Bytes Technology Group Stock

So good morning, and welcome to Bytes Technology Group's half year results for 6 months ended the 31st of August 2026. I'm Sam Mudd, the CEO, and I'm joined this morning by Andrew Holden, our CFO. When we presented our results last May, we set out a series of changes we were making to the business. And we said those changes would show through in our performance during this financial year. And I'm pleased to say this morning that they have.

BTG is building the U.K.'s leading trusted adviser on AI, cloud and cyber, providing technical expertise and managed services to capture a greater share of our customers' technology spend. I'm going to start with the highlights of the half year and how we have delivered against what we set out. I'll then hand over to Andrew, who'll take you through the numbers in detail. And I'll come back after that to talk to you about our market, our strategy and the outlook for the rest of the year.

So turning to Slide 3 and the highlights of the half. This has been an encouraging 6 months for the group with broad-based growth across both our businesses, across our product set and across our vendor portfolio. Gross invoiced income grew by 19.6%, gross profit grew by 17.8% and operating profit grew by 6.6%.

Trading was ahead of our expectations through the period. And as a result, we were able to upgrade our guidance for the full year in September. There are 4 key points I want to draw out on this slide. The first is that we grew in both sectors. Public sector gross profit was up 23.1%. Private sector gross profit was up 14.6%. And that balance is worth a moment because the changes we made last year were to our private sector sales organization.

And the fair question to ask was whether we had given up ground with customers whilst we made those changes, and we had not. Both businesses have grown double digits. The second point is that this growth extended well beyond Microsoft. Microsoft grew broadly in line with the group as a whole. And our security and hybrid platforms businesses, they grew alongside it.

So no single vendor, sector or product line carried the half, making for a more resilient, balanced portfolio. The third point is capability. We have increased our technical delivery headcount by 17.4% year-on-year to meet the demand for managed services. And today, we announced the acquisition of CyberOne. I'm excited to share more detail on that later.

And the fourth point is guidance. As announced in our trading update last month, we now expect gross profit growth for the full year in the low to mid-teens with low to mid-single-digit growth in operating profit. You will also see Microsoft on this slide. The next set of partner incentive changes take effect this month, and we've planned for them, and we have the opportunity to benefit from them. Later in our presentation, I'll share more detail on this.

Alongside all of that, we returned GBP 41.3 million to shareholders during the half, completed the GBP 25 million share buyback we announced in May. Moving on to Slide 4. I want to be quite specific about how we have delivered against what we told you in May because we made a number of commitments in that presentation, and we are delivering on them.

We said that the new sales structure in our private sector would support growth and gross profit is up 17.8% with double-digit growth in both sectors. We said that services would grow the share of the group and the services gross invoice income is up 41%, and the acquisition of CyberOne now accelerates that further.

We said that Bytes and Phoenix would align to the sectors they serve. That work completed in July, and it completed with every single customer retaining continuity of account manager. We said that this financial year, we would carry around GBP 4.5 million cost normalization and that operating profit would be broadly flat as a result. Operating profit is up 6.6%. And we guided to high single-digit to low double-digit gross profit growth for the year, which we have since upgraded to low to mid-teens.

I am confident at the end of this presentation, you will understand where BTG is going, why the organizational changes were made, why we're investing and acquiring in CyberOne, why AI matters and why growth will continue with software licensing at the core.

With that, let me hand over to Andrew, who will take you through the numbers in more detail.

So good morning, and thank you, Sam. I'm pleased to be here to take us through the set of numbers for the half year. Turning to Slide 6 and the headline numbers for the first half. Gross invoice income increased 19.6% to GBP 1.6 billion, with growth coming through across software, hardware and services gross profit, which, as you know, is our primary measure of performance, was up 17.8% to GBP 97.1 million.

Operating profit grew 6.6% to GBP 35.3 million after absorbing half the cost normalization we set out in May. Earnings per share were up 6.1% to 12.7p and we ended up the half with a net cash of GBP 68.4 million, having returned GBP 41.3 million to shareholders during the period.

Cash conversion was 46%, which compares favorably to the 34% for the same period last year. This equates to 109% on a rolling 12-month basis. I'm pleased to say that the Board has declared an interim dividend of 3.3p per share, an increase of 3.1% from last year.

Moving on to Slide 7 and the income statement in more detail. Starting at the top, gross invoiced income grew 19.6% to GBP 1.6 billion. Gross profit grew 17.8% to GBP 97.1 million. Overall, gross profit to gross invoice income margin was broadly flat at 6.0% against the 6.1% last year.

Administrative expenses increased by 24.7%. And within that, employee costs rose 22.3% to GBP 48.2 million. Our total headcount for the first half only grew 2% to 1,353 employees. So the driver for this cost increase were more to do with normalization than headcount expansion. These costs were all flagged at the full year and include the developer salaries that were capitalized last year and now recognized as expenses as those platforms are now complete.

Bonuses have returned to a normal level, having been suppressed last year where we fell short of our internal targets and commissions were up in line with gross profit, which, as a reminder, was up 17.8% Other administrative expenses increased 34% to GBP 13.8 million, which includes amortization of those platforms, continued systems investment as well as once-off fees related to sector alignment, the executive changes and the Board changes announced.

Taken together, these are the components of the GBP 4.5 million worth of cost normalization we set out in May with around half of it having landed in the first half. Operating profit grew at 6.6% to GBP 35.3 million, and our OP as a percentage of GP was 36.4% against 40.2% in the same period last year.

Now I'd like to address this ratio directly as we expect this ratio to be a low point this year. As the cost normalization annualizes from FY '28 onwards, and we make full use of the sales and technical capacity that we've already built, we expect operating profit to grow broadly in line with gross profit from FY '28 with the ratio recovering from there.

Below operating profit, interest income of GBP 4.9 million was lower than last year, both on lower rates and a lower average cash balance. Profit before tax grew 3.6% to GBP 40 million, and our effective tax rate was 25.3%, which is broadly in line with the U.K. statutory rate. Profit after tax grew 3.1% and earnings per share grew at 6.1% with the difference reflecting the shares that we repurchased during the period.

Turning to Slide 8, where we break down the first half by product and sector. Taking the sector first. Public sector gross profit grew 23.1% and private sector gross profit grew at 14.6%. So both sectors delivered double-digit growth. Public sector margin edged up from 3.4% to 3.5%, and the private sector margin moved from 12.5% to 12.2%.

We don't see this as a negative, but rather as an indication of our success in our ongoing efforts to move customers from Microsoft enterprise agreement programs where Microsoft invoices the customer and pays us a fee and therefore, 100% margin. As we move across the CSP where we invoice the customer, carry the cost of sales and the reported margin comes down even though the gross profit does not.

It is, therefore, a mix effect and not a pricing one. And this is a good example why we preferred gross profit as our primary growth indicator. Looking at the product split. Software gross profit grew 15.8%, with this margin broadly stable at 5.4% and hardware more than doubled, albeit off a small base.

Services gross invoice income grew 41% and the services gross profit grew 12% to GBP 9.3 million against the comparative period that itself grew by more than 40%. You will note that the services margins moved from 24% to 19%. This is because we brought in capacity ahead of the revenue that it would carry with technical delivery headcount up 17.4% since this time last year.

We expect that capacity to generate higher returns in the second half as utilization builds with security a strong area of customer demand. Our renewal rate was very strong at over 115% as we continue to grow our share of wallet from existing customers. We also brought in GBP 1.8 million of gross profit from new customers, a figure that we would expect to annualize at a similar rate.

Turning now to cash flow on Slide 9. Cash conversion for the first half was 46% against 34% in the same period last year and 109% on a rolling 12-month basis. As a reminder, our cash conversion always follows the same seasonal pattern. Our largest billing months fall around the U.K. government's fiscal year-end of March and April and Microsoft's year-end in June, the working capital associated with those months unwinds towards the end of our first half.

So a number below 100% is entirely normal for us. And this year, it's comfortably ahead of where we were a year ago. After the final dividend of GBP 16.3 million and GBP 25 million of share buybacks, we closed the first half with GBP 68.4 million of cash and no debt.

Moving on to the balance sheet on Slide 10. We carry very large gross receivables and payables, which is inherent in our business model and our GBP 68.4 million of cash sits against a negative net working capital of GBP 54.6 million, so the 2 need to be looked at together. We continue to collect from our customers faster than we pay our vendors with debtor days of 39 against creditor days of 51, helped by our weighting towards the public sector. So we hold a strong cash position deliberately, and we remain comfortable with where it sits.

Now Slide 11 and a reminder of how we think about allocating capital. Our priorities are unchanged. Organic growth comes first, and Sam will come back to this, but investing in sales and technical capacity remains where our capital works the hardest. Second is our ordinary dividend, and our policy is to distribute between 40% to 50% of post-tax pre-exceptional earnings. And as I mentioned before, the Board has declared an interim dividend of 3.3p per share.

Third is acquisitions. And we've said consistently that we would only act with [someone who] met our criteria on strategy, quality and valuation. And we announced this morning the acquisition of CyberOne that has met all 3.

This is our first acquisition as a listed business, and we continue to explore strategically aligned opportunities. Sam will speak more about the deal in more detail shortly. The fourth is we return excess cash where we've completed a GBP 25 million share buyback during the first half.

And then finally from me, on outlook. We upgraded our guidance in September and guidance is unchanged this morning. We continue to expect gross profit growth for the full year to be low to mid-teens with low to mid-single-digit growth in operating profit.

Two things to bear in mind for the second half. First, we are measured against a stronger comparative because the second half of last year is where our recovery began. And second, some of our costs are weighted towards the second half with commission accelerators applying once targets are exceeded, and the November sales intake are joining partway through the half.

We expect CyberOne to be earnings enhancing in the full financial year -- first full financial year of ownership and our guidance for this year excludes any contributions from it. From FY '28 onwards, once cost normalization fully annualizes and the additional capacity is fully productive, we expect operating profit to grow broadly in line with gross profit with operating leverage building from there on.

With that, I'll hand back to Sam.

Thanks, Andrew. Before I turn to what we did in the half, I want to spend a couple of minutes on Slide 14, explaining why our model is so well positioned in the market currently because there are 2 things happening at the same time, and both of them work in our favor.

The first is on the left, AI is increasing the portion of total business spend allocated to technology. Currently, technology accounts for approximately 10% of typical business spending, while labor accounts for under 50%. As AI absorbs labor-intensive tasks, technology spend is projected to move towards 1/3 of total expenditure. To give you a sense of the scale, global software spend is around $1.4 trillion, while global labor spend is around $65 trillion. So the pool AI is beginning to address is many times the size of software market that it's been sold into.

The second is on the right. There is a notable shift in how software reaches customers. Direct sales via vendor teams fell from 74% to 59%, while partner-led distribution rose from 20% to 33%. Vendors are intentionally moving towards partners because they cannot hire direct sales coverage fast, and they can't meet the demand and self-service models are often insufficient for buyers that require governance, cost control and negotiated terms.

So AI-native vendors are leveraging scale partners like BTG rather than relying on direct sales to achieve reach. What I would take from those 2 charts together is that through every one of these transitions, whether it's the Internet, the cloud or now AI, the margin in our industry has moved steadily away from the product itself and towards the expertise around it. And that's the direction that we've been investing in for the last 3 years. And next, I'm going to talk about where that investment has taken us.

So let me show you on Slide 15, where the growth actually came from. The chart on the left shows the shape of our recovery. On the right, we have set out the picture by income stream. Software gross invoiced income was up 18.8%. Hardware was up 39.7% with gross profit more than doubling and services was up 41%.

Microsoft accounted for 52% of our gross profit in the half and grew broadly in line with the group, while our non-Microsoft business grew alongside it, led by security, by hybrid platforms as customer refresh infrastructure projects alongside their cloud investments continued.

I want to take on one question directly here. Is the recovery the market or is it us? And my answer is that it's a bit of both, and I would not pretend otherwise. The U.K. technology spend has improved this year, and we would expect to benefit from that. But a stronger market on its own does not deliver 23.1% in one sector and 14.6% in the other. This is a result of our driving customer centricity.

Numbers like those are the sum of individual customer relationships, and I'd like to share a few examples of this on Slide 16. Samsonite is a new customer, and it's a good illustration of where we're heading. We're consolidating around 300 of their sites onto a single managed network platform over 5 years, taking around 1/3 out of their network costs with a path to around 1,000 sites globally. That's around a GBP 6.5 million project total contract value. And this is international services. It's services-led partnership, and it does not include Microsoft.

Howdens, we've been working with them for 10 years, and we're now the strategic cyber partner advising on security transformation governance, AI security, risk management across the whole group. And we're proud to also work with the University of Oxford, one of the best universities in the world. We support more than 40 of their vendor relationships increasingly advising on how the whole estate fits together rather than just on a single product.

And then finally, DEFRA, where we renewed the Microsoft licensing for a further 3 years on a substantial contract. So no one logo -- sorry, one new logo, one continuation, 2 relationships and 2 of them getting deeper, great public sector customers and 2 great corporations, evidence of our strategy working for us in different ways.

So turning to Microsoft on Slide 17, who remain our largest vendor and our most strategic partner. Looking back first in January 2025, Microsoft reduced their incentives available on enterprise agreements. And you can see on the chart what that did to our growth rate. These changes are now fully annualized with a return to material GP growth.

Looking forward, there's a further set of announcements coming into effect from October this month. Microsoft set out to reduce commissions available on certain legacy products whilst increasing growth on products around enhancing incentives that are available on CSP. The growth products carry higher margins and they're precisely what we're built to advise on security, AI and cloud workloads.

And because those enhanced incentives are largely orientated around CSP, they reward moving customers on to longer multiyear commitments, which deepens the relationship and improves the visibility of the gross profit that comes with it. We have the sales readiness in place to go after that. It will take time. It will not all land in a single year, but it's a real opportunity and one that we've been building towards.

What I would say is that we go into this change very prepared for 3 reasons: -- our segmented sales, that structure now put specialists in the front of exactly the customers most likely to need those growth products, which was not the case 18 months ago.

We have Seller Insights, which we launched this half, and it gives every account manager a live view of the funding available on each account and that evidence from the customers' own usage and why the conversation is timely. And our services capability, now extended by CyberOne attaches directly to the products that Microsoft has chosen to reward. This change is already reflected in the guidance that we upgraded in September.

So moving on to Slide 18 and the second of the 2 structural changes we announced last year, which completed in July. Bytes now serves the private sector and Phoenix serves the public sector. Bytes is already generating 87% of its gross profit from the private sector and Phoenix, 97% from the public sector. So in practice has affected a minority of relationships.

The rationale is straightforward. Public and private sector organizations buy differently and need different support around what they buy. Our major vendors already separate their own sector teams, so this makes it easier for them to work with us, and it removes any internal competition for the same customer.

Getting closer to our customer calls for an adaptable organization that can absorb shifts, and I'm proud of how our group continues to show up as we refined our execution, no customer accounts change hands. Account managers moved with their customers, and that is the reason you'll see growth in this half rather than another period of adjustment. And it reflects a great deal of careful planning by the teams involved.

Driving customer centricity doesn't stop. The big changes we've made this year are in place and have delivered, but the real prize is what we unlock going forward, which brings me on to services on Slide 19. Services is the advice, the design, the implementation and the ongoing management that our customers need in order to get value from the technology they buy, bolstering customers to what comes next.

It is where the vendor funding is increasingly being directed. It carries a higher margin than product and the managed element of it gives us a deeper and considerably longer and more strategic relationship with the customer. Services gross invoiced income grew 41% in the half and services gross profit grew 12% to GBP 9.3 million.

We built the delivery capacity to support that with technical delivery headcount up 17.4% year-on-year. And with the 2 businesses each focused on a single sector, we can now build a services capability once and sell it through public and private, build once, sell twice.

Every pound we invest in a new service now has twice the addressable market it had before, and we stopped duplicating the same investment in 2 places. Andrew has already covered the services margin, which moved from 24% to 19% against the comparative that grew by more than 40%.

What I would add to this is that we have deliberately bought capacity ahead of the revenue that it will carry, and we expect the second half to reflect that. Our ambition here is a simple one. We want to be the single point of accountability for the technology our customers are running, covering cloud platform and how their people access it, the endpoints they use and the security around it.

Security is an area of very strong customer demand. And with the CyberOne acquisition, we now have that delivery capacity to keep scaling, which brings me on to Slide 20 and the acquisition of CyberOne, which is an AI-enabled managed cybersecurity services provider built on Microsoft technology. It gives Bytes its own accredited 24/7 security operations center, a SOC delivering managed detection and response.

The business has been established and has a strong position with the Microsoft security ecosystem, including recognition as a Microsoft Security Elite Partner and a member of the Microsoft Intelligent Security Association, MISA.

The initial consideration was GBP 19.4 million, funded entirely from existing cash with further performance-related payments over the following 16 months. To give you a sense of the business, CyberOne has been operating since 2005, employs more than 80 people across the U.K. and the Philippines. It's generated revenue of around GBP 10 million in 12 months to July, growing at high double digits with an expanding gross margin.

Around 90% of its income is reoccurring under multiyear contracts. So the quality of the earnings is high, and it sits as a U.K. cybersecurity services market. It sits in this market that is forecast to keep growing at double digits to around GBP 5.2 billion by 2029. We expect the acquisition to be earnings enhancing in the full financial first year of ownership, and our guidance for this year excludes any contribution from it.

Let me explain why we chose to buy rather than build apart from the incredible team at CyberOne that we're looking forward to working with. An accredited security operations center takes years to stand up because the accreditations, the people who hold them and the delivery track record that customers look for are all earned over time.

But meanwhile, our customers are buying this capability now as security is moving fast and it's in line with their budgets. Until now, we have fulfilled much of that work through third parties, and we can now deliver far more of it ourselves at a better margin and with better control of the customer experience.

It also unlocks something we've been talking about internally for some time. A great many of our customers already hold Microsoft security entitlements that they've never switched on or are not getting the best value from. And now we're able to take them from license through to fully managed service while owning both ends of that conversation.

Microsoft publicly welcome the acquisition in our announcement, which demonstrates how they see the combination of CyberOne's accreditation and our customer reach. Phoenix will continue to operate its own security capability for public sector customers, where the accreditation and dependency requirements are different. This is the kind of acquisition we said we would look for, strategically aligned, culturally compatible and funded entirely from cash.

Turning to AI on Slide 21. AI is the largest single item on our customers' technology agendas at the moment, and it's now driving growth across our core business rather than just sitting alongside it as a separate activity. The point I'd make is that adopting AI is not a single purchase. Before an organization can deploy it at scale, it needs identity. It needs access controls in order. It needs its data governed and it's security tested and its people trained and supported through that change.

We sell and deliver every one of those things. And because Microsoft sits at the center of most of our customers' workplace technology, a good deal of that governance framework already resides in the licensing that they own today.

So our role is to get customers to the point where AI can be adopted safely and then to make sure that the value lands with their people. Our ongoing work with the NHS is the clearest example. We first shared at the full year results in May that we are supporting the deployment and adoption of Copilot for around 0.5 million employees.

This followed one of the largest Microsoft end customer investment fund awards globally. And most of that work sits in establishing the use case, setting guardrails, training users, supporting the change, and Microsoft recognizes us as a frontier partner for it and our ability to deliver at scale.

There's a second opportunity emerging behind the first, and I think it's currently underappreciated. For 30-plus years, helping customers manage software spend has meant helping them manage licenses, which are accountable and broadly predictable. But AI is charged by consumption, which is neither. And customers are asking us how they control it.

The discipline is shifting from counting what an organization owns to managing the performance of what it actually uses, which happens to be our heritage. Software asset management and licensing is what the business was built on, and it's the right foundation for helping customers manage the economics of AI.

We're also applying AI inside our own business with agents built by our own teams now supporting technical consultant scoping work, reviewing and completing pieces of work before it reaches the customer. And we have our own Quote Comparison Agent that's reduced quote-review time from 30 minutes to 7 minutes. That's a 77% reduction. These are just a few examples of how we're modernizing our own processes to remain efficient in how we grow our business.

Moving to our people on Slide 22. Our hiring in the first half was deliberately measured with headcount increasing 1.7% since the full year to 1,353, reflecting our prudence in this period. Over the previous 2 years, we've added a significant amount of sales and technical capacity, and this half was about making that capacity productive rather than adding further cost.

Within the total, frontline sales headcount is up 4.4% since the full year and technical delivery is up 17.4% year-on-year, while sales support headcount was reduced as we completed the reorganization of the 2 sales teams. You can see the effect of that discipline in our productivity with gross profit per employee increasing 13% year-on-year.

So having made good use of the capacity that we already had, we will now add more with sales intakes joining both businesses, and we expect those people to be carrying full quota by the year-end and covering their costs in year 2.

As you know, new sellers take time to reach full productivity. So this is an investment into FY '28 and beyond, and we would not be making it without confidence in the demand that we see. With our London office expansion moving into new premises in August this year, that doubled our capacity. We're now being present in major cities, and it helps us stay close to our customers and attracts talent for the future.

Our engagement, Phoenix was ranked 51st in the Best Small to Medium Workplaces in Europe list and has also been named the U.K.'s largest public sector reseller for the second year running. And both businesses were named on the Great Places to Work Best Workplace for Tech U.K. 2026 list.

I'd like to thank all our people. They've absorbed a great deal of change over the last 2 years while continuing to deliver for their customers, and this half is very much their result. So to summarize, -- our growth in the first half was broad-based with double-digit gross profit growth in both sectors with Microsoft and other vendors.

The business itself is now simpler with the sector alignment complete and a common services capability being delivered across both our brands. Services is accelerating with delivery capacity up 17.4% and CyberOne will add our own security operations. The demand drivers in our market are strengthening with software spend growing ahead of IT budgets as a whole, AI, cybersecurity and infrastructure attracting most of the incremental investment. And our balance sheet remains strong with no debt and GBP 41.3 million returned to shareholders in the half.

I hope from this presentation, you now have a clear understanding of how BTG has been driving customer centricity in everything that we are doing. To reiterate, BTG is building the U.K.'s leading trusted adviser on AI, cloud and cyber, providing technical expertise and managed services to capture a greater share of our customers' technology spend.

Thank you. Andrew and I will now take questions.

I saw 3 handles go up at the same time. I think so. Go On...

I won't be greedy. I'll just do 2 questions. They're both relating to CyberOne. How should we think about the potential revenue synergy with CyberOne? If you think about your current Microsoft customers and maybe the readiness of those to take the CyberOne proposition, how should we think of who you're targeting, for example, for kind of the next 12 months? And does CyberOne have the capacity in terms of the infrastructure to support that?

Secondly, on -- again, on CyberOne and related to that, when we think about the GBP 18 million potential kind of earn-out, directionally, Andrew, can you give us a sense of what needs to be achieved for you to pay that out as well?

Shall I start with the first question, which hopefully then provides the justification for the latter. So we -- just to give you a little bit of background, we've spent nearly a year as of November this time last year, getting to know the CyberOne team. So this has been a relationship and, if you like, a due diligence that we've worked hard to understand.

As a business, they are absolutely fit for purpose in terms of mid-market, which, as you know, is our sweet spot in terms of selling up to maybe 5,000 seats. They have some international clients. And in terms of the capacity, one of the main due diligence areas that we, of course, wanted to investigate was were they ready to take what could be the machinery of the sales private sector Bytes team and interest in leads that were generated.

And we were satisfied that they have built automated the AI-enabled platform in preparedness for that. So we are comfortable they can scale as our growth with them continues. So we will be focused on addressing the private sector mid-market in the U.K. opportunity with that CyberOne partnership. I'll hand over to Andrew on the earn-out.

Okay. So thanks, Sam. So the earn-out is based on February 28 numbers, so approximately 16 months, assuming that the NSIA clearance comes through as expected in 10 days' time or so. We have based the earn-out on their own forecast, not on forecast including us. So that should be seen as an accelerator. And when we look at the capacity to grow, it's quite interesting is that they built the company with a significant management overhead where they are sitting at the moment.

So they're able to run the company with probably 5 less managers than what they currently have. And that's one thing that attracted us to the business is they built it to grow. So we feel that absorbing the growth from ourselves would not enhance their cost base as a management level and then most of their delivery capacity sits within the Philippines. So fairly easy to grow the appropriate staff within the Philippines environment.

What we're hoping to do is to accelerate that earn-out over probably 9 to 10 months. And if we are -- and so internally, if we're extremely successful, we would probably have completed the earn-out by October next year rather than the full year of February. And that would obviously be the 1 plus 1 equaling 3 hopefully.

Just a couple of questions from me, Julian, from Investec. You put up the slide with Bytes and Phoenix now, but obviously very separated on the 2 end industries. Can you talk to us a little bit more about the sharing of best practice that can now happen between those both divisions now they don't need to effectively compete on certain deals.

Is that important? Is that a nice to have? Is that making a difference or not? And also on your services commentary around build once, sell twice. Phoenix is obviously much more services driven.

Are you effectively meaning you're taking service from Phoenix and pushing it into Bytes? And how does that link into the CyberOne piece? And I just got a follow-up.

So the best practices approach between the 2 operations for sure, is much easier now with our distinct go-to-market strategy. I will say that we already had forums of engagement where we were trying to encourage that, but this just makes it much more streamlined and much more purposeful.

So we're doing that around a range of areas. Services is obviously one of the core, but you can also imagine there might be other areas like HR and so on. We want commonality across the group. But from a services perspective, to build on strategy, you might think that the CyberOne is therefore an anomaly, but I think I covered that off in my slide that you have very specific requirements around sovereignty in the U.K. public sector for data management, et cetera, private sector less so.

And hence, Philippines and having a more global approach is fitting for the private sector mid-market. The types of services that we are -- the 2 operations are sharing with one another vary. You might have one stronger around virtualization Broadcom and higher ranking in terms of capability and the other being weaker or you might have the other side being stronger around another vendor.

So it's about how you bring that together. And if the vendors are open to it, actually having a group consolidated approach to how you scale up and how you actually drive those certifications to a higher level of accreditation with them. So we've got that going on, and we have had for a few years, but this now just drives it a bit more aggressively.

Other areas where we've taken one practice and shared it into another is pen testing, as an example, we had License Dashboard, which was IP that was written within the Phoenix business that was also offered to private sector clients. So over the years, we've had a number of those examples, but I think now we can start to move much more intentionally with it.

And just shifting on to the renewal rate, up materially, 115% versus 98% last year. Can you just give us a little bit of, I guess, the dynamics behind that renewal rate number? Clearly, that's obviously the thing that's driving gross profit because you're mainly from installed base customers.

How should we see that sort of going forward? Does that drip back a little bit, new customer acquisition goes up? Does it stay around those sorts of levels? Anything particular to add around to your context of that number?

Yes. I'll start off and Andrew can sort of layer in. So not just Microsoft, but all of the vendors have obviously made their propositions and their technology much more comprehensive. There's been a lot of acquisition going on in the vendor world, companies buying more companies and then obviously consolidating that into an offering for the customer.

So the renewal rate as a reflection of that is customers being given the opportunity to go from what was their old historic SKU to a much more powerful premium version that might incorporate more of the technology that the vendor has bought or to go wider with the commitments. Of course, we're also driving hard with our own services attach and so on. So there's a mix of attributes going on there.

So I think part of the 115% is a couple of sort of parameters that you have to look at. I don't think the customers are spending 115% more on IT. That's not what we're saying. I think they're spending 115% on IT with us, and that's a big difference, right?

So one of the slides that Sam had up is the sort of the move from direct to indirect. And so the customers might have been spending direct with Google or with AWS and now they're spending it through us. We've spoken about in the past with AWS stated intention is to move from -- they were born direct.

Obviously, they've started moving towards a channel sort of friendly environment and the stated objective is 50-50. So you can see that shift happening. And then the 2 of the examples that Sam put up was deepening relationships. So a move from maybe the smaller vendors to us as well. So there is some dynamics within those that make up the 115%. Is it sustainable? I would think not at 115%.

Obviously, I'd love it to be, but I have to be honest about it. There is off lower comparators, obviously, H1 last year to where we are this year. That was at 98%, Julian, that you referenced last year off the back of the EA changes. So we are -- if you have a look at our consensus forecast, we're probably high single digits on GP growth for the second half, making up a sort of a mid-teens overall growth for the year. So I would hope that new business would continue to grow.

And the reason for that and why the hope is there is that you do need to fill in the funnel from the top, right? So new customers, generally, you land with one sort of service offering. And then over the subsequent years, you expand that. So it is important that we continue to focus on both of our motions.

It's Charlie Brennan here from Jefferies. Three very quick questions from me, 2 number of clarifications and a more general one. Firstly, going forward, you're incentivized to sell more multiyear CSP deals. Can you just remind us on the revenue treatment for you? Do you still recognize that ratably? Or are you obliged to pull more of that forward.

Secondly, there are still some cost line items that feel relatively low in the P&L like share-based comp. Is there further cost normalization to come next year? And when you say that you expect operating profit to grow in line with EBIT growth from '28, does that mean in '28? Or does that mean in '29?

And then just as a higher-level question, it's very encouraging to see more of the industry going through the partner channel. But have you spent any time interrogating the data that you showed us, the partners going from 20% of the market to 33% of the market implies the partner channel has grown 60%. Now the direction of travel is probably right, but the order of magnitude feels wrong.

Can you just bring to light what you think that chart is telling us?

Yes. If I may, I'll start on that last point around the channel. I think Andrew has already alluded to that. You've got players like Google and AWS, who are becoming more laser-focused and have over the years, been somewhat not consistent with their channel strategy.

And then you've got players like Microsoft who are consistently very channel orientated and have been for 40 years. I think there is -- so to answer your question, have we done [indiscernible] research around that? No. do I, from my gut and from my overall sense of interacting with some of the larger vendors on this planet and some of the new entrants like Anthropic and others, are they looking to channel to reach their customers? Yes, they are.

And I think we sort of spoke about that on the slide. And this has gone in waves over the decades. You've had Dell being in and out and Hokey Pokey all the rest of it. But again, there is a sense that as they have taken their investments more into their own AI investment strategy, they've pared down their channel teams. They've pared down their direct sales forces. We've seen those announcements, Charlie, over the years.

And therefore, they're relying much more on the channel to give them that reach and that proximity to customer conversation. So that's my answer on the channel. In terms of the multiyear CSP deals, yes, that's an opportunity for customers. In terms of recognition, it's as and when we take the consumption report, isn't it on a month by month?

So on that CSP, basically, the pricing to the customer is more favorable if you commit for longer periods of time. And that just gives Microsoft and others sort of guarantees that their volumes will continue to grow. But our recognition would be monthly in arrears of the invoicing. So we take the data in Microsoft's case straight off the Microsoft portal, we'll condense it, and we'll produce an invoice back to the customer.

And just as a reminder, we have 2 income streams of CSP. One is our genuine margin, the difference between our cost price and our selling price and the other one is obviously the rebate environment and the rebate is now moving more towards that sort of growth initiatives.

And so you would expect maybe to have a little bit more of earnings accretive as you move the customer from an E3 to an E5 and so a little bit front-loaded on those rebates, right? -- because you're moving to an E5 get an accelerated growth in year 1 or as you move them and then that will dissipate over a period of time, but it's not that meaningful, right?

Then your second question was share-based payments. And Charlie, you're dead right. So last year, we were building towards sort of a fully expensed share-based payments environment and then our lack of performance last year removed a lot of the forward-looking on the share-based payments.

So we're almost having to restart again rebuilding that. So you see in this year, we will probably have 1 year and a bit and next year, you should expect in your modeling to probably add another GBP 1 million to whatever we end up in the year. And then the following year, another GBP 1 million will be back to sort of a fully funded 3-year cycle. Then your question around FY '28 and beyond.

So we will absorb the share-based payments into next year. So the growth in the share-based payments, and then we are looking to equalize in FY '28, our OP growth and GP growth. And then from FY '29 onwards, start eking back that sort of ratio that we said was at a low point of 36% this year. So intentionally, internally, we would like to try and get back sort of a percent in year, so FY '29 and beyond. So new CFO is coming in that says from too...

I'll ask a follow-up there. Obviously, Softcat have a different strategy, which is to overinvest in OpEx and for gross profit to grow fast.

Sorry, Charlie, there's a microphone there.

Sorry, just a clarification, Softcat have a strategy where they deliberately overinvest in OpEx and grow gross profit faster than EBIT. You seem to be going the other way, expecting more leverage. Why do you think your business model lends itself to the leverage where it doesn't for Softcat?

Yes. So it's an interesting question, and it's not about a comparative to Softcat. What we see happening in our books for the last 2 years, if you look back to H2 of FY '25, we grew headcount in that half at 17.8%. We ended up the year with a growth of 19% in headcount. And the following year, we had no growth or very little growth around the GP.

So we had this capacity inherent within our business that is unutilized. We took the view last year not to start removing that capacity and come back because obviously, that capacity is hard won in the first place, and we've put a lot of training and effort into it, and we're absorbing that capacity now. You can only -- if you're going to invest ahead of the growth curve, at some stage, you have to start flattening off that investment because if you're investing ahead, that implies that you've got an exponential growth curve.

And we're not seeing an exponential growth curve like this. We would see a growth curve being more flat. So we acknowledge the fact that we're bringing in sales capacity ahead, but you can see some of our other activities. So the services capacity is above the GP line.

So it doesn't affect that ratio that we've been talking about. And then where we've been having a lot of sort of drivers around process enhancement around putting in the AI is in our sales support environment, which you can see we've removed costs out of there. So I think there's a bit of work to be done, and that will start expanding and the scale plays a big role as well.

Our offshore capacity within the Philippines that we've just acquired through CyberOne adds another dimension of probability or possibility for the business. So having a look at their average cost for resourcing, it's probably 40% of what the U.K. is currently is. So it adds that sort of lens to it that we need to take into account. So I do expect for the next 4 or 5 years that we can eat back.

Bear in mind that one of the things different from Softcat, they've been consistent in their delivery of 36% to 38%. We've dropped down from 40% to 36%. So I think there is space to increase that. maybe I'm not going to promise back to 40%, but certainly what I'm going to attempt to do is that sort of 1% a year.

It's Andrew Ripper from Panmure Liberum. Just a couple from me. Just building on that last one, Andrew. I mean, if the mix of the business changes and Bytes shifts more towards services over the next sort of 2 or 3 years, does it change the sort of the potential conversion rate on a like-for-like basis if the mix changes versus having you historically having been more software orientated?

Yes. So that's a very interesting question. If you have a look at what is sitting in overheads, so what is typically sitting in overheads is your sales, your presales, finance, HR, IT. So those don't change as a ratio to your GP.

If we were skewing more towards hardware, you would need to incur additional costs within the hardware element because now you've got warehousing, you've got reverse logistics, you've got project management that all sits below that.

All of our technical capacity and our utilization sits above the GP line. So I don't expect that to differ. But what you can see is that as we move into sort of more focus on the services environment.

And as a reminder, last year, we ended up with 10% annualized GP on services. The average GP last year was 24%. This year is 19%, but it is more margin rich than the software environment. So typically, although the ratios don't change, the margins derived from it should be better.

Yes. And then for Sam, for various reasons, Bytes has been through sort of -- has had some challenges in the last couple of years. And thinking about sort of the sales team, how would you sort of describe the mood music within the business? And when you sort of look forward, obviously, we talked a lot about conversion rate here. But when you think about the sort of GP growth opportunity and the capacity required to sort of fulfill that, how do you think about the need to expand capacity from here in terms of how you go to market.

Obviously, you referenced the intake coming in H2. What do you think it looks like over the next couple of years in terms of capacity expansion?

So first and foremost, I think of our sales teams, and I'm talking both operations is hugely resilient. They have produced these results alongside all of that transformation that we've been undertaking this year. So I think that is the first point to underscore.

It's been a tough period because we've also had changes going on, not just within our own business, but also absorbing new incentives. So we're enabling, we're training, we're skilling up. But I think what it proves is that it's like every other player in this industry, we are in such a fast-moving period of our time, more so than any other area that I've worked in.

And the demand from our customers are only increasing. So we've got to be prepared to be responsive, knowledgeable, capable. We've got to have capacity. We've got to have the teams behind us. So when you talk about how does that team look and feel going forward and how we're going to build it out, when Andrew's role when he moves from the CFO into the Group Operations Officer, that is going to be a dedicated strategic motion for us as a business to consider how we get much more efficient at driving processes.

We're already doing some of that. We've alluded to it. There is opportunity to do a lot more and thus free up more of our sellers' time to be engaged with customers and driving those conversations deeper into the more complicated areas that we're having to own. And then, of course, partnering up with the right specialist at that moment in time so that we go into the customer and ourselves with the right value add.

In terms of bringing on new sellers, that doesn't differ. In terms of how we then blend in the CyberOne team, that's going to be something that we look to do over the next few years. We have bought this business because we highly rate their capability, but they've also got some great sales people as well.

And it's about how we then cross-fertilize that knowledge and that skill back into the Bytes business. I come over to the Phoenix side. And equally, their resilience has shown up as they've absorbed a whole division coming over to them this July, the Bytes public sector team lifted and shifted and now into those reporting lines.

And it's going great. So it just engenders confidence that as long as we remain customer-centric, devoted to what our customers need from us, it almost -- we reserve the right to keep tweaking and doing whatever we think we need to make that customer experience really valuable.

Just to add something that Sam said is that last year, when we had a renewal rate of 98% on existing customers, inherently, that meant that the salespeople probably earned slightly less than the prior year, right? So one of the good news stories that this year would be the 115% renewal rate, given that the account managers stay with their accounts, on average, your -- our salespeople are earning 15% more in commissions.

So we haven't tinkered with the commission at all. What we've actually added to the commission is an accelerator on services, so they can double their commission on services. We're not too worried about the cost element of that because obviously, the services is running far greater than double the GP amount. So there is space to pay the salespeople more in services. So that salespeople are very sort of pound driven.

And so I think this corrects the sort of the low of last year, I think. So if you're earning 15% more, it's always good. Sorry. And just the last thing about the effects. I think one of the areas that we are conscious of is the cash conversion, right? So when we're running 109% year-on-year, we do know that interest rates will probably increase. So we will continue to have pressure from the vendors to collect their money from us a little bit faster.

We've managed that in the past, and I don't see any big problems with that. But also as we move to services, you do have to expect that the cash conversion slows down, right, because services inherently our cash out is on resources in month 1. We will invoice at the end of month 1 and collect at the end of month 2.

So you do see a little bit of a slowdown in cash conversion. But I'm not ringing alarm bells, I just want to make sure that we are not penciling in 109% cash conversion ever more.

I guess if it's okay, I've got 3 questions online, if that's okay. First 2 from Joe. Given the EBITDA growth was tracking broadly flat through the first 4 months of the period, this would imply a significant step-up in earnings growth through the latter 2 months of the period.

Can you talk around the factors that drove the sharp increase in earnings growth? Was it gross profit related or OpEx related? And to what extent should we extrapolate this very strong exit rate through the second half?

Yes. So I'm not sure that we would have classified the growth as broadly flat for the first 4 months up until the AGM statement. So up until the AGM statement, we've consistently said that what our GP growth is going to be high single digit, low double-digit growth. So there's probably an accelerator from there into the sort of 18% that we've shown today.

The exit rate on that growth, I would go back to our outlook statement of saying that sort of high single-digit growth for the second half, and therefore, our exit rate for the full year would be more like the mid-teens. And why I keep on emphasizing this is that our customers typically renew once a year onto the EA agreements or the CSP agreements run out and we have to renew them.

So it's easier to measure on a 12-month rolling cycle that gives you a genuine view of what your exit rates would be for the full year.

His following question is, can you provide more detail on some of the assumptions that were built into the guidance relating to the new Microsoft incentive programs?

So the growth incentives is geared towards the areas that we've spoken about in the presentation. Microsoft are driving hard for ambitious growth around AI Copilot, the E5 suite, security and Azure additional workloads. So the business that we have been building over the last few years, all of our teams, the enablement and support specialists and our capability behind that has been geared into those buckets.

So we're not having to suddenly organize ourselves differently. We've got the go-to capability to engage with the customers. I talked about the propensity data, the modeling that we're doing with some of our agents in-house. So sellers are really well equipped to know when is the right time to have that conversation with the customer, have they got the propensity to take advantage of the growth incentives. And they are quite lucrative.

So if we do all the right things, if we work with our customers strategically, and I alluded to this in my reference, it doesn't all land in the 1 year. You don't just go and engage and grab hold of the incentive in that moment. You can perform a whole set of discrete activities and behaviors to drive up the different trigger points.

So this is actually quite a nice set of areas that our sellers can engage into along with our teams. So the summary answer is we're well structured. The sellers really get it. We've got the data. We've got the customer book of business, and it's just down to the appetite of customers to want to work and actually take full advantage of some of these offerings.

Great. Thank you, Sam. A question from George at Singer Capital Markets. Can you -- he says thank you for your detailed presentation. Can you comment on the new business proportion of GP? And was that in line with your expectations? Also, acquiring Managed Services depresses group operating margins. Do you have a target operating margin model over, say, a 3-year period?

I'll cover off the new business and then I'll hand over to Andrew for the operating margin. So the new business, we're obviously reporting on 6 months, and we've got ambitions to have higher numbers. What we typically find is with our new sales teams, the intake that we bring into the business around November, we train them hard.

We unleash them on to the phones, onto the systems to start prosecuting new opportunities and winning new logos. But that takes time. You don't do that in a matter of weeks or months. Sometimes it can take up to a full year. And I mentioned that they normally become cost covering in year 2.

So that new business is a ramping effect. But we've also got within our teams, our existing teams who've got live customer accounts, they're also targeted to go and win new business. And you find that sometimes if somebody has moved from one organization and they've enjoyed the experience of dealing with Bytes or Phoenix, they want to go and repeat that relationship again.

So again, customer centricity, making sure we do the right things by the customer should show up in more customer wins as we move forward. And Samsonite, by the way, is an example of that. That was a relationship for one of our enterprise sellers that had followed the individual into this global opportunity, and it was based on our track record and that relationship.

So hopefully, more logos, more new business wins in the future. Is it in line with expectation? Yes, given the last year, but this is now a building scenario, I think, and we'll have some more news on that at the end of the full year.

Just looking at that sort of margins question, and we haven't disclosed the figures around CyberOne. But just from a sort of a clues point of view that is in the presentation, we look at -- we're approaching 10 million of top line in 12 months up until July. We have a look at our services margin at 20%.

You have to assume their services margin will be higher because of the labor arbitrage running out of the Philippines. And then when you look at the sort of implied multiples at which we paid when we talked about the earn-out, right?

So they are not -- so your EBITDA multiples or your EBITDA percentage as a percentage of revenue will be higher than our typical one is. The GP margin would be higher than ours. So it's not creating an environment that would lower our -- any of our ratios. And then the second point is obviously 10 million in top line against our sort of forecasted $2.5-odd billion is not going to move the needle by very much as a percentage anyway.

Thank you very much, that concludes the questions online. Certainly, I don't know if there's any others in the room. If there's not, Sam, before I redirect those on the online stream to give you their feedback, I wonder if I just come back to you for a couple of closing comments.

Yes. Thank you. Well, first and foremost, thank you for joining us this morning. We feel very proud to have shared the results with you. And the CyberOne news is exciting as we've indicated. Really look forward to coming back at the full year and giving you an update on how that's progressing and obviously, some of the other areas that we've spoken about today. So thank you.

Okay. Good morning, and welcome to Bytes Technology Group, our full year 2026 financial results. I'm Sam Mudd, the CEO, and I'm joined today by Andrew, our CFO. I'm going to begin with a quick introduction to the business for those of you that are new to us. And then I'll hand over to Andrew, who will provide the financial review, and then he'll be handing back to me for the full business review. Bytes Technology Group is one of the largest providers of software solutions in the world, and we operate under 2 brands, both of which have a rich heritage in their markets. Bytes focuses on the private sector and Phoenix focuses on the public sector. We have a huge diversified customer base, and we have more than 200 vendors that we represent with Microsoft being one of our most strategic.

On the right, you can see that we've been delivering strong growth over the last year or so, and we have good cash conversion and consistent capital returns to shareholders over the last 5 years since IPO. Looking at today's highlights and starting on the left-hand side, firstly, we've made good strategic progress and implemented intentional organizational change and improvements which were needed to expand our services and streamline our customer focus. We believe these enhancements will drive our growth and enable us to stay ahead of the wider transitions that we're seeing in our industry today and more on that later. Suffice to say, we will continue to evolve as an organization as the landscape changes.

And secondly, we have delivered good cash conversion and consistent capital returns of GBP 74 million to shareholders in the last year. We're confident that despite growth being temporarily impacted in H1, H2 has showed movement back to recovery, including strong growth with Microsoft as we annualize the incentive changes. And thirdly, the full year '27 momentum. We enter the new financial year with good sales momentum and expect to return to high single-digit to low double-digit gross profit growth. The sector alignment is progressing well, and the teams that are moving are looking forward to being a part of the dedicated businesses and focus on their respective sectors. Now let me hand over to Andrew, who will give you the full detail on the numbers.

Thanks, Sam, and good morning to everyone. I just want to apologize for my head cold and for those that are on the webcast, I didn't reach anyone by hand. So hopefully, I haven't spread it further. So thank you for joining the presentation. Our headline numbers, we increased gross income or GII by 11.5%, driven by software and services sales. Gross profit grew 2.5% to GBP 167.3 million, impacted by the Microsoft incentive changes as well as the segmentation in our private sector sales teams. Operating profit of GBP 62.7 million was 5.6% lower than in the prior year, however, in line with our guidance from October. This reflected both the lower-than-planned gross profit growth and the ongoing investment into our future. We will provide more detail on the next slide. We have a strong financial position with cash conversion remaining above 100%.

We've also delivered further growth in our returns to shareholders with a 2% increase in ordinary dividends, together with the share buyback program completed in November of '25, bringing back the total cash return to shareholders to GBP 74 million. Our net customer numbers were broadly stable year-on-year, resulting in a 2.4% increase in GP per customer. This comprised new customers contributing around GBP 5 million to GP and a renewal rate of 99% from existing customers. Starting with the headline numbers. Gross invoiced income, GII, grew by 11.5% with public and private sectors growing broadly in line with each other. Gross profit or GP growth of 2.5% comprised of public sector growth of 7.4% and private sector decline of 0.3%. GP over GII this year was 7.1%, a reduction of 0.7% from the prior year. This reduction reflects the impact of the Microsoft incentive changes effective from January of '25.

Microsoft remains our largest vendor and continues to contribute 30% of our GP. The incentive changes that impacted us impacted the private and public sectors differently. Enterprises remain the primary program used to fulfill the Microsoft public sector requirements. As we invoice the customers, the reduction in incentives did not impact the GII but reduces our GP. For the private sector, enterprise agreements are recognized only in the rebate. Therefore, our GP to GII remains at 100%. Part of the mitigation for the reduction of incentives is to move our customers to a Microsoft CSP program. On a like-for-like basis, we make more gross profit. But as we now invoice the customer, our GP to GII margin reduces. I have given detail on the administrative costs, which increased 8.5% to highlight some of the key changes in our cost base and to help with your modeling.

Salary costs increased 17% year-on-year, driven by headcount growth, and this includes strengthening of our senior leadership roles and annual wage increases. Average headcount growth was 12%. Over 40% was annualized hires made in FY '25 with less hiring this year. We capitalized GBP 1.8 million of our employee costs in relation to our project to modernize some of our IT systems. In FY '27, this GBP 1.8 million of employee costs will be expensed now that the projects are complete. Commissions and bonuses are down 0.4%. Within this, commissions have trended broadly in line with GP growth with bonuses, which are driven by targets reducing. In FY '27, we expect bonuses to be just over GBP 2 million higher based on our full year guidance. Social security costs are up 20% due to the increased national insurance contributions effective from April '25, which have now been annualized. Share-based payments are down 85% due to lower profitability, impacting the level of vesting of our performance share plans.

We would expect share-based payments to be around GBP 1 million for FY '27. Other administrative expenses increased 23%, driven by investment in systems to improve employee and customer experience, travel and entertainment as we encourage our teams to connect in person with both our customers and our vendors. In FY '27, amortization will increase from the development of our IT systems, which we've developed over the last 2 years. With this last component in addition to the returning developer salary costs and higher bonuses, we expect 4.5% of cost normalization in FY '27. Turning to our income analysis. On the left, we see GII and GP for the full year, split by both our service types as well as public private sectors. The public sector GP growth rate was ahead of the private sector where the realignment of the sales resulted in an adjustment period in H1.

Momentum improved in H2, however, against a tougher comparator. In the public sector, GP was more heavily impacted in H1 by the Microsoft incentive changes, H1 being the peak of the Microsoft renewal period. Growth rebounded in H2. Microsoft incentive changes resulted in a lower software GP growth in GII. Microsoft GP returned to double-digit growth in H2 and remains around 50% of the group. Services grew strongly on the top and the bottom line, driven by continued investment in our offering and strong customer demand. The services margin was driven by both mix and cost efficiencies. OP to GP margin was higher in H1 than in H2 due to higher commission rates in H2. These one sales targets are exceeded and also headcount phasing.

Turning now to our cash flow bridge. We capitalized GBP 4.1 million of software development costs in the year, and this relates to the 2 IT platforms, one, to provide a marketplace gateway for our customers so that they can seamlessly purchase products in line -- sorry, online from a range of our vendors. And the other is to enable us to improve our operational processes around customer order processing. The marketplace platform is now complete with a cumulative CapEx of GBP 3.4 million. We started amortizing it in H2 FY '26 at an annualized rate of GBP 0.4 million. The second platform is expected to go live early in this year. The combined asset, GBP 7.6 million at year-end, and this results in an annualized amortization of around GBP 1 million. Our cash conversion continues to follow the same cycle that we've discussed in the past. And as a reminder, we tend to see lower cash conversion in H1, followed by a very strong cash conversion in the second.

For the full year, using operating profit as our denominator, we had a cash conversion of 105%. After tax and returning GBP 74 million to our shareholders, we are left with a cash balance of GBP 98.6 million at year-end. Looking towards our balance sheet. And this, I hope, will provide more context of how we think about our cash balance. We look to maintain a strong balance sheet for 2 reasons. Firstly, large gross payable balances at year-end are inherent in our business models and working capital outflows in H1 aligned to our seasonality around GII due to the Microsoft and public sector year-end. Secondly, we operate in a negative capital environment, which was around GBP 80 million at year-end. Taking both of these into account, we seek to remain a relatively strong level of cash on our balance sheet and remain debt-free. Moving on to a reminder of how we think about allocating our capital for maximizing value creation to our shareholders.

Sam will pick up more on the first point here in a moment. But in summary, there's a strong market growth for the software solutions that we sell, investing in our organic growth through sales and technical people in order to drive customer growth remains our key priority. We are committed to returning between 40% to 50% of our post-tax adjusted profits to shareholders via ordinary dividends. I'm therefore pleased to announce that the Board has approved a final dividend of 7p per share, bringing the full year dividend to 10.2p. That represents a 2% increase on FY '25. Selective value-accretive M&A remains an opportunity in our industry, and we are actively monitoring opportunities but are yet to find something that ticks our strategic, quality and valuation criteria. And finally, we returned excess cash back to our shareholders. In FY '26, we completed a GBP 25 million share buyback and are launching a new GBP 25 million buyback today. This while maintaining our working capital requirements. With that, I'll hand back to Sam.

Thank you, Andrew. I want to start by taking a step back and highlight the strong growth market that we're in and why. Firstly, we have only 3% share of a large GBP 82 billion addressable market in the U.K. software solutions across both the private and the public sector. There's a significant opportunity to grow our footprint with our existing customers as well as winning new ones. And secondly, the overall market is growing strongly. The solutions we sell meet 4 key areas of structural growth, AI, cloud, cyber and services, and these drivers all interlink. Our customers want to reshape their businesses with AI, and they need their data and their applications in the cloud to do so, and this is often increasing their cyber attack surface. All of this, adopting AI, modernizing and securing infrastructure to do so requires more specialist services and experience than ever before.

Thirdly, one of our significant growth opportunities and drivers is Microsoft, who remain our largest vendor at 50% gross profit and remain a strategic partner. They're constantly a cornerstone of IT budgets, and this creates a key gateway for us connecting to organizations on their wider technology investments, which in turn supports our growth with other vendors. Let me turn to our strategic pillars and how they enable us to capture and drive our organic growth. We have 3 key levers of growth: our people, our vendors and our customers. And the propositions that we build from all of these, we're a sales-focused business and our people drive our sales. We have a highly engaged, well-incentivized team who put our customers first and are accountable for their experience with us. We also drive our growth by being a trusted and valued partner to our vendors, and we turn our vendor partners' technologies into wider solutions.

The vendors want us to make their technologies relevant and importantly, sticky for customers because this drives consumption, and this is becoming the dominant revenue mechanism for many of them. The way we do this is through services. Importantly, this trust and ability earns vendor investments in our business and for us to initiate customer activity into new technology areas. And finally, we aim to bring our people and vendor strategies together in the most customer-centric way possible. We increasingly organize how different customers actually buy and what they specifically need. We organize ourselves around that. And this is so that we can provide them with the best mix of support and solutions, which are tailored to their needs by their size and their sector. Trust, value, choice and service remain key to our customers and also our ongoing focus. The industry that we're operating in has substantially changed and evolved over the last few years.

And if I think back to my 3 decades in the industry, change has been a constant. There are broadly 3 transformations ongoing, which all create opportunity. Firstly, the way that customers pay for their software continues to move from per seat licensing to consumption. This shift started with the growth of cloud and customers buying compute and storage and based on activity levels, not headcount anymore. And this is only increasing with AI and token usage being brought out to market. So it makes it more important than ever to help customers get value from the solutions that they buy. This is also increasing the monetary investment that vendors are giving partners to support adoption and consumption. And secondly, customer demand continues to shift from wanting specific point products to whole solutions. This is driven by increasing complexity of modern IT. The customers need their IT estate to be secure, cost optimized and integrated.

And this leads to them increasingly needing scalable solutions from us, which are more economic, safer to deploy and easier to operate than individual point products. This in turn increases the growth potential for those that can advise, integrate, manage and deliver business outcomes for those customers. And finally, these changes together create a shift where customers and vendors need deeper relationships with us. Rather than being seen as a reseller, we're now seen as a partner. And these industry changes don't impact our structural growth opportunity, but they do drive a need for us to evolve in order to stay aligned and be able to capture growth in the medium term. This year, we've implemented strategic changes to align to these transitions. Firstly, customer-led segmentation. Back in March 2025, at the start of the year, we reorganized our Bytes private sector sales teams from a single generalist structure to specialist teams.

We segmented customers by our organization size based on their number of seats into enterprise, corporate and mid-market, and our technical specialists moved into the same customer segments of sales. The rationale is that private sector customers need different things from us if they are small versus if they're a large organization. And vendor incentives are structured differently too, accordingly to size. So this change will enable us to be a better seller and drive growth to customers as the industry evolves. And as Andrew has already set out, the impacted GP growth in our private sector business in H1 was impacted, but it stabilized in H2. And the effects of the changes have settled into the business and the sales pipeline has returned to normal in H2. In FY '27, we move forward with a clean comparator. Moving to services-led capability.

Services GP grew 38% this year. We're growing in 3 broad areas: firstly, using customer vendor investment to help customers deploy and adopt; secondly, providing managed services to support the customer through the life cycle. And thirdly, we're expanding services in our portfolio to ensure we can deliver integrated solutions around AI. And lastly, the sector-led go-to-market change announced in March 2026, we commenced a small change where we'll remove the market overlap between our 2 businesses to make each business a pure play in their sector. A small number of account managers will move within the group, but customer relationships will be unaffected. Bytes will focus solely on the private sector and Phoenix will focus solely on the public sector. This will further strengthen their ability to deliver full customized focused solutions and services and allow deeper collaboration on shared services and vendor partnerships. Our people are our core assets, and I'm proud of their energy, enthusiasm and commitment.

We increased headcount 7% year-on-year, and that said, our average headcount increased 12% following the strong H2 growth of last year. This measured investment was focused on sales staff to drive future growth and technical delivery staff to meet the needs of services demand. And within this, we've added new practice leads to ensure we build depth as well as breadth. We fitted out the first of 2 buildings acquired in FY '25, and this adds capacity to existing modern and inviting workspaces. And we have plans to expand our London footprint in FY '27. Our culture and engagement remains strong. Our eNPS increased to 62, up from 57. We were placed 14th in the FT's U.K. Best Employers ranking, the highest in our sector. And we increased the number of GBP 1 million GP sellers. Having just spoken about our continued investment in sales and the increase of the GBP 1 million GP sellers, I want to illustrate why we make that investment.

You'll see on this slide the maturity profile for successful sellers in the business, and I presented it here as steps because that's how we coach sellers in the business. Sales staff retention also grows with maturity, which is equally important, and this remains incredibly high amongst our top sellers. Our new sellers open the door in a number of ways, such as our Microsoft expertise, our licensing pedigree and increasingly our services capability. And they expand from this with additional solutions from Microsoft and other vendors as they gain trust and learn more about the customer environment. And this is an iterative process of our customer requirements are so broad, and there are always additional opportunities to go after. As I mentioned, our job is to turn our vendor partner technologies into solutions, and we work closely with them to do so. Microsoft remains our largest vendor and our most strategic partner. It's the cornerstone of our customer budget.

It's also the gateway to the majority of their technology decisions. So covering all Microsoft bases supports our growth with other vendors. But more importantly, it helps us drive value for our customers. We often support collaboration within their organizations where many silos might exist. And I'm delighted the relationship goes from strength to strength. I just got back from visiting the HQ in Seattle only 2 weeks ago. Our Microsoft GII grew at 11.5% year-on-year, both across the private and the public sector. In H2, Microsoft GP returned to double-digit growth with incentive changes absorbed and where Microsoft is investing, we are delivering. Our Microsoft services around presales advisory implementation and adoption increased 31%. We've also deepened our relationship with other key vendors this year.

We continue to see growth with AWS in cloud, Flexera in optimization, SentinelOne in cyber and Rubrik and VMware in the hybrid infrastructure space. I'm now going to show you a clip of a discussion I had with Microsoft's U.K. and Ireland channel lead around our partnership, Nick Hedderman. And just before we press the start button, a little fun fact for you. Nick Hedderman, he provides over the entire U.K. channel ecosystem and used to be Steve Ballmer's demo buddy. Steve liked working with Nick so much. He decided to take him on a tour around the world that lasted many, many years. until Steve lost his job and then Nick had to come back to the U.K. and find it. But we worked tremendously well with Nick. So on that note, I'd like to just share a brief snip of the video. There is a longer version of this that we'll provide the link to you with as well. Thank you.

[Presentation]

A small segment of the bigger video. So I'd like to now talk about our services and where they come into the technology life cycle and where we partner with vendors to provide those services. Presales, we provide advisory to identify gaps and opportunities, which help customers shape decisions before they buy. A great example is the cybersecurity space where our customers are currently trying to answer 2 questions. One, how do we adopt AI safely; and two, how do we actually trust our environments. We offer governance, risk and compliance assessments to help them answer those 2 questions and create priorities for their security position. We help them design and deliver the solutions, which means from a delivery point of view, helping customers deploy and adopt the solutions which drives the consumption. And post sales, we can provide the support around customer solutions or even manage them.

And these services are often the linchpin in helping customers achieve their desired business outcomes. And this is what sits behind the 38% services GP growth that we've reported. It's just not one thing. It's our capability across the technology life cycle. Roughly 1/3 of those services are presales professional services, which are project-based and 2/3 of post-sales managed services and reoccurring. I want to talk a little bit about AI now. The fact that AI will drive growth across all of our customer technology spending, and we're well positioned to benefit from that. We're seeing the start of these trends already. AI drives our customers who need cloud infrastructure for compute, storage and governance for data and networking and connectivity for access. And this all needs to be secured. And I'll talk about how we bring all of this together on the next slide.

But importantly, this need for an integrated solution means that we are positioned well as a major Microsoft partner with frontier firm status with deep services capability. Many of our customers have the compliance, the identity and access and the security foundations for AI in their existing Microsoft state. So our existing relationship with them around Microsoft is often the start of that AI journey and expansion. Our work with the NHS is a prime example of how we're expanding an existing customer on AI and how the market changes. I mentioned earlier that we have become more customer-centric, providing more services to deliver wider solutions at scale to win more business like this. We work with a number of NHS trusts across the U.K. Their technology needs are becoming more complex. And by having more specialist sales teams focused on the public sector and on health care, this allows us to support them in that complexity.

In 2025, we partnered with NHS England to deliver over 80 tailored workshops to a range of NHS trusts and to inform and assess their AI use case opportunities. This has led to the largest global Microsoft-funded rollout where we are helping them with envisioning, deployment and adoption of Copilot to several hundred thousand employees in 2026. Having a more specialist customer-centric sales team that understands our customer needs, it makes us as a partner, deliver the services and solutions and not just simply be a reseller around point products. This is what our clients need more and more from us in the AI era. The complexity of AI adoption, the governance, the integration, the data readiness, the security considerations is precisely the kind of complexity our customers pay us to navigate. And this slide outlines the different aspects of what we provide on AI.

The mistake we see repeatedly in the market is organizations chasing AI outcomes without the foundations to run them safely, secure them or realize the value. So when a customer is faced with a challenge like deploying a secure AI-driven agentic solution, this isn't just an AI task, it cuts across multiple disciplines, and it is where a collaborative cross-practice approach to create one solution really matters. We follow a simple life cycle of advise, build and secure. We advise customers on where AI can create the business value. We build scalable production-grade platforms, not just proof of concepts that stall, and we secure it by design, embedding governance, risk and compliance from day 1. Around that core, our AI practice consultants, they design the models, the agents and the workflows, the infrastructure, consultants build the landing zones and the platforms that they run on.

And the cloud and security and governance, risk and compliance teams ensure that this is safeguarded for trust, compliance and resilience. And adoption and change management training make sure the value actually lands with the users. This result is repeatable, enterprise-grade AI delivery aligned to Microsoft's frontier firm vision, trusted by customers and scalable as the demand accelerates. So to summarize, I've outlined how we're well positioned to take advantage of the growing IT market, especially as AI becomes more ubiquitous across businesses today. We carried out our strategic changes with the private sector change bedding in during H2 and now beginning to show clear positive results. The Microsoft incentive changes are now annualized, and our partnership continues to offer a gateway to new vendors. In FY '27, we expect gross profit growth of high single digit to low double digit.

Operating profit, we expect to be broadly flat, absorbing the approximate GBP 4.5 million of cost normalization we discussed earlier. And medium term, our ambition is unchanged. We want to expand our wallet share with customers, capture the structural demand in our market. And finally, I want to touch on the announced Board and Executive Committee changes. The Board has decided to split the currently combined roles as CFO and COO, held by Andrew to support our next phase of growth. Andrew will be standing down as CFO once a suitable replacement has been appointed, at which date he will step down from the Board. And thereafter, he will remain in the group and transition into the COO role. I'm grateful for Andrew's 5-year contribution as CFO to the group and Board member, and we're pleased that he will be retaining -- we will be retaining his long-standing knowledge into the business and his deep operational experience. Thank you. We'll take some questions now.

Tintin Stormont from Deutsche Numis. A couple of questions from me. In terms of your services portfolio, what is the market for potential bolt-on M&A in terms of your services gaps that you're looking at? Or is the intention to sort of kind of partner -- work with existing partners and maybe choose from that sort of kind of range of partners you have? Secondly, in terms of the non-Microsoft vendors, obviously, with Microsoft having grown double digit in the second half and overall second half GP growth being closer to 5%, then the non-Microsoft vendors obviously performed closer to flat. Now clearly, there's the pull-forward impact from last year that's probably not flattering those numbers. So if you could give us a sense of the underlying performance of the other non-Microsoft vendors if you remove that impact?

Sure. Okay. Let me talk a little bit about M&A. I think we've been very transparent around the fact that we're selective and very careful about any potential candidates we might consider, and we've been active over the last 2 years, thinking about how we accelerate on organic services capability. So let me be clear. We think about the core areas that I've referred to throughout this presentation, security, AI and cloud as being those core areas that our customers are creating demand for services around. We consider ongoing investment, and that continues with technical heads coming into the business, the practice leads I've talked about and obviously dedicating ourselves around the Microsoft Frontier partner program and other vendor initiatives such as the Broadcom Pinnacle area where we've got capability.

We look at the partner ecosystem and to your point, Tintin, the partners we work with, where you have obviously proximity and familiarity and trustworthiness in terms of their capabilities. So for sure, that's a community we preside over and we work with closely as well as providing our own direct services. So yes, that's certainly a community of potential targets. And we think about the most important attribute is would it fit into the portfolio and give us that acceleration? And secondly, cultural fit. That's probably, in fact, the primary piece of consideration. When you think about the last acquisition with Phoenix into the group, highly successful, and great fit, we will be looking for something that is adjacent to our core capabilities and that would, at a cultural level, come in and be additive, not a distraction. So I think that answers that question.

In terms of Microsoft growth and non-Microsoft vendors, you're right, the pull forward in FY '25 was clearly one of the reasons why the non-Microsoft vendors didn't perform as strongly. I think there's also another explanation. When we moved into the mitigation era around Microsoft incentive changes. On the private sector side, we had the big push around EA to CSP conversion. And that required an awful lot of dedicated management time, intentionality. And we know that for that period of time, probably the first half of FY '26 meant the attention came off the non-Microsoft vendors.

So I think that's the other explanation as well as the pull forward. We resumed business as usual back into H2, and I'm delighted to see that momentum and a lot of the awards and accolades and the growth get back to what we would expect for non-Microsoft vendors. It's a really key part of our strategy, Tintin. So it's not an area we want to neglect. And I hope a lot of the presentation today spoke about the cross-fertilization of if you're deep with Microsoft, it does enable you to have those other additive conversations with other vendors and co-sell. Marketplace, of course, is another route to market to bring in those non-Microsoft vendor discussions. Julian?

Just a couple of questions from me. On the services GP plus 38%, do you have what that was in public and private? I assume it's dominated by public, but just be interesting to know. And the second one is more sort of a broader question, following on a little bit from Tintin in the sense of you've got breadth of complexity or breadth of domain capabilities. Your customers have a much more complex market, as you alluded to. Do you have all the capabilities in place that you require? You should be taking market share versus many of your peers. But do you have a wish list of maybe other capabilities to add into that beyond Tintin's sort of services question? I'm sort of thinking vendors, hardware, other capabilities or in fact, any other restructuring within the business you need to do to maximize your position?

Okay. I'll come to the last point, other restructure. Nothing planned. Everything that we've talked about has been very considered and there are no other changes being planned. But to come back to the services growth, we don't provide detailed guidance on the sectors. But I think conversationally, we've always been open about the fact that public sector has high demand for partners like Phoenix, Bytes and lean into us where we have capability and we've got talent. There has been an exodus of key technical skills from public sector over the last 5-plus years, which means that they're struggling to keep up with accreditations and move as fast as the industry pace is shifting at the moment. So we have seen good demand from public sector. But equally, we're seeing some very positive signs and great momentum in private. So it isn't all about one sector.

In terms of domain capabilities, have we got it all in place? No, if you think about a matrix of skills across both of our operations, there are gaps -- and that's exactly where we look for M&A to potentially fill, accelerate and to bring new capability into the portfolio. So we know there are areas where we're not completely staffed up within our own internal capability, but we also have a very rich partner ecosystem. So back to Tintin's point, we've partnered magnificently with other vendor partners. And over the years, that's been something we're very proud of. So that supplements at the moment. But as you can imagine, the strategy is bringing more and more in-house in terms of building up our capability and those practice teams are getting larger to address the demand.

In terms of sort of building out that capability beyond services, would you look to other areas of customer attention such as hardware or other vendors? It'd just be interesting in terms of the thoughts longer term because of your breadth of specialist -- specialism is what customers are looking for.

Yes. No, it's a good observation, Julian. Of course, hardware, as we all know, at the moment is precarious there's demand, but the actual fulfillment and the delays and the invoicing and the peaky sort of troughs are something our peers are having to deal with. So it's an area that we do participate in. We have got some hardware sales. We have partnerships with the likes of Dell, we're a titanium partner and Lenovo and others. So we actually go about it with strategic intent. We tend not to bid for large-scale laptop refresh kind of its low margin. We're not engineered or built that way.

But where we're engaged with the customer on a project and a whole transformation, we've worked very well with the hardware vendors to ring-fence deal register projects, more server capability is what I'm talking about. And we also have some managed service contracts, which are hardware orientated. So it's not that we lack the ability. It's just I think we respect our heritage has always been software solutions. It's what our USP has been. It's what our sales staff are confident to talk about. Could we and would we ever go further into the hardware market? It's something we do routinely think about when we come back to sitting down and talking about strategy with the 2 operations. So it's never off the table. But at this moment in time, it's not a core theme for us. Okay.

It's Andrew from Panmure Liberum. I've got a couple as well, if that's okay. The first one on guidance and thinking about GP growth for this year. I wonder whether you think it will be H1 weighted and when you talk about momentum having been strong year-to-date, are you growing double digits today? And then I've got a couple more on AI after that one.

Okay. I'm going to let Andrew take that so I can blow my nose.

I also have a supplemental on that. The last few years, we've seen the GP margin as a percentage of GII come down. Do you think this year, it will be sort of more similar in terms of GP/GII growth rate?

So Andrew, a very interesting question. So I think the growth rate will be slightly weighted towards H1, and this is particularly because of the Microsoft year-end and our public sector focus. And so therefore, we think public sector will continue the trends that we've seen in the past is maybe higher than the private sector growth. So we see that -- and it's not, yes, maybe 2%, 2.5% difference from the growth rate. So what you end up with in a modeling point of view is probably more 50-50 on the GP basis, right? When you look at the, call it, the GP over GII. Now that's quite a complex question, but I'll try and simplify the answer is that because our public sector is very much dominated by enterprise agreements.

So the more we grow in the public sector space, it looks like, it appears that our GP is shrinking just because we're invoicing one and taking a rather small margin. So what I would encourage you to do, and I did it at half year last year, and we'll probably repeat it half year this year is split the 2 businesses into public sector and into corporate and look at the margin declining. Now saying that there has been a margin decline this year, obviously, because we've had to deal with the incentive changes. I would expect that to stabilize and start growing because our real focus at the moment, services, higher margin. So a focus on that. If you look at cyber, if you look at Azure, public cloud, the rest of the managed services environment, higher margin. So I think you'll start seeing on a like-for-like basis, private sector -- public sector growing, but I acknowledge that it has been a decline in the year.

Understood. And just on the double-digit growth, can you just confirm your double-digit GP growth year-to-date?

So our guidance was high single digit to low double digit. So coming out of February -- sorry, January and February, and why we highlight those 2 months is because that is where the Microsoft incentives has played through in prior calendar year. And so that is the area that we normalize. Now we would reiterate sort of, call it, very high single digits and slightly lower single digits for the second half. So I'm not wanting to call anything more aggressive than that, I'll move on.

And then just for Sam, on sort of AI shift to consumption. I've got a couple of questions. First of all, Anthropic announced a couple of months ago a partner program. Have you had any engagement with them yet?

So we are engaging with a number of new vendors, AI vendors. And yes, it's an exciting area for us. And even partners like Google, which have been a significant brand in the IT industry for decades, we haven't partnered as strongly within the past, but it's something that is changing because of customer demand, and it's all about what do our customers want. So if our customers feel that it's relevant to their strategy, and we believe that we, as a business, can help provide value and advice around that, we will lean in. So the answer is, yes, we're talking to a number of vendors in earnest at the moment.

And then you sort of mentioned there quite briefly NHS Copilot rollout. But the numbers there, 500,000 people, I think, on the slide. That's a big implementation of Copilot.

It's the biggest global Microsoft implementation.

Yes. So just tell us a little bit more about that, can you, please, I mean particularly in terms of how you make money from it. Yes.

I can tell you a little bit. So it's part of what Nick and I shared in the video around customers will make their commitment into a technology stack. And then, of course, it's how they enable it. And with certain clients where strategic outcomes are being driven, and let's not forget the NHS is absolutely right for huge transformation way beyond just the Microsoft stack in so many areas, the data and security and so on. But by focusing on the capability and the SKUs they've already invested in and moving this into the agent era of creating processes and automating. It's driving the efficiencies that the government has set out in NHS England has set out. So adoption change management skills is what we're talking about here.

It's about going in and curating with the teams, how they want to use that Copilot technology effectively. Obviously, there's been an awful lot of work from Microsoft consultancy to engineer and to drive that Copilot functionality to serve the health care industry in a way that they have established it needs to address certain needs. So our teams, and we're talking about a lot of people, and it's, to your point, a lot of trust and a lot of licenses we're going to be busy with for more than a year deploying, but we've got metrics, and we've got particular targets that we will agree with Microsoft and deliver against over the next 12 months. So it's a very important, highly visible project to Microsoft, and we're very proud to be associated and to be the recipient, if you like, of that business to go and deliver it.

Damindu Jayaweera from Peel Hunt. I've got a couple of questions, and I'll go one by one. First one is for Andrew. Just kind of unbundling the GP guidance for FY '27. If I were to think of the fact that the renewal rates went to 99% from what used to be kind of 190% and recovery of that towards perhaps not to the 109%, combined with your usual split between selling to existing customers versus new customers, is some sort of a normalization of those 2 numbers is the way to think about getting back to the kind of the high single-digit, low double-digit GP growth rate?

It's a very interesting observation. And so you're right in the past and ignoring FY '26 for a moment is that we've had sort of 110%, 112% last year, 109% renewal rates. On top of that, we've seen our growth 1/3 coming from new customers and 2/3 coming from existing customers. Now in this year, we've had the 99% renewal rate and i.e. so our existing customers have shrunk slightly, and so all of our growth came from new customers. I would expect that to normalize that because what we're seeing from our bigger vendors is striving for stability within their channel. So I don't expect there's a lot of incentive changes coming down the pike. And so that will mean that as we expand through AI, as we look at year 5, year 7, there will be more into existing customers, so we'll see a margin increase. So I'd expect, let's say, going back to the sort of high single-digit guidance. 1/3 coming from new customers, 2/3 coming from existing.

If I can -- sorry, just add to Andrew's point there. One of the key messages I brought back from Seattle a couple of weeks ago, you had all of the VPs of channel incentives, global at Microsoft and the key message of obviously, the channel needed to know were there going to be any further changes and the strategy stability was the key thing. So that was reassuring that all of the major changes we absorbed last year, there are no further ones in the short term to absorb.

And Sam, congratulations on the NPS scores going in the right direction. And there are a few more changes to, I guess, to be executed, the Phoenix piece. Could you just remind us about the remaining small changes that you need to do and why they will be less disruptive versus the changes that you had to do last year?

Yes. No, thanks, Damindu. So in March this year, we announced, as I just talked about in the presentation, the fact that we have some overlap between Phoenix and Bytes on the public sector area and in fact, corporate. Both will now be pure-play resellers. And in doing so, there will be some teams, the Bytes public sector team coming over into reporting at Phoenix. They don't change offices. They don't disconnect from their customers. So on that basis, it's a small change. The teams have already been integrated sales kickoffs and some of the events we've been running recently, they traveled up to York.

So we're simulating, if you like, and getting people familiar with the change of the team they'll be joining. Equally, a small team on the Phoenix side, private business that will now report into Bytes. That will go live on the 1st of July. It's not a big switch point on that date because all of the work we've been going through a lot of rigorous management of this and derisking anything and novating contracts is obviously the next stage of where we're at in this process. And that is all in hand. So by 1st of July, the majority of the work will be carried out, although some of the novation will continue beyond that point, but we're in good shape for that.

And the last one is thank you for the case studies, and thank you for kind of bringing back the kind of -- I shouldn't say bringing back, but the focus on Microsoft because Microsoft is clearly making really good progress in AI adoption. I mean we at Peel Hunt know it, our bills are going through the roof essentially related to Copilot stuff. Congratulations on your frontier status. I just wanted to understand a little bit more or maybe you can articulate a little bit more because your MS-related services, I think you said went up 31% last year.

And then you kind of talked about the fact that there is in the services space, which to me feels much more important going forward because of what AI is doing because you have -- like you rightly said, you have to be ready for AI and all the cybersecurity stuff and other things. You talked about vendor funding, managed services and expanded services as kind of 3 components in your kind of services base. Is vendor funding the largest bit that's driving the growth that we will potentially see from services in FY '27? And related to that, right now, you have about 25% of staff in technical delivery. Does that staff count need to go up if you are to do more of the MS and expanded services?

Yes, for sure, Damindu, it does. And one of the things that we didn't talk in depth about is a need for us to also absorb that technology into our own business and to actually drive the AI, the agentic of the processes. And it's happening. So we have some of those technical teams actually dedicated to internal innovation and driving agents and making profound differences to some of the teams and how they work. So it's an exciting era. But to your point, the actual headcount around those areas will increase. And that's why M&A is also of interest because if we can find the right teams to supplement or to get us there faster, then that makes sense as long as culturally and the strategic alignment is there, too.

If I can squeeze in one last one. Could you just give us an example of actual internal use of AI? I know you rolled out some tools. Maybe just give one example where productivity has effectively been impacted.

Well, I hope our competitors aren't listening. But yes, one of the most recent ones is clearly, Microsoft licensing takes an awful lot of time when you have a customer coming up for renewal or if you're looking for a new bid, we have specialists that are looking into customer needs and what SKUs or previous investments they've got and how we can present the right contract, whether it's EA or CSP to them. But where EA is concerned, this is quite heavy-duty pieces of work hours, days, weeks and then peer reviewing goes on as well as a final check. And so we have a new agent that's been created for the public sector team called License IQ, which automates that peer review and has removed hours of time from our license specialists.

So there's a team of, call it, 15 people who were crazy busy all peer reviewing. And suddenly now there's been a giant leap of the agent being able to punch its way through it. and then leaving the final human peer review with just a little bit of oversight. So there's a significant time-saving advantage. So what do you do with the time back? Well, the licensing advisers can go and work with the customers on the next customer meeting and understanding their needs and getting deeper into strategy as opposed to just going through lots and lots of shopping list that SKUs. So yes, that's an example.

Okay. Thank you. We've had a few questions online. First question is from Chris Tong from UBS. Do you expect Microsoft 365 price increase to be a material tailwind for results?

So it's too early to say, but some of the customer engagements I've been involved with some of these were quite a few months ago before the price list, the files came out. It was really interesting how customers were appraising the new SKUs that are embedded into it and saw advantage. So it gave me a thought process that actually, if customers are in that right zone of thinking about the future and the AI SKUs and wanting those higher-grade areas, then this will absolutely make sense. And it's -- by the way, it's Microsoft's first suite in many, many years. I don't know if it's a decade since they launched one.

So it's quite interesting from that point of view. But it's budgets are sensitive at the moment across both private and public sector. So there's got to be some damn good business justification behind it. And that comes back to license advisers, sellers really understanding what outcomes customers are trying to drive and where their strategy sits over the next few years. So it's back to that deeper conversation of if we understand where our customer is going and what their vision is, how we then apply that M365 conversation back into it. It doesn't give you an answer. I guess, do I think it's going to drive a material difference? I hope so.

Thank you. Next question is from Tim Olls from Laurium Capital. Customer NPS is lower for the second year in a row. What trends are behind this? And what is being done to improve customer NPS?

Customer NPS is.

So customer NPS is actually higher than the prior year.

Yes. No, we're very proud -- sorry, Tim, I don't know if we've not been clear about it, but NPS is extraordinarily high. Very, very proud of the number.

Okay. We'll move on to next question. It's from Tim Olls again. Second question. Please can you talk through the decision not to pay a special dividend for this year?

Andrew?

So I think we've always undertaken to return excess cash to the shareholders either via special or via share buybacks. We did an extensive exercise towards the middle of last year, particularly after the AGM and our share price coming down to circa GBP 3, and we acknowledge that it was better to return excess cash to our shareholders via a share buyback. And because our share price is still sitting a lot lower than it was last year, we've repeated the exercise.

Thank you. No further questions. So Sam, maybe I can hand back to you for any closing remarks.

No, I just want to thank you all for your time this morning. Looking forward to this year, I think we've got off to a positive start. If I think about the first few months trading, the momentum that we've talked about in H2 of last year continues. And that obviously gives us confidence in our outlook. But we've got a lot of work to do, and we've detailed some of the areas that we're working hard in. So thank you, and we look forward to coming back in a few more months' time at the end of H1 and detailing more results for you. Thank you.

Thank you.

Good morning, and welcome to Bytes' conference call. Today, we are joined by Samantha Mudd, Chief Executive Officer; and Andrew Holden, Chief Financial Officer. [Operator Instructions]

I would now like to hand the call over to Sam Mudd. Please go ahead.

Good morning, everybody. I'm Sam Mudd, and I'm joined by Andrew Holden. We do not usually have a call around our trading update, but we wanted to cover three things with you in addition to our FY '26 headline results and provide the opportunity for questions. Firstly, our guidance to FY '27; secondly, the further alignment of our go-to-market approach; and lastly, some comments on AI, given how topical that has been since we last spoke to you in October. Starting with our FY '26 results. These were in line with the outlook provided at the half year with double-digit gross invoiced income growth, gross profit of around GBP 167 million and operating profit of around GBP 62 million. This marks sequential improvement in growth areas across all three metrics in H2 on H1, despite the tougher comparatives.

Cash conversion exceeded 100% with a year-end cash balance of over GBP 98 million after returning GBP 74 million to shareholders in the form of dividends and share buyback. This reflects the Board's continued confidence in the business. As we previously reported, FY '26 was impacted by changes to Microsoft enterprise incentives and the phasing effects of the private sector sales alignment. We have now passed the anniversary of the incentive changes. We have also passed the tough comparative from the private sector sales alignment, which drove a strong end to FY '25 and are pleased with how that change has now bedded in. Encouragingly, performance strengthened in the second half with gross profit growing circa 6% year-on-year in January, February 2026 against a strong high teens comparator.

Moving on to FY '27 guidance. In FY '27, we expect to return to gross profit growth levels that we're used to delivering, and we are guiding to high single-digit to low double-digit percentage growth in gross profit. This gross profit growth will not convert to operating profit growth at the level we are used to delivering in FY '27, and we're guiding to operating profit broadly flat. This results from the group absorbing around circa GBP 4.5 million of cost, reflecting higher technology costs following the completion of 2 strategic projects undertaken in FY '25 and FY '26 and a return to normal bonus levels on top of continued headcount investments to grow. As a reminder, the two projects were a marketplace gateway for our customers to move -- to more seamlessly purchase products online from a range of vendors and a platform to improve our operational efficiency around customer order processing.

Turning to our further go-to-market alignment. We're going to go into more detail on this with you in our full year results in May, but we're keen to explain the strategy and execution of change, which is now underway. The strategy is for Bytes Software Services to focus solely on the private sector and Phoenix Software solely on the public sector. This helps our businesses focus on their strengths, enable our teams to deliver increasingly specialized support to customers and better leverages existing scale in the group. One example of an opportunity this change delivers is the current Bytes public sector customers being sold Phoenix services, where it has developed a leading proposition for public sector clients, and we have continued the strong double-digit growth we reported in the first half.

The transition will be carefully sequenced and managed. We've learned a lot from the last year's private sector sales realignment. It also involves a small number of colleagues moving within the group. And in the vast majority of cases, customer relationships will not be impacted. We estimate that the extent of the customer overlap where both Bytes and Phoenix serve the same customer is about GBP 2 million of gross profit, and it's only in these instances where there could be a customer relationship change as where essentially the account manager with a stronger relationship would retain the account as we transition to having a single account manager.

Lastly, on AI. As we have the opportunity to speak to you today, I thought it would be appropriate to say a few words on AI given the news in the wider market over recent weeks. There has been much debate on how this will impact the software industry, and I'm going to break this down into three areas. First, how AI impacts the products that we sell; second, how we're doing delivering AI products to customers; and lastly, how are we using AI ourselves. Firstly, we see AI as a driver of what we sell. For our customers, at a high level, AI is driving lots of innovation and opportunity for them at the application layer, and this is driving demand for the infrastructure layer that we largely sell.

AI needs cloud infrastructure for compute, storage, governance for data, networking and connectivity for access, and this all needs to be secured. Secondly, AI products and services are becoming meaningful sources of sales in their own right. We're seeing growth through the application of Microsoft's AI and Data suite helping customers with quick wins in the development of agents or stepping back and helping them reimagine processes with AI at the centre.

These engagements often involve or lead to a broader infrastructure conversation by necessity. For example, a recent engagement we had helping our customers' AI adoption with Microsoft Foundry also helping them with a platform for rebuilding and deploying agents. It comprises consultancy on security, cloud for agent environments in addition to governance, risk and compliance and adoption and change management, all for one customer engagement. Lastly, for our own business, we view AI as a core discipline, not a one-off project. Our focus is on encouraging creativity across the whole workforce and identifying processes that are ripe for AI to add value, such as those with high predictability for our dedicated teams to build and deploy agents.

On the former, our account managers use Copilot to learn more deeply about their customers as well as to engage with tools that we have built for them. We have tools such as [ Scout, ] which helps them explore our services catalog, Scan, which converts meeting transcripts into structured commercial outputs and we're in the production for a referral engine that automates much of what is a very time-consuming process.

We are, of course, adopting AI across the business beyond the sales front line, such as to triage and log tickets in our managed services and report generation across departments. Again, we'll speak on this in more detail at our results, but we remain strongly positioned to capitalize on significant potential opportunities that AI unlocks right across our customer base.

We will now open the floor to your questions. Thank you.

[Operator Instructions] Our first question comes from Tintin Stormont with Deutsche Numis.

Just a further clarification on the operating profit flat EBIT guidance for FY '27. Obviously, you have a range of possible outcomes in terms of GP growth from high single digit to low double digit. Could you maybe explain some of the sensitivity of whether you come at the bottom and top end of that, the sensitivity to your operating profit guidance?

Tintin, thanks for the question. We have modelled our forecast towards the high single digits. So when Sam is calling out flat, you could model flat on high single digits of sort of 8%, 9%. If we achieve the 11%, 12%, there will be potentially upside on the [ OP. ]

Our next question comes from Andrew Ripper with Panmure Liberum.

I've got two, if that's all right. Just following on from Tintin's. Just interested, obviously, fairly early in the year to be providing guidance for FY '27. I appreciate you're not in a position to call the sort of all the geopolitical stuff that's going on in the world. But it does feel as though there'll be a real-world implication from that in terms of economic growth. To what degree is your guidance dependent upon the macro being sort of stable stroke normal, if that's an appropriate phrase.

Andrew, do you want me to take that?

Yes, you can.

Yes. Andrew, thanks for the question. Look, I accept there is clearly impact globally. We can only deal with the variables that we're in control of. And currently, our customers, I think, are feeling and thinking the same. If they wake up every morning and try and make decisions based on the latest news, everybody just implodes and stops running businesses. So at the moment, we are modeling based on, I think, being cautiously optimistic about what's going on in the world. But Andrew, if there's anything else to add, please do.

No. I think it is uncertain times, Andrew. And what we've modeled is what we know. We haven't seen any slowdown, particularly from the customers in January, February. So it is what we know at this point in time. That's the best we can do, I guess.

Okay. And then I just wanted to ask a second one. Just in relation to Microsoft, obviously, it's quite a material change in incentives last year. You've sort of lapped the comps now. Can you just give us a sort of sense of where you are with Microsoft now relationship-wise and how you can help them deliver on their objectives over the next -- I appreciate the sort of almost three quarters of the way through their financial year. But when you sort of look out to their FY '27 financial year, presumably, you'll have another sort of partner get together in the autumn. Can you give us a sort of a flavour of what you expect from that?

Yes, sure. Thanks, Andrew. I'm feeling very, very confident that our relationship with Microsoft is in a good place. I talked frequently about it being our most longest enduring strategic partner. There are many others. But when you've built a foundation over four decades and grown together, we are relevant. I'm heading out to Seattle in a couple of weeks' time. These are global partner forums where we get slow down on some of the thinking for the next FY. Microsoft commenced on the 1st of July. And we obviously have been participating very aggressively in a lot of the AI discussions at the AI forum only two weeks ago.

I had the pleasure of being in a room with Satya and many other leaders. So I think the strategy is clear for Microsoft. It hasn't changed. It hasn't deviated. The partner incentives are stable, and we've mitigated the impact of the change. Just to remind the audience, it was nonmaterial. It was less than 5% with mitigations made around selling more services, transitioning our customers to CSP and maintaining the focus on non-Microsoft vendors. So this links nicely to the strategy that we've obviously just updated you on the evolving sales go-to-market. We're doing this very intentionally and with purpose for those reasons. So hopefully, that answers your question, Andrew.

Our next question comes from Julian Yates with Investec.

A couple of questions on the Bytes Phoenix commentary. With the move you've mentioned this morning, does that mean the businesses become sort of further apart and very distinct operating units with sort of even less communication? Or does it mean actually some of those Chinese boards are now broken down because they're not cross-competing with customers so you can actually facilitate sharing in best practice and the two businesses come slightly more sort of aligned in that sort of sense? And secondly, are you able to share the growth rates you saw in Phoenix versus the growth rates you're seeing in BSS and the upside to BSS or where that potential might be?

Julian, let me take the first part. You're absolutely right. It was the latter explanation that you gave. We are very clearly working now myself and Andrew with the executive team at Bytes and have brought further alignment, cohesive discussions across the group. And you're absolutely spot on. The ability now for each operation to focus on their go-to-market without having any siloed distraction units that sit on the outside of the core strategy is one of the benefits of what we're doing here. On the growth rates, Andrew, are you happy to take that one?

Thanks, Sam. So just broadly, we can disclose the, call it, private sector versus public sector rather than the two underlying operations. The public sector has grown very, very strongly in the second half against lower comparatives from FY '25 to FY '26, ending up on a high single-digit growth for the year. And corporate has been relatively flat for the year, which would have been an improvement from H1 into H2. And again, that against fairly high comparatives in last year's area where we had a pull forward into H2 and FY '25. So we're relatively confident going into the new year with these sort of H2 results and more particularly the January, February results.

And this is partly -- Julian, when you look at the -- we used to bid twice or two bids going into a single area, we had to be very, very conscious of solid walls between the two organizations. And now we don't have to have that. And we continue to strive to integrate our services behind the scenes and sort of build one offer twice across the public and private domains.

The next question comes from Charles Brennan with Jefferies.

I'll do two as well, if I can. Firstly, just in terms of EBIT, I think you've been pretty explicit about your '27 ambitions. But what does the EBIT algorithm look like beyond 2027? I think in the case of Softcat, they would generally expect EBIT to grow slower than gross profit growth. At Computacenter, I think they would probably expect it to grow faster than gross profit growth. Like what should we be thinking of as the algorithm at Bytes?

And then secondly, can you talk through some of the senior management changes that we've been reading about, particularly Jack Watson. Can you give us some background behind that? And do you think it's possible that we see other senior management changes through the course of the year?

Charlie, I'm Sam. I'll go with your senior management question first. So Jack Watson, the Managing Director of Bytes Software Services, has left the business. And I guess the question is why did he leave? The leaders come and go, and we want to acknowledge and thank Jack for his dedication, his leadership and contribution. But what matters is we've got a very strong executive team that remains in the business, and Andrew and I will be taking the opportunity to provide more direct support to that team. So the Bytes FD and CTO were reporting to Andrew and everyone else for sales, marketing, services operations into me.

And your latter question, any more senior managers looking to leave the business? I think given the interactions that we've had with them over the last few weeks around the project, around the announcement we've just given on private and public sector, I would be most surprised if we had any losses. We have a very energized, focused galvanized team working closely with myself and Andrew and the Clare Metcalfe as well at the Phoenix side.

So Charlie, I'll pick up the question around the EBIT and the margin between operating profit and GP. So this year, we've acknowledged the GBP 4.5 million coming back into the base. And if you work out the GBP 4.5 million over the GBP 62 million, it's around about 7%. So we think that FY '28 would see us more normalizing the growth between OP and GP being equal. And that GBP 4.5 million, what's baked into the cost again is not a cost that will continue to rise.

This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks.

No, I'd just like to thank everybody for your time, and we look forward to seeing you in May and obviously going into more detail around some of the elements that we've shared with you today. And we're busy getting this year going. So look forward to seeing you in a few months' time. Thank you.

Thank you very much. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Great. So good morning, and thank you for joining us for our half year results presentation for the 6 months ending August 31, 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 U.K., and we have a focus on software. We're driven by a clear mission to help organizations 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 FTSE4Good Index.

Our first half results this year were impacted by the reorganization 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 Bytes 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 GII grew at 9.1% to GBP 1.342 billion, whilst gross profit only grew at 0.4% to GBP 82.4 million. 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 2 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 modeling. Salary costs are up 14% due to head count growth and a cost of living wage increase as of 1st of March this year. Most of this increase is in annualized hiring made towards the end of FY '25 with only 1.7% head count growth in this year.

We have capitalized GBP 700,000 worth of employee costs, and this was the same amount as what we capitalized last year, and this relates to the project to modernize 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 normalize towards next year -- of 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 GBP 3 million for the full year and show some increase next year.

Other administrative expenses increased 10.8% and 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 annualized basis, we continue to target a ratio of between 38% and 40%. 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 normalized 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, GII growth is roughly the same across public and core protectors, resulting in the split of GII 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% and 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 invoiced 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 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 3 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 GII increased 16.8% and the GP by 25%. But again, that's of low comparative last year. And a reminder, we shrunk both of those GII 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 mix changes as well as cost efficiencies.

Cash conversion continues to follow the same cycle that we've seen in the past. And 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 GBP 42 million to our shareholders, we are left with a cash balance of GBP 82.3 million as of the end of August.

In this half, we capitalized an additional GBP 2.3 million into our software development and this relates to the 2 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 GBP 3.4 million, the cost of which we'll start to amortize in H2 at an annual rate of around GBP 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 FY '27. We expect the combined investment to be around GBP 8 million by year-end and resulted in an additional amortization of GBP 1 million 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 1/3 paid as an interim and the final 2/3 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 3.2p per share, which is a 3.2% increase on the prior year, and it just happens to be the same number.

So 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 GBP 25 million repurchase program, of which we have completed GBP 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 increased 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 Kally Kang-Kersey to the team. Kally is focused on attracting top talent, developing future fit leadership, modernizing our people operations. And at the full year, we'll be able to say more about the long-term people strategy that she is 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're trying 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 programs of work where required from our clients that may need access to multiple teams and resources.

Now 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 helped 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 group supports our account managers' ability to bring value to customers. Ultimately, the challenge is and level of complex interaction as 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 reorganization 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 of 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 incentivize partners to focus on the Microsoft Cloud Solution Provider program, 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 to 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 FY '26, 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 4 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 with 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 Bytes 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 organization.

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 3 main reasons. First and foremost, customer centricity as evidenced by our consistently excellent NPS 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 U.K. 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, Rubrik, 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 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 copilot 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 road maps 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 1/3 professional project-based and 2/3 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 authorized 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 multiyear 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 recognize the attractions of selling services and how it deepens their relationships with their customers. So we're balancing internalizing our services as demand scales, the 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 24/7 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 summarize, 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 hard-working 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 capitalize on positive sector trends and to continue growing this business.

And with that, I'd like to open the floor for questions. Thank you.

Julian from Investec. A couple of questions. One, financials and one markets. 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 could we expect maybe a sequential uptick in the second half? Or do we see the same seasonal progressions? That's the one.

And the more business-related one is the marketplace platform. When that rolls out at scale? Could you talk us through some of the business model implications in terms of, I guess, customer reach? Is it a much more scalable model? Is it a light touch model to the sales from the sales force? 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 is using the marketplace, what do we expect?

So the first question around GP and looking at half-on-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 2 reasons, right? You have 6 months impact because the rebate changes started from the 1st of January. So full 6 months of the effect. In the second half, we'll, from a comparative point of view, only have 4 months. So that sort of headwind is less.

And then the second part of that conversation is around the heavy sort of weighting towards GII 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 2 aspects as Sam mentioned the Microsoft changing the discount structures effectively from the 1st of November. So that changes behavior as well. There will be an effective price increase into the market. That will take 3 years to roll through depending on when you renew 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 follow the trends of the past, you see a margin-rich environment, but 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 2 elements.

On marketplace, Julian, it's an interesting phenomenon. 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 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.

You've put a lot of money into it. A lot of CapEx has gone 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 on an 18-month to 2-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 a long way. I think there will be incremental returns on that environment. I think the argument is 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 2 together, right? So if you didn't do it, would you have got it that's a question. But it's newer tech, scalable. And obviously, with older tech, it's less supportable. It goes beyond support and those types of things. So we're right up to date.

It's Charlie from Jefferies. Just a couple of things from me. Firstly, I see Microsoft. 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? If we were to look out 5 years from now, would it be 5% of gross profit, 10% of gross profit? Like 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 4 months out of the 6. 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 summarizing the impact of the second half being lower. So it won't be 3.4% lower, but it will 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 to 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 GII growing at sort of 15%. So there is a little bit of an element of we need to accelerate our GII, 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 it 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 will be an accelerated conversion into the CSP environment.

Services, we don't report services as Microsoft, right? And that's one of the challenge 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 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 hub, hopefully, that releases some of that management focus into focusing on other areas. So mainly the GII growth and other vendors would be good.

And Charlie, just on the services ambition, I think, if we look 5 years out, I think that was the sort of time frame you were talking. As our business grows in relevance, the software is 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 to the strategy earlier.

So the ambition for me is, could we get it up to 20% within 5 years organically? Potentially. But we're going to have to work hard, and we 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.

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 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 2 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 2 organizations, you're talking maybe 50, 60 partnerships that spread across the wide portfolio of vendors that we're managing. And those are partners that we have onboarded. 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 we haven't onboarded, but we might speculatively work with them and work on a deal 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 because if a partner that we're working with doesn't feel 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 behavior that they've been used 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 multimillion pound GP 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 blend that really drives the success. So attach rate is higher in public sector, watch this space on corporate.

I noticed that Sam jumped in very quickly. So left me with that question. So -- but -- as you rightly say, 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 broadly the 2 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 Cs and Ds from a size point of view. As and Bs, we've been active on the program for about 3.5 years. The CSP program has been around for 12 years, but we've been very much focused on it for the last 3.5 years, knowing what was coming. We are outgrowing our top line by 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 a multiyear story. So we're not close to the top end of that.

It's Andrew Ripper from Panmure 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, say, I don't know, over 1 million GP or whatever you think is a relevant metric. 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 at the 1st of January? And then sort of attached to that, you talked a bit about rebuilding the pipeline after the sort of the initial changes. Can you sort of update us on that in terms of pipeline going into the end of the financial year? And maybe sort of give us a sense of ambition 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 multipart question, but just trying to...

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 academy. So this is intake of combination of experienced and sometimes new to IT sales individuals. This is a cadence of hiring that goes on around this time and gets the people ready for contribution in next year, if they contribute. Anything, it will be negligible, but 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 presale 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 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 FY '27. 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 2 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 1/3, 1/3, 1/3 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 2/3 of customers they moved over, and she has been able to dedicate more time, more strategic intent into those relationships, much fewer accounts. She went from, I think it was 14 down to 7. 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 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, 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 FY '27, we'll see the actual fruits of that coming through.

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. We -- I've cut across the 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 GBP 1 million 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 cost growth and an element of employee growth, the salary cost. Other than that normal sort of expectation.

Chris from UBS. Maybe one on Microsoft incentives. So obviously, they made very big changes this year. But I guess 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?

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 or bounce around any ideas that they might be thinking of with the group. I'm pleased to say -- 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 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 -- 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 -- 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 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.

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 an acceleration in CSP embedded in your second half expectation? Or is that something that would cause a 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 haven't got a percentage growth target for 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 yes, 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. So there's a moving factors within that. Bear in mind, the time that you move programs is the time at renewal. So if you had a 3-year EA 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 structures change and will take full 3 years to wash through the system.

All 4, if you have a 3 plus 1 EA agreement, it could -- you could be as far out as 4 years before you hit the point of, okay, now I've got to decide, do I continue on EA or go CSP.

I got a follow-up on Microsoft as well. Talking to Microsoft earlier on this year and one of the senior execs in the U.K. 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. Sort of given you're now sort of 9 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 there's -- over the years, there's a really busy ecosystem of partners that are authorized to sell CSP. But Microsoft have acknowledged that, and they have obviously raised the bar around authorization 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 knowing 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 return, they know it if they haven't got that depth of skill, we'll soon get themselves into a pickle and that will be a problem for customers. So we have, at 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 U.K. that can sell EAs, right? And these are typically, I mean, I saw Softcat computer center, Trustmarque, boxxe and so on. And so the shift, the bigger getting bigger. So it applies to everybody. So we don't see a share 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 share shift 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 and upsell. So that is the area that we feel that we can win, but we're not unique in that situation. Yes, Softcat as well is ideally placed in that enterprise.

If you've only got an EA environment and not 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 and order -- once you're in the door with Microsoft on an enterprise agreement, our job is to cross and upsell. And where do you cross and upsell? You cross and upsell up the value chain within Microsoft, other vendors and services. So that remains unchanged.

And just sorry to add to what Andrew described there, I think the scale partners, we have a plethora of accreditation, specializations that actually give us access to lots of different funding parts, 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.

One of the other, call them, tailwinds that we haven't discussed, and Chris, just going 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 GBP 1 million a year or $1 million a year to be a CSP provider. So that takes out sort of the longer tail. But what they have 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 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 those are -- that includes distis and so on that maybe Microsoft is a small percentage of their business. So the question is how do we benefit from that, and this is 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, but this is Damindu Jayaweera from Peel Hunt. 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 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 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 that 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 one, obviously, we've discussed Microsoft a lot. But when you look at the GII, Microsoft GII grew 7 and a bit percent. Obviously, overall, GII is up 9%. So a lot of the other vendors, and we forget that you work...

I know. I know.

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 the data center 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 virtualization 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. And then you come back to some of the classical vendors like Adobe and Dell, [ SoftLoft ] and so on. And these are partnerships that we invest heavily into in terms of time, team, sometimes funded heads, and those are all vendor names that I'm proud to be associated with.

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

Yes. Check Point, as an example, has been a well-established partnership within the business through the Bytes' Security Partnerships 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 U.S. posting by Microsoft on the November 1 changes, they specifically carve out saying the U.S. government institutions or the education institutions would not be affected from that pricing change. I wanted to understand what would happen when it comes to public sector, but not just November 1 changes, but just what is Microsoft thinking about public sector in U.K. and how they are trying to incentivize?

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, won with public sector. They tend to -- 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 U.K. 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 Andrew's point of at that point of renewal, 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? And 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 over the years, like when you do -- 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 a differentiator in these?

Yes. 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.

We've got questions from the webcast on the conference call. [Operator Instructions]

We'll move to our first question from the webcast. It's from Rethabile Mphahlele from Allan 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.

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, we're now talking to the enterprise team within Adobe or within Mimecast or within AWS for argument's sake, but not mandated, but certainly aligned.

Yes. And I think just to also call out that the -- it was conceived as the right strategy about this time last year. So this wasn't a belated or a quick decision for Bytes to -- 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. I 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 Bytes GP? 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 effect for at least 12 months? And how would you improve the effectiveness of CSPs be good? Are they not lower margin for you?

So let's deal with that sort of EA question. 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 -- let's -- 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 3-year agreement, you get billed annually. So all those billings that we do would occur in a rolling 12-month cycle. So what we are saying is that once you build them in this calendar year, then you add a new low base, right?

So if your percentage -- just let's take a view if you sold GBP 1 million and you were getting 10% and now you're selling GBP 1 million, you're only getting 5%. So now you reduce it down to 5%, that 5% remains for next year. Now that reduction of 10% to 5%, we've had 6 months of it in our first half. We're only going to have the reduction of 10% to 5% for 4 months 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 in the 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 1% 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.

Thank you. We're going to move to a question from the conference call. It's from Martin O'Sullivan from Shore Capital.

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?

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 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.

So 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 bang a price out there. Let's really get to understand the customers' 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 provide a price. It's a journey we want to go on with our customers.

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 exchange 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 that is really -- 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 users and your Azure. So we'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 to spend. So you now commit to spend of, let's say, GBP 10 million over a 3-year period. And you find yourself in the sense of, okay, I've only used, I don't know, GBP 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 GBP 2 million buying other products through the Microsoft marketplace.

So that sort of brings back from our point of view and from a customers' point of view, if you're going to get an extra 5% discount because you've committed GBP 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 a 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 is interested in.

So they're not interested in Adobe licenses, but they're interested, can now run Adobe on Azure, and that will stimulate cloud growth. So it's all interconnected, and that's why the 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. This -- maybe this last comment brings it to life for...

Thanks very much for that question there, Martin. Next question is from Timothy Olls from Laurium Capital. Please, could you provide more color on your expectations for H2 and the next financial year? If you were to weigh up U.K. macro pressures versus structural demand drivers, is 7% to 8% GP growth from FY '27 still achievable?

I think we've moved away from talking about the macro in 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 call out 2 figures very briefly.

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 you 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 GBP 2 million. So you add that because now you're sort of GBP 2 million less in the comparator and you quickly find yourself at a normalized base growth of north of 5% already, right? 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 doable, and I don't want to dig my own grave here, but I think that would be normalized growth for us next year. I think the cost side is somewhat different for us because we have 2 elements coming back into next year. We've spoken about capitalization of internal resources looking at the IT dev environment. So if you look in the script, it was GBP 700,000 that we capitalized 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 in FY '27, that means that headcount come back into our cost base. So that gives us, call it, GBP 1.2 million, GBP 100,000 a month coming back into the cost base and that extra GBP 1 million worth of depreciation that we have spoken about, then also comes back into the thing. So you're talking about, call it, GBP 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.

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 the 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 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 nonnegotiable. They've got to keep renewing and the renewals that we follow through each year. We have a very tight program 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 to 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 2 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 -- no, maybe confidence is the wrong word, a realistic reality check of 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'Connor from Progressive Equity Research. Can you give color on the receivables movement and the consequent impact on DSO? Do you have a target model number in terms of days?

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. 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 4, 5 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 on a rolling 12-month basis.

Thank you. Our final question today is from [indiscernible]. You talk about the pipeline being strong. Can you contextualize today's pipeline versus 6 months ago versus 12 months ago?

Six months ago would take us back into a very busy period, public sector and corporate, 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.

Thanks so 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.

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