Yeah. Warm welcome from my side. Dieter Schlosser speaking. Thanks for making time for our FY 2020 results presentation. As usual, I point you to the disclaimer. Please read it carefully, and then we start going into the presentation. There will be maybe a slight delay when I switch slides, so there is a delay of a few seconds, so bear with me on this. Today, I'm joined by Hans Grüter, our CFO, as well as Alex Alexandrov, our Chief Operating Officer. I will start to give you an overview on the FY 2020 summary results. Hans will then guide you through the financial performance, followed by Alex, who will give you an update on the strategy. I will then conclude with the outlook of 2021. As usual, we will have time for a Q&A, which will be at the end of the session.
Before I go into the details, allow me to briefly summarize what you will hear today from us. We have successfully navigated the COVID-19 pandemic for our customers and employees. All our employees are safe. We are very excited to share with you our acceleration of our solutions and services portfolio and the story behind. As you might have already seen this morning in the separate press release, we will update you on a considerable ground-breaking partnership and co-investment with Microsoft. Hans, our CFO, will demonstrate to you our strong financial performance and momentum heading into 2021. I will start now on the left side on this slide. Overall, the GP growth stood at 4.4% on constant currencies, essentially what we guided for the year.
Personally, I'm not satisfied with the software and cloud line of business, which was weaker during the pandemic, and I will provide you more details in the following slides. Solutions and services heavily accelerated throughout the year, demonstrating the success with our integration, but also the investments we have made. Our EBITDA grew 5.1% on constant currencies. This was a combination of achieved cost synergies and COVID savings, combined with a reinvestment into strategic areas in the business that we will cover later. Let me share with you some other highlights. We have had a successful year on finding, but also equally important, on closing strategic acquisitions. You will see a very strong cash flow driven by our financial discipline and an asset-light business model. We will be increasing the dividend, which Hans, our CFO, will cover later on.
Essentially, we completed the COMPAREX integration. We are confident we will deliver on our committed synergies as previously communicated. We are thrilled to share with you some of our initial insights with our digital platform, PyraCloud. We now have more than 50% of our customers with access to the platform. The actual usage has grown 87% year-on-year. We are really thrilled about this. This is not only an exciting journey on our efficiency, but also on the adoption path as a digital enterprise. Finally, we have announced this morning ours and Microsoft's largest strategic partnership and co-investment program. Allow me to dive into the software and cloud business segment, and specifically in here with Microsoft. Coming out of COVID-19 with this overview, we wanted to provide some additional insights into the business. As you know, our business is oriented into three customer segments.
We have enterprise, public sector, SMEs, which are small and medium enterprises. Each segment behaved in a very specific way during COVID, and that had different impact on gross billings, which is what Microsoft reports, and on our gross profit within SoftwareONE. Enterprise continued to grow during COVID, but for us at a lower margin. Public sector experienced a very strong growth fueled by governments around the world. Some of our competitors are benefiting from this temporarily. However, for us, this is a very small segment within SoftwareONE. Finally, our growth engine, which is the SME segment, suffered the most during COVID. However, SME still makes up almost 50% of our gross profit, and even during a COVID year, we were able to deliver higher margins. For us, this growth engine will drive significant growth in 2021 and in the upcoming years.
Overall, our Microsoft billings grew in line with Microsoft and the channel, while our gross profit was impacted by the customer segment mix. We feel very confident and optimistic that our portfolio and our sales engine is set up for success based on the market dynamics, based on the shift to pay-as-you-go, and the Microsoft direction overall. Coming to our solution and services, and you remember we communicated during 2019 that we needed to complete several integration milestones in order to start growing again. All the hard decisions were made in 2019 and have been realized in the acceleration of 2020. Alex will lead you in the strategy session on our positioning as a provider of IP and tech-based solution in a cloud now world. It's not any more cloud first, it is cloud now, partially driven also through the experience through the pandemic.
We will also share with you the exciting part on the customer transformation journey. You will see our portfolio which will support the customer on their transformation, whether it's on the commercial side, on the technology side, and on the digital side. I'm also very excited to share with you that we have become a leader in Gartner's Magic Quadrant for SAM managed services and a FinOps certified service provider. Even more important fact, our platform, PyraCloud, is one of the few platforms which have been certified as a FinOps platform. As mentioned earlier, we are very excited to share with you our strategic partnership with Microsoft. The largest co-invest for us in Microsoft. It is based on two fundamental growth streams, which we see exponential growth in the next five to eight years.
Allow me to briefly summarize the opportunities here on hand. I start on the left side. Application services, basically application modernization. You see a huge number, 50 million applications in the legacy world. Depending on who you ask, whether it's Gartner, IDC, or Forrester, it's between 60-100 million legacy applications out there. Any number is big enough for us. Every company now needs to decide what they have to do with those legacy applications. Are they able to sundown them or do they require a new lease of life, which is the most likely scenario, and we would need to cloudify and help the customer to migrate those applications into the cloud.
The beauty in this domain is if you do the project of modernizing the applications, it is very natural that this is a kind of a pre-sale for our managed efforts, which is turning the revenue, the quality of revenue in a recurring revenue, and in a more sticky revenue. When I move to the right side on SAP critical workloads, we see a similarity to the application services. Over here we have now an additional parameter which is very important to understand. By 2027, SAP has announced the on-premise version of their SAP is out of maintenance. You will not receive any updates anymore going forward. That was already extended from originally 2025. The assumption is this is staying quite firm.
Now the similar situation, every company who has SAP today needs to either replace SAP, which is a big project, or what's more likely, move SAP in the cloud and go on S/4HANA. Similar like on the left side, we have a unique selling point with our optimized conversion and migration approach. Also over here, we want to catch the customer and we want to offer the managed service after the project and run SAP in the cloud on behalf of our customer. Again, switching the revenue, the quality of revenue to a recurring revenue. The good thing is with the cloud dynamics, you don't need any more 50,000, 100,000 people on the ground like you might remember from the global system integrators.
It is now important that you have the right born in the cloud experts, maybe a few thousand, and then you have the opportunity to become a leader in that space. To summarize, we have a clear customer need. We have a massive addressable market, and with the substantial co-invest by Microsoft, we are able to ramp up our capabilities very quickly. Already contributing to our double-digit growth in 2021, and our midterm guidance where our EBITDA will grow faster than our gross profits. As mentioned initially on the M&A side, we have been very successful on finding and closing out the right targets to accelerate our capabilities ramp-up. As you can see, we have had acquired two companies in the SAP critical workload space, one company in the application modernization and services space, two tech IP and cloud platform management companies, one Google company based on the hyperscale GCP.
It's a very efficient addition to our acceleration. Let me also say a few words on our strategic partnership with RIB in the construction vertical. As you know, digital transformation is used very, very heavy. It's a widely used buzzword in the meanwhile. We believe real and fundamental transformation has to come through the core business process of any organization. To achieve that, we need to partner with a strong leading ISV in a particular industry. With our exclusive agreement with RIB on pre-sales, sales, implementation, and even managing the solution in the cloud, we achieve our ambitions on digital transformation for our customers. AEC, architecture, engineering, and construction, as an industry, is around 13% of the global GDP. They are in desperate need to transform digitally. They have a very strong tailwind now with sustainability and green.
For us, also equally important, we can use this as a template for a market expansion service for other industries in the future. I mentioned in the beginning, we executed on our commitment on the COMPAREX integration, and we had additional COVID-related cost savings. We have made a strategic decision to continue to invest into strategic areas in our business. We have done this twofold: through our recent acquisition, accelerating the growth trajectory with the SoftwareONE engine, and also through investments into our new strategic incubation initiatives. As a result, we grew net headcount by 750 FTEs and additional 1,500 FTEs through the InterGrupo acquisition. It is very important to understand that those investments have landed, and we already seeing positive financial results in 2021.
To summarize the key takeaways, again, for you to take, as mentioned, we have successfully navigated the COVID-19 pandemic, not only for our customers, but equally important for our employees. Software and cloud was impacted by COVID-19, but remember my statements on the SME segment, our market position and strategy remains strong. The acceleration in solution and services is continuing, accompanied by significant investments. We see already the positive momentum happening in 2021. We have an unparalleled strategic agreement and co-investment with Microsoft announced today. That's an exciting space to watch. Our strategic incubation initiatives and our M&A initiatives are accelerating our growth strategy. Last but not least, our very strong financial position and momentum heading into 2021. That's the right segue to hand over to Hans, our Chief Financial Officer, to lead you through the financial performance. Thanks for your attention.
I'll see you in a few moments again, when we talk about the outlook 2021. Hans, over to you.
Thank you, Dieter. Also from my side, welcome to this conference call. I'm very pleased to go through the financials in more detail. I would like to start with the profit and loss statement. The IFRS reported figures 2019 and 2020 do represent the audited figures in our annual report. Please note that for 2019, the acquired company, COMPAREX, is included for 11 months only, as we acquired COMPAREX at the end of January 2019. More important than the reported are the adjusted figures, because the adjusted figures do represent a better assessment of the performance we have achieved in 2020. We do adjustments according to our internal policy. We stick to this policy, and it's also presented in the annual report under alternative performance measure.
We have achieved a gross profit from software and cloud of CHF 519.5 million, which corresponds to a decrease of 1.9% at constant currency compared to prior year. The gross profit from solution and services achieved CHF 210 million, which is an accelerated growth of 23.9%, as Dieter just mentioned before. The gross profit in total is CHF 729.6 million, which is an increase compared to prior year at 4.5%, also in constant currency. The operating expenses increased on a lower rate than the gross profit, with 4% at constant currency to CHF 506.5 million. The profit of the year is CHF 125.7 million. This corresponds to an EBITDA margin of 30.6%. The EBITDA margin is the EBITDA divided by the gross profit.
With this slide about the bridge from the reported profit to the adjusted profit of the year, we would like to give full transparency what adjustments we are making between reported and adjusted. You see the starting point of the IFRS reported profit of CHF 176.8 million. In prior year, we had the adjustment, pro forma adjustment from COMPAREX, mainly this one month to add in addition, which this year, of course, no additions to be made. There is an adjustment on the share-based payment. These are two programs for this CHF 24.2 million. The one is the management equity plan called MEP, which was fully funded pre-IPO by the major shareholders, which had no cash and no equity impact to the company. Due to IFRS, we had to run that through our books.
The second share-based compensation is the free share grant we have given to all our employees in SoftwareONE, which is also connected to the IPO. Going forward, this CHF 24.2 million will decline in 2021 to CHF 14 million approximately, and in 2022 to CHF 5 million. Additional adjustments are the IPO expense, which we had a small number at the very beginning of 2020. Integration expenses of CHF 7.2 million, which basically are integration cost of third- party for making the integration happen, but as well one-time cost, such as severance costs. Last but not least, we have M&A and earn-out expenses of CHF 3.4 million we do adjust. Total adjustments are CHF 35 million, which is significantly low of the adjustment made in 2019. Another adjustment we are doing is the adjustment for the appreciation of the Crayon shares. In total, it's CHF 83 million.
We calculate as well the tax impact of all these adjustments, which is CHF 3.1 million, and this leads to the adjusted profit for the period of CHF 125.7 million. In 2020, we have achieved strong cash flows. This is driven by net working capital improvement. This is driven by increased net profit and non-cash items. Thirdly, as well, driven by low capital expenditure. When it comes to the capital expenditure, we have expensed CHF 22.8 million in 2020, which is a standard level, and demonstrates the low level of what we have with our asset-light business model. Of this CHF 23 million, roughly CHF 9 million is for the PyraCloud, our platform, which is the center of our activities internally, but also customer-facing. Improvements have made in the net working capital. You see here the change in net working capital of CHF 53 million last year, and this year of CHF 100 million.
In that sense, an improvement of CHF 50 million. The cash flow from operating activities achieved CHF 276.3 million, which is about CHF 60 million up compared to 2019. Our main balance sheet asset, the accounts receivable, are diligently managed in SoftwareONE, and the risk associated with that is well- controlled. The risk itself is very diversified by the broad customer base we have, by the geographical diversification, but also by the industry diversification. We do mitigate the risk with insurance, and have an insurance coverage in 2020 of 47%. When you take this insured accounts receivable plus the very secure accounts receivable, which are BB B+ and current activities. Two-thirds of our accounts receivable are with a low risk. We have seen very minor impact from the collection in 2020, despite the year of COVID.
We have made the provision based on the expected credit loss model on one hand, and added individual risk assessment for each of our lines at a certain number of amount, but also at a certain industry. We have increased the bad debt provision slightly from 0.9% to 1% in 2020. SoftwareONE has a very strong and unlevered balance sheet with a net debt of about CHF 500 million, which is very well increased to the CHF 200 million last year. It's also a very solid balance sheet because of the equity ratio, which increased from 21.4% to 24.8%. In addition, we have unused credit lines in SoftwareONE and are very well prepared for further financial need. When it comes to the net working capital, the net working capital with CHF -169.6 million is at a record low level.
When we compare that as well with prior year, then we have made an improvement of about CHF 100 million. With the business growth and also with this record low level, I think it's difficult to sustain that low level, and we need to expect that with this growth, the net working capital will increase. We could see that it will be increasing to a level which we have seen in 2019. Last but not least, we will propose a dividend to the AGM of CHF 0.30 per share. This is a nice increase of 43% compared to the prior year level of 21% and corresponds to a payout ratio of the profit adjusted of 37%. In summary, we are very prepared with this solid balance sheet to support all our strategic initiatives. With this, I would like to give the word to Alex. Please take over.
Thanks, Hans, and hello, everyone. Also a very warm welcome from me to our annual earnings call. Happy to spend just the next few minutes with you on the strategy update. First, just a quick recap of the topics we'd like to cover today. What we see with our customers is certainly COVID accelerated their digital transformation, but also placed a number of new demands on what customers are experiencing. As we look at our strategy and as we look to build on top of our successful software and cloud business, we're looking to leverage IP and create services and solutions that really support our customers in their entire transformation journey. What we will cover, and Dieter alluded to it earlier, is as we look at our portfolio, we're adding and enhancing that services portfolio, and we're calling these our five incubation initiatives.
Finally, I'll quickly touch on how we're supporting this effort with M&A. In the post-pandemic normal, you hear lots of different words to describe where we are today. What we see is customers are increasingly facing complexity and demands on their technology environment, their technology needs. Initially, we spoke a lot about how technology powered and enabled our customers to transform their business models, to be able to compete, to defend. What we saw over the last 12+ months is the distributed workforce of our customers created more complexity. That initial complexity is very clear on the security side. There are a lot more touch points, a lot of ways in which data can leak or get out of an organization. What we also saw is our customers had to become hybrid overnight. They basically had to have an on-premise or a physical and a cloud presence.
The concept that was typically in retail of omni-channel, we now see with essentially most of our customers. Whether it's a bank, an insurance company, a car dealership, doesn't matter. The organization has to have a physical and a virtual presence with their own employees, with their own customers. That's all enabled and works really well with the technology developments that are taking place. The enablement that that technology has provided to customers has really allowed them to be much more agile, has allowed them to innovate much faster and provide a more complete, a more richer experience for the end customer and for their employees. The ecosystem is seeing explosive growth. On top of the hyperscalers, the major platforms that are essentially the rails on which everything is running, we see large ecosystems of ISVs. These ISVs are innovating at such a fast pace.
They're often industry-specific or function-specific, and it no longer comes down to just a few companies to innovate. The innovation is now distributed across so many different players in this ecosystem. For SoftwareONE, this means that we operate in large and fast-growing markets. We've shared this with you before. Our software and cloud market is a very attractive market. We believe that it has long secular tailwinds. It has lots of growth behind it. What we see is a greater than a CHF 500 billion market, experienced a very slight decline in 2020, and is forecasted to grow between 9% and 10% over the next two years. What we also shared with you is in our solutions and services business line is a cloud-only market.
It's a subset of the overall IT services market, and it's a smaller subset because we only focus on cloud services, and we really have focused our portfolio as a natural extension of software and cloud. What we will share with you today is how we're expanding that addressable market with our strategic incubation initiatives. While before we believed that this was a CHF 30 billion market, we believe it's a much bigger addressable market for us today. The high teen growth rate of this market, we believe is also enhanced by the additions to our portfolio. Our customer-facing transformation. We speak a lot about transformation, I want to be clear. Our customer-facing transformation means that we're building on our strength in the commercial segment.
Over the last 20 years, SoftwareONE has helped customers unlock their software assets, unlock their software investments, get more out of them. We continue to build on that commercial transformation. Here, the goal for customers is to help them reduce their software and cloud spend, ensure they have transparency and predictability. Here in the top right, you see our portfolio that's pointed at that customer need. You still see the marketplace. You see the digital way of how customers can do this business in the future that we call digital supply chain. You see the addition of FinOps, which I'll cover in a minute. In addition to our strength in commercial transformation, we are naturally extending, we're naturally helping customers with their technology transformation. This is no longer siloed inside our customers. The software and cloud decision is very closely aligned and linked with their technology decision.
This is what we're helping customers with, which is not only selecting and buying the right technology, but then implementing it, using it, and getting business value out of that technology. On the bottom right, you see our portfolio that's pointed at this technology transformation of our customers. In here, we speak about digital workplace, we speak about the hyperscale cloud, and then some of the additional areas, incubation areas that I'll talk about next. To put all of this together, if we are successful in helping our customers with commercial transformation, then we're successful with helping them with technology transformation. We can then put all of that together and help them with their overall digital transformation.
As you heard from Dieter, digital transformation for us means being able to help customers with understand their business, understand their business strategy, understand how to innovate using their business process, and inside their industry vertical. The goals of digital transformation are to allow our customers' employees to be more effective, to allow their customer to improve their end-user customer experience, and to innovate and optimize their business models. This is our customer-facing portfolio. This is our customer-facing transformation. We power all of this with PyraCloud, our own digital platform. I wanted to spend a couple of minutes to provide an update for you on PyraCloud. We've historically spoken about PyraCloud but have not provided enough insight into the statistics and the momentum of the platform, and today, we'd like to share both. First, what is PyraCloud? PyraCloud, for us, is the glue.
It's the connective tissue that ties all of the SoftwareONE offerings towards the customer. It is the connected experience for our customers. Additionally, it's also a way in which we are digitizing our own business. This is what you see here in the three focus areas of our platform. The first one is SoftwareONE Digital. This is really a way for us to digitize our customer's experience using our platform. In the second focus area, Marketplace, we're after an intuitive experience for customers. First, customers always ask, "Is it a superstore? Can they find anything?" The answer is yes. Very quickly, customers realize that what they need and what they would like is a customized experience, something that suits their needs, that's based on their history or very specific to the different roles in their organization. This is what we are after.
This is what we achieve with PyraCloud ONE marketplace. Finally, the third focus area of PyraCloud is cloud platform management, and this is the ability for customers to not only visualize all of their cloud spend, but also to manage and optimize it, to ultimately automate some of those activities around management and optimization. The progress we've had with PyraCloud is very exciting, and this is why you see us talk so much about it. This is why you see us invest so much around PyraCloud. We now have more than 50% of our customers activated on the platform, and the actual usage we see from our customers is increasing 87% year-on-year. Let me now spend a few minutes on the strategic incubation initiative that we have mentioned throughout this presentation. First, we are focused on the hyperscaler opportunity.
We are already very strong with the Microsoft hyperscaler Azure. We are building up a very exciting practice with AWS and the Google hyperscaler, GCP. The strategy for us is always multi-cloud because we're always supporting customers in their needs. Well, we see significant, amazing developments in the hyperscaler world, how quickly the hyperscalers themselves are evolving. Our approach here is very much a platform approach. The platform allows customers to see and visualize, operate, manage, as well as various professional services helping customers get to the cloud and then manage them once they're there. The second pillar here Dieter spent some time on in terms of our Microsoft investment, and that is SAP in the cloud. We see a large opportunity with customers moving their most valuable, their most critical workloads to the cloud. Much attention here. This is no longer just a financial system discussion.
The ERP of the future is powering all parts of a digital business, and that's why we see customers have so much focus and attention on this topic. We have successfully built up organically as well as added with multiple acquisitions in this area of SAP to the cloud. The third pillar, the third strategic initiative for us is application services. Also something that you heard from Dieter, which is this was the genesis of the InterGrupo acquisition, was to say, we want to support our customers modernizing their legacy applications, allowing them to move those applications into the cloud world. We believe we bought the market leader out of Latin America to allow us to do this. Now we have an effort as well as a collaboration with Microsoft on how we scale and significantly expand our capabilities in application services. The fourth strategic initiative is managed FinOps.
The word FinOps, financial operation, is really for us, building on our strength that we have had for many years, what we used to call software lifecycle management. Software lifecycle management is the analogy that I've often used, is helping customers clean up their house. We're now using very similar approach to say to customers, "Not only can we help you get your software and cloud spend under control in the on-premise world, in the hybrid world, we can apply that same discipline in the cloud world." This is what we're able to help customers do, which is we're able to help them get their entire software and cloud spend under control, irrespective of whether they're in the cloud or in a hybrid world.
We very much do this with a platform approach of helping customers digitize how they conduct themselves and how they manage their overall software and cloud spend. Finally, the industry verticals. As I mentioned, what we believe is the key to digital transformation is having industry expertise. Our approach here is to partner with industry-leading players, industry-leading ISVs, to bring those cloud solutions, those transformational solutions to our customers. We supplement our organic efforts. We supplement what we're building on the portfolio side with acquisitions. I think you've seen us be very active on the acquisition side. We completed six acquisitions over the course of 2020, and already up to a fast start in 2021. Our strategy on the acquisition side remains consistent, which is we are very opportunistic. We look at the software and cloud segment.
Here we're very selective because we already have market leadership, and we are very value sensitive in this segment. At the same time, we have a very proactive and strategic focus on how we go after acquisitions of capabilities. This is over the last two years where you see so much focus from our side is making sure that as we build out our portfolio organically, we supplement it, we accelerate it with acquisitions. When we put all of this together, when we put our existing business together, which is the foundational pillar of software and cloud, we see that we want to digitize how we and how our customers conduct this business. This is what you see at the bottom of this chart in the two gray colors.
We expect this segment to grow, but the way we would like to grow this segment is increasingly much more in a digital format, digital engagement format with our customers. Additionally, we're expanding our portfolio. As I mentioned, we're always thinking about this in terms of IP-based services and solutions. Our existing portfolio of services and solutions is in the dark blue. We expect that to grow significantly. On top, we're adding the five incubation initiatives that I just walked through. The goal for us is that over the next five years, we will further increase the quality and the recurring nature of the SoftwareONE revenue base, and services and solutions, these IP-based services and solutions, will make up almost 50% of our total gross profit. Finally, execution. How do we execute on this?
This is a critical point of SoftwareONE because strategy is nice on slides, but for us, it is very much about how do we bring this to life. What we're after is to build the next generation solutions and services leader powered by a platform. Our goal here is to take our foundational pillar, our existing strength, our existing market leadership in software and cloud. We are building on top with our customer-facing portfolio, our customer-facing transformation that takes that commercial strength, expands into technology transformation for our customers, and then takes all of that together into digital transformation. We believe we have an amazing base of customers around the world, and the way we're approaching this, the way we're building up our portfolio and building up our expertise, is focused on the largest cloud and software players in the world. You're seeing it today already with Microsoft.
We're building so much behind the scenes with AWS and Google. This is very much, again, our focus for years and years, which is we want to be category experts. We want to be experts in what we do, and that's why you see so much focus from us. We power all this. We turn all this into actual intelligence with PyraCloud. For us, PyraCloud is not only an engagement with customers, it's also a way to reach our customers better with recommendations, with insights. Finally, on the bottom right, our model, our operating model is very much still a hyper-local model. We believe that we need to be close to customers. We need to be local with our sales efforts. We have amazing colleagues, the best sales and customer support colleagues around the world. We support them in a regional format for either skills or availability.
Finally, we have a large support network, a large support backbone globally. When we put all of those blocks, Lego pieces together, we can create this customer experience, which can be tailored, whether by country or whether by solution. It can be a Lego block approach of local, regional, or global. Again, the consistency for us is always to the customer. It is one experience, and it is always powered by our digital platform. Thank you for spending a few minutes with me, and I turn it back over to Dieter.
Thank you, Alex, and thank you, Hans, for the overview. Let me conclude now with the outlook. I go straight into the 2021 outlook slide. We've seen improved operating environments, but as we all know, COVID-related uncertainties are persisting and expected to impact on the macroeconomic recovery. You have seen that our increased pace on investment is driving the return to a double-digit growth. With that, we are able to give a guidance for 2021, where we say the gross profit growth is above 10% for the group on constant currencies. Our adjusted EBITDA margin of approximately 30% and the dividend payout ratio remains in the range of 30%-50% against the adjusted profit for the year. If I can go to the next slide and show you the midterm guidance, how we evolved. The 10% on gross profit moves to the mid-teens growth in constant currencies.
You see the investments kicking in more and more over the next couple of months. We have on the adjusted EBITDA margin as the midterm guidance, the EBITDA growth in excess of gross profit growth and the dividend policy will remain on the 30%-50% adjusted profit for the year. With that, we have concluded the presentation.
Today. Thanks for your attention. Thanks for joining us. We have now a Q&A session. I'm handing back to the IR and the moderator.
Thank you. We will now begin our question- and- answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making a selection. One moment please for the first question. The first question is by Stacy Pollard of JPMorgan.
Thank you very much. A couple of questions, well, maybe three questions from me, please. First of all, you once said mid-teens growth for 2021. Now you're saying just greater than 10%. Is that mostly coming from carryover COVID lag, or is that sort of SMEs that are slow growth for you? Maybe how much of the impact is coming from perhaps some revenue recognition shift towards subscriptions? That was number one, just to break that out. Number two is why was North America relatively weak? Number three is, in your midterm outlook, you suggest more gradual margin improvement as compared to sort of the previous mention of a 35% target. Why is that? Is that associated with extra investment from your strategic update? Maybe just to understand that. Thanks.
Yeah. Thanks, Stacy. Alex, you want to cover the first one?
Yes. Hello, Stacy. We are coming out of a COVID year, and so I'd say we are seeing strong momentum on services and solutions. I'd say here we performed the offerings, and we performed very well during COVID, and so we continue to see strong momentum there. We have a bit less visibility and a bit more concern on software and cloud with continued COVID in the first several months of this year. That's probably why you see us saying we will be greater than 10% but not providing you comfort that we will be all the way to the mid-teens that we were talking about before. I'd say it's a mix of very strong confidence in one side of the business and still seeing how is COVID going to impact the first six months of this year.
Yeah. I think to add over you, Stacy. We are still in a COVID phase. You remember what we have discussed for 2020, how the software and cloud business is evolving during the COVID year, and how the budget burn downs are happening or not. We believe there has been a delay to the shift to 2021. We are cautious about that. We see a very huge momentum on the service and solution side. We have an extensive backlog. Again, we are cautious in terms of the COVID situation. From a second question point of view, where you asked about North America, we have, in particular North America, a stronger growth engine on the SME side, and during COVID, of course, and also a stronger exposure on the SME side. With regards to the EBITDA margin, where you mentioned that we are getting more gradually.
Yes, we are getting gradually. We are focusing on the gross profit growth, but we are committing absolutely, and that's already visible in terms of growing faster on the EBITDA growth than the gross profit.
Sorry. Do you think it's reinvestment? Are there some extra investments that are pushing this out, or you just think it's the macro that's causing the slower margin uplift?
Yeah. What Alex mentioned and what you have seen throughout the presentation, if we invest into SoftwareONE, we always want to have a return within the running year. Our investments are usually impacting in positive financial results already in the running year. It's rather a sequence and a consequence out of being cautious with COVID for the first couple of months.
Okay. Thank you.
The next question is from Michael Briest of UBS.
Thanks. A few from me as well, actually. On Microsoft, I think the direct business was down 42% in the second half of the year. It was up 6% in the first half, that's a really stark change of direction, if you could just give some explanation on that. In terms of gross profit growth this year, I think InterGrupo added CHF 5 million and others a couple of million for the two months, you've done more deals. It feels as though you've probably got 5% or more of acquired gross profit growth already in the books. Are acquisitions embedded in the guidance? I'm talking not just 2021 but out to 2025, that there seems to be an M&A strategy. Would they be incremental, you would raise it to target if you did further acquisitions?
Just finally, on the InterGrupo business, you took a 40% stake in 2019 just before the IPO. I think the buyout was probably always expected by you, but you tied into these new strategic incubation initiatives that have been caused by COVID. Why didn't you introduce the idea that you'd be buying out this business earlier, given that investment in 2019? Thank you.
Thanks, Michael. On the first topic on the direct business, you remember we discussed during the second half of this slide that we see a shift particularly on the enterprise side, where they, instead of moving to a rather long-term commitment and getting a better price, they are moving rather to a short-term commitment and pay- as- you- go. In terms of acquisitions, yes, and Alex, you can jump in over here. We have considered what you have seen so far. On acquisitions, please remember that the acquisitions are twofold as add-on acquisitions, which are capabilities and strategic add-ons, but we have not considered any larger acquisition in that guidance. Alex, you want to add something on this?
No. Yeah, exactly. I think when we look at our portfolio and how we'd like to evolve over the next five years, we certainly see acquisitions as playing a role because really the recipe that works well for us is we organically incubate, start to grow. Once we understand the customer dynamics, the business, we then add to it with market-leading capabilities on the acquisition side, and then we scale those acquisitions. We are excited to bring the entrepreneurs, the teams on board with SoftwareONE and put a lot of growth behind them. I would say acquisitions are part of this five-year plan, but I would not say that it's a material part of what we're putting on here. I'd say 10%-20% is how we think acquisitions will add to the overall organic growth.
Thanks, Alex. Last on the question regarding InterGrupo. Michael, it's a big difference whether you acquire a company where you have a greenfield approach in your own organization or you add something to a brownfield. If you have a greenfield, you need to be rather on the integration approach where you first standardize and industrialize the portfolio and then bring it over and, after the learning, bring them over into the organization. That's what we have done. What we have done with InterGrupo, we spent 12 months to make sure that there is alignment and learning and standardization so that when we bring them over completely into the organization, we have a faster traction on our application services.
It implies, Dieter, that there was always this intent to make big investments in application services. It's 1,500 people. It's 1/4 of your preexisting headcount. It's not a new idea created by COVID. It's something you were planning two years ago. Or not?
Oh, no. I mean, the application services is not created by COVID. That's not a new idea which came from that. The application services is, in general, you have the desperate need, every company has now a desperate need to migrate their current legacy applications into the cloud or replace them with a SaaS solution, Michael, if they have a SaaS solution. There are so many which are featuring the core process of the organizations where they actually cannot replace. They need to give them a new lease of life and cloudify them. We have seen this opportunity for quite some time, and that's why we started off with our stake in InterGrupo. Since that was a new field for us, we wanted to make sure that on one side it's standardized and not just LatAm-centric.
It's standardized, and on the same time, we are also learning on our side how to really scale it out and burst it out globally.
Okay. Thank you.
Next question is by Alastair Nolan of Morgan Stanley.
Hi there. A couple of questions from me as well. Firstly on the Microsoft partnership. It seems to entail the hiring of 5,000 new headcount, which is obviously quite meaningful over the space by 2023. Can you just talk about what the implications are there? You're talking about EBITDA growing ahead of gross profit in the midterm. I'd imagine that can't take place until post 2023. First of all, does the 35% midterm margin stand? Also, what is the updated timeframe for what is midterm, if you like? The second question is, I understand on the greater than 10% gross profit growth for 2021, that's ex InterGrupo, but there's also five other deals that you completed in 2020.
Just trying to get a better understanding of the expected inorganic contribution for 2021 to try and ascertain the actual underlying organic growth you're looking at for this coming year. Thirdly, the CHF 48 million increased investments in 2020. I'm just struggling a little bit given the change or shift in strategy, which appears to have taken place with quite short notice. At the end of the first half, we were broadly in line on EBITDA, and then there's a large miss in the second half. Just trying to better understand what happened there, because I think a lot of the themes that you mentioned around app modernization, shift to cloud, hyperscalers, were all part of the narrative anyway. Just trying to better understand what really prompted that short-term shift change in direction, if you like. Thank you.
Thanks. Alex, do you want to talk about the acquisition side and the inorganic growth? Hans, maybe you can also jump in .
Sure. Happy to. Hi, Alastair. We continue to see, I would say, the M&A activity as part of our overall growth story, unless it's transformational or substantial M&A, then we would break it out. That's one piece of it, because often what we're doing is we're acquiring smaller companies, and that's what you can see in our disclosure. We'll acquire smaller assets, might have headcount of 50 employees, 100 employees. What we then do is we significantly invest behind them. We love the entrepreneur, we love the portfolio that they bring to the table, then we say, "Let us now scale it." This is very much our growth strategy. Of course, we could parse the number and say, well, we provided the detail in our results. Almost CHF 5 million came from InterGrupo, approximately CHF 2 million came from acquired gross profits.
My point here is the acquisitions are really part of our overall growth story, and we would like to keep it this way because we are often acquiring small assets that we then provide fuel to really double, triple, quadruple inside SoftwareONE. That's what we see in 2021 as well, which is, yes, we will have the year-on-year impact of the deals that we have done, but we're significantly investing behind them. That's what you see on the investment side, which is the personnel expense that we add to these acquisitions is significant, and this creates our overall growth story. I understand your point, but I would say we should break out substantial or transformational acquisition, and the rest become just a part of our growth story, given how much fuel, how much we're adding to make these acquisitions successful.
Thanks, guys. Hans, you want to quickly say something on the guidance?
Yes, of course. I think what Alex said is absolutely right about the acquisition side. I think you said something on when we are coming back to the EBITDA ratio of 35%. Just purely from a guidance point of view, we have said that we will have an EBITDA growth in excess of the GP growth, and we have not reconfirmed the 35%. Perhaps that I would like to say because it's a guidance and needs to be correctly said. What is important for me is that we have given this term of exceeding the gross profit growth because the profitability is something we really focus on SoftwareONE, and we really want, it's part of our DNA. All what we invest needs also to bring a positive impact on the profitability.
We have that really as a focus, and this is what I really like to here to emphasize to you.
Just a quick follow-up. When should we expect? You mentioned midterm is when we should expect EBITDA growth to outstrip gross profit growth. When is midterm, just so we know? Previously it was 2020- 2022. I'm just not sure when that timeframe kicks in, if you like.
For me, it's the guidance is for me the 2021 and thereafter it's valid to what we say in excess of the gross profit growth.
Okay. Thank you.
Yeah. I can reconfirm that, certainly. We covered our 2020 too. Also what you asked in addition on RISE with SAP with CHF 48 million on OpEx investment. The same time, the second half on the FTEs, what's happened. It's clearly, you remember our discussion in the last month of the year, which is the burn down of the IT budgets. That's something which we always put the caveat on how under 2020, under COVID, companies would really burn down their IT budgets and spend on software and cloud. We would benefit from that seasonality. That didn't occur in last year. For us, this is rather a shift, not a cancellation. You see this also from the expectation on the growth on software and cloud from the analysts of Gartner and so on and so forth. They give it to a different growth ratio in 2021.
The other point which you had, this is not something new. You're absolutely right. I mean, the hyperscaler and the SAP workload as well as the application services we have shared over the past 12, 18 months on a regular basis. The Microsoft partnership agreement was not something which was done over the last couple of weeks. That has been also in the making for the last 9- 12 months, to really make sure that we are conquering this market in a way that we can really boost it up.
Thank you.
The next question is by Ross Jobber , Citi.
Good morning. Thank you very much. A couple of questions, if I may. First of all, I'm intrigued by the comments you were making in the release about pay-as-you-go. I wonder if you could give us some sort of sense of the absolute size of revenues that may have appeared in software last year, were it not for the fact that there was this switch to pay-as-you-go, i.e., how much of the effect on the software revenue top line do you think is related to pay-as-you-go and whether or not it's going to continue at the same level or greater? My second question is really around your guidance for the current year, and I'm interested to know what kind of assumptions you're making vis-a-vis a return to more normal trading for your SME customers.
Does your SME customer base need to return to more normal trading by the half year, for example, or can you wait until the second half of the year in terms of your guidance? My final question is just around the SAP opportunity, a very quick one, and that is the extent to which you believe the RISE with SAP initiative that the company announced not that long ago actually creates a new competitor for you in the S/4HANA migration opportunity. Thank you.
Sorry, could you just repeat the last question? I didn't-
Whether or not SAP's new initiative, RISE with SAP, where they're trying to offer customers an ability to migrate to S/4HANA with SAP as a single point of contact actually creates, in a way, a competitor for SoftwareONE wanting to offer a similar sort of solution to their customers.
Oh, yeah, fully understood. Okay. On pay-as-you-go, Alex, do you want to jump in here?
Yes. No, it's a very relevant question and actually ties in to the SME topic as well. Just as a recap, customers are buying SaaS and cloud-based software. They're buying 365. They might be buying Azure. The underlying software and cloud assets they're buying are already kind of the latest generation. They're Software as a Service or they're public cloud infrastructure. The way they buy in the market still has not fully developed, which is most of the market in the Microsoft world still buy on a commitment basis. They still want to buy with a discount for the next three years. That's the behavior. That's the corporate behavior still. You see a very different behavior on the AWS side. Funny enough, AWS is also now introducing discounts for commitment buying.
When you look at our very, either the gross bookings that Dieter showed or what you see in our books as revenue, most of that volume is still the commitment-based volume. The pay-as-you-go phenomenon is very strong and growing at significant growth rates for us. If we just speak about volume, it is still a very small number. What is more interesting is what happens then when we come down to the SoftwareONE gross profit. Here we make a significantly more margin, more profitability from the pay-as-you-go business. The reason is, when customers are paying monthly, quarterly, they are much more engaged and attuned to their spend, and they engage much closer with us. If I am paying monthly, I am very interested to say, "What am I using? How much do I need to use?
How do I optimize it? If I'm paying every three years, I'm not as focused on it to manage it every month. This is the value that we bring to customers, which is we say, in situations where pay-as-you-go makes sense. We were able to really help customers with that equation, and that's where SoftwareONE, the terminology we use here are our simple bundles. Our simple bundles combine the pay-as-you-go software with support, with platform. Those three ingredients is our bundle, and that's how we support customers in that world. The financial impact we've said is emerging and growing very nicely. We saw that accelerate during COVID. The reason it accelerated during COVID is because companies were much more focused on how do I save money now, as opposed to how do I get a discount for the next three years. That created some additional acceleration to pay-as-you-go.
Finally, maybe on the financial side, the gross profit that SoftwareONE makes from the pay-as-you-go model is more than 10% of our overall gross profit now. Even though on a revenue basis, it'll be single-digit percentage of the overall revenue across all of our publishers, from a gross profit level, it's already greater than 10% and growing very fast.
Yeah. That's what we all have said here over the last few rounds. Once we are double digits on the pay-as-you-go, you start feeling the impact in the overall P&L. With the growth rate, and you might remember, we always said on the pay-as-you-go, you have around 3x-4x in the higher margins. That's a different stickiness factor to the customer from a quality of revenue. That's, of course, our strategic direction. On SAP RISE, that's a very interesting question. Personally, I'm not yet clear on whether it's the right strategy for SAP or not, but I'm not the judge on this. For our customers, we see that coming up when it comes to the Fortune 500, to the big enterprises. Over there, we ask the consultant and advise them whether it's the right approach or not.
We don't see it across the board. We believe that the agnostic view to the hyperscalers is nascent where most of the customers are pivoting to. I'm not cautious on our competition over here. Maybe a confusion on the enterprise side, so on the S500 or similar, but not really as a compete in the segment that we are working in.
Thank you. On the recovery of SME, what's your best guess at the moment as to when that might occur?
Alex, I thought you covered that on the SME side.
Yeah. No, I'm sorry. What we see with SME is we do see them continue to be cautious. We have two dynamics with SME. I would say in the first half, we still have yet to see if SMEs will recover. At the same time, we are seeing, even though, call it the billing, the volume from SME is down, we continue to essentially make a higher margin on the business with the mix shift. Volume is down. We continue to make higher margin on the mix shift because they are switching to, call it smarter solutions, smarter ways for them to spend, and that fits very well to our own business model. Specifically, our assumption is, yes, by the end of the first half, so that kind of June spending cycle, we're assuming that SMEs are in much better shape.
At the same time, and this is maybe back to Stacy's original question, we're not assuming that we're back completely to the pre-COVID level. What our model now assumes is we are in the current format, and with the current pay-as-you-go switch for the SME, we're able to make these higher margins. Maybe one additional point just to highlight, we have this in our slides, and Dieter mentioned it. When we engage with customers on pay-as-you-go and we offer them our X-Simple solution, 365Simple, AzureSimple, Simple for AWS, the profit margin becomes split across services and solutions and software and cloud. We have kind of a double impact. On the one hand, you don't have the big upfront. That's a benefit for software and cloud.
The additional impact is the much higher profitability that we have with that customer is also split because we are delivering that as a service. We're booking the profit for that as a service on the services and solutions side and booking portion of the profit on the software and cloud side.
Yeah. In essence, we haven't really baked in a recovery position of the SME side into the guidance. There is no considerable recovery position, which we took as an hypothesis for the guidance.
The next question is by Knut Woller of Baader Bank.
Hi, thank you. You mentioned the strategic investments you did, particularly in the second half 2020. Can you give some idea whether we should see further need of investment also looking at 2022, albeit at a lower pace? I think you highlighted that we should, from next year on, see better EBITDA growth than gross profit growth, suggesting at least that the investment will be more limited, but will there still be spillover effects? Secondly, since you have already done the major part of the integration of COMPAREX, and you also said that large transformation of M&A is not part of your split of the 2025 targets. Are you ready again also to do larger acquisitions? How should we think about your view here? Thank you.
Yeah. It's a very good question on both sides. In terms of investments, what you should see is a progressive investment over the years, according to the extended partnership and the co-invest with Microsoft. Again, that is a co-invest, right? That's not something which would be impacting negatively. On the acquisition strategy, we always said, once we have digested COMPAREX , we would be open for larger acquisitions. Again, this depends on how suitable they are and depends on the geography of the customer mix, as well as on the transformation of the customer base. If the opportunity is coming along, then we are optimistic on this, yeah.
Thank you very much.
The next question is by Ben Castillo-Bernaus of Exane BNP Paribas.
Hi there. Morning. Thanks for taking my question. I had a question on solutions and services business. If you look at actually the revenue growth there was only up about 6% in constant currency. It seems like a lot of growth in the gross profit line actually came from lower third-party delivery costs. Maybe you touched on it in the previous question, I just wondered if you can explain the moving parts there, and really with solutions, was the demand actually as strong as the, or not as strong as the 24% gross profit growth implies? Then second question on the Microsoft side of things. They're co-investing with you here. I just wondered if you could elaborate a bit more on that, practically, how are they contributing, how is the cost burden shared in this new partnership? Thanks.
Yeah. Maybe I start with the Microsoft partnership, and then, Alex, you might want to jump in on the first part of the question. On the Microsoft partnership, so that's from March to 2023. It's in those both areas, which you mentioned, application modernization as well as SAP critical workloads. It's a win-win agreement in the sense that Microsoft funds us the transformation in that space, funds us the investment in the capability in that space. With that, we produce an outcome which is in essence consumption on Azure and customer wins on Azure for Microsoft. As you know, if you modernize applications, it drives consumption. As you know, SAP is one of the largest consumption driver when it comes to the hyperscalers. We are not able to share with you the financial details of the arrangement, but it's significant and for sure it's fast.
It's a very exciting co-invest plan, helping us to really step on the gas pedal of the transformation. Alex, over to you on the second one.
Okay, great. Hi, Ben. Just probably a quick point. We saw some of this effect even in the first half when we were speaking about the year-on-year comparison. Really this has to do with the 2019 cleanup that we did as a result of the COMPAREX integration. When we acquired the COMPAREX business, in the services portfolio, there was a lot of custom work, there were a lot of subcontractors and third- parties being used. We really streamlined what we go to customers with, as well as streamlined how we deliver that. That cleanup was really done over the course of 2019. We talked about hard decisions that we made at the end of 2019, and that's what you're seeing in 2020. For us, truly, we run the business based on gross profit.
The reason you're still seeing some of this coming out from the third-party cost is just the COMPAREX cleanup. Yeah, for us, is this true demand we're seeing? Absolutely. When we look at our KPIs around the number of customers with whom we engage on services and solutions is up in a very healthy way. We think about cross-sell and number of customers with which we've engaged on both software and services. We look at number of 365 subscriptions that we're now managing. We look at Azure workloads, Azure customers, AWS workloads, and all of those call it very operational KPIs. We're seeing significant growth. No, we truly believe that this is a good representation of the momentum we're seeing.
Yeah. To add over there, it's by no means I think what you're alluding to a bit is, would it be a conversion from third- party to OpEx? Hence, you have an impact on the GP. It's really the cleanup on the portfolio. In essence, we actually had to compensate because we really canceled contracts, right? They were not part of our portfolio, not part of our strategy. The customers were basically also not on a rush over the next three to five years to move to the cloud. We actually reduced it, and we had to compensate this additional GP. It's a clear effect on the GP growth and not a third- party.
Okay. Thank you.
The next question is by Martin Jungfleisch from Kepler Cheuvreux.
Yes. Hi, good morning. Thanks for taking my questions. I have three questions, please. The first one is on synergies. Why have the contract synergies on OpEx not further improved in the second half? What makes you confident in reaching that CHF 40 million target by the end of this year? Also, you talked a lot about OpEx synergies, but what about these synergies on gross profit? If you could put an update on that side. The second question is on the gross profit per customer. During the IPO, you presented the gross profit per customer from new and existing customers. Could you provide us an update here if that has changed and if growth has been more driven by existing or new customers since then? The final question is more on the public side.
If you could provide us a rough exposure to and the performance of the public side here. That's basically it. These are the questions, synergies, gross profit, and public side.
Yeah. Thanks, Martin. On the synergies, Hans, you want to take that, please?
Yes, sir. I can. You rightfully say we have on the last months not made big progress on the synergies that was planned and in line with where we are today, because we had already at, I would say mid-year or closely thereafter, quite integrated a lot of the subsidiaries into SoftwareONE and integrated everything into our ERP system. From that point on, already everything is working, or almost everything is working on our common ERP system. What in a small number of subsidiaries, the final step, the merger legally, to make it only one company per country is still open. That will give us then the second part to achieve the total synergy target of CHF 40 million. That's why it was like a bit of pause towards the end of 2020, but also as we communicated to you.
Okay.
On the public sector side, you have seen the mix on slide six. We [audio distortion] with a small segment. It's up in exposure part. We are cautiously increasing that. Where we are focusing is rather on the education side of things, and that's a mixture between public education and private education, because that's something which is benefiting very much in the future from a tech acceleration . Overall government, we believe that it will mellow down, post-COVID from a spend point of view, rather reduce to the normal growth which you have seen before. On the customer side, I think what you're alluding to was our capability of upwards mobility. Are we able to add services to customers who are transacting with us, and how the profitability looks if we are able to do this? We have continued on that.
Overall, we had nearly 20% growth on attaching services to our existing customers. Hence having a different profitability. Remember, that's a 7x different profitability than if you just purely transact. We are continuing this focus on that. Our portfolio allows us to do so. That's one of our key focus areas internally to make use of our existing book of business. In terms of net new, when we acquire new customers, we more and more acquire new customers through the service portfolio directly. Then attach the digital supply chain or in product cloud and the software spend.
Okay. Helpful. Thank you.
The last question for now is by Andreas Müller of ZKB.
Yes, good morning, gentlemen. Three questions, if I may. One is on FTEs. Can you give us figures how much new hires you plan for 2021, on FTEs? On the bad debt provision, this 1% you do for 2020, is that also sufficient for 2021 or is there any change you envision here for 2021? The last question about the cash pile, this CHF 500 million. Have the priorities to use this cash pile in any ways changed, going forward, in terms of internal investment, external, but also distribute the cash line? Thank you.
Thanks, Andreas. On the bad debt and the cash pile, Hans, do you want to take that?
Yes. Thank you, Dieter. Andreas, we do that really diligent process to assess the bad debt provision. It's by model. We are running this by the expected credit loss model. Plus, what we do is we review each outstanding account receivable. This is, of course, the moment in place of the end of December, what you see there. From all what I see today, this is an assessment which is still valid today. If you would have asked the question to me a year ago, pre-COVID, I was really a bit not so optimistic by that. Now the situation where we have today and what we have seen in the last 12 months, I see that this position and this risk assessment is one which I'm feeling very comfortable with today.
On the net debt, or let's say the financing or the financing needs which we have available, or the cash which we have available, this is not different than it was in the past. We have this at the moment. We are a growing company. We have merchant acquisition on the table, on the strategy, as Alex presented to you. There can be smaller acquisitions which we will be able, as in the past, to pay out of our cash flow we are generating. When it comes to bigger acquisitions, such financial needs are available also to support bigger acquisition in the future. We have, as you've seen, not come up with other means of distribution than the dividend and the proposal of the dividend. You have seen it's in line, I would say, with the guidance we always have provided. It's that, it's not more.
That's because of the growth of the company, and that's our position right now. I hope that's helpful for you, Andreas.
Yes.
Yeah. Sorry, Andreas. On the last question, which is in the FTEs. There are three buckets which you have to consider. The first bucket is associated with Microsoft co-invest. That's where the net new headcounts they lie, and, again, this is progressive and in line with the business demand and the customer demand coming in. Again, you would not see that in an impact. On the second bucket, which is replacement. Replacement is our normal attrition rate. Usually it's around, last year, I think it was around 500- 700, which we deplete. That's always making sure that we have the right performance in the system. On additional capabilities, additional capacity, that really goes in line in growth. We are at a stage where the engine and the scalability and through the platform, we can scale out.
We don't need to invest in advance on headcounts. We can grow the business and then after the growth, we can invest further into headcounts. We would only align it with growth and not with any provisioning.
Okay, thanks. By the end of 2021, how much full-time employees will you have on the payroll then?
We don't share this number, you have seen on the press release that we are talking about around 5,000 additional headcounts when it comes to the Microsoft agreement over that three years period. You will see proportionate something in 2021 rather than a delay because we are not talking about the full year anymore. That's the plan right now.
Okay. Thank you very much.
As a last reminder, if you want to ask a question, please dial zero one on your keypad now. Zero one. Okay, currently there are no further questions.
Yeah. I think it's for us to close the session. Thank you very much for spending time with us. Thank you very much for the active contribution during the Q&A. We are all looking forward to seeing you in the next couple of days. I think there are many roundtables and direct one-on-ones booked. We are all looking forward to have further debates around with you on all the [audio distortion ]. Thanks again. Have a great rest of today. Thank you very much. Bye.