Good morning. Thank you for joining us at the LSC this morning. I look forward to presenting to you online our full year presentation for the year ended 28th of February 2025. I'm Sam Mudd, the CEO of Bytes Technology Group, and I'm delighted to be here alongside Andrew, our CFO. We'd like to invite those of you here with us in person to join us for tea and coffee afterwards, if you'd like to. I'll begin quickly with an introduction to the business and overview of FY25. Andrew will then provide a financial overview before I come back to provide a strategic review. BTG 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 have significant tenure and experience, not just in our leadership teams, but across all of our staff positions. This allows us to build and sustain those trusted partnerships and to deliver what customers need in the form of licensing advice, recommendations on solutions, and procurement, and providing technical services where required. We are on a mission to build a profitable growth company that is also a great place to work, and this clear focus on culture fosters the tenure and the experience critical to our success. Our staff's commitment to delivering for our customers is testament to the culture we provide to them. I am proud to say that in 2025, we lived up to our mission, thanks to the great people across Bytes, Bytes Software Services, and Phoenix Software, our loyal customers, and our vendor partners.
We help more businesses and public sector organizations than ever to meet their objectives through innovative IT solutions. I would like to thank our two Managing Directors, Jack and Claire, for steering their respective teams through a challenging year, delivering these superb results for the group. One area that I will spend a little bit more time on later in this presentation is our expanding services delivery offerings as part of our innovative agile culture. On the headline numbers, I'm pleased to report another set of positive results for Bytes Technology Group, with a 15.2% increase in gross invoiced income, a 12% rise in gross profit, a 17.1% increase in operating profit, and over 100% cash conversion.
We have doubled all of these income metrics in our five years as a listed entity, while sustaining over 100% cash conversion, enabling us to distribute the majority of these growing earnings to shareholders whilst maintaining a strong balance sheet. Our track record of double-digit organic growth profit is now well over a decade. Last year's record results were again achieved despite a tricky macro backdrop. We saw this most in our corporate business in the middle of the year, given the uncertainty that customers faced last summer around the election. Our successful H2 sales execution gave us a strong overall position for the year, in line with our historical double-digit growth performance. This was also achieved as we entered into the new world of Microsoft incentives January 1, 2025, which we were well prepared for.
The performance was driven by continued demand for our broad range of software solutions and services, with our existing customers spending more with us as they continue to invest in their IT needs, with our client base growing in both public and corporate sectors. Now I'll hand over to Andrew for the financial review.
Thanks, Sam. Good morning, everyone, and welcome to the LSC. This is the first time we're doing this in person, so please forgive any glitches. Sam has already highlighted some of the key numbers that we are particularly proud of. In the next few slides, I'll walk you through some of the details and then be available for questions at the end. If I start at the headline figures and looking at the gross invoice income, as Sam said, grown 15.2% to GBP 2.1 billion. This is the first time we've exceeded the GBP 2 billion, so sort of a landmark growth for us. Gross profit grew at 12%, and this is the sum of the two halves for the two halves. If you look at H1, we reported a growth of 9%, so you can infer 15% growth in the second half.
Sort of maybe a switch in the two, corporate at the end of the first half grew by 3% and nearly 15% in the second half. Corporate averaged out at 8.8% or 9% growth for the year. Public sector averaged out at about 18% growth. In the next slide, I'll touch a little bit more on the GP over GRI margin and skip it for now. If I look at the administrative costs, there are a couple of items in the administrative costs at half year. We also spoke about the investment into our accounting systems as well as developing a new billing platform and the sales platform to assist in capitalizing on future growth and simplifying our business and sort of a single source of truth. This development project will create an IP.
In line with our accounting policy, we have capitalized these costs. In the full year, we've capitalized GBP 3.7 million, of which GBP 1.4 million was internal cost, and the balance, the GBP 2.3 million, was external cost. That has artificially reduced our cost base by 8.8%. If you work it backwards and include the difference on the share-based payments, you'll see around 13.7% cost growth for the year. We also started the year at 1,057 staff. We ended the year at 1,245 staff members. We averaged 1,150 staff members, which infers that our growth was slightly back-ended into the second half. When you look at the forward-looking statements, just keep that in mind in how our cost base grows.
Our adjusted operating profit, excluding amortization of intangibles and share-based payments, grew at 14.4% to GBP 72.4 million. Our operating profit, which we'll focus on in future, and I'll get to why we are focusing on that just now in this period, is up 17.1% to GBP 66.4 million. This has obviously benefited from the share-based payments declining from GBP 5.7 million to GBP 5.1 million in the period and then the aforementioned capitalization. If I look at the efficiency ratio of operating profit divided by gross profit, this is at 40.7%. Last year's ratio was at 38.9%. This expansion in that ratio is solely due to the decline in share-based payments as well as the capitalization. Do not expect that sort of expansion in margin into the future. Our finance cost likely comprises of the fees associated with our ICF facility.
This includes a little bit of right-of-use assets for our expanding electric vehicle scheme for staff. Our finance team has done incredibly well over the period, and we've seen a significant increase in interest earned to GBP 8.5 million for the year. Our effective tax rate is 26.7%, which is marginally above the corporate tax rate of 25%. This is solely due to the deferred tax asset linked to the employee share schemes and the lower-than-anticipated share price for the year. You have to write back some of the deferred tax asset. On the previous slide, I mentioned the growth achieved by the public sector, and this has led to a slightly greater weighting towards the public sector, which now means we have 65% of our GII coming from the sector and 35% from our corporate sector.
For those of you that we've spoken to before, you know that in the public sector, we invoice directly. All enterprise agreements occur in our GRI as well as in our GP for the corporate sector environment. Microsoft typically invoices the EA agreements, and therefore we do not reflect the same amount. That is mostly what drives the difference on the GRI side. When we look at contributions from the public sector and the corporate sector by gross profit, we find a similar expansion in the public sector, moving from 34% contribution to 35% contribution. This means at the total level, we see the GP to GRI conversion declining from 8% to 7.8%. That is not because there is a declining margin. This is more to do with the mix.
If you look at the mix in the corporate sector and the public sector, we've explained the movement there. What's interesting is our public sector margin runs at 4.4%. This year, it's declined to 4.3%. Conversely, the margin in the corporate sector has expanded from 14.1%- 14.4%. Given those two elements, you can see the margins are fairly consistent year on year, and it's just the mix that changes them. When we segment our performance into the three broad categories of software, hardware, and services, we see that the GP from software grew at about 12%. Hardware, that was down over 40% in the first half, now only shows a slight decline of 6% for the full year. This had a positive impact on our corporate growth for the second half.
We see that the services grew quite nicely by 19% to contribute GBP 12.8 million, nearly 8% of our gross profit. In focusing on the services, you'll see the top line on the services GII has not moved that much, but we've been focusing on building and utilizing the capacity that we have, moving externally based services internally. Our utilization has gone up, and therefore our profitability has gone up significantly for that environment. When I look at this slide, and I use the same slide at half year, this is just to re-illustrate the move between AOP and OP. You'll see on the left-hand side of the screen, this denotes all the accounting adjustments that we've made since IPO between AOP and OP. This is mostly share-based payments. You can see it has peaked in 2024, and it will stabilize.
Therefore, it's not an excessive growth environment anymore. It's appropriate now we move to OP as a primary measurement. What I've done from a completeness point of view is I've also shown the efficiency ratio of GP over AOP and GP over OP, just to look at it from a consistency point of view. We've been reporting between 42%-43% AOP over GP as a ratio, and this will now drop to 38%-40%. All the graph is reflecting on this side is that there's no smoke and mirrors in this, and we're not changing numbers because it suits us. It is comparable. If you see a 38%-40%, it is in line with what we had shown in prior years.
Looking at the cash flow and also a bridge that you've seen before, a waterfall that you've seen before. Very good cash generation from our operations. I just want to call out the GBP 6.4 million that you see on the PPE side. That is abnormal for us. Normally, PPE stands at about GBP 1.2- GBP 1.3 million. This year, we have bought two buildings that are next door to our Leatherhead environment, and that total cost was GBP 5.2 million, including stamp duty and legal fees and so on. We have bought those two buildings because it gives us access to 27,000 sq ft that we'll utilize as we grow into that environment. Just to show how well we've utilized the current building, when we bought the building 11 years ago, Bytes Software Services had 210 staff members, and it's well over 700 at the moment.
They're obviously not all housed into the current building. A lot of them are remote. It also denotes where we're moving and the view that we have around staff growth and the Leatherhead environment and the talent pool that we have access to. When we look at the after-tax and returning GBP 42.8 million to our shareholders, we are left with a cash balance of GBP 113.1 million at the end of February. Our cash conversion continues to follow the same cycle that we've discussed in the past. As a reminder, we tend to see a lower cash conversion in the first half, followed by a very strong cash conversion in the second. For the full year and using operating profit as a denominator, we had a cash conversion of 114%.
If you use it the other way around, we reported cash conversion using AOP as a denominator, it's still 104%. No smoke and mirrors in changing the numbers there. If we look at capital deployment, as our framework shows, our priority is in order to fund organic growth, to fund capital projects, to pay normal dividends, to fund acquisitions, and then to return excess cash to shareholders via either special or share buybacks. Our dividend policy is to return between 40%-50% of post-tax adjusted operating profits to shareholders via normal dividends. I'm pleased to announce the board has recommended a final dividend of GBP 0.069 per share, bringing the full year dividend to GBP 0.10 per share. This represents a 15% increase on FY2024 numbers. We remain focused on delivering organic growth, for which there remains a lot of opportunity within the U.K.
Sam will talk about the progress we have made into executing some of the strategies. We will also continue to monitor the potential acquisition opportunities that come up from time to time in the market that could assist us in accelerating our strategic goals. We are mindful anyone that we have a look at has to be a good cultural fit. We have yet to find the opportunity. In keeping with our commitment to return all excess cash back to our shareholders, the board is also pleased to announce that we are recommending a further special dividend of GBP 0.10 per share. Sustainability remains integral to the mission as a responsible business.
As part of this in the environmental field, we've enhanced our transparency and scientific rigor, and we've achieved validation of our near-term and net zero carbon reduction targets by SBTi and improved our third-party accreditation scores. We've also made progress in developing multiple social initiatives, which we've listed on the slide, to ensure that we hear and support our people in their roles, their ambitions, their values, whoever they might be. All of this activity has been carried out under the direction of our board, ensuring good governance through a board town hall, a new ESG committee chaired by Anna, and a new designated executive director. With that, I'm going to hand back to Sam for a walk through our strategic review. Thanks.
Thank you, Andrew.
For those of you newer to BTG, I'm going to explain how we fit into the technology value chain with customers and vendors. Why do customers buy through us? We act in their best interest. Our simple incentive structure aligns our staff's interests too. We understand them. Our people are experts in our customers, as well as technology, often having daily interaction with clients for years, enabling them to understand customer needs. Thanks to our relatively high staff retention rates, our customers often deal with the same account manager and the same team year in and year out, building up that trust. We make their lives easy. By partnering with hundreds of vendors, we can act as the trusted advisor across multiple technologies. We support communities, looking at the social value projects, which are important particularly for public sector customers.
Why do vendors partner with us? We offer scale. We give access to nearly 6,000 customers, and we provide a fantastic route to market for new and existing vendors. We drive adoption for them. We help customers get value from their products and improve renewal rates for vendors. This relies on our technical investments behind our partner technologies, evidenced by our accreditations and the number of specialists that we have in the business. We can provide feedback to the vendors. Given our breadth of customers and closeness of relationships, we are often invited to partner advisory councils, sometimes called PACs, to help the vendors make informed decisions about their programs and customer campaigns. Most importantly, we have track record. We are a tried and tested route to market.
Notably, Microsoft has increased the focus on its channel strategy on scale in the mid-market segment, where we have particularly strong presence. This is where they see the most white space for their technologies and portfolio expansion. As a consequence, we are well positioned to take on their mission for more campaigns and lead generation. Having spoken about the proposition from a bottom-up perspective, I'm now going to frame it from the top down. This slide shows, on the left, the customer segments that we can target. In the middle, the technology areas where we can help customers with, which is constantly growing. At the bottom, the vendors we partner with to help customers as broadly as possible leverage those technologies, noting Microsoft does sit across everything. On the right-hand side, the services that we're providing in both pre and post-sales capacity.
Our broader vendor partnerships work well alongside our Microsoft focus. I want to recap first on what drives that attractive, defining feature of our business, and then summarize how the incentive changes have settled since they were first announced in the autumn of last year. We've long been a strategic partner to Microsoft and are proud of our rank as the number one partner in the U.K. to overall revenue influence. The reason we stay focused on their growth strategy is threefold. First, they're a world-class vendor who consistently grow by taking market share and expanding their portfolio, giving our sellers something new to talk about on a regular basis when they visit their customer contracts for further upsell. Two, it becomes the springboard for us to work with customers on other technology needs, as noted on the bottom of the slide.
Sorry, I'm actually going to come on to the next slide around account managers and what they're selling. The Microsoft drive around Copilot supports related work streams around data management, hybrid cloud, data preparation, segmentation, and security, all the areas that we generate new opportunities from, services opportunities in some cases. Thirdly, Microsoft are a partner-first organization, particularly supportive of large-scale partners whom they have worked with for decades. We have built up our operations to enable more growth for them in the future. This is evidenced by us doubling our profit related to the Microsoft vendor over the last five years. Whilst enjoying the growth with the Microsoft juggernaut vendor that it is, we have simultaneously also kept up our growth with all other vendors that we represent.
At this point, I'd like to play a video of Darren Hardman, the CEO of Microsoft UK, talking about Microsoft's relationsh ip with BTG.
Hello, I'm Darren Hardman, CEO for Microsoft UK. Satya Nadella has said that Microsoft has always been a partner-led company. It is this partner ecosystem that drives local economies and creates massive growth. Now, in that spirit, it's a pleasure to partner with BTG, an organization known for its commitment to customer excellence and AI-driven innovation. Over the past three decades, BTG has proven to be a highly valuable partner for Microsoft, supporting joint customers across both the public and private sectors via their two businesses, Bytes Software Services and Phoenix Software. In the era of agentic AI, BTG's capabilities across software licensing, cloud innovation, AI integration, and security will be instrumental in maximizing the opportunities ahead.
is evident that the strong bond between BTG and Microsoft has helped drive mutual success. BTG's dedication to innovation and its commitment to delivering exceptional service have fostered a culture of excellence. Together, BTG and Microsoft continue to support mutual customers, empowering them to innovate and thrive in this rapidly evolving technology landscape. This enduring collaboration remains a cornerstone of the shared vision for the future.
You will remember that at our half-year results, we stated that the Microsoft incentive changes, including reduced enterprise agreement rebates, were not expected to have a material impact on our business. This has proven to be the case. Since that update, the rebate reductions in public sector were partially reversed, further mitigating the impact. Adjusting to incentive changes is part and parcel of our business.
The key adjustments for these changes are transitioning more corporate customers to CSP and providing more services, which has long been a part of our strategy. On this slide, I'd like to bring you with me on the evolution of the strategy we have executed against in our first five years as a public company, starting with what remains true today. Our sources of growth remain expanding our customer base and growing existing customers, and we have plenty of runway on both vectors. We have invested significantly, expanding our sales force, and we will continue to do so. We also continue to invest in new vendor accreditations to drive the 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.
We win for three reasons: customer centricity evidenced by our consistently excellent MPS scores, the depth of knowledge; we're a software specialist and Microsoft's largest U.K. partner, vendor partnerships where we decide to work with the vendor, we invest behind that relationship. The strength of our relationships with Microsoft and many other top-tier vendors such as Adobe, AWS, Checkpoint, Dell, VMware, and ServiceNow allow us to seize exciting opportunities in cloud adoption, data and workload migration, storage, security, and virtualization technologies. Our structural growth markets, we have particularly benefited from the growth of customer spend on Microsoft across all of the tech stack, cybersecurity, which is still a top priority for customers, and cloud, which is remarkably still 83% of data estimated to be on-prem. Of course, the next five years will not look exactly like the last five years.
We are always evolving, and I want to explain how. You can see the different shading in the fonts on the slide. Services is one of the key evolutions which sits across where we are investing, why we win, and our growth opportunities. This is about following the evolving needs of both our customers and our vendor partners. With technology evolving quickly, customers need more help understanding what to buy, as well as supporting and managing what they have. Vendors are shifting their go-to-market to match this evolution, funding pre-sale services that ultimately drive technology purchase and consumption, which will remain where we generate most of our income. Investing more in pre-sale services supports our existing reselling business directly by putting us at the center of those purchasing decisions and elevating our status with vendors who offer higher accreditation to partners with this capability.
Examples of these services include envisioning workshops, requirements gathering and design, project-orientated consulting services, IT business strategy, cloud migration assessments, cybersecurity, and a wide range of value-added services aimed at maximizing the return of an organization's investment in technology. Similarly, vendors focusing on their core competency of software development are increasingly happy to leave partners like Bytes Technology Group to provide the support and manage services to our mutual customers. Investing more in services supports our existing reselling business indirectly by increasing the breadth of our customer relationships, which often helps uncover additional customer needs that we can help them with. It elevates our status as a technology partner, which is particularly helpful when public sector and enterprise customers are evaluating their options.
Examples of these services include IT professional services, adoption change management, managed services, and a wide range of vendor technologies, including 24x7 support for critical cloud and security services, software asset management, and software cost optimization and IT management. We expect services expansion at scale to be self-funding. Typically, new services can involve fixed setup costs. For example, staffing a 24x7 security operations center will need covering at first before earning a mature margin. Beyond services investment, as Andrew mentioned, we're upgrading our systems to support new purchasing models and higher volumes. On winning, we expect benefits from segmenting our corporate sector sales structure, mirroring the approach that we've achieved success with in public sector already. This positions us well to know each sector's technology needs and align us better with vendors who similarly are also structured in that vertical way.
Microsoft continues to grow strongly, and it is around half of our GP, but there are several additional drivers that I want to just call out. Data and AI, this has not moved the needle yet, but we strategically think it's very important with our customers, and we expect to become more prevalent in years to come and are already engaged with our customers in those conversations. Growing the breadth of our cloud offerings, AWS is one of those examples, and it's one of our fastest-growing vendors, and helping customers to take advantage of cloud marketplace is another newer important category. We all say that our people are our core asset, and we're proud of their energy, enthusiasm, and professionalism, and the tremendous job that they do supporting our customers by providing an outstanding service.
To support our ambitious growth plans, we continue to focus on targeted recruitment and training, attracting talent in the front-end sales, delivery teams, and all supporting areas from apprentices through to senior roles. I am pleased to say that we have grown headcount by 17.8% this year to 1,245 people with growth across all of our teams. We have worked hard as ever to ensure that the unique culture that has brought us so far is maintained, even as a bigger company. I am pleased that over 500 employees are literally invested in the continuing success of the company as participants in the ShareSafe scheme. We are also very proud of our exceptionally high rank in the Great Places to Work survey. All that said, I am committed to improving this year's eMPS results, which remain strong and high for tech industry, for which scores are generally between 20% and 40%.
We have fallen from the previous high level of 71% to 57%. We think this reflects a year of change, both externally with the weak economy and political uncertainty, but also internally with the changes in management and now our sales new structure. We are soon to appoint our first Chief People Officer this summer, who will report directly into me, and we will work together to develop our culture further. As our headcount grows, we have made it our priority to provide the right office environments in the right areas. As Andrew has mentioned, some of the expansion already, we want to balance our proximity to talent pools with proximity to customers and to try and create a vibrant working space for all our staff to collaborate, which is key to the value proposition to our customers.
As Andrew has mentioned, we have acquired the two adjacent buildings in Leatherhead Business Park to cater for our further expansion. We have expanded our London office to accommodate more sales hires and opened new offices in Port Solent and Sunderland. It is important to be visible to prospective customers and the talent in the regions we serve. Now, we talk a lot about the importance of culture, and I am going to highlight a couple of components of it in this slide and the outcomes that they drive. We have long been a proponent of teaching growth mindset, and this gives us two benefits. Firstly, the confidence to grow our talent, and secondly, the resilience in our people. We think everyone can develop, and we see this proven out by the growing numbers of people delivering an impressive GBP 1 million of gross profit for the group.
We're also seeing people reach the GBP 1 million mark in only a few years, benefiting from the increased breadth of our offering. As the contribution of our top performers is also compounding as they broaden the number of annually the annuity technology streams sold into their customers, I also want to talk about the simplicity of our incentive structures, which lets our people dynamically focus on the opportunities they find most attractive rather than relying on a central direction. This is illustrated on the bottom left by very different ways that our two top-selling performers delivered their results. One sold twice as much security software to their customers as the group average, whereas the other sold four times as much hardware and services as the group average. It is our ambition to accelerate all of our sellers in their journey towards excellence.
Equally, customers who have been with us many years and expand what they buy from us to multiple vendors and solutions help our account managers deliver these impressive results. Similarly, our account managers' tenure increases. As it increases, so does their job knowledge, their IT industry expertise, and as such, they become more adept and capable of selling more sophisticated solutions and more expansive ranges of software and services. They become more strategic with their customers as they go deeper with their engagement and operate across more decision-makers and stakeholders, and they spend more time with their clients. Thus, we reduce the number of customers that they will be dealing with to enable a more strategic engagement with fewer clients. We're proud to highlight that the Royal Household is an example where tenure strengthens our relationship with a customer, with Phoenix Software receiving a Royal Warrant following a ten-year relationship.
I've personally had the pleasure of being aligned as an executive to this important customer, and I know both Jack and Claire and their sales directors and CTOs and divisional leads are also aligned to many of their top-tier customers in private and public sector. The same is true of our vendors, where we're aligned as executives and close and we're close to the wheels of action. Being close to the vendors and customers at all levels is a very important part of our high-performing sales strategy. Finally, through our passionate, talented, and experienced staff, we are well-positioned to continue providing high-quality licensing advice and technical support delivery to meet our customers' needs. This will remain our defining USP.
Despite the uncertain macroeconomic environment that we're mindful of, we feel that we are structured and motivated to continue growing this business and to deliver double-digit gross profit and high single-digit operating profit as we absorb about GBP 1.6 million of cost related to the National Insurance Contribution changes. I want to take this opportunity to thank our hardworking staff for all their efforts over the last year to deliver another set of strong results.
Thank you. We need to go in an orderly fashion.
Mark's going to come around, and if we just start, I guess, ladies first. There we go.
I'll do a couple of questions rather than be too greedy. Just in this, particularly in this new Microsoft incentive structure world, are there opportunities to augment your services and just grow faster through M&A?
Do those players exist instead of presumably part of the 17% headcount growth is to make sure you're kind of driving towards that direction and maximizing the opportunity there? Secondly, you talked about Microsoft public sector incentives, obviously some partial reversal that has taken place. How should we think about that? Should we think of that as a half-step, or do you think that Microsoft truly understands that that's a different structure altogether and sort of kind of that's the status quo going forward?
Okay, I'll take both questions. In terms of M&A, I think we've been very explicit that we're very happy with our organic strategy as it currently stands. We do attract technical talent where we need to in terms of standing up the services. I think that's a feature of the high levels of accreditation that we have, our reputation, etc.
We do find when we need to, we can onboard the right levels of expertise. I take your point that M&A could be an accelerator, and we are active and looking at the market as opportunities, but we are very patient and considered in our approach, as you will see from previous acquisitions, Phoenix being the last one in 2017. Culturally, as Andrew had mentioned, it has to align. It has got to be accretive, and it has got to be a business that would align very, very obviously into our strategy. We are looking, but at the moment, our organic plan is prevalent in our minds. In terms of the public sector Microsoft incentives, you are right, they roll back. For the time being, I think we have certainly got years where this will be the status quo.
I do not envisage that changing, nor do Microsoft have the platforms or the mechanics of making that happen in the near future.
Thanks, Tintin, for the questions. A couple from me. Public sector, could you just explain exactly what drove that really strong growth in terms of just give us a bit more granularity? Was it the large sort of tenders, or was it the run rate, sort of local authority deals? Just a little bit of color, because it was a pretty impressive performance. I guess the follow-on is the current backdrop. Does that continue into sort of, I guess, the next year ahead? That is the public sector. The second one was sort of a follow-up to Tintin's question on the CSP changes from a slightly different angle. Are you in a position to gain market share there?
You're, I guess, streets ahead of the competition to some extent, I would expect, in managing that you've been doing for quite some time. Are you now seeing a fallout for some of the smaller vendors who are struggling to cope with the changes in billing and selling services and add-ons that Microsoft is basically trying to incentivize a channel there? Can that enable you to gain share? Or conversely, are you seeing more competition and that some of the bigger resellers who are focused into larger accounts have to go mid-market and go down now to get an action because Microsoft's obviously moving that focus of rebates to the smaller end of the customer base?
Yeah, okay. The public sector growth that we enjoyed last year, I think, was very much a reflection of the building momentum and investments we've made over a number of years.
Both operations have their own public sector go-to-market. Phoenix is more exclusive. Bytes has substantial focus as well. They preside over the NHS agreements and many others. What we've seen, and I think this is our USP, is that we've got incredibly strong bidding tactics. We know when to play. We preside over the right frameworks, which gives you visibility of what's going to market. We choose whether we want to bid or not. If it's high-level contracts and we're looking to bid aggressively, the risk assessment is done right up to board level. I think we spend an awful lot of time on this. We've become good at it is the other answer, and we know how to bid strong. I think that's where we've been successful and why public sector numbers have come through and reflected the way they have.
In terms of the CSP changes and are we likely to gain market share? We have a predisposition to focus on the mid-market, which is the SMC mid-market that Microsoft are inviting their channel to go and work hard on. We already preside over that customer base. For us, we're already engaged in that community across all different industries, corporate and public sector. I think the fact that we're a scale partner gives us an advantage. To answer your question, are the smaller partners going to lose out? It's been a noisy market over the last few years, and I think scale partners are potentially going to be the winners because they've got the engagement with the Microsoft reps. We've got the ability to understand what's coming down the line programmatically before the long tail of other partners.
I think also our investments, to Andrew's point, in some of our systems, we are just absolutely operationally on the ball here. For a smaller partner, it's hard for them to compete in those areas. Finally, on CSP, the broad portfolio of conversations we have around CSP, because it's lots of different technology areas you can sell, we have that capability. Some of the smaller boutique partners might have an offering around one singular area on CSP. Is a customer going to want to have those multiple faceted conversations with lots of partners, or do they want to go to a scale partner and have a singular one? I think we're in a position where we're going to probably win out from that perspective. Competition, I've kind of.
Just looking at the top end, so you've got some of the bigger resellers that may be doing business with some of the larger corporates. If that is drying up from a Microsoft angle, as Microsoft pushes more rebates down to the mid-market, is there a risk you see some of the bigger focused customers, VARs, moving to your segment to try and get a bit of the margin cut that's now not available when you sell into larger corporates? Not really. It's always a competitive market. I haven't seen any particular c hanges.
My view, Julian, is these large resellers are multifaceted. The hardware and the services are still a very attractive market in that enterprise space.
To come down the value chain where you're only selling software to the SMC market is quite difficult, and the cost of acquisition of those customers would remain quite high for them. Never say never, but if those multifaceted, we would not see an immediate sort of target on the SMC space.
It is a totally different cultural approach and different way of selling, is it not? Yeah.
Yeah. Understood. Thank you.
I think there were some questions starting from the back there.
Sorry. Yes, I think.
Thanks very much, Patrick O'Donnell, Goodbo dy. The questions I have really are around market share initially, just your composition of how you calculate that and basically where you see that going over the next three or four years.
Secondly, I suppose when you look at the cloud demand that Microsoft has seen, they noted they were surprised by the non-AI element of that. When you look at sort of the Microsoft demand and when you compare it with other cloud providers which you're contracted with, is there elevated demand for Azure-related transition, or do you see that equally across AWS, etc. as well? T hanks.
Andrew, do you want to do the composition of market, and I'll talk about the SGM?
Our internal stats address the market into addressable market. Our addressable market, it's 100 users upwards and then 10,000 users downwards. We do not play in that big enterprise space, especially in the corporate space. When we estimate the market, it's estimating within that parameter space. Software were actually quite a lot higher than the risk. We measure in two ways.
We would think that we sort of have around about 6%-8% of the market share on software only, less than 0.2% on the hardware side, tiny, and maybe less than 1% on the services side. When you add it all together, we think around about 3% is the total. Now, the other data point is quite interesting is 6,000 customers, probably 42,000 buying points in the U.K. Plenty of opportunity in new customers. 36,000 new customers to go and get. That sort of element of software still to grow in the environment, so particularly strong. Everyone's going to have a different view on it, but consumers aren't, enterprises aren't. The only difference is public sector. We obviously, our biggest account is NHS, which is over a million users. What is similar to that, everyone's local, right? Everyone's in the U.K.
It's not multi-geographical splits.
On the Azure point, you're right to suspect that the Azure growth, the non-AI elements, is still substantial. It's still one of Microsoft's fastest growing areas, and for us too, we're aligned, and we see that as opportunity. Notwithstanding that 83% of data is still on-prem, so we see that as a long runway. That's also a feature of all different segments, whether it's enterprise, mid-market, or smaller. The customers have still got workloads to transform to the cloud. Thanks. Just, are you seeing any difference between Microsoft and Amazon and other providers in terms of net demand? We're actually enjoying a great relationship with AWS at the moment as well. There's similar growth opportunity there. It's a multi-cloud conversation for some of the bigger customers, and we're able to service both of those.
Hi there, it's Charlie from Jefferies.
I'll do three questions if I can. Firstly, on Microsoft, I'm under the impression that they've made additional incentives available to the larger partners. Can you explain that strategic partner program to us? Can you just simplify what it means? You've seen a net reduction from EAs. You've obviously seen this benefit from strategic partner status. On a net basis, do you think commissions are up or down with Microsoft on a like-for-like basis? Secondly, you called out the slight negative impact on margin this year because of national insurance. If we think about Softcat, we've seen a multi-year period where they've been trying to overinvest in OpEx to drive new capabilities. You're also talking about new services. Is this the start of you being on a multi-period journey of maybe operating profit margin contraction?
Thirdly, on customer numbers, you called out you've got 36,000 to go for. You've only managed to get 85 in the last 12 months. Is there any sense of disappointment in the customer ads? Thank you.
Okay. I'll talk a little bit about the Microsoft program. Programmatically, as a scale partner, as I've mentioned, we are able to accredit with Microsoft in much the same way that other partners can. Of course, we come from a transactional background, an LSP, which was the old terminology. Over the years, they've introduced specializations, designations, and that's where you start to earn the money. If you have access to funding pots, incentives that are aligned around those areas, those are in addition to all of the more standard features of how we used to pay the old transaction world.
I think scale partners, just a feature of us having more of those designations and specializations, means we're accessing more of that. That's my answer in terms of being scale and what that means to Microsoft in terms of our special arrangements. On the negative impact around NI,
Andrew, I don't know if you want to comment. Yeah, I can't comment around what Softcat is doing and what Softcat's investing in. If you look at us, what we've done is maintain that sort of lever. The lever in between our GP and OP is very much headcount. What we've done is invested, obviously, ahead of the curve. We've maintained that ratio quite accurately over the last three years from 42%-43%, and that's talking about AOP.
The second element of this is that the headcount that we are growing, and we are growing the headcount equally around services, sellers, and administrative. Our headcount on sellers, particularly, has grown ahead of the demand because we are typically bringing in junior people and then growing those individuals. If we look at it two years out, and that sort of depicts our confidence as a runway for two years. I fully expect into next year, we will return to the same ratio. We will try to our growth in costs and our growth in GP would be equal. Now, on your services side, you are quite right, and there is an investment into the services side, but the services headcount sits in cost of sale and does not impact that margin at all.
On the customers, the 85 net new, I do not know if there is anything, Andrew, you want to highlight from last year's.
Y eah, I think there is a little bit of a correction from last year's. One of the things that we have changed, I guess, in our measurement is that when we fund groups that were typical, and we have discussed this in the past, a large financial institution that we have sold multiple delivery points. Last year, we counted multiple of those delivery points in our customer space, so we took them out. Only gaining at the high level, the gross amount of 100-odd customers, it is not the net amount. We have some churn within the environment, some collapse within the sort of child-to-parent environment. The better way to look at it, in my view, is if you look at our recurring, sorry, our retention rate, 109%.
109% of sort of gross profit out of the same customer base. Then you look at the other sort of point of reference is 97% of our GP came from existing customers, and 3% came from net new. If you look at it just from a mathematical point of view, 3% of GBP 163 million is, call it GBP 5 million. We definitely did not get GBP 5 million GP out of 100 customers. Those were net new. Typically speaking, our new customers would average around about GBP 11,000 in the first year. We back ourselves from that land and expand environment, taking a new customer up the value chain over the future years. That gives you the points.
I think, yeah, maybe we can make it a bit clearer about sort of what is new and what is net new and what is gross into the future. I know there's a question from Andrew in the front here.
Hi, morning. I've got a few, but I'll do them one at a time. And well done on the results. First of all, just on Microsoft, as it seems to be a bit of a theme today. Sam, when you were going through your part of the presentation, I think you rattled through a whole load of services that you've been investing in. I didn't quite catch them all, but could you maybe just take a little bit more time to elaborate on how that's making a difference for customers and supporting your growth? Thanks.
Okay. No, you're right. The reason is we have so many.
It's quite a complicated matrix. We actually played around with one slide where we did actually try and call it all out, and then we realized that this is crazy busy. The script ended up trying to reflect some of that. The types of work that we do, you can almost segment it into pre and post-sales. It's probably common knowledge that Microsoft and other vendors will pay for pre-sales work to generate pipeline, get a customer into a workshop environment. You're envisioning what the art of the possible is, talking about the technology, potentially moving it into a pilot, potentially then doing the transaction. Beyond that, there's the post-sales activities and adoption change management. Driving the consumption is one of the key metrics that Microsoft are very, very keen to pay out on. Even within that, there's fast-track incentives.
There's lots of others. It's actually PhD level of detail that we employ lots of people to manage within the business. What you can see from just generally our go-to-market sales is we've stood up very specific services. Beyond some of the discrete incentive areas where we've got service activity, we've also got our own IP. We sell managed services. Azure Expert is one of the status accreditations that we hold within the group. That means that we provide managed services around the Azure environment. We also do the same for the Sentinel Security. We have a Microsoft SOC that's built out of Phoenix. There's another example of our own IP. I could go on. Those are the range of services. Even within that, you've got sort of discrete offerings that underpin those bigger themes. Thanks.
One of the challenges with Microsoft, I appreciate the overarching disclosure you have given, sort of 50% of GP. It is quite difficult to relate Microsoft reporting with your reporting. Obviously, you mentioned some of the growth drivers and services and cyber. I just wonder, can you bring them to life a little bit financially for us in terms of how significant they are for you today as a proportion of GP? Maybe give us a sense of where you think you and/or Microsoft could get to. Satya, for example, has made comments in relation to the security business. Maybe you could use that as an example.
At the high level, I know you want to get into the detail, Andrew. Security represents 25% of our GP.
It's already, you can sense that this is a really important part of our sales portfolio. It's not just Microsoft because our security conversations span many, many vendors. Microsoft is an offering that customers have choice around. There's huge incentives to drive customers to take that E3, E5 SKU option. Many customers do, but many have lots of other areas. As a proportion of GP, in terms of that Microsoft service, it's quite hard to extrapolate that out as well because of the combination of security services that we do that sometimes are blended. In other areas, of course, I've already referred to some of those managed services and so on. I don't think we specify how that actually, as a vendor, is apportioned as part of our services GP.
Could you do a SOC in private sector as well as public, for example?
Yeah, we do sell SOC services in the corporate space. When we look at internal versus external services, when we build these services, to start with, we tend to use our ecosystem. We use a third-party vendor to support our corporate customers at the moment into the SOC. As of the end of last calendar year, we have now started looking at the SOC that we have already built within the Phoenix space that is public sector focused. That is based on the Microsoft SIEM. We are looking at bringing that into the low end of the corporate market. You should see us starting to accelerate that SOC environment. It is the low end of the SOC environment. We will probably be looking at 1,000 users or less.
It is not all bells and whistles like the big corporates would be expecting in a sort of multifaceted environment.
The final thing I just wanted to ask, with the incentive changes, obviously, you have had them for two months of the last financial year. If you were to look at January, February, March, April, has the aggregate impact of those changes had any meaningful impact on the GP growth rate for the group? Would externally, we notice a difference as a result of the changes?
We were well prepared. So far, the months that we have operated with the new incentive world, it has panned out exactly as we expected, Andrew. There are no surprises for us. This is as we imagined it would roll out. Bear in mind, we have actually had some high-volume months in March and April, public sector expenditure.
I think we've got a good feel. A large proportion of that Microsoft business will flow through our sales engine in those months. I think we have a good sense here, and it's panning out how we imagined it would.
Great. Thanks.
I've got a couple more.
Just a final one. Historically, obviously, Phoenix Software has always had, I think, had more of the top accreditations with Microsoft versus Bytes Software Services. Could you just talk about where Bytes Software Services is at in terms of those accreditations? Does that sort of kind of leave some opportunity as they grow into those accreditations in this kind of new world ?
Yeah, I haven't got the exact ones, but actually, BSS are almost comparable to Phoenix in terms of specializations and designations. In fact, they just took a very unique one BSS did last week around the virtualization play.
Both organizations have been very, very laser-focused on this because, as I mentioned, it allows you to fall in behind the incentive themes that Microsoft offer.
I think Chris had his hand up in the Julian. We'll come back to you.
Hi, Chris from UBS. Thank you for taking my questions. Two from my side. On current trading, can you just comment on how that has progressed? Obviously, we had sort of Liberation Day and an increase in national insurance. Has customer conversations become more difficult? Secondly, in terms of the cadence of the gross profit growth outlook, do you see any sort of seasonality elements, or do you still expect double-digit growth for each half? Thank you.
I'll talk about the conversations that we're having with customers. Andrew, you can talk about seasonality if that's okay.
I think, Chris, we've got a continued lack of confidence in the customers that's been prevalent since last summer. They're very cost-conscious, and they're very mindful to think through their expenditure. Actually, the type of software and solutions we're selling is very, very obvious to say yes to because it's your standard keep-the-lights-on software. It's email. It's security. It's backup. It's your collaboration tools. It's Teams and so on. We're not necessarily the areas of the budget that they're going to agonize over. From that point of view, I think we've operated in this very tough environment well because of that, because it's very, very mainstream. Like I say, it's like paying your gas and electricity. You don't turn it off. I am very mindful that the environment has created customers to be less confident about what does the future mean.
I think we've got to sit and wait and see what the next six to nine months bring with the tariff scenarios. Thus far, it has been business as usual for us.
Chris, if I can add to that and then go into the seasonality. In preparation for today's session, we've also been talking to some of the industry and getting insights from other players. One of the things that is universal is the sort of lack of confidence at the moment. Therefore, that lack of confidence leads to slower decisions, particularly in the professional services environment. Sam alluded to our stuff is that we sell our value propositions more like utilities, and therefore, that will continue. We still need decisions to go our way in the sense of change, right? Why change? We need to add.
I think the professional services side would be particularly affected with that and those big CapEx items that will be affected. I would think that at some stage, business confidence has to return, and we'll see an uptick in the environment. From a seasonality point of view, we've always had sort of two seasons. H1 has been dominated by the public sector, and particularly because of the budget. People empty their coffers in sort of leading up to March, and then they've got new coffers into April, which they start spending. We do see very big months in that environment, particularly because of those enterprise agreements. We have a third sort of tailwind in the first half, which would be traditionally Microsoft's year-end, which is in June. That's very much around the annual renewals, right?
Not so much on the CSP side. In times gone past, there's been a hard push to sign up these customers. Automatically, your renewals will be sitting around the June environment. Interesting enough, those are all enterprise agreements. That is where Microsoft's made all those incentive changes as well. You also see some of that transaction, some of those transactions coming through our books at this stage. Julian has also got a question there.
Thanks. Just a quick follow-up on M&A. Would you be able to give us your views on U.K. or Europe in terms of what companies you're looking at? Also, services from a cross-sell angle, I would assume maybe services will be part of the focus.
Would it be a sort of vendor-specific that you're looking to build up access to a new vendor or a current vendor you want to build up bulk to, or all the above? Just interested in what you're seeing.
We periodically think, what would we, could we do? I think the U.K. would be our preferred. We've got so much opportunity on our doorstep. As we've alluded to, we've only got 4% of our addressable market. I think international as a first move is probably unlikely. In terms of services, I think we've been very open about the fact that there are some immediate obvious areas that we would potentially consider. That comes back to security, managed services, cloud migration. Would we look at new vendor areas? We did an investment into CloudBridge, and AWS was part of the strategy behind that.
It's given us some decent technical capabilities in that arena. Maybe a joint venture of that sort in the future could be of interest. I think at the moment, we know what our mainstream business is, and we know where we're enjoying success. The strategy has worked for a number of years. I don't think we want to deviate off that. We are very clear on what the future shou ld be for us.
Great. Thank you.
What I'm going to do is ask James just if there's any written questions coming through the audience at Harvard.
Yes. Hello. From Harry Reed at Redburn Atlantic, three questions, probably all for you, Andrew. Two on headcount. Why is headcount growth higher than the growth in employee costs? How can we think about headcount plans and wage inflation in FY2026?
One on kind of customer contributions. How should we think about the relative contribution of existing and new customers to future growth?
If I look at the employee side, some of the stats were given during the presentation. One thousand two hundred forty-five average was one thousand one hundred fifty. That means it was backend weighted. What you typically find within our business, at least, is as we draw towards December and we start preparing for the budgets, what the leadership automatically do is they look at what they need to achieve in the following year or two years, and then they start building that staff complement to hit the ground running. What you will find in particularly November, December, January is a build-up of staff, and particularly the sales staff, in order to hit the road running from the 1st of March onwards.
Obviously, your time to value for your new people becomes shorter within the context of the new financial years. We do then see an expansion of that sort of cost base because you have had those staff count for, call it an average of four months during last year, and you will have them for 12 months this year. That is taken into our consensus view of sort of double-digit growth on the GP and high single-digit growth on the OP. The combination of NI increases and that sort of extra headcount have been taken into account. The second question was around the contributions existing to you. This maybe relates a little bit to what we are saying that we need the decisions into the change environment. People are holding on to their customers.
Everyone we've spoken to in the market would expect to get more from their current base and have less new logos coming in, and we're no different. You'll see from in the prior years, we've had 33% of our growth coming from new customers and the other 66%-67% coming from existing. I think it's slowed down slightly this year. We have slightly less of the new growth. About 25%, so a quarter of our growth has come from new, and 75% is coming from existing. This is just that sort of margin expansion from GBP 145.8 million to GBP 163 million. That sort of GBP 18 million. That's where I get the 75% split. I think from Harry's point of view, I would look at sort of repeating that in the model.
One final question, Martin O'Sullivan, Shortcap.
How have Copilot sales progressed since the first half? And how has the mix between full deployments and early-stage adoption evolved over the past six months?
Copilot is still a conversation for our customers. We're still highly engaged. We've built out the teams in terms of the delivery aspects and adoption change management. That's going great guns. In terms of how many of them have gone full deployment, it's still a mixture. It's absolutely a journey we're on for the next few years. Of course, you can get Copilot in different flavors. Now there's the agentic conversation. The answer is the growth is there, and it's ticking over for us. The sellers are motivated, trained to sell it because it springboards all of those other ancillary services that I alluded to earlier in terms of data segmentation, security, and support beyond that. Okay.
Thank you. Oh, Dimundu. Final question. I could not see you.
I am going to squeeze in a question. It is a non-Microsoft one. Slide 18 is super interesting where you have the top account managers versus the group, which is top account managers on the corporate sector, 52% of GP from cybersecurity. On the public sector, it is 42% from hardware and services. Really related questions about kind of long-term strategy for you guys. To me, it feels like you should probably think more hard about cybersecurity, perhaps including services associated with it if you combine the two. Is that what you are doing? It sounded like that is what you are doing in your M&A plans. Also, given the internal provision services were up a lot, and you mentioned SOC a couple of times.
But also because there is hardware in that statement, should you rethink about hardware over the very long term?
I'll give my version, and Andrew can chime in. Look, I know specifically that individual, that salesperson. The magnificent result that he turned in was very strategic hardware sales. It was built up in a very considered fashion. This is what I've said in previous presentations, that we will be selective around when we bid on hardware. We will do it so that we can work closely with the vendor, have protected margin, and make it very lucrative. We are not interested in going into the volume hardware resale business. I think there are some superb competitors out there already doing that. We'd be very late to the game. We're not built and organized in that way to do it justice.
I think, Dimundu, where we pick off and we know when to play with the hardware vendors, we do it very, very well. I would like to see more of that. That example of that seller, we want to put him on a pedestal, and we want more sellers to see how beneficial that can be when you are working on a transformational infrastructure project, which that was, by the way. It is going on, but I do not think we will ever be an Insight or a Softcat or a CDW with that kind of mindset.
I think I agree with Sam here. My background is multifaceted and broad-spread IT. It is hard yards if you are going to sell 10,000 laptops, right?
You have to have setup, you have to have distribution, you have to worry about data on arrival, you have to worry about reverse logistics. It is tough. We do not have that expertise internally. I would not go down there. Your observation is quite interesting around the two top sellers. The one thing that I think we will take away from that is that when you are servicing your customer, it is going to be multifaceted. The answer is Microsoft and something else, right? You have already developed the relationship. You have developed a trusted advisory sort of seat at the table. What do you do with that trusted advisor status? You have a look at picking up all the other software vendors around there, and then you start looking at services that complement those.
We're not in the game of creating a BPO or ITO service, but we are in the game of supporting those software sales by services. The top sellers would end up with 10 or 12 accounts. Because they are so deep in those accounts, they're spending days a month with each of those accounts, sort of activating or enabling that customer strategy. Why Sam called those two out is that's aspirational for all of our salesforce. That's what we would target, that multifaceted, that deep relationship with our customers to deliver more with less.
Just going to squeeze in one more if you have.
Absolutely.
One of the differentiators in this story was your proprietary IP around software asset management back in the day, the quantum system.
It's interesting that you are now again building some IP around the billing system and other things. Is there more to say? I mean, obviously, there are all these marketplace things that are happening. What are you exactly building? And how will that provide you more beyond the efficiencies that you're obviously going to gain?
I think there's three facets to what we're building. If you have a look and someone alluded to the multi-cloud environment. You're looking at Azure, you're looking at AWS, you're looking at Google. There's hyperclouds out there, and what they all have is the marketplace. What gives you a single pane of glass for your customer to interact through that multiple environment? That is our front end to the customer so they can transact with us through any chosen aspect. That's the first aspect of it.
Of our billing systems, and particularly around the CSP, as we focus on driving that CSP environment, a lot more transactions flowing. Sam spoke about the capacity building. That is the second aspect. If you can get your customers to self-serve, to switch on and switch off. Yes, you can do it with Microsoft already. You can do it with Amazon already, but you cannot do it with multiple through one pane of glass. That self-serve environment obviously leads to efficiency. That enables us to sort of focus on that SMC market that you are going to get GBP 1,000 or GBP 2,000 a month worth of gross profit. Your cost of acquiring or cost of serve, if you are not doing it from an automation point of view, is just going to be too high. Those are two aspects.
The third aspect is the single source of truth environment. When you look at the single source of truth, and particularly when you are going to that customer, and this is talking back to your previous point, if we know we are selling a Microsoft E3 SKU and a bit of Azure and a bit of this, we know what the white space is around that customer. Therefore, that advisory is then sort of directed correctly rather than a shotgun approach. That is where we are building. Maybe something that I will add at this point because we have not picked up on it. We spent GBP 3.7 million in this last year into building the IP. We said at half year, it would probably cost us about GBP 5 million. We have extended that a little bit. We are probably up to about GBP 7 million.
We are expecting to spend about GBP 3.3 million in this year. From a modeling point of view, we will not start the amortization until fiscal year 2027. The reason why we have extended is the scope changes we have had with the Microsoft incentive changes and the turmoil at the latter half of the year and that bigger driver. Our scope has changed a little bit, expanded, and we will have a better product at the end of the day. Thanks to everyone.
Thank you. Okay. New venue for us. It has been delightful to see you all in person. Thank you for your questions. We look forward to seeing you again in six months.