our vendors and with each other. It's about innovating, collaborating, being open and empowering others. And very importantly, it's about keeping it fun. It's the energy and expertise of our people that drive this business forward. We don't want our people just to have a job. We want them to build a career with us. Just take a look at our management team. In the main, this group is made up of people who have grown up with the business. We strive wherever possible to promote from within, providing valuable, worthwhile careers. To this point, we recently announced that Sam Mudd, having successfully led our Phoenix operation, is stepping up onto our PLC board at our AGM in July. This is hugely deserved. It's recognition for her achievements and those of the team around her. Our regular company meetings and staff forums allow management to test whether we're staying true to our guiding principles. We're proud of the fact that we support staff in times of difficulty as we behave like one of a big corporate family with staff at the center. We like to go the extra mile for our staff because they do so for the company. We know our staff recognize this. It's reflected in our strong employee MPS score of 70. So in summary, we've once again delivered excellent results with growth year on year of over 20% across our core metrics. We've seen broad-based growth across all vertical markets and all of our business segments. Our business is built on firm foundations with a track record of over 40 years, a strong culture, superb relationships with the world's most successful vendors, and a powerful array of services and subscription-based products that our customers depend upon. At the heart of all of this is a company culture that drives high customer and staff satisfaction, which accelerates growth in gross profit and customer numbers. Underpinning our aspirations and expectations is the demand we see continuing across all of our markets. As a result, we expect to continue to deliver double digit gross profit growth and an increase in our market share. I am pleased to say demand has remained strong since the beginning of our new financial year in March, and we have seen the same momentum continue through our quarter one. As much as we are proud of our achievements over the years, we are just as excited about our growth prospects moving forwards, and we feel energised by the enormous potential of the markets that we operate in. I'd like to thank you for listening today, and we now look forward to answering your questions.

Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your cell phone keypad. Please also ensure your mute function is not activated in order to allow you to reach your equipment. So once again, ladies and gentlemen, please press star one at this time. Our first question is coming from Damindu Jayawira of Peel Hunt. Please go ahead.

Thank you very much. Well done on a great set of results. I have three questions, maybe I'll ask one at a time. The first one is obviously, as you described in your strategy slide, there is the focus on software, and obviously you've grown with software, and the annuity that is around the revenue is a huge deal into the resilience for the business model. However, I also noted that you did mention that you're starting to do more with Cisco, and obviously you have a wallet share gain opportunity. Does that mean that we will see you do more, some more hardware type revenues in the coming 12, 24 months as we saw in the prior period?

Hi, Neil here. So our fundamental strategy will remain unchanged. I think when you see the growth that you've seen in our hardware products, it's ostensibly a byproduct of our success selling to our broad-based customer base. What you'll see is an increase in hardware by virtue of the appliances that we're selling with some of our security solutions, workplace solutions, remote working solutions, and so on. But it's not a change in strategy. I think if you look at the additional work we're doing with Cisco, for example, a lot of the work there is actually with their software-defined networks, which we sell as software solutions with enterprise agreements, for example. So you won't see any noticeable change. You will see potentially higher growth in hardware, but that's purely because we're starting from a relatively low base if you look at it as a percentage of our overall revenues and GII. So... You'll see an increase in wallet share, as you've seen in the past few years, purely because we're expanding the number of vendors we're working with, and our sales force are highly objectivized to expand the wallet share we have with our clients as well. I hope that answers your question.

No, very clear. I suppose it's sort of this blurring of the boundaries as well between hardware and software. The other question I had was, obviously, if you look at FY21 and FY22... You had around 250 to 300 new customers in each of those years, and then you have a big jump to 600 net new customers in FY23. Is there much to read into that? How should we kind of think about it? Just going back to the point that you just made earlier about, you know, taking more wallet share, but at the same time you seem to be growing the net new customers at a faster rate as well.

Yeah, I think that's very much a byproduct of the expansion you've seen in our sales teams over the last two or three or four years, in fact. And so it would be normal for me certainly to expect a sort of step change in the increase of clients we have. But also that's driven by the additional demand we're seeing in the market. And I suppose as well by the fact that we've gained, certainly in the last few years since we've listed, the greater PR as a listed company has helped us attract new clients as well. So I think it's a number of things, but certainly we've seen an uptick in new clients by virtue of the expansion of our sales force.

And the last one for me is obviously what's really been impressive at Google. For me, this sort of result is a renewal rate at 116%. And we do know Microsoft is increasing UK pricing by around 9%, given you do half your GP with Microsoft. So that's a material single-digit contributor, I guess no single-digit contributor to your GP growth rate. And then you've got this exit growth rate on NGP, which is in the very high teens, which is the second-half growth rate. And triangulating that with market expectations for kind of mid-teen gross profit growth for this year, so far, I guess you've only had a few months, I guess, of trading to get back on. Is it unfair to say that you seem to be tracking, at least in these two couple of weeks, tracking ahead of market expectations? Sorry, I'm not trying to put words into your mouth, but just kind of trying to triangulate the thing around, and it just feels like you're actually trading stronger than what the market is anticipating.

No, I wouldn't read too much into that. I would suggest that those price increases would result in sort of low single-digit impact on our gross profit growth last year and probably this year. We'll see how that all plays out over the course of the next period. But certainly I think it's fair to say we've been an economic beneficiary of that, and we would expect to be so in sort of low single-digit growth, profit growth terms moving forward as well, Damindu.

Excellent. Well done on a good sort of result. Thanks.

Thank you. Thank you very much, sir. We'll now go to Mr. Patrick O'Donnell calling from Goodbody. Please go ahead, sir.

Yeah, thanks very much. Just a couple of questions from me. Just in terms of the overall sort of market opportunity, you mentioned you're 4% of the time. You can see, kind of, you mentioned the higher sales force, that it's sort of... you know, building market share, just curious, you know, what can, you know, what can really drive that and accelerate that adoption even further given the scale of your relationships with some of the key players in the space like Microsoft, et cetera. And the second question was just in terms of the AWS acquisition, 25.1% any reason for why you wouldn't have taken a majority stake in that business and what's the, the,

Thanks, Patrick. I'll answer the second one first. That was a very good tactical opportunity for us to take a stake in an AWS-focused business, which gives us access to over 80 technical resources that ordinarily we wouldn't necessarily get to have access to. a good tactical opportunity with a partner, in fact, we've been working with for many years now. And it essentially enables our legacy business, for want of a better word, to concentrate on our Microsoft-centric services whilst we turn to CloudBridge to provide those AWS services. And now having a stake in the business, It gives us insight into how best to monetize that relationship moving forwards. And we see a continued long-term relationship with that business. We weren't seeking to make an acquisition of that company, but it was an opportunity that looked like a very good investment for us at a good multiple. Going to your first question, how could we accelerate that growth? I was pretty happy, to be honest, with roughly 20% growth, but now you've said that, I think I'd better set my bar a bit higher. But, you know, what could accelerate that further? I think that we have to be very careful and measured about how we progress the business, and we think we're doing the right thing in terms of the number of heads we're introducing into the business to attract a greater market share than 4%. and we have to be pretty measured about the number of people we take on and how we integrate them into the organization as well and to make sure that the cultural fit is right and they get the right level of training. And so, you know, we're pretty happy with the anticipated growth we see going forwards to try and secure a greater percentage of that market share that you refer to in your question. Patrick, is that okay? Okay.

Yeah, and just the last piece on that, I mean, like, are you finding the market dynamics, you know, still competitive in spite of your sort of rising, I suppose your rising position with, you know, a broader degree of suppliers that you're working with, you know, the growth rate you're achieving, would you say that you're currently gaining share relative to where you have in this time last year in terms of the overall ecosystem

Yes, I mean, the statistics we look at show us that we are taking market share. I think the market is still very dynamic and it's still very competitive, but it has been for the 20 or 30 years that I can recall being in this industry. So those dynamics are still in play today. I think we need to make sure that we continue to have a sort of bleeding-edge sales engine and sales proposition and customer service in order to maintain that position going forward as well.

And fair to say that most of that growth is going to continue from an organic means rather than acquisitive.

Yes, absolutely. I mean, we've demonstrated this past year that we can add hundreds of millions of pounds to our organization in terms of sales without having to make an acquisition. And definitely that's the focus of our energies moving forward.

Perfect. Thank you very much.

Thank you very much, Mr. O'Donnell. Our next question is coming from Alex Nguyen, colleague from Jefferies. Please go ahead.

Hi. Thanks for taking my questions. It's nice to see another positive update from you. I have three questions. Number one, if I could be a little bit critical on the numbers. So, gross profit per customer was up 8% for the full year. But if I try to split out the numbers for the second half, I think it implies a decline year over year. Does that sound right to you, and is there anything that we should be aware of?

I'll defer to my learned gentleman friend, CFO Andrew, on this one.

Thanks, Neil. Thanks, Alex. I think at half-year, what we didn't show was the absolute net customer space because we measure our customer numbers on an annual basis. So what you might see is a higher – gross profit per customer at half year, and that's because we didn't account for the absolute customer numbers. So I think a fairer comparison would be a year-on-year, and that does show the 8% growth. And bear in mind that a lot of customers are transacting annually, so some of those customers might be in the second half, some of those customers might be in the first half. So I think, as I say, fairer comparison year-on-year rather.

Okay, that makes sense. And then my next question would be around the headcount. It's up 20% this year, and I think it's a bit more than around the mid-teens percentage point that we have seen in the past few years. Is that you guys are, like, front-loading the recruitment? So does that mean in the first half of 2024, we would see a slightly more muted headcount growth?

No, it's not a straight line for us in terms of headcount growth. What we saw certainly last year was continued recruitment of sales, but an increased recruitment on the technical side of our business so we can provide our customers with an ever-increasing level of technical services. and support services. So we would not expect that level of recruitment to be the case in the coming year. It is higher than average, but mainly because of the desire to hire more technical people last year. So we're building a business, really, that's going to be supporting our customers for the next three to five years. So hopefully that answers your question, Alice.

Yep, yep, it did. And then I think the last one would be about... Share-based payment charge, I note in the statement that you did say as more employees participate in the scheme, the charge would increase. But can we get a sense of how much of that will be on a sustainable basis? Like right now, I think it's around 7% of the adjusted profit line.

So, Alexis, what we are rolling out is obviously we've been listed for just over two years with our first broad-based participation in our share plans happening in 2021. The second round, 2022, and the third round would be now 2023. So what I would say is that after the full year of taking the third round, issue of the shared plans, we would reach what is called maturity, and that would stop growing at that space and then be more equal year on year as we take out, we put back in sort of thing.

Thank you so much.

Thank you. Thank you.

Thank you very much, Matt. We'll now go to James Zaremba calling from Barclays. Please go ahead.

Good morning. Three questions, please. Firstly, just on your MPS, which was up quite a lot at 77, are there any changes you've made this year you'd pull out that support this improvement? Secondly, just on headcount, you know, you started the year in quite a tight labour market. I was just wondering how retention progressed for the year and how that was versus your expectations. And then lastly, on operational leverage, again, quite impressive. Can you elaborate on the investments you're making in systems to improve user experience and drive those efficiencies? Thank you.

Thanks, James. Just on the NPS side, no real fundamental changes. But as you know, both MDs of both operations put a high degree of focus on not just staff satisfaction, but customer satisfaction and customer service. And we both know, James, that without customers, we can't employ anybody. So we recognize that they're at the center of our business. But no fundamental changes, fine-tuning our offerings and improving step-by-step as we go. As far as retention is concerned, we're very happy with the level of attrition that we have in the business. It's remained quite constant, actually, even throughout this sort of COVID and post-COVID period, and is averaging about 15. The attrition rate is currently running at about 15%. And we're certainly managing to hold on to our key staff. You'll recall the metric that I often churn out about our top performers, and it's fair to say that we still have only lost one of our top 50 sales performers in the last seven years now. So we're very happy with that. And I'll just defer to Andrew on the question about the AOP to GP metric.

So I think, Neil, the last question was more around the investments into IT. And so the investments into IT spread across our own IP, so License Dashboard, Quantum for Azure, and Quantum for M365. Those Neil already mentioned. And then at half year, we did mention sort of an investment both in people and in IT into the CSP billing environment, which we completed. And that's very much to do with our growth in the CSP side and the transaction volume that we see. And then the last bit is towards the end of the calendar year last year, we started a project to – create our consolidation and reporting platform at group level, and that's gone well. That goes live later on in May, hopefully towards the end of May, and then we'll be using it at half year for our reporting and consolidation.

Thank you. Actually, if I could just have one follow-up, Andrew. In your statement, you noted about moving new customers to direct debit billing on CST. Is that something... you know, over kind of a two-year view, you would have moved all customers over to? Will that kind of resolve the challenges you faced in the last year or so?

James, that would more be the call of the smaller customers, and that would help us just from a transaction volume and query space. The larger customers that are consuming your sort of big invoicing on a monthly basis would probably not move to direct debit because they would want some sort of governance and their control elements. Perfect.

Thank you.

Thank you very much, sir. And now we'll go to Julian Yates, calling from Investec. Please go ahead.

Yeah, hi there, Jonathan. Thanks for taking my question. I've just got a couple. You spoke about the 20% to 25% sort of addressable market within your customer base. Could you just talk a little bit about, I guess, what proportion of your customers do you think are there? And the dynamics of pushing that higher in some instances, I appreciate you've got a very customer, but it would be sort of interesting in terms of what you actually see is realistic in that sort of sense. And secondly, cybersecurity has been sort of pockets of weakness in terms of it overstocked in some areas. Clearly from your comments, you're not seeing that at all. Are you having to sort of navigate that a little bit in terms of your portfolio across different vendors, or are you basically seeing strength across the board within cyber? And just the last one on the numbers, really, in terms of OPEX and investment into your, I guess, your sales force and marketing, et cetera. What should we think about that in terms of sort of quantum or percentage increases as we go into the year? And can you, I guess, do you have the ability to flex that up or down as we go through the year? Thanks.

Thanks, Julian. So on the first question then about wallet share, and you'll note we estimated wallet share between 20% and 25% on average, and you're absolutely right. With some of our clients, that'll be 80%, 90% odd, and with others, it might be 1% or 2%. And we see a huge opportunity for growth just trying to expand that wallet share within existing customers. And, you know, we would hope that we can push up the proportion of customers moving beyond the 20%, 25% quite considerably over the next few years. And that is a very big focus for our sales management team. I think as far as cybersecurity is concerned, we've seen a broad growth. in opportunity and sales across all of our vendors. I'm trying to think of one where we haven't seen growth. So we've navigated it pretty well. We're seeing sort of multi-layered approach for cybersecurity in our client base with sort of multiple technologies being introduced in order to provide additional defense and security for corporates and public sector. And I suppose by the nature of what we're doing, which is pretty much software as a service, annuity-based software, these contracts tend to be renewed annually. So we're not seeing sort of peaks and troughs of demand as such. So I think we're seeing broad-based strength in that area. Certainly that's been supported again by what we've seen so far this year. And then, Andrew, would you cover off the third one?

Can I just ask a follow-up on your comments on the 20-25% and pushing beyond that in a strong focus area? Who are you displacing in that sense, or who would you be displacing in that sort of aspiration to get beyond that in many of your accounts?

Yeah, it's a real mixture here because as we widen the portfolio of vendors that we're taking on and promoting, we're not necessarily displacing other competitors. We're just adding to our portfolio and selling more to our clients who would otherwise not be looking at some of these solutions. So it's a mixture of that. Undoubtedly, there's a bit of share shift going on between us and some of the other big resellers. That happens every year. And then I think if you look at the long tail of small resellers that exist out in the market, some of them are unable to provide some of the services and products we sell because they don't have the technical capability, particularly if you look at AWS or Azure. And so I think most of the big resellers will be taking a bit of market share from the the hundreds of very small resellers that exist up and down the UK and Ireland. Okay, that understood. Thank you.

And then Julian, your last question was sort of the guidance on the headcount growth, what we've seen over the last... Yeah, it was sort of bringing that together in terms of overall OPEX sort of numbers and how flexible that is and your thoughts on how you're going to manage that.

Yeah, so... Neil mentioned the sort of the growth in the headcount, some of it going into cost of sales, and that we don't do ahead of the curve. We really do it from the back of customer demand and growing in line. So there's no real risk there. And then on the headcount growth within our administrative cost, because we've got such a large portion of our employees based on variable income, so those are the sales and the sales support environments, Those would track sort of equal to the GP growth because people earn a percentage of what they're responsible for. And then because we're backfilling in the lower environments, lower junior staff as people progress through the organization, we think we've got a sort of leverage there if we need to. We simply just stop hiring for a while. but we are investing sort of two to three years ahead of the curve on the sales side. So I think in general terms what we are about is to keep that sort of AOP to GP in line with the conversion rate, so that means we won't be spending more than what our GP growth is.

Okay. Thank you very much.

Thank you, sir. We'll now go to Tintin Stormont of Numis. Please go ahead.

Morning, guys. I'm clearly very slow pressing star one. Most of my questions have been answered, but in terms of CloudBridge technologies, could you just give us a bit of background in terms of their customer base, who they typically serve, and in situations where somebody's looking at a cloud solution, how do you foresee balancing that AWS practice with obviously the Azure solution? sort of side of the business. And then just a bit of a different flavor to the 20-25% share of wallet question, is that essentially overlaid with the existing vendor exposure you already have? Or do you feel that to really push that on that 20-25%, there's particular vendors that you may have some sort of relationship with, but you need to kind of invest more to get it up the curve to sort of kind of rightfully take the share of spend in that particular vendor.

Hi, Tintin. So as far as the CloudBridge investment is concerned, yeah, they're entirely AWS-focused, and we've been partnering with them actually for more than four years now. And so the business is already used to dealing with them. Their client base is actually our client base, and where they get incremental clients is by direct reference from AWS. And so where we have an international client, for example, who's looking for an AWS solution, because CloudBridge have offices in the UAE and Scandinavia and other parts of Europe, they become the go-to partner for anything that we have from an AWS perspective. So a tried and tested relationship.

Is it more corporate or public sector?

It's mostly corporate, although there are some high-profile public sector customers in that, but it is mostly corporate. And then the balance with the Azure business, it's pretty easy for us because if you think about it, anything to do with Microsoft is dealt with internally at Bytes. When we have AWS technical opportunities, we will use CloudBridge to provide those opportunities. those services and the technical expertise. So there's a very clear demarcation for us there. And Azure and Microsoft Cloud is by far and away the most strategic of the two for us. We see AWS clearly as a potential growth area. We've doubled our gross profit with AWS in the past year, and we see considerable growth going forwards, but it is from a much smaller base. And then if you look at the 20% to 25% wallet share, yes, I think what you will see, you know, for us to increase that considerably over time, we would need to sell other vendors' products. And we've mentioned some of them on the call and during the presentation. Certainly, you know, if you look at, say, Cisco and IBM, but also we're doing more with some of the hardware vendors this past year with Dell, for example. So our sales force will be broadening out the portfolio of products they're selling on the hardware side, and that will be a sort of a natural progression in terms of how we manage our customers and our clients. So I would expect that to grow organically through the expansion of our existing vendor partnerships, but also with the addition of some of those newer, more embryonic relationships that we have going forward.

Great. Thanks, guys.

Thank you very much, ma'am. Ladies and gentlemen, we have a follow-up question now from Damindu Jayawira, Appeal Hunt. Please go ahead.

Thanks. Just two clarification questions on Microsoft.

When Andrew mentioned the cybersecurity exposure of 20%, is that including Microsoft side security business, which is I realize is now enormous at 20 billion.

Yes, Damundu, it's very difficult to split out the Microsoft security space. So what I looked at, you mentioned the $20 billion. The $20 billion on Microsoft's turnover is roughly 10%. So I've taken that 10% and applied that to our Microsoft sales. So that's why I mentioned the nature of our Microsoft sales. And then including then all the security-focused vendors, I get to that sort of estimate of north of the 20% contribution to IGP.

Actually, related to Microsoft, what I know is that in the last six months, there was a study in the UK about how Fraser Group went from 10 security vendors to just dealing with Microsoft. Kind of what you see around the UK, including at Teal Hunt, where teams seem to be replacing Zoom. Among those vendors, is Microsoft still relatively fast-growing? I'm obviously not in percentage terms, your size of it, but in terms of the amount of gross profit that Microsoft . Is it fair to say Microsoft continues to grow relatively fast across all your vendors? Or are there, like, for example, , I guess, relatively relationship over the last four years is growing faster? Or perhaps you can't

Thanks, Amanda. It's a pretty poor line, but from what I caught there, yes, you're going to get some customers like the one you referenced there where they've migrated from 10 different cyber vendors to one vendor. And for every one of those, you'll probably get a customer going the other way as well. But it's fair to say that Microsoft's security stack has expanded quite considerably over the last few years, and I would expect that to continue to do so. But in terms of its growth compared to some of the other cyber vendors' growth, I think they all seem to be growing in double digits in that regard. And so you're going to get sort of broad-based growth there. and different customers will apply different strategies to their security stance. You referenced one, and indeed yourselves there, so that's two. But given that there are 45,000 organizations out there in the UK, I guess they'll all have slightly different strategies and plans when it comes to cyber defenses. But the one thing that we're seeing certainly is this strong growth, whether it's Microsoft or most of the cyber vendors that we see and we work with.

Thank you. Thanks. And thank you very much, sir. As we have no further questions, let's turn the call back over to Mr. Neil Murphy for any additional or closing remarks. Thank you.

Thanks, everybody, for joining the call today. Look forward to catching up with some of you individually in the next few weeks. You know where we are if you have some further questions, or you can deal through our PR company, Headland. And thank you very much for attending the call today.