Bytes Technology Group plc

Joining us for our half-year results, a presentation for the six months ending August 31st, 2025. I'm Sam Mudd, the CEO, and I'm joined by our CFO, Andrew Holden. I'll begin with a quick introduction to our business and overview of the results, and then Andrew will provide a financial review. I'll come back after that to provide a strategic update and finish by opening the floor to questions. So I know most people in the room know our business very well, but for those that don't, Bytes is one of the largest IT resellers in the UK, and we have a focus on software. We're driven by a clear mission to help organisations succeed in a world of change through trusted partnerships and transformative technology. We've got significant tenure and experience not just in our leadership teams but across all of the staff positions, allowing us to build and sustain those trusted partnerships and to deliver what our customers need. In the form of licensing advice, recommendations on solutions and procurement and providing technical services where required. We're committed to building a sustainably growing company that's also a great place to work, and this clear focus on culture fosters the tenure and experience critical to our success. Our staff's commitment to delivering for our customers is testament to the culture we pride ourselves on, and we've been pleased to have been included as a constituent in the FTSE for Good Index. Our first half results this year were impacted by the reorganisation of our corporate sales structure, which affected the phasing of our growth. And I'm pleased to say that that's now settled, with roughly half our business related to Microsoft managing its changes to the partner incentives was also a core focus in that period. This change has gone well as a result of that focus and we're pleased that our services proposition continues to grow and I'll come back to why that's important. On the headline numbers, this is a resilient set of results for bikes given the internal and industry changes that I've already mentioned. We saw a 9.1% increase in gross invoiced income, a 0.4% rise in gross profit, a 7% decline in operating profit, and 105% cash conversion on a rolling 12-month basis. And now, I'll hand over to Andrew for the financial review.

Thanks, Sam. And good morning, everyone. And thanks for joining us at the presentation this morning. In my section, we'll cover off the income statement, a bit of segmental analysis, the cash and capital allocation. So to start with, gross invoice income, or GRI, grew at 9.1% to 1.342 billion pounds, whilst gross profit only grew at 0.4% to 82.4 million pounds. GP over GII this half was 6.1%, a reduction of 0.6% from the comparative period last year. This reduction reflects the impact of the Microsoft EA incentive changes. Other income on the slide, relates to the offices that we acquired in December of last year, and this will decrease in the second half as we now occupy one of the two buildings acquired. Administrative costs in total increased by 6.9%, resulting in operating profit declining 7%. I've given some additional detail around the administrative costs to highlight some of the contrasting movements in the underlying drivers, and this will help with your modelling. Salary costs are up 14% due to headcount growth and a cost of living wage increase as of 1st March this year. Most of this increase is in annualised hiring made towards the end of FY25, with only 1.7% headcount growth in this year. We have capitalised £700,000 worth of employee costs, and this was the same amount as what we capitalised last year, and this relates to the project to modernise some of our IT systems. Commissions and bonuses are down 8.1%. Within this, commissions have trended broadly in line with the GP, And bonuses, which are mostly driven by targets, are down, accounting for most of the reduction. This would normalise towards next year. or delivery on our targets. Social security costs are up 34.3%, and this is due to the increased national insurance contributions that were effective from April this year. Share-based payments are down 32% against lower profitability, and we would expect the share-based payments to be around £3 million for the full year and show some increase next year. Other administrative expenses increased 10.8% with continued investment into staff welfare and some other internal systems. The efficiency ratio of operating profit divided by gross profit is at 40.2%, and this is down from last year's ratio of 43.4%. And as a reminder, this ratio tends to be lower in the second half due to higher commission percentages paid to those salespeople that exceed their base targets. On an annualised basis, we continue to target a ratio of between 38% and 240%. Interest income is down 6.7% due to lower interest rates and our interest income is first half weighted and this is in line with our higher GRR weighting in the first half. The effective tax rate is normalised following a higher tax rate last year due to the changes in deferred tax asset driven by the lower share price over the period. Looking at the income analysis, GRI growth is roughly the same across public and corporate sectors, resulting in the split of GRI unchanged on a year-on-year basis at 70% from the public sector and 30% from the corporate sector. When we look at contributions from gross profit, public sector grew by 1.6% and the corporate sector declined by 0.6%, resulting in the public sector contribution increasing from 37% to 38%. The Microsoft EA incentive changes have impacted the public and the corporate sectors differently. For enterprise agreements, we invoice the public sector directly, where we are now making less gross profit and thus a declining margin, whilst in the corporate sector, where Microsoft invoices the customers and we receive a rebate, we effectively show a 100% gross margin. Where we transition customers from EA to a CSP agreement, we then invoice the customer directly and make a margin. We might make more gross profit, but we show a declining margin in these instances. The Microsoft share of total GP reduced by 2% year-on-year, but remains around 50% of our business for the first half. Segmenting our business into the three broad categories which we report, that being software, hardware and services, we see the sales of software grew at 8.9%, while gross profit derived from these sales decreased 3.5%. Our hardware GRI increased 16.8% and the GP by 25%. But again, that's all for lower comparative last year. And a reminder, we shrunk both of those, GRI and GP, by 40% in the prior comparative period. Our services GII increased 15% and the gross profits increased 43.6%. And this has benefited from the increased or mixed changes as well as cost efficiencies. Cash conversion continues to follow the same cycle that we've seen in the past. As a reminder, we see a lower cash conversion in the first half, followed by a very strong cash conversion in the second. This half, we've had a cash conversion of 34%, which equates to a rolling conversion of 105% for the full 12 months. After tax and returning £42 million to our shareholders, we are left with a cash balance of £82.3 million as of the end of August. In this half, we capitalised an additional £2.3 million into our software development, and this relates to the two new IT platforms. One, to provide a marketplace gateway for our customers to more seamlessly purchase products online from a range of our vendors. and the second to improve our operational processes around customer order processing. The marketplace platform is now complete at a cumulative CAPEX of £3.4 million, the cost of which will start to amortise in H2 at an annual rate of around £400,000 per annum. Work on the second part of the platform continues through the second half and is expected to move into production early in FY27. we expect the combined investment to be around eight million pounds by year end and result in an additional amortization of a million pounds a year. From a capital point of view, our capital allocation policy remains unchanged with investment into organic growth, mostly in headcount, which we've discussed in the income statement. But moving on to the dividend policy is to return between 40% and 50% of post-tax operational profits to shareholders via ordinary dividends. And this is further broken down into approximately one third paid as an interim and the final two thirds paid as a final dividend at the financial year end. I'm therefore pleased to announce that the board has approved an interim dividend of 3.2 pence per share, which is a 3.2% increase on the prior year. It just happens to be the same number. Organic growth remains our key focus and we continue to assess potential acquisition opportunities that would accelerate some of our drivers like services. After considering the group's strong balance sheet for the year and the prevailing share price, the board believed it would be beneficial to return more capital to our shareholders. And on the 15th of August, we launched a £25 million repurchase program of which we have completed £15 million as of last night. I think that's all from me, and as it, I'll hand back to Sam. Thanks. Thank you, Andrew.

So we will say our people are our core asset and we're proud of their energy, their enthusiasm and commitment and tremendous job they do supporting our customers by providing an outstanding service. And as such, we increase headcount 12% year on year, with most of this growth coming in the second half of last year. And with more measured investment in the first half, headcount has increased by 1.7% in this period. We appointed our first Chief People Officer this summer, and I'm delighted to welcome Kali Kankhazi to the team. Kali is focused on attracting top talent, developing future-fit leadership, modernising our people operations. And at the full year, we'll be able to say more about the long-term people strategy that she's developing to underpin scalable growth, customer excellence, and a high-performance culture. As our headcount grows, we've made it a priority to provide the right office environments in the right areas. We try and balance access to talent pools with proximity to customers and try and create a vibrant working space for our staff to collaborate, which is key to the value proposition to customers. This also enables us to provide joined-up programmes of work where required from our clients that may need access to multiple teams and resources. I want to spend some time on the sales segmentation. There's a lot of detail on this slide, but I want to explain why we did what we've done and the impact it's had. So what have we done? At the start of the year, we realigned our corporate sales team from a generalist structure where account managers could have had customers of any size into customer segment focused teams based on customer seat counts. You can read the split on the slide. Our account managers often naturally lean towards a particular profile of customer, but the change actually still resulted in 750 accounts changing account managers, and these customers represented approximately 20% of corporate gross profit. So why did we do this? Well, we believe the new corporate structure will enhance our account management, tailor our solutions and service delivery, and improve our vendor relationships. So how does it enhance our account management? Well, we think by having more homogenous customer groups supports our account manager's ability to bring value to customers. Ultimately, the challenges and level of complex interaction at an enterprise customer is very different to that of a mid-market customer. And that's why we're also creating more tailored solution and service delivery. We've done this by segmenting our technology specialists and service teams who support our account managers. So how does this improve our vendor relationships and why does this matter? By mirroring how we go to market, our sellers can actually deal with a single vendor counterpart as opposed to working with multiple in the past. We co-sell technology alongside our vendor partner teams, so having good relationships with them can support the margin we get on deals and increase referrals from the joint sales motions. What impact has this had? Well, there's no hiding the fact that the reorganisation caused an adjustment period that has temporarily impacted the phasing of our growth. Just to recap, our account managers had very strong pipeline execution in the second half of last year on the accounts they were handing over. This alongside the handing over the relationships impacted the volume of pipeline to close in the first half of this year and provides a tough comparator for the second half. Importantly, despite the short-term disruption, customer and account management retention, the foundations of our growth are consistent with prior periods. And we've now started to see the benefits of segmentation coming through, such as strong services growth, which I'm going to talk about shortly. Now let me discuss the Microsoft incentives and the changes in this period. The rebate that partners receive on Microsoft Enterprise Agreements, also known as EAs, reduced from the 1st of January 2025 to incentivise partners to focus on the Microsoft Cloud Solution Provider Programme, also known as CSP, which is higher margin for partners. A lesser reduction in incentives was made in the public sector, CSP is not a viable alternative for public sector customers due to the discounts that they only get under an enterprise agreement negotiated directly with government. Our plan for corporate customers was to accelerate the transition to CSP, to accelerate the provision of services and broaden our software portfolio for all customers. And we've been doing that for some time now. For FY26, we expected the impact of this change to be more heavily weighted to the first half. Our Microsoft business is first half weighted due to the high levels of Microsoft renewals around public sector in April and May and the Microsoft year end in June. And furthermore, the changes only impact four months of our second half, having taken effect in January 2025. So how has it gone? In corporate, our Microsoft gross profit grew, supported by the transition to higher margin CSP. In public sector, where this was not viable, Microsoft gross profit declined. But we've seen stronger growth in services and other vendors. And this is all part of the mitigation plan for public sector. So what's the outlook? We believe the effect of the incentive changes should have fully washed through from the 1st of January 2026. Some of you may have seen that Microsoft recently announced some reduction in discounts to enterprise agreements set to come into effect on the 1st of November 2025. This will make CSP relatively more attractive and potentially resulting in more customers transitioning from EAs. In terms of partner relationship, we think the opportunity remains largest in our mid-market, including indirect and corporate segments. Now, this slide is fairly familiar to those of you that have followed us for some time. Our sources of growth remain expanding our customer base, growing with existing customers, and we have plenty of runway on both vectors. We continue to expand our sales force. We also continue to make investments in new vendor accreditations to drive growth and support our customers in navigating the complexities of the evolving IT market. This is an important part of our growth strategy that complements our Microsoft growth too. And we're also expanding the number of support and managed services that we provide. We're upgrading our systems to support new purchase models and higher volumes as the business grows. And on AI, Bytes aims to establish itself as a leader in AI-driven software, cloud and security services by integrating AI across its divisions and by promoting innovation, inclusion and continuous learning. The strategy will focus on accelerating client digital transformation, improving operational efficiency and embedding ESG and DEI principles into what we do. We've created a dedicated internal engineering and innovation team. And in the first half, that team created a document review system that checks tender submissions against a predetermined set of rules of BITE standards. It's also worth calling out that we've launched an internal agents initiative for all staff. We, like our customers, we've got lots of work to do in making AI use prevalent across the entire organisation. So we've tasked our staff to come up with ideas for AI assistance that can improve business processes. And this follows the rollout of Copilot across the majority of employees last year. So why do we win? We win for three main reasons. First and foremost, customer centricity as evidenced by our consistently excellent MPS scores. This is now supported not just by our vertical structure in public sector, but also by our segmented sales structure in corporate. We win because of depth of knowledge. We're software specialists. We're Microsoft's largest UK partner and one of the most highly accredited We were recently named a Microsoft Inner Circle Partner for AI Business Solutions, which puts us amongst fewer than 1% of partners globally. We win because of vendor partnership. When we decide to work with a vendor, we invest in the relationship, the strength of our relationships with Microsoft and many other vendors in the top tier, such as Adobe, AWS, Check Point, Dell, VMware Rubric, ServiceNow. All of them and many more allow us to seize exciting opportunities, whether in cloud adoption, data and workload migration, storage security, virtualization technologies, or any combination of these. We think this positions us to benefit from structural growth of customer spend on Microsoft across the tech stack and cybersecurity, which is still a top priority for customers, as well as cloud, which still has a remarkable 83% of data estimated to be on-premise, and of course, not forgetting data and AI. On the software side, a lot of customer core investments is in areas such as data center modernization, data governance, Security, cybersecurity, modernizing their applications. It's in part due to the demands of business leaders are making on their people to use AI and be able to implement it effectively. In services, around 20% of our profit already comes from AI-related service, for example, across governance, adoption, and co-pilot, amongst others. but it's still early in the cycle versus the opportunity that our existing customers and what we see in the total addressable market. So it's fair to say that some form of AI service exists in all our vendor technologies and their technical roadmaps that are being developed with AI in mind. I'd like to move on to the services strategy and take a few moments to talk about the prominence of services in our business. Today, we provide a vast array of services, but at a high level, Our services split is roughly one-third professional project-based and two-thirds managed and reoccurring. Our customer and daily interaction is generally with the IT department. We're not providing support to end users. And we sell services to all our customer segments, but what we sell to each can differ. In mid-market, the public sector customers are more likely to outsource managed or support service due to their more limited internal bandwidth and capability, whereas larger corporate and enterprise customers typically look for a more specific solution. So why is services a key focus for us? Fundamentally, and at the core of our business, we think services helps us sell more software, makes our relationships stickier, and we're seeing huge demand in this area. Services support software sales by engaging our technical people with our customers' technical people. It builds trust. It covers additional opportunities for our account managers to prosecute. And this is particularly valuable at larger customers, which are more complex to navigate. These customers value partners who've been highly authorised or certified with a breadth of vendors and who are deploying technology for them and bring that expertise and myriad of skills that customers may not have. it's becoming increasingly harder for customers to stay on top of all the technologies that exist in their environments. So services makes our relationship relevant and customers often prefer to buy the software from the party managing it and our contracts are generally multi-year with very high renewal rates. We see huge customer demand as the continued shift from on-premise to cloud has helped IT departments become more focused on delivering outcomes versus managing the infrastructure. So what's driving the strong growth? It's a combination of push and pull. Our customers often want us to provide more services, viewing us as a trusted and reliable partner, And our account managers are increasingly recognised the attractions of selling services and how it deepens their relationships with their customers. So we're balancing internalising our services as demand scales for higher margin whilst maintaining a partner network for capacity. We've always had a strong partner ecosystem which we will maintain whilst we also expand our own offerings in specific and intentional areas. On the right-hand side of this slide, you'll see an illustrative journey for a customer around Microsoft Cloud. It starts with us using the Microsoft funding to provide a professional service for a customer looking at a business case to move workloads to the cloud and helping us better understand the customer challenges and requirements. We then look to win the customer existing Azure CSP contract if we don't already have it. And having a 24 by 7 technical support and FinOps tooling, this is often important to the customer. We then provide a professional service to deploy the workload into Azure. And deploying additional workloads drives Azure consumption and profit under the CSP contract. In the fifth step, many customers don't have the skills nor the time to manage Azure themselves, so we offer a good number of managed services to accommodate that. And then we deepen our engagement with the customer and the cycle repeats and we identify more workloads to deploy. So to summarise, through our passionate, talented and experienced staff, we are well positioned to continue providing high quality licensing advice and technical support service delivery to meet our customers' evolving needs. And this will remain our USP. I want to take the opportunity to thank our hardworking staff for their professionalism, their unwavering commitment to the business and for their focus on customer needs. we remain confident of delivering a full year outcome within the range of market expectations. And this implies an improvement on our first half performance, driven by our corporate sales structure being settled down and a smaller headwind from Microsoft changes. However, we're also mindful that comparators will be impacted by particularly strong trading performance that we saw in the last months of the prior financial year. Despite the uncertain macroeconomic environment, we feel we're well structured and motivated to capitalise on positive sector trends and to continue growing this business. And with that, I'd like to open the floor for questions. Thank you.

Thank you. Julian from Investec. A couple of questions. One financials and one market. Financials, really sort of housekeeping. Software GP normally goes down in the second half sequentially just because of the seasonality of your business. This time around, could you maybe sort of walk us through the dynamics there for H2 because of the H1 headwinds? So, yeah, could we expect maybe a sequential uptick? um in the second half or do we see the same seasonal progressions um that's that's the one and the the more business related one is the marketplace platform uh when that rolls out at scale um could you talk us through some of the business model implications um in terms of i guess customer reach is it is it a much more scalable model is it a light touch model to the sales uh from salesforce um how does the service wrap around just some of the sort of implications maybe if we're sitting here in 18 months time and everyone's using the marketplace what what what do we expect

So the first question around GP and looking at half and half, particularly around the software element. So the first thing to note is that Microsoft GP has obviously been a headwind for us in the first half, and that was acknowledged. And at H1 last year, we said that the impact of Microsoft will be less than sort of 5%. We see a weighting towards the first half for two reasons, right? You have six months impact because the rebate changes started from the 1st of January, so four, six months of the effect. In the second half, from a comparative point of view, you only have four months. So that sort of headwind is less. And then the second part of that conversation is around the heavy sort of weighting towards GRI in the first, so that obviously throws off more profit. So you'll see a bit of a moving part, less headwind, more tailwinds in two aspects, as Sam mentioned, the Microsoft a change in the discount structures effectively from the 1st of November. So that changes behaviour as well. There'll be an effective price increase into the market. That'll take three years to roll through, depending on when you've renewed the contract. So it's a mixed bag. What we have seen in the past is that we've seen November and December being very, very rich from a renewal point of view around the security environment. And if we'd follow the trends of the past, you see a margin-rich environment there. But it's sort of 50-50 on the GP. So it's not sort of clear because of the headwinds and the tailwinds. But I think that you will see sort of a normal trend year on year given the mix between those two elements.

On marketplace, Julian, it's an interesting phenomena. I mean, look, marketplace has been around a few years and this is probably the first year where I'm starting to see the momentum and clearly Microsoft have just embellished and launched. Their latest version, we have Adobe. We've got lots of other vendors. So I think it's another procurement route for customers. A year ago, I wasn't sure that public sector would be leaning into it as much. And we've been surprised by a number of transactions we've done there with various vendors. So it's not... It's just a different way of us packaging up what we can do. We can create private offers. We can also wrap around services. We can protect margin in that regard. We can work intimately with the vendors as we would do. So it's all about customer choice. And that's effectively what I think Marketplace is about. There's obviously some clear ambitions and growth that's been thrown around, and we shall see, but it's certainly building momentum. I think internally, we have enabled all our sellers. Operationally, we've clearly invested. We've been part of launch programs with a number of vendors, Adobe and Microsoft, to name but a few. And I don't think we're going to not continue investing in that area, because if it offers customers what they want, we tend to be led by the customers.

money into it um a lot of capital got into it so one would assume that you'll be looking or hoping for some decent returns from it should we see that as incremental or would you like ideally incremental or is there a cannibalization or again sort of looking more an 18 month to a year out sort of journey for this

So I think what we have to look at is that we've had probably subpar investment over a long period of time into our IT. So there's a bit of a catch up into that space. So you mentioned a word earlier, is it scalable? And so the brand new tech that we've launched is certainly scalable. It's on the cloud and therefore we can run. I think there will be incremental returns on that environment. I think the argument's always going to be, does the platform enable the business or does it enable growth in the business? I think in this case, it's just enabling what the customer wants. So I think generally you're going to get the returns on that business, but it's hard to tie the two together, right? So if you didn't do it, would you have got it done? So that's the question. But it's newer tech, scalable, and obviously with older tech, it's less supportable, you know,

goes beyond support and those types of things so we're right up to date now cool thank you uh hi there it's charlie from jeffries just a couple of things from me uh firstly i see microsoft um As you alluded to, I think you're originally expecting it to decline low single-digit percentage points. But if I look at the first half results, Microsoft was actually down year-on-year 3.5%, I think. That looks to be worse than your original expectations. Where do you think the shortfall came from? Were you less successful in shifting people to CSPs or was the new logo momentum maybe less than you were expecting? And then completely unrelated to Microsoft, can you just give us a sense of your ambition for the services industry? If we were to look out five years from now, would it be 5% of gross profit, 10% of gross profit? What's the sense of ambition for the services?

So, Charlie, thanks for that. I don't think I sort of agree that we've delivered less than what was expected. So the 3.5% on the half year, and if we roll forward what I said before to Julian about the impact is four months out of the six. So on the full year, we might expect the decrease to be around 3% in total, right? And I'm just not guessing, but sort of summarising the impact of the second half would be lower. So it won't be 3.5%. 4% lower but it'll be less than that, right? So the total impact might be 3%. We said less than 5% so I think we're within that environment but it was the fully mitigated environment less than 5%. So what we've had a look at is the mitigation strategies of scale and you can see the software growth has been 8.9%. Arguably, that's an area that we could have done better, right, because in the past we've had GRI growing at sort of 15%, so there is a little bit of an element of we need to accelerate our GRI, and we can look to the sales segmentation and the focus internally impacting that number a little bit. I think we know internally what our move towards CSP would be, and it's in line with our expectations, and it's in line with Microsoft's expectations, which is more important, I guess. So we're quite happy with the CSP. Sam did mention that the changes on the discount structure puts CSP program higher up the food chain within the Microsoft space. So just to make clear, sort of Microsoft was focused on less than 5,000 users were sort of the main target for CSP. With those changes, I think that raises the cap to about 7,000 users becomes attractive. So I think there'll be an accelerated conversion into the CSP environment. Services, we don't report services as Microsoft, right? And that's one of the challenges in how we report our numbers. So Microsoft, what we derive directly from Microsoft or from Microsoft products is down the 2% that we showed. But some of that services growth has been a transition back into services. So that's the other mitigation strategy. And then beyond Microsoft, where we need more work, it was sell more other vendors into our customer space. And you can see from the decline on the corporate side and over only 0.4% growth in the GP, I think we've got more work to do in the other vendors as well. The lessons learned through this is that the changes from Microsoft has consumed an awful amount of management time and looking at managing that. And so once you're through that hump, hopefully that releases some of that management focus into focusing on other areas. So mainly the GRI growth and the other vendors would be good.

And just on the services and ambition, I think... You know, if we look five years out, I think that was the sort of timeframe you were talking. As our business grows, in relevance, the software, it's always going to be a hard juggernaut to keep up with and grow the services, GP in line with that. But we absolutely are seeing, as part of the mitigation plan that we had with Microsoft, driving up more capability, more GP around that. But also, it's a multi-vendor approach, as Andrew has just indicated. And as I spoke... you know, to the strategy earlier. So the ambition for me is could we get it up to 20% within five years organically? Potentially, but we're going to have to work hard and we, you know, have a very, very clear vision of the sort of services we want to keep developing. And the response so far has been great. I think this is where M&A might come in to help us accelerate some of that vision as well, because there is a limit to how many technical skills we can keep pulling into the business. I also think that there are certain opportunities that some of the skill sets that don't exist in our business now would be far quicker to embrace those if we did a bit of M&A in the future to work on that strategy.

I stole the mic. Three questions for me. First, sorry, Tintin Stormont from Deutsche Bank. What percent of the corporate business is still on EAs versus CSP? I'm going to try to ask that. Second one, in terms of a different way of asking about services, how should we think of the services attach rate at the moment, for example, in public sector where you have been selling more services already versus corporate? And What does success look like if you're measuring, okay, what the attach rate should be in a year's time or two years' time? And then thirdly, talking about picking up on the M&A point, you have talked about you have obviously a partner services ecosystem. What tips them over? First, how many are they that you normally partner with? And what would tip them over to this would be a good candidate to acquire?

So if I pick up on the services and M&A question, Tintin, thank you. In terms of the number in the ecosystem across our two organisations, you're talking maybe 50, 60, you know, partnerships that exist. spread across the wide portfolio of vendors that we're managing and those are partners that we have onboarded you know we've done all of the right due diligence with them because that's important as well and then there's probably a longer tail where you know we haven't onboarded but we might speculatively work with them and work on a deal and And assess their suitability. But coming back to what type of partner would we consider? We always maintain that cultural fit is the first and foremost variable that we would need to have in the formula of success. You know, because if a partner that we're working with doesn't feel comfortable, that they're aligned with our management style and our general culture, it's not going to be for us. And I will say that we have looked at some opportunities in recent months and it didn't quite fit the criteria for us. So we are actively assessing and partner ecosystem opportunities and assets is one of the areas, but obviously there's other pipeline as well. In terms of the attach rate, that's an interesting one. We've had more success in public sector because, of course, we've been more proactive in mitigating lower margins over more years. And I think the corporate entry into now taking full advantage of services that we've got, we're only just getting going. So the runway and the opportunity there I see being immense. And it is about taking our sellers on a journey as well because selling services and solutions is a little bit different to the transactional licensing behaviour that they've been used to over the years, but we're seeing success. And what we tend to do is put on a pedestal those sellers that have achieved very high levels of GP. In fact, most of our top sellers, they achieve multi-million pound GP at targets because they have done a combination of selling product services and managed services and maybe a bit of hardware as well so it's that it's that blend that really drives the success so attach rate is higher in public sector watch this space on corporate yeah

I noticed that Sam jumped in very quickly, so left me with that question. But as you rightly said, it's about a corporate question because public sector is very much EA and will remain EA driven. If you split the corporate sector into businesses, broadly the two segments so call them corporate and enterprise that's mostly dominated by EA still and that's where that sort of target changes for the next year so C's and D's from a size point of view A's and B's we've been active on the program for about three and a half years the CSP program has been around for 12 years but we've been very much focused on it for the last three and a half years knowing what was coming we are outgrowing our top line but about double in the conversion. There's still lots of headroom to go. So we're not there yet. So I'm not going to give you finite numbers, but I think your question is more around how much more to go. And there's multi-year stories. So we're not close to the top end of that.

Great. Thank you.

Hi, morning, it's Andrew Ripper from Palmier Liberum, a couple from me. Just wonder if we could talk a little bit about the corporate sales team and you gave us a pretty good explanation, Sam, of why you'd made the changes. could you just remind us of the sort of the, if you like the structure of the team, give us a sense of how many sort of important quota carriers there are within the team, you know, say, I don't know, over a million GP or whatever you think is a relevant metric and, And you talked about retention having remained very strong. Has there been any churn at all or are all the senior salespeople still here that were there the first of January and then sort of attached to that? You talked a bit about rebuilding the pipeline after the initial changes. Can you update us on that in terms of pipeline going into the end of the financial year and maybe give us a sense of ambition there? in terms of the next financial year and whether you expect to add any headcount or basically continue to drive better productivity out of the resources that you've got. So, sorry, a bit of a multi-part question, but just trying to flush it out.

Thank you, Andrew. In terms of headcount, we continue to hire on the front end in terms of sales heads. We've just, at both operations, stood up new sales academies. So this is intake of combination of experience and sometimes new to IT sales individuals. This is a cadence of hiring that goes on around this time and continues. gets the people ready for contribution in next year if they contribute. Anything, it'll be negligible, but, you know, this is all part of the process of building out more sales heads into the business. So, first and foremost, we are still hiring front end and we're also covering the growth and demand that we need around pre-sale specialists, solution specialists. So, that goes hand in hand with hiring more salespeople. The actual pipeline that we have visibility of for H2, as I mentioned, is solid. I'm pleased with it. We know we've got the season of security renewals upon us at the back end of this calendar year. So it's about executing against that. There's been much more meticulous management of that since Q1 and all of that conversion process. is going as we'd expected, bar the slower conversion rates in the first half. So at the moment, we're seeing that pipeline build out and that will continue into FY27. So for us, the sales segmentation is behind us. It's in the rear. mirror. Everyone's settled. Everyone's moving ahead. In terms of losses, we had one account manager leave us. It wasn't to do with segmentation. We did have a reduction and, if you like, a streamlining of some of the management lines. And we lost two managers. But that was very much part of our plan as reorganizing the sales. If I give an example, we had one of our top sellers. You talked about the top performers, the GP contributors. There's one particular lady who has been one of the highest performers on the BSS side for a number of years. She had a mixture of clients, about a third, a third, a third of public sector, corporate, enterprise and mid-market. And effectively, if I give you this example, She could have chosen which of those type of profile customers she wanted to serve as we moved into the new segmentation. And she picked corporate and enterprise. So that meant she relinquished those relationships with the other two thirds of customers they moved over. And she has been able to dedicate more time, more strategic intent into those relationships afterwards. Much fewer accounts. She went from, I think it was 14 down to seven. And so you can start to see now the strategic enterprise approach that she'll be giving these customers. Couple that with the technical alignment, the solution sales specialists that were also aligned into those segments. And she's partnering up and got her business partners involved. you know, around security or cloud transformation or SAM, FinOps tooling, and she can now go and prosecute those customers with a higher level of intensity. So, for the top performers, you know, I think what we've done in structuring into corporate and enterprise is we have grown up. We've become much more aware that those types of customers need a different way of being managed. It's strategic. It's about engaging at C-suite level and being very embedded into that customer relationship. Sometimes it takes time. Sometimes you need to devote a lot of meetings and energy to prove yourself to those accounts, which is why I think ultimately in FY27 we'll see the actual fruits of that coming through.

Thanks, Sam. And a quick one for Andrew. Just what's your guidance on cost growth, please, in the second half or maybe an absolute number for the full year? What are you saying on that?

So our underlying cost is 80% of it remains in the people space. So you will still see a cost growth into the second half. I've cut our cloth according to the GP growth, but we'll continue to invest in those frontline sales because that's important not only for next year but the year after. So you would see a cost growth, but it should be more muted, I guess, than last year. If you have a look at the consensus outlook, the element of cost that will grow is the commission, because you spoke about the top performers. If you recall, at the end of last year, we had over 50 people in, call it, the Million Pound Club, for want of a better word. And those individuals typically hit the accelerators into the second half, so you will see commissions come back stronger into the second half. So that will be an element of cross-growth and an element of employee growth, the salary cost, other than that normal sort of expectation. Thanks, Andrew.

Hi, Chris from UBS. Thank you for taking my question. Maybe one on Microsoft incentives. So obviously they made very big changes this year. But I guess, you know, for next year, they typically sort of talk about any incentive changes right about now. So I was just wondering if they're making any big changes for next year.

Hi, Chris. Thanks for the question. So I've just come back from Seattle actually last week. It was the large scale strategic partners globally that are invited a couple of times a year. And it gives us the opportunity to obviously spend time with the exec teams, the different product teams, try and understand their go to marketing strategies. They tend to test products. or bounce around any ideas that they might be thinking of with the group, I'm pleased to say, it doesn't mean to say they won't do anything, I'm pleased to say I think we, apart from the price increase that I referred to on the 1st of November, there aren't any more dramatic incentive changes planned. I think they know they've... The reaction from the channel a year ago when we got that news, you're right, it was about this time last year that we were sat, Andrew and I, trying to explain it. I think we were one of the first partners out of the block that had results. And we were, you know, I think spotlight was on us to explain it. So I think they made some pretty bold moves when they did that. They've restructured as a business. They've just brought in a lady, a new executive that's ex-Cisco, Splunk, I was introduced to her. She's very mindful of channel being important. In fact, all of the execs and the strategy from Microsoft at the moment seem to be leaning heavily into channel. I've talked about in the past the fact that it does seem to be scale partners that are benefiting from more attention, more support. We're certainly in a very privileged group and amongst some strong peers when we sit down at the table with Microsoft and and talk about strategy. So it's a bit of a long way around answering the question. As far as I know, there are no further incentive changes. And I think if you were to ask any of our peers, they would come back with a similar answer.

Got it. Thanks.

Thank you, Chris.

Just one follow-up. On the second half, actually, you referred to these price changes from Microsoft, hoping it's going to drive an acceleration to CSP. Isn't acceleration in CSP embedded in your second half expectation, or is that something that would cause pleasant surprise for us at the end of the year?

I think a certain amount of conversion is built in, right, because you have this expectation from Microsoft, and we have got a percentage growth target from Microsoft. As I said before, we are tracking that. If we are right in a little bit of acceleration, I'm not quite sure I'd term it a pleasant surprise or a surprise, but certainly something that we will be actively working towards. And yeah, I wouldn't put a number on it because obviously that's, you're convincing a customer with the renewal at the right time to change. Yeah, so there's a moving factors within that. Bear in mind that the time that you move programs is the time at renewal. So if you had a three-year EIA agreement that is only terminating in, I don't know, November next year, that's the time that you get to convert it. So the Microsoft, call it discount structure, is changing. It will take a full three years to wash through the system.

Or if you're a three plus one EA agreement, you could be as far out as four years before you hit the point of, okay, now I've got to decide, do I continue on EA or go CSP?

I've got a follow-up on Microsoft as well. Talking to Microsoft earlier on this year and one of the senior execs in the UK business, they expressed a great deal of satisfaction with the way that Bytes and Softcat had invested ahead of the curve, anticipating the changes that were brought in. And The intimation from that was that you were well positioned to gain share amongst the Microsoft partner community. Given you're now nine months into the change, how do you feel that you've done relative to the rest of the channel in adapting?

I think we have been very well prepared. I think there's also an understanding that the marketplace has been very competitive and that's because over the years there's a really busy ecosystem of partners that are authorised to sell CSP. But Microsoft have acknowledged that and they have obviously raised the bar around authorisation status and that removes some of the longer tail. Could they have gone higher with that? Could they have gone harder and deeper, potentially? Would they look at it in the future? Who knows? There's no announcement or anything I'm aware of. But I think there's no getting away from the fact that whilst we have built strong and we are very compelling with our ability to add value around the CSP motion, there are other partners out there that have been very tactical, sometimes naive and sometimes not known what they were doing. And then we've had customers knocking on our door that may have dealt with a very small Microsoft partner around a particular solution stack who had no knowledge or no comprehension of all the rest of the details around licensing. Those that understand Microsoft licensing will know it's an absolute dark art in terms of complexity. And anybody that tries to pretend they know it, if they haven't got that depth of skill, will soon get themselves into a pickle and that'll be a problem for customers. So we have bytes. experienced customers being very dissatisfied having dealt with customers that didn't understand licensing at the right level and were sold something transactionally very cheap. So I think that's been a compete for us. But we don't devalue our services. We're not looking at... taking price points down and reducing margins on a level that wouldn't allow us to keep investing in our business. So it's all about value when we talk to our customers and our overall portfolio of skills and depth of expertise and accreditation that we bring to those customer engagements.

So, Andrew, just interesting enough that in order to sell an enterprise agreement, and this is an old terminology, you would have to have been a law or an LSP. And Microsoft has not appointed any more LSPs or laws in many, many years. So there's roughly 20 service providers in the UK that can sell EAs, right? And these are typically, I mean, I sell Softcat, Computer Center, Trustmark, Boxer, and so on. And so the shift, you know, the bigger getting bigger. So it applies to everybody. So we don't see a sheer shift between those enterprise environments, but we do see the longer tail of the CSP environment. So strange enough, as we now try and convert people from an EA to a CSP environment, you're actually having more competition rather than less, right? into that declining environment. One of the impacts of ShareShift is that Microsoft's intent about changing the incentives is to get us as a community to focus on the CSP customers. So they've removed, call it the carrot, into going after the large enterprise because it's hardly worth your time unless you can cross an upsell. So that is the area that we feel that we can win. But we're not unique in that situation. You know, Softcat as well is ideally placed in that enterprise. If you've only got an EA environment and not a sort of a multiple sort of solution driver, then I think you'd be the loser in that space. So you can... I'm not going to name the guys, but you can bear in mind who they are. And hence our sort of driver towards other vendors and services to complete a holistic offering. Once you're in the door of Microsoft on an enterprise agreement, our job is to cross an upsell. And where do you cross an upsell? You cross an upsell up the value chain within Microsoft, other vendors and services. So that remains unchanged.

And just sorry to add to what Andrew's described there. I think the scale partners, we have a plethora of accreditation specialisations that actually give us access to lots of different funding pots. And that's where we have a differential versus the smaller players who might have access to just one credential area. And funding in that specific technology area, what we can do is have a much more joined up conversation and move them through various technology stack areas and potentially access the funding to help them get going.

So one of the other call of tailwinds that we haven't discussed, and Chris, let's go back to your question about incentive changes, but this is not an incentive change. But the CSP, when they launched CSP, call it 2011, 2012, anyone could be a CSP seller and contribute to the program. What Microsoft has done... Twice now is that they've upped the bar. So you have to do, I think it's around a million pounds a year or a million dollars a year to be a CSP provider. So that takes out sort of the longer tail. But what they've also done is they're looking at an indirect. So indirect is when those partners come to us and that's a growth area for us. They've just moved up that number to $30 million a year. So if you're not... You're contributing to them $30 million a year. You can't be an indirect provider. And so I think there's about 200 indirect providers across Europe and a large number of those probably... are beneath the $30 million number. Now, that includes Disties and so on that maybe Microsoft's a small percentage of their business. So the question is, how do we benefit from that? And it's something that has been added to our growing list of priorities, I guess, internally.

You've been very patient.

I think a lot of the questions were already asked. I just wanted to ask a few, if I may. Sorry if I missed this out. So you obviously talked to the 750 accounts that changed hands. I think it's fair to assume that when we first heard about the number of accounts being changed, I think there was an assumption of like 20 plus percent attrition in those accounts. But I wanted to understand, has that turned out much better than you expected in those account changes?

So what I am pleased to confirm is that the growth of those accounts that changed hands is equal to the growth of the accounts that were retained with the account manager. So I think that's the evidence, isn't it, that we haven't... We haven't seen the impact in a negative way. And it's really about now the growth kicking in and moving us forward on that journey with those customers where the relationships, you know, back to Q1, for various reasons, took a little bit longer to settle down. But as I've talked about in my presentation, we're pleased with everything we've seen from there. So I'm happy to say that those growth areas are not sending any signals to me that we've got issues.

Second, obviously, we've discussed Microsoft a lot, but when you look at the GAI, Microsoft GAI grew 7% and a bit. Obviously, overall, GAI is up 9%. So a lot of the other vendors, and we forget that you actually work with all these other vendors, are doing quite well. Do you want to call out any trends or any vendors?

So I guess I have intimated some of those areas. So we've talked about, you know, the data centre investments. And so partnership with the likes of Rubrik has been important. Actually Broadcom, VMware and some of those vendors that you might classify in your head as virtualisation and so on. But we've had some good growth also with ServiceNow. I've talked about this vendor. Again, we're strategically working with them. And in the next few years, I hope to be able to report on substantial growth with that. But lots of security vendors. I mean, we represent a very, very rich portfolio of security vendors to address all of our different segmental customer needs and price points from different vendors will resonate with different customers in different ways. So security, again, is an area that we continue to want to grow in. And then you come back to some of the classical vendors like Adobe and Dell, Sophos and so on. And, you know, these are partnerships that we invest heavily into in terms of time, team, sometimes funded heads. And those are all vendor names that, you know, I'm proud to be associated with.

And some of the services growth you anticipate will potentially come from those, like cybersecurity.

Checkpoint is an example. It has been a well-established partnership within the business through the Byte Security Partnership acquisition years ago. And that has brought some superb skills, capability within the business. And so that's an example of non-Microsoft that we're doing very well with.

I can't let you go without asking one more question on Microsoft. So when you look at the US posting by Microsoft on the November 1st changes, they specifically carve out saying the US government institutions or the education institutions would not be affected from that pricing change. I wanted to understand what would happen next. when it comes to public sector, but not just number first changes, but just what is Microsoft thinking about public sector in UK and how they are trying to incentivise?

So in my Seattle trip last week, there are some new VPs that have just been put in place to cover public sector globally and at a European level. And I think it's going to be interesting as they get closer and understand that public sector business, because my opinion is that whilst they've obviously had huge, colossal contracts around the world, one with public sector, they tended, well, they have made decisions in the past that were very unilateral and didn't tend to think of public sector's nuances, or they did so belatedly. So I think front of mind for Microsoft now, public sector is a huge growth opportunity. I think they're also understanding that down at different country levels, those government agreements have been agreed, they've been put in place. And so we have our own UK version. However, the price increases are going to affect those customers. And so it's a question of trying to understand how will customers react to that. So back to Microsoft. Andrew's point of at that point of renewal, you know, how are they going to think about their renewal and their budgets? Public sector budgets aren't necessarily increasing in line with those price increases. So will they look at the different SKUs, the premium SKUs or the lesser premium? Will they look at consolidating other vendors? I think it's going to be a conversation with each customer, a unique one as we go through that discussion.

Last question I wanted to ask is that But over the years, like when I do channel checks on you guys, one of the things that come across is like some of the systems you have, like the quantum system, for example, because obviously everybody struggles with these complexities of changing license agreements and other dark arts, as you mentioned. Is that still differentiated?

Yeah. And also we have our own IP and license dashboard, which came from Phoenix as well. So between quantum and license dashboard around FinOps and our ability to give customers line of sight of their assets and to manage them more effectively and do optimization, I think we've invested in all the right platforms. Thank you.

Thanks very much. We've got questions from the webcast and the conference call. If you'd like to ask a question on the conference call, please press star 1 on your keypad. People who are on the webcast, please enter your questions in the bottom of the toolbar below. We'll just pause one moment just for questions on the conference call. Okay, we'll move to your first question from the webcast. It's from Ruthabo Falele from Alan Gray. Regarding the account management restructure, was the restructuring vendor mandated? Why has the generalist structure not been a hindrance for bespoke advice to clients to date? And B, noted to that public sector sales team has operated on a segmented basis to good effect, with most of the public sector business running through Phoenix. Was the restructure mainly based through bytes?

Absolutely. The only changes were in the corporate Bytes area, not the Bytes public sector team. And it was segmenting those, as I described in my presentation. So there was no need to do it in any of the public sector teams. Phoenix already had their vertical industry go to market. And in terms of how that's changed the interaction, I think we've covered that in the presentation adequately.

Thank you for that.

So just to complete that answer, it wasn't mandated by the vendor environment, but we feel it is more aligned to most of the way the vendors operate. So if you look at small, medium, corporate and enterprises, sort of broad segmentations, most of the vendors have specific teams focusing on those areas. So now what it does do is it gives us a one-to-one relationship. So if our enterprise sellers are now talking to the enterprise team within Adobe or within MomCost or within AWS, for argument's sake, but not mandated, but certainly aligned.

Yeah. And I think just to also call out that it was conceived as the right strategy about this time last year. So, this wasn't a belated or a quick decision for Bytes at the start of the financial year restructure. It was something that the BSS management team felt strongly about that the time, the maturity of the business, the scale of it required this. And so, Consequently, the start of the new financial year was a very logical point for us to embark on that change.

Thank you, Sam. The follow-on question was incentive changes. Noted that CSP is higher margin for the partners. Is this also true for you or are the reduced incentives on EA's net negative for BytesGP And B, I couldn't understand the basis for why you expect lower impact from the reduced EA incentives in H2. Are the changes not effective for at least 12 months? And how would you improve the effectiveness of CSPs to be good? Are they not lower margin for you?

So let's deal with that sort of EA question first. The EA changes happened effective from the 1st of January in 2025 because most environments are on an annual renewal basis. So when you look at... If you've signed up for an agreement, whether it be a year agreement or a CSP agreement or EA agreement, you would have to renew those, as some say. So even if you've signed up for a three-year agreement, you get billed annually. So all those... Billings that we do would occur in a rolling 12-month cycle. So what we're saying is that once you build them in this calendar year, then you add a new low base, right? So if your percentage – yeah, just let's take a view of if you – If you sold a million pounds and you were getting 10% and now you're selling a million pounds, you're only getting 5%. So now you've reduced it down to 5%. That 5% remains for next year. Now, that reduction of 10 to 5, we've had six months of it in our first half. We're only going to have the reduction of 10 to 5 performance in the second half. So that's why that would sort of disappear and it will not roll forward. So it's totally through our base by the 31st of December this year. So I think that... I've got nods around the room, so hopefully that explains it better. I don't know how else to sort of explain it. Then on the margin on the CSP environment, so how the rebates work on EAs is Microsoft dictates the price and we get a slice back and a rebate, right? So there's no pricing competition to the customer itself, right? You can give back your rebate if you wanted to, but it's marginally small, right? So you're talking about, you know, percent sometimes on the csp environment what microsoft has done is they've reduced so they've got a recommended selling price and then they've got a vendor price and that allows the vendors to make a margin you're still in control about how much margin you're adding right so if it's If your selling price was 100 and you're getting it for 90, you can increase it to 105 if the market will take 105. So the increased competition means that you need to be now – because now pricing matters, right? So you can bid at 95, 96, 91 if you want to. So you're in control of that margin. So it's not necessarily just a cut and dry that you're going to get more. The opportunity is that you can make more. And how you make more is about the relationship and the value add that you put into it, because it's not all about the pricing. It's how you sell it and what you sell rather than how much you sell it for.

Wonderful. Thank you for that. We're going to move to a question from the conference call. It's from Martin O'Sullivan from Shore Capital. Martin, please go ahead.

Yes, good morning. Thanks very much for taking the question. Obviously, we've had a lot of questions already, but I just had a very simple one, if I could. In terms of the CSP transition, what differentiators do you think matter most in the CSP environment and how are you positioning for that?

Hi there, Martin. Thanks for the question. I think it comes back to the point I was making earlier. I think, look, CSP can be viewed as a transaction, but actually most of our customers, mid-market, corporate, enterprise, value CSP. a partner that understands the technology that they're buying and advice and actually access to some of the funding that may or may not be available around that, but also the value-add services that we wrap around it. It's been commented on by Damindu Quantum Tooling as an example and so on. Our sellers have got actually a rich portfolio of ways of enhancing that conversation around CSP. We tend not to just think of it as, you know, bang a price out there. Let's really get to understand the customer's requirements, what they're trying to achieve, what SKUs they're looking at. And we might be able to work with them to develop a much better outcome than they originally set out to achieve. So, I think that's our USP. We're not just there to to provide a price. It's a journey we want to go on with our customers.

The difference between an enterprise agreement and a CSP agreement is largely around flexibility. So when you enter into an enterprise agreement, what you typically do is saying I've got 10,000 users and I get a price list. And I get billed for those 10,000 users for the full year. And at the end of the year, it's called truing up or truing down. You're allowed to, strangely enough, true up as much as you like. but you're not allowed to true down more than 10% for some odd reason. But you then true down and you get billed for the second year and you get billed for the third year. So if you look at the consumption model, particularly around Azure, that doesn't really fit into an EA agreement. So where CSP comes to life is CSP gives you the ultimate flexibility because you're getting billed monthly on the actual usage, both in your license uses and your Azure. So you're able to scale up and down rapidly. So if you look at a retailer that's hiring maybe hundreds of people for stock taking in Christmas seasons and you're able to put them on and then take them off again, you don't have to commit for a long period. So that is the sort of the sweet spot. And then. If you want further discounts around the CSP, what you do is you commit, not on the user count, you commit a spend. So you now commit a spend of, let's say, £10 million over a three-year period. And you find yourself in the sense of, okay, I've only used, I don't know, £8 million. And the strength then of the marketplace comes in is how do you burn down your commit? You can now go into the marketplace and burn down that sort of example of £2 million buying other products through the Microsoft marketplace. So that sort of brings back from our point of view and from the customer's point of view, if you're going to get an extra 5% discount because you've committed £10 million and then you're able to burn down that discount. into selling a different vendor through Marketplace. And now you can sort of join the dots of why it's important to be multifaceted back into your customer space because it's not only about Microsoft. It's about anything else that's going to run on Azure that Microsoft's interested in. So they're not interested in Adobe licenses, but they're interested in can I run Adobe on Azure, and that will stimulate cloud growth. So it's all interconnected, and that's why the sort of – sort of multifaceted strategy. Microsoft first, other vendors and services to underpin it. And all of those are important. And then the marketplace investment into our systems. Maybe this last comment brings it to life for everyone.

Thanks very much. That's really good. Thanks very much. Thanks very much for that question there, Martin. Next question is from Timothy Alls from Laurium Capital. Please could you provide more colour on your expectations for H2 and the next financial year? If you were to weigh up UK macro pressures versus structural demand drivers, is 7% to 8% GP growth from FY27 still achievable? Do you want to go with that?

I think, We've moved away from talking about the macro headwinds and tailwinds. And I think what we look at is the Gartner IDC growth environment, particularly around the software environment, being sort of 8% to 12%, depending on what segmentation that you're playing in. So I think that we can achieve that growth next year. And you look at the evidence of that. Why would we have a flat growth in H1 and then return to a 7% or 8% next year? And I'll call out two figures very briefly. First, Firstly, we spoke about the headwinds of the Microsoft environment disappearing. So we've just discussed that it's 3.4% on the GP. So remove that. So automatically, I've got a comparator that's 3.4% higher. And then you look at the pull forward that we had from... Q1 to Q4 last year and we've sort of spoken about in the past around 2 million. So you add that because now you're sort of 2 million less in the comparator and you quickly find yourself at a normalised base growth of north of 5% already. So it's not a big stretch of the imagination to get to high single digits growth. So if you look at consensus around 7, 7.5, 8% and I think that's what is, you know, doable. And I don't want to dig my own grave here, but I think, you know, that would be normalised growth for us next year. I think the cost side is somewhat different for us because we have two elements coming back into next year. We've spoken about a capitalisation of internal resources, looking at the IT dev environment. So if you look at the script, it was £700,000 that we capitalised in the first half. Now, those resources are targeted at the second platform that we spoke about. And if that goes live in the, call it Q1 and FY27, that means that headcount come back into our cost base. So that gives us, call it 1.2 million, 100,000 pounds a month coming back into the cost base. And that extra million pounds with the depreciation that we've spoken about, then also comes back into the thing. So you're talking about, you know, call it £2.2 million additional cost that we don't see this year. So that creates a little bit of sort of the cost driver. So if the GP grows at, call it 7% or 8%, we're not seeing the operating profit at this stage grow at the same rate for next year.

Thank you. Next question is from Patrick O'Donnell from Goodbody. Ignoring MSFT incentive changes for a moment, how would you describe existing spend amongst your customer base, both on a private and public side? Can you show examples of the wallet share expansion? If so, how would you describe price sensitivity given the macro environment? Perhaps if you could delineate between public and corporate side on this too.

Thank you. Thank you for the question. So following Q1, where I think, you know, we absolutely did see a reaction to the macroeconomic situation, the wars, I believe that business leaders and public sector as well. have had to continue with their investments. We typically sell, keep the lights on software solutions. So it's really non-negotiable. They've got to keep renewing and the renewals that we follow through each year. We have a very tight programme of activities around that. So it's always been about the additional spend and upselling and incremental areas, services and so on, that we'd like to talk to our customers about. And what we have seen over the summer, and we continue to see in the pipeline as we go forward for H2, is the services side, the software solutions, and the renewals being converted at the level that we've been used to in the past. So, from that perspective, I think as much as the macroeconomic issues have not gone away, people have become a little bit more used to just tolerating them and getting on with the business. So, You've asked me to delineate between the two industries. So if I think about public sector, we're already in this year's budget cycle. And our growth with public sector at a GII level would indicate that we're still working very well in how we bid and how we win business and convert it. Of course, we've been impacted by the Microsoft incentive changes. And then I come over into the corporate world. And again, I think there has been a rebound in confidence. Maybe confidence is the wrong word. a realistic reality checker. We just need to get on and run our businesses and invest. So, whereas the pause button, I think, had been on with some of our project areas and investment areas a couple of quarters ago, people at the moment now seem to be back to normal spending levels.

Thank you, Sam. George O'Connell from Progressive Equity Research. Good morning and thank you for your presentation. Can you give colour on the receivables movement and the consequent impact on DSO? Do you have a target model number in terms of days? Many thanks, George.

I think the movement both from debtors and creditors have been very much in line with each other, number one, and in line with what our expectation from a seasonality point of view. When you look at the cash conversion at first half, and I know – It's in line with the seasonality. We would expect sort of a 50%. I know it's 34%, but if you work out the numbers, it's not that far off, but I won't delve into that. And then when you look at our debtors' days for the full year, if you wind back the clock four or five years ago, we were averaging 32%, 33%. I think more our internal target would be sort of 37%, 38%. And that's an important number because we – contract our vendors and our suppliers at 45 days. So we still get a positive movement in working capital. So we should then, all being equal, still be able to deliver over 100% of cash conversion in the full year or in a rolling 12-month basis.

Thank you. Our final question today is from Tamishu Mothlanth. You talk about the pipeline being strong. Can you contextualise today's pipeline versus six months ago versus 12 months ago?

Hmm. Six months ago would take us back into a very busy period, public sector and corporate, you know, as we chase down towards the end of Microsoft year end. I would say that we're back at those levels. If you ask me to go back... 12 months ago, so a year ago to date, I think we are absolutely on a par with the growth that we expect for the business to get us back on track. So from that point of view, on a 12 month basis, we've certainly seen an increase and that goes hand in hand with our optimism, cautiously optimistic around H2 performance.

Superb. Thanks very much. That's all the questions we've got time for today. So Sam, I'm going to hand back to you for any closing remarks.

I just want to thank everybody for your time and your interaction. I enjoyed seeing you all today and thank you for everyone that's dialed in and for the questions that you've raised. Thank you.