Bytes Technology Group plc (BYIT) Earnings Call Transcript

So good morning, and welcome to Bytes Technologies half year results for 6 months ended the 31st of August 2026. I'm Sam Mudd, the CEO, and I'm joined this morning by Andrew Holden, our CFO. When we presented our results last May, we set out a series of changes we were making to the business. And we had those changes, which showed through in our performance during this financial year. I'm pleased to say this morning that they have. BTG is building the U.K.'s leading trusted adviser on AI, cloud and sober providing technical expertise and managed services to capture a greater share of our customers' technology spend. I'm going to start with the highlights of the half year and how we've delivered against what we set out. I'll then hand over to Andrew I'll take you through the numbers in detail. And I'll come back after that to talk to you about our market, our strategy and the outlook for the rest of the year. So turning to Slide 3. And the highlights of the half. This has been an encouraging 6 months for the group with broad-based growth across both our businesses, across our product set and across our vendor portfolio. Gross invoiced income grew by 19.6%. Gross profit grew by 17.8% and operating profit grew by 6.6%. Trading was ahead of our expectations through the period. And as a result, we were able to upgrade our guidance for the full year in September. There are 4 key points I want to draw out on this slide. The first is that we grew in both sectors. Public sector gross profit was up 23.1%. Private sector gross profit was up GBP 14.6 million, and that balance is worth a moment because the changes we made last year were to our private sector sales organization. And the fair question to ask was whether we had given up ground with customers once we made those changes, and we had not. Both businesses have grown double digits. The second point is that this growth extended well beyond Microsoft. Microsoft grew broadly in line with the group as a whole, and our security and hybrid platforms businesses, they grew alongside it. So no single vendor sector or product line carried the half, making for a more resilient, balanced portfolio. The third point is capability. We have increased our technical delivery head count by 17.4% year-on-year to meet the demand for managed services. And today, we announced the acquisition of Cyber One. I'm excited to share more detail on that later. And the fourth point is guidance. As announced in our trading update last month, we now expect gross profit growth for the full year in the low to mid-teens with low to mid-single-digit growth in operating profit. You will also see Microsoft on this slide. The next set of partner incentive changes take effect this month. and we've planned for them. And we have the opportunity to benefit from them. Later in our presentation, I'll share more detail on this. Alongside all of that, we returned GBP 41.3 million to shareholders during the half completed the GBP 25 million share buyback we announced in May. Moving on to Slide 4. I want to be quite specific about how we have delivered against what we told you in May because we made a number of commitments in that presentation, and we are delivering on them. We said that the new sales structure in our private sector would support growth and gross profit is up 17.8%, with double-digit growth in both sectors. We said that services would grow as a share of the group, and the services gross invoice income is up 41% and and the acquisition of CyberOne now accelerates that further. We said that Bytes and Phoenix would align to the sectors they serve. That work completed in July and it completed with every single customer retaining continuity of account manager. We said that this financial year, we would carry around GBP 4.5 million cost normalization and the operating profit would be broadly flat as a result. Operating profit is up 6.6%. And we guided to high single-digit to low double-digit gross profit growth for the year, which we have since upgraded to low to mid-teens. I am confident at the end of this presentation, you will understand where BTG is going, why the organizational changes were made, why we're investing and acquiring in Sober One, why AI matters and why growth will continue with software licensing at the core. With that, let me hand over to Andrew, who will take you through the numbers in more detail.

Good morning, and thank you, Sam. I'm pleased to be here to take us through the set of numbers for the half year. Turning to Slide 6 and the headline numbers for the first half. Gross invoice income increased 19.6% to GBP 1.6 billion. with growth coming through across software, hardware and services gross profit, which, as you know, is our primary measure of performance was up 17.8% to GBP 97.1 million Operating profit grew 6.6% to GBP 35.3 million after absorbing half the cost normalization we set out in May. Earnings per share were up 6.1% to 12.76p, and we ended up the with the net cash of GBP 68.4 million, having returned GBP 41.3 million to shareholders during the period. . Cash conversion was 46%, which compares favorably to the 34% for the same period last year. This equates to 109% on a rolling 12-month basis. I'm pleased to say that the Board has declared an interim dividend of 3.3p per share, an increase of 3.1p on last year. Moving on to Slide 7 and the income statement in more detail, starting at the top -- gross invoiced income grew 19.6% to GBP 1.6 billion. Gross profit grew 17.8% to GBP 97.1 million. Overall, gross profit to gross invoice income margin was broadly flat at 6.0% against 6.1% last year. Administrative expenses increased by 24.7%, and within that, employee costs rose 22.3% to GBP 48.2 million. Our total head count for the first half only grew 2% to 1,353 employees. So the driver for this cost increase more to do with normalization than head count expansion. These costs were all flagged at the full year and include the developer salaries that we capitalized last year and now recognized as expenses as those platforms are now complete. Bonuses have returned to a normal level having been suppressed last year where we fell short of our internal targets and commissions were up in line with gross profit, which, as a reminder, was up 17.8%. Other administrative expenses increased 34% to GBP 13.8 million, which includes amortization of those platforms, continued systems investment as well as once or fees related to sector alignment, the executive changes and the Board changes announced. Taken together, these are the components of the GBP 4.5 million worth of cost normalization we set out in May with around half of it have been landed in the first half. Operating profit grew at 6.6% to GBP 35.3 million, and our OP as a percentage of GP was 36.4% against 40.2% in the same period last year. I'd like to address this ratio directly as we expect this ratio to be a low point this year. As the cost normalization annualizes from FY '28 onwards, and we make full use of the sales and technical capacity that we've already built. We expect operating profit to grow broadly in line with gross profit from FY '28 with the ratio recovering from there. Below operating profit, interest income of GBP 4.9 million was lower than last year, both on lower rates and a lower average cash balance. Profit before tax grew 3.6% to GBP 40 million and our effective tax rate was 25.3%, which is broadly in line with the U.K. statutory rate. Profit after tax grew 3.1% and earnings per share grew at 6.1% and with the difference reflecting the shares that we had repurchased during the period. Turning to Slide 8, where we break down the first half our product an sector taking the sector first. Public sector gross profit grew 23.1% and private sector gross profit grew at 14.6%. So both sectors delivered double-digit growth. public sector margin edged up from 3.4% to 3.5%, and the private sector margin moved from 12.5% to 12.2%. We don't see this as a negative but rather as an indication of our success in our ongoing efforts to move customers from Microsoft enterprise agreement programs where Microsoft invoices a customer and pays us a fee and therefore, 100% margin. as we move across the CSP, where we invoice the customer, carry the cost of sales and the reported margin comes down even though the gross profit does not. It is, therefore, a mix effect and not a pricing one. And this is a good example why we prefer gross profit as our primary growth indicator. Looking at the product split. Software gross product grew 15.8%, with this margin broadly stable at 5.4% and hardware more than doubled, albeit off a small base. Services gross invoiced income grew 41% and the services gross profit grew 12% to GBP 9.3 million against the comparative period that itself grew by more than 40%. You will note that the services margins moved from 24% to 19%. This is because we brought in capacity ahead of the revenue that it would carry with technical delivery head count up 17.4% since this time last year. We expect that capacity to generate higher returns in the second half as utilization built with security, a strong area of customer demand. Our renewal rate was very strong at over 115% as we continue to grow our share of wallet from existing customers. We also brought in GBP 1.8 million of gross profit from new customers, a figure that we would expect to annualize at a similar rate. Turning now to cash flow on Slide 9. Cash conversion for the first half was 46% against 34% in the same period last year and 109% on a rolling 12-month basis. As a reminder, our cash conversion always follows the same seasonal pattern. Our largest billing months fall around the U.K. government's fiscal year-end of March and April and Microsoft's year-end in June, the working capital associated with those ones unwinds towards the end of our first half. So a number below 100% is entirely normal for us. And this year, it's comfortably ahead of where we were a year ago. After the final dividend of GBP 16.3 million and GBP 25 million of share buybacks. We closed the first half with GBP 68.4 million of cash and no debt. Moving on to the balance sheet on Slide 10. We carry very large gross receivables and payables, which is inherent in our business model. and our $68.4 million of cash sits against a negative net working capital of GBP 54.6 million. So the 2 need to be looked at together. We continue to click from our customers faster than we power vendors with debtors days of 39 against creditor days of 51 helped by weighting towards the public sector. So we hold a strong cash position deliberately and we remain comfortable with where it sits. Now Slide 11 and a reminder of how we think about allocating capital. Our priorities are unchanged. Organic growth comes first. And Sam will come back to this, but investing in sales and technical capacity remains where our capital works the hardest. Second is our ordinary dividend and our policy is to distribute between 40% to 50% of post-tax pre-exceptional earnings. And as I mentioned before, the Board has declared an interim dividend of 3.3p per share. Third is acquisitions, and we've said consistently that we would only act with some in met our criteria on strategy, quality and valuation, and we announced this morning the acquisition of Cyber One that has met all 3. This is our first acquisition as a listed business. We continue to explore strategically aligned opportunities. Sam will speak more about the deal in more detail shortly. The fourth is we return excess cash where we've completed a GBP 25 million share buyback during the first half. And then finally, from me, on outlook, We upgraded our guidance in September and guidance is a changed this morning. We continue to expect gross profit growth for the full year to be low to mid-teens with low to mid-single-digit growth in operating profit. Two things to bear in mind for the second half. First, we are measured against a stronger comparative because the second half of last year is where our recovery began. And second, some of our costs are weighted towards the second half with commission accelerators applying once targets are exceeded, and the November sales intake are joining partway through the half. We expect Cyber One to be earnings enhancing in the full financial year -- first full financial year of ownership and our guidance for this year excludes any contributions from it. From FY '28 onwards, once cost normalization fully annualizes and the additional capacity is fully productive, we expect operating profit to grow broadly in line with gross profit with operating leverage building from there on. With that, I'll hand back to Sam.

Thanks, Andrew. Before I turn to what we did in the half, I want to spend a couple of minutes on Slide 14, explaining why our model is so well positioned in the market currently because there are 2 things happening at the same time, and both of them work in our favor. The first is on the left, AI is increasing the portion of total business spend allocated to technology. Currently, technology accounts for approximately 10% of typical business spending while labor accounts for under 50%. As AI absorbs labor-intensive tasks, technology spend is projected to move toward 1/3 of total expenditure. To give you a sense of the scale, global software spend is around $1.4 trillion, while global labor spend is around $65 trillion, so the pool AI is beginning to address is many times the size of software market that it's been sold into. The second is on the right. There is a notable shift in how software reaches customers. Direct sales via vendor teams fell from 74% to 59%, while partner-led distribution rose from 20% to 33%. Vendors are intentionally moving towards partners because they cannot hire direct sales coverage fast, and they can't meet the demand and self-service models are often insufficient for buyers that require governance, cost control and negotiated terms. So AI-native vendors are leveraging scale partners, like BTG rather than relying on direct sales to achieve reach. What I would take from those 2 charts together is that through every 1 of these transitions, whether it's the Internet, the cloud or now AI, the margin in our industry has moved steadily away from the product itself and towards the expertise around it. And that's the direction that we've been investing in for the last 3 years. And next, I'm going to talk about where that investment has taken us. So let me show you on Slide 15, where the growth actually came from. The chart on the left shows the shape of our recovery. On the right, we have set out the picture by income stream. Software gross invoiced income was up 18.8%, hardware was up 39.7% with gross profit more than doubling and services was up 41%. Microsoft accounted for 52% of our gross profit in the half and grew broadly in line with the group. While our non-Microsoft business grew alongside it, led by security, by hybrid platforms as customer refresh infrastructure projects alongside their cloud investments continued. I want to take on 1 question directly here. Is the recovery of the market or is it us? And my answer is that it's a bit of both, and I would not pretend otherwise. The U.K. technology spend has improved this year, and we would expect to benefit from that. But a stronger market on its own does not deliver 23.1% in 1 sector and 14.6% in the other. This is a result of our driving customer centricity. Numbers like those are the some of individual customer relationships, and I'd like to share a few examples of this on Slide 16. Samsonite is a new customer, and it's a good illustration of where we're heading. We're consolidating around 300 of their sites onto a single managed network platform over 5 years taking around 1/3 out of their network costs with a path to around 1,000 sites globally. That's around a GBP 6.5 million project total contract value. And this is international services. Its services led partnership, and it does not include Microsoft. Howdens. We've been working with them for 10 years. And we're now the strategic cyber partner advising on security transformation governance, AI security, risk management across the whole group. And we're proud to also work with the University of Oxford, one of the best universities in the world. We support more than 40 of their vendor relationships increasingly advising on how the whole estate fits together rather than just on the single product. And then finally, Defra where we renewed the Microsoft licensing for a further 3 years on a substantial contract. So no 1 logo. -- sorry, 1 new logo. One continuation, 2 relationships and 2 of them getting deeper to great public sector customers and 2 great corporations, evidence of our strategy working for us in different ways. So turning to Microsoft on Slide 17, who remain our largest vendor and our most strategic partner. Looking back first in January 2025, Microsoft reduced their incentives available on enterprise agreements, and you can see on the chart what that did to our growth rate. These changes are now fully annualized with return to material GP growth. Looking forward, there's a further set of announcements coming into effect from October this month. Microsoft set out to reduce commissions available on certain legacy products whilst increasing growth on products around enhancing incentives that are available on CSP. The growth products carry higher margins and they're precisely what we've built to advise on, security, AI and cloud workloads. And because those enhanced incentives are largely orientated around CSP, they reward moving customers on to longer multiyear commitments, which deepens the relationship and improves the visibility of the gross profit that comes with it. We have the sales readiness in place to go after that. It will take time. It will not all land in a single year, but it's a real opportunity and 1 that we've been building towards. What I would say is that we go into this change where we prepared for 3 reasons: our segmented sales, that structure now but specialists in the front of exactly the customers most likely to need those growth products, which was not the case 18 months ago. We have seller insights which we launched this half, and it gives every account manager a live view of the funding available on each account, and that evidence from the customers on usage and why the conversation is timely. And our services capability. Now extended by CyberOne attaches directly to the products that Microsoft has chosen to reward. This change is already reflected in the guidance that we upgraded in September. So moving on to Slide 18 and the second of the 2 structural changes we announced last year, which completed in July. Bytes now serves the private sector and Phoenix serves the public sector. Bytes was already generating 87% of its gross profit from the private sector in Phoenix, 97% from the public sector. So in practice has affected a minority of relationships. The rationale is straightforward, public and private sector organizations buy differently and the different support around what they buy. Our major vendors already separate their own sector teams. So this makes it easier for them to work with us and it removes any internal competition for the same customer. Getting closer to our customer calls for an adaptable organization that can absorb shifts, and I'm proud of how our group continues to show up. as we refine execution, no customer accounts change hands. Account managers moved with their customers, and that is the reason you're seeing growth in this half rather than another period of adjustment, and it reflects a great deal of careful planning by the teams involved. Driving customer centricity doesn't stop. The big changes we've made this year are in place and have delivered, but the real prize is what we unlock going forward, which wins me on to Services on Slide 19. Services is the advice, the design, the implementation and the ongoing management that our customers need in order to get value from the technology they buy, bolstering customers to what comes next. It is where the vendor funding is increasingly being directed. It carries a higher margin than product and the managed element of it gives us a deeper and considerably longer and more strategic relationship with the customer. Services gross invoiced income grew 41% in the half and services gross profit grew 12% to GBP 9.3 million. We built the delivery capacity to support that with technical delivery head count up 17.4% year-on-year. And with the 2 businesses each focused on a single sector, we can now build a services capability once and sell it through public and private. Build once, sell twice. Every pound we invest in a new service now has twice the addressable market it had before, and we stopped duplicating the same investment in 2 places. Andrew has already covered the services margin, which moved from 24% to 19% against a comparative that grew by more than 40%. What I would add to this is that we have deliberately brought capacity ahead of the revenue that it will carry and we expect the second half to reflect that. Our ambition here is a simple one. We want to be the single point of accountability for the technology our customers are running, covering cloud platform and how their people access it the endpoints they use and the security around it. Security is an area of very strong customer demand. And with the CyberOne acquisition, we now have that delivery capacity to keep scaling, which brings me on to Slide 20, and the acquisition of Cyber One, which is an AI-enabled managed cybersecurity services provider built on Microsoft technology. It gives Bytes its own accredited 24/7 security operations center, a SOC, delivering managed detection and response. The business has been established and has a strong position with the Microsoft security ecosystem, including recognition as a Microsoft Security elite partner and a member of the Microsoft Intelligent Security Association, MISA. The initial consideration was GBP 19.4 million, funded entirely from existing cash with further performance-related payments over the following 16 months. To give you a sense of the business, CyberOne has been operating since 2005, employs more than 80 people across the U.K. and the Philippines. It's generated revenue of around GBP 10 million in 12 months to July, growing at high double digits with an expanding gross margin. Around 90% of its income is reoccurring under multiyear contracts. So the quality of the earnings is high, and it sits as a U.K. cyber security services market, it sits in this market that is forecast to keep growing at double digits to around GBP 5.2 billion by 2029. We expect the acquisition to be earnings enhancing in the full financial first year of ownership, and our guidance for this year excludes any contribution from it. Let me explain why we chose to buy rather than build apart from the incredible team at CyberOne that we're looking forward to working with, and the credited security operations center takes years to stand up because the accreditations, the people who hold them and the delivery track record that customers look for are all earned over time. But meanwhile, our customers are buying this capability now as security is moving fast, and it's in line with their budgets. Until now, we have fulfilled much of that work through third parties and we can now deliver far more of it ourselves at a better margin and with better control of the customer experience. It also unlocks something we've been talking about internally for some time. Many of our customers already hold Microsoft security entitlements that they've never switched on or are not getting the best value from. And now we're able to take them from license through to fully managed service while owning both ends of that conversation. Microsoft publicly welcomed the acquisition in our announcement, which demonstrates how they see the combination of CyberOne's accreditation and our customer reach. Phoenix will continue to operate its own security capability for public sector customers, whether accreditation and the tenancy requirements are different. This is the kind of acquisition we said we would look for strategically aligned, culturally compatible and funded entirely from cash. Turning to AI on Slide 21. AI is the largest single item on our customers' technology agendas at the moment. And it's now driving growth across our core business rather than just sitting alongside it as a separate activity. The point I'd make is that adopting AI is not a single purchase before an organization can deploy it at scale, it needs identity -- it needs access controls in order. It means it's data governed and it's security tested, and it's people trained and supported through that change. We sell and deliver every 1 of those things. And because Microsoft sits at the center of most of our customers workplace technology, a good deal of that governance framework already resides in the licensing that they own today. So our role is to get customers to the point where AI can be adopted safely and then to make sure that the value lands with their people. Our ongoing work with the NHS is the clearest example. We first shared the full year results in May that we are supporting the deployment and adoption of copilot of around 0.5 million employees. This followed 1 of the largest Microsoft end customer investment fund awards globally. And most of that work sits in establishing the use case setting guardrails, training users, supporting the change and Microsoft recognizes as a frontier partner for it and our ability to deliver at scale. There's a second opportunity emerging behind the person. I think it's currently underappreciated. For 30-plus years, helping customers manage software sentiment, helping them manage licenses. -- which are accountable and broadly predictable. But AI is charged by consumption, which is neither, and customers are asking us how they control it. The discipline is shifting from counting what organization owns to managing the performance of what it actually uses, which happens to be our heritage, software asset management and licensing is what the business was built on and it's the right foundation for helping customers manage the economics of AI. We're also applying AI inside our own business with agents built by our own teams now supporting technical consultant scoping work reviewing and completing pieces of work before it reaches a customer. And we have our own comparison agent that's reduced quote review time from 30 minutes to 7 minutes. That's a 77% reduction. These are just a few examples of how we're modernizing our own processes to remain efficient in how we grow our business. Moving to our people on Slide 22. Our hiring in the first half was deliberately measured with head count increasing 1.7% since the full year to 1,353, reflecting our prudence in this period. Over the previous 2 years, we've added a significant amount of sales and technical capacity and this half was about making that capacity productive rather than adding further cost. Within the total, frontline sales head count is up 4.4% since the full year and technical delivery is up 17.4% year-on-year or cell support head count was reduced as we completed the reorganization of the 2 sales teams. You can see the effect of that discipline in our productivity with gross profit per employee increasing 13% year-on-year. So having made good use of the capacity that we already had, we will now add more with sales intakes joining both businesses, and we expect those people to be carrying full quota by the year-end and covering their costs in year 2. As you know, new sellers take time to reach full productivity. So this is an investment into FY '28 and beyond, and we would not be making it without confidence in the demand that we see. With our London office expansion, moving into new premises in August this year, that doubled our capacity. We're now being present in major cities, and it helps us stay close to our customers and attracts talent for the future. Our engagement, Phoenix was ranked 51st in the best small to medium workplaces in Europe list and has also been named the U.K.'s largest public sector reseller for the second year running. And both businesses were named on the -- great Places to Work Best Workplace for Tech U.K. 2026 list. I'd like to thank all our people. They've absorbed a great deal of change over the last 2 years while continuing to deliver for their customers. and this half is very much their result. So to summarize. Our growth in the first half was broad-based with double-digit gross profit growth in both sectors with Microsoft and Avendus. The business itself is now simpler with the sector alignment complete and a common services capability being delivered across both our brands. Services is accelerating with delivery capacity up 17.4% and CyberOne will add our own security operations. The demand drivers in our market are strengthening with software spend growing ahead of IT budgets as a whole, AI, cybersecurity and infrastructure attracting most of the incremental investment and our balance sheet remains strong with no debt and GBP 41.3 million returned to shareholders in the half. I hope from this presentation, you now have a clear understanding of how BTG has been driving customer centricity in everything that we are doing to reiterate. BTG is building the U.K.'s leading trusted adviser on AI, cloud and cyber, providing technical expertise and managed services to capture a greater share of our customers' technology spend. Thank you. Andrew and I want to take questions.

I saw 3 hands go over at the same time. I think that going into...

I won't be greedy. I'll just do 2 questions. They're both relating to Cyber One. How should we think about the potential revenue synergy with Cyber One? If you think about your current Microsoft customers and maybe the readiness of those to take the CyberOne proposition? How should we think of who you're targeting, for example, for kind of the next 12 months? And the Cyber One have the capacity in terms of the infrastructure to support that. Secondly on -- again, on CyberOne and related to that, when we think about the GBP 18 million potential kind of earn-out directionally, Andrew, can you give us a sense of what needs to be achieved for you to pay that out.

As well? Shall I start with the first question, which hopefully then provides the justification for the bit later. So we -- just to give you a little bit of background, we've spent nearly a year as of November this time last year, getting to know the CyberOne team. So this has been a relationship and if you like, a due diligence that we've worked hard to understand. As a business, they are absolutely fit for purpose in terms of mid-market, which, as you know, is our sweet spot in terms of selling up to maybe 5,000 seats. They have some international clients, and -- in terms of the capacity, 1 of the main due diligence areas that we, of course, wanted to investigate were they ready to take what could be the machinery of the sales private sector Bytes team in interest in leads that we generated. And we were satisfied that they have built automated the AI-enabled platform in preparedness for that. So we are comfortable they can scale as our growth with them continues. So we will be focused on addressing the private sector mid-market in the U.K. opportunity with that CyberOne partnership. I'll hand over to Andrew on the earn-out.

Okay. So thanks, Sam. So the out is based on February 28 numbers, so approximately 16 months, assuming that the NSIA clearance comes through as expected in 10 days' time or so. We have both the earn out on their own forecast, not on forecasted including us. So that should be seen as an accelerator. And when we look at the capacity to grow, that's quite interesting is that they built the company with a significant management overhead where they are sitting at the moment. So they're able to run the company with probably far less managers than what they currently have, and that's 1 thing that attracted us to the business is they built it to grow. So we feel that absorbing the growth from ourselves would not enhance their cost base. as a management level and then most of the delivery capacity sits within the Philippines. So fairly easy to grow the appropriate staff within the Philippines environment. What we're hoping to do is to accelerate that earn-out over probably 9 to 10 months. And if we are -- and so internally, if we're extremely successful, we would probably have completed the earnout of October next year rather than the full year of Feb. And that would obviously be the 1 plus 1 equaling 3.

Just a couple of questions from me, Julian, from Investec. You put up the slide with Bytes and Phoenix now obviously very separated from the 2 end industries. Can you talk to us a little bit more about the sharing of best practice that can now happen between those both divisions now they don't need to effectively compete with certain deals. Is that important? Is that a nice to have? Is that making a difference or not? And also on your services commentary around build once, sell twice. Phoenix is obviously much more services driven. Are you effectively meaning you're taking service for Phoenix and pushing it into Bytes and how does that link into the Cyber One piece. And I just got a follow-up.

Yes. No. So the best practices approach between the 2 operations for sure is much easier now with our distinct go-to-market strategy. I will say that we already had forums of engagement, where we were trying to encourage that. But this just makes it much more streamlined and much more purposeful, so we're doing that around a range of areas. Services is obviously 1 of the core, but you can also imagine there might be other areas like HR and so on we want commonality across the group. But from a services perspective, the build 1 strategy you might think that the Cyber One is therefore an anomaly. But I think I covered that off in my slide that you have very specific requirements around sovereignty in the U.K. public sector for data management, et cetera. private sector less so. And hence, Philippines and having a more global approach is fitting for the private sector mid-market. The types of services that we are -- the 2 operations are sharing with 1 another vary. You might have 1 stronger around virtualization, Broadcom and higher ranking in terms of capability and the other being weaker or you might have the other side being stronger around another vendor. So it's about how you bring that together. And if the vendors are open to it actually having a group consolidated approach to how you scale up and how you actually drive those certifications to a high level of accreditation with them. So we've got that going on and we have had for a few years, but this now just drives a bit more aggressively. Other areas where we've taken 1 practice and shared this into another is pen testing. As an example, we had licensed dashboard, which was IP that was written within the Phoenix business that was also offered to private sector clients. So we've -- over the years, we've had a number of those examples, but I think now we can start to move much more intentionally with it.

And just shifting on to the renewal rate, up materially 115% versus what 98% last year. Can you just give us a little bit of, I guess, the dynamics behind that renewal rate number. Clearly, that's obviously the thing that's driving gross profit because you're mainly from installed base customers. How should we see that sort of going forward? Does that drip back a little bit, new customer acquisition goes up? Does it stay around those sorts of levels? Anything particular to add around to the context of that number?

Yes, I'll start of and Andrew can sort of layer in. So not just Microsoft, but all of the vendors that have obviously made their propositions and their their technology much more comprehensive. There's been a lot of acquisition going on in the vendor world companies and buying more companies and obviously consolidating that into an offering for the customer. So the renewal rate as a reflection of that is customers being given the opportunity to go from what was the old historic skew to a much more powerful premium version that might incorporate more of the technology that the vendor has bought or to go wider with the commitments. Of course, we're also driving hard with our own services attach and so on. So there's a mix of attributes going on there.

So I think the 115% is a couple of sort of parameters that you have to look at. I don't think the customers are spending 115% more on IT. That's not what we're saying. I think they're spending 115% to IT with us. and that's a big difference, right? So 1 of the slides that Sam had up, is the sort of the move from direct to indirect. And so the customers might have been spending direct with with Google or with AWS and now they're spending it through us. We've spoken about in the past with AWS stated intention is to move from -- they were born directly. Obviously, they've started moving towards channel sort of friendly environment and is 50-50. . So you can see that shift happening. And then the 2 of the example that Sam put up was deepening the relationship. So a move from maybe the smaller vendors to us as well. So there is some dynamics within those that make up 115%. Is it sustainable? I would think not at 115%. Obviously, I'd love it to be, but I have to be honest about it. There is awful level of comparators. obviously, H1 last year to where we are this year. That was at 98%, Julien, that you referenced last year off the back of the EA changes. So we are -- if you have a look at our consensus forecast, we're probably high single digits on GP growth for the second half, making up sort of a mid-teens overall growth for the year. So I would hope that new business would continue to grow. And the reason for that and why the hope is there is that you do need to fill in the funnel from the top, right? So new customers, generally, you land with 1 sort of service offering. And then over the subsequent years, you expand that. So it is important that we continue to focus on both of our motions.

It's Charlie Brennan here from Jefferies. Three very quick questions from me, 2 number clarifications and a more general one. Firstly, going forward, you're incentivized to sell more multiyear CSP deals, can you just remind us on the revenue treatment for you? Do you still recognize that rate wily -- or are you obliged to pull more of that forward Secondly, there are still some cost line items that feel relatively low in the P&L like share-based comp. Is there further cost normalization to come next year, and when you say that you expect operating profit to grow in line with EBIT growth from '28, does that mean in '28 or does that mean in '29, and then just as a higher level question, it's very encouraging to see more of the industry going through the partner channel. But have you spent any time interrogating the data that you showed us the partners going from 20% of the market to 33% of the market implies the partner channel has grown 60%. Now the direction of travel is probably right, but the order of magnitude feels wrong. Can you just bring to light what you think that [indiscernible] is telling us.

Yes. I'll -- if I may, I'll start on that last point around the channel. I think Andrew has already alluded to that, you've got players like Google and AWS who are becoming more laser-focused and over the years been somewhat not consistent with their channel strategy. And then you've got players like Microsoft who are consistently very channel orientated and have been for 40 years. I think there is -- so to answer your question, have we done Manushi research around that? No. Do I from my gut and from my overall sense of interacting with some of the larger vendors on this planet and some of the new entrants like Antrophic and others, are they looking to channel to reach their customers? Yes, they are. And I think we sort of spoke about that on the slide. And this has gone in waves over the decades. You've had Dell being in and out and hokey poking all the last of it. But again, there is a sense that as they have taken their investments more into their own AI investment strategy, they've pared down their channel teams, they've pared down their direct sales forces. We've seen those announcements, Charlie, over the years. and therefore, they're relying much more on the channel to give them that reach and that proximity to customer conversation. So that's my answer on the channel. In terms of the multi year CSP deals. Yes, that's an opportunity for customers. In terms of recognition, it's as and when we take the consumption report, isn't it on a month

So on that CSP, basically, the pricing to the customer is more favorable if you commit for longer periods of time. And that just gives Microsoft and others sort of guarantees that their volumes will continue to grow. But our recognition would be monthly in arrears after invoicing. So we take the data in Microsoft's case, star of the Microsoft portal, our condensed and we'll produce it in voice back to the customer. And just as a reminder, we have 2 income streams of CSP and one in margin the difference between our cost price and our selling price and the other 1 is obviously the rebate environment and the rebate is now moving more towards our sort of growth initiatives. . And so you would expect maybe to have a little bit more of earnings accretive as you move the customer from an E3 so a little bit front loaded on those rebates, right? Because you'll move from 25 get an accelerated growth in year 1 or as you move them and then that will dissipate over a period of time, but it's not that meaningful right. Then your second question was share-based payments. And Charlie, you did right. So last year, we were building towards sort of a fully expensed share-based payments environment. And then our lack of performance last year removed a lot of the forward-looking on the share-based payments. So we're almost having to restart again we're rebuilding that series in this year. we will probably have 1 year and a bit next year, you should expect in your modeling to probably add another GBP 1 million to whatever we end up in the year. And then the following year, another GBP 1 million will be back to sort of a fully funded 3-year cycle. Then your question around FY '28 and beyond. So we will absorb the share-based payments into next year. the growth of the share base payments and then we are looking to equalize in FY '28, our OP growth and GP growth. And then from FY '29 onwards, starting back that sort of ratio that we service at a low point of 36% this year. So intentionally, internally, we would like to try and get back sort of -- and so FY '29 and beyond, so new CFO is coming in, this is problem right? So now make.

So can I ask a follow-up there. Obviously, SoftCare have a different strategy, which is to overinvest in OpEx and for gross profit very fast.

Sorry, Charlie, there's the microphone, right there.