Data#3 Limited (DTL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for joining us. And hopefully, you like the video this morning. Thank you for joining us for the Data#3 Investor Day, Delivering the Digital Future. This is the first session of this kind for several years. Those of you who are familiar with DTL would have seen Brem Hill and I conduct many investor briefings over the years. Today, we have 8 management executives, in addition to Brem and myself, presenting on key elements of our business. Our objective is to provide you with more detailed information about our business and give you the opportunity to ask questions. We have a fantastic business that has been an icon of the Australian IT industry. And this morning, we'd like to share a deeper dive into Data#3. So let's move on to the agenda. The agenda has -- it's quite a jam-packed agenda. We've got 10 presentations in total. We've inserted question and answers at 3 stages during the morning session. So if you could keep your questions to the end of the section, that would be appreciated. I'll also -- I'll kick off and followed by Brem on the financial overview. This will be followed by Tash Macknish and Janelle Phillips presenting on our people and the changing resource market. We'll pause for Q&A at this stage. The next section is all about our customers, our solutions and our vendors. These presentations will be run by Garrett MacDonald, Brad Colledge, Jelaine Doncaster and John Tan. Again, we'll have time for Q&A on these topics. To round out, we'll focus on security and our services strategy. These will be presented by Michael Bowser and Carlos Gouveia. Q&A will follow on security and services and for any other general topics. I'll round out on the session this morning, and we aim to complete by midday Australia Daylight Savings Time, or 11 a.m., Australian Eastern Standard Time, because we like to be different in Queensland. So let's start, and let's start with a quick corporate overview, if you're not familiar with DTL. Well, we've been in business for over 40 years. In fact, we're one of the first IT companies to list on the ASX back in '97. We've grown considerably since then. Our customers are larger corporate and public sector in the main. And the sectors in which we operate, in particular, are health care, education and the resource sector. In fact, over 60% of our revenues now are recurring. I'll highlight a couple of external validations from Cisco and Microsoft, both of which we are, in fact, their largest partner in Australia. The first is a global award from Cisco and the recognition was ahead of 60,000 partners worldwide. The second award or certification actually is the Microsoft Azure Expert MSP Certification. It's one of the longest certifications in terms of the actual terminology, but it's also one of the more significant Microsoft certifications, and we're 1 of only 4 partners in Australia. No other Australian company has recognitions and certifications of this nature. Let's move on into this financial year and bringing you up to the present. We had our AGM last week, and this slide has been updated with some IT market information from Gartner. Gartner are the global IT analysts and gurus. We finished FY '21 strongly with a record year. And we had the backlog -- and we had a backlog of orders, which have since been recognized in FY '22. Global supply chain issues can have an impact predominantly on end-user computing. It does not impact large parts of our business, which are Software and Services. The Gartner outlook has changed since last week, and they've put out a prediction for FY '22. They're now predicting an even stronger global and Australian market growth. The Australian market growth for calendar year '22 is now predicted at 6%. This is the largest we have ever seen. The biggest growth drivers are in Software and Services, the largest part of our business. So our leading position in a growing market is important for FY '22 and gives us confidence going forward. The icon on the right illustrates that we have a strong focus and investment plans around Services across our Data#3 portfolio. In particular, we've added -- we've got an added focus on security. Our customer is #1 priority. The focus on Services growth will improve our profit margins and complement the Software and Infrastructure businesses. So the predicted record market growth, what's driving it? Well, quite simply, it's digital transformation. This was a case pre-pandemic. COVID actually accelerated digital transformation. And we're now predicting digital transformation will take us out of the global slowdown and into accelerated growth. Here are a couple of quotes to support the significance of digital transformation. The first likens digital transformation with the Internet. It may not be the best analogy, but we're at the start of something really big with digital transformation. Some call it the Fourth Industrial Revolution. The second quote is from Satya Nadella, who makes the -- from Microsoft, who makes the point that IT is no longer a separate function that was traditionally regarded as a cost center. Today, digital transformation is the most significant business driver for our customers. Our role in digital transformation is the fundamental foundation layer. This includes cloud networking, end-user computing, data analytics and security. Lastly, at the highest level, our strategy and to put some context around some of the presentations that you'll be seeing later on this morning. At the highest level, our strategy is driven by this particular diagram. Our core purpose, if we start with customer success, is to enable our customers to succeed, to succeed in their business objectives. To achieve that, we invest in the 3 circles on the left-hand side of the diagram. We invest in people. We invest in solutions and organizational excellence to make our organization more efficient and more effective. These elements work together in a well-developed solutions framework to maximize the customer success, which in turn then drives exceptional performance, which includes financial performance. Well, on that note, in the following presentations -- hopefully, you've now got some context around some of the presentations you'll see. And I hope you'll come to -- see these come together and help you understand how Data#3 will deliver the digital future.

Good morning, and thanks for joining in this briefing. I started my career in the IT industry at IBM, and I joined Data#3 back in 1991. So in a few weeks' time, I'll reach my 30-year service milestone. I have 10 minutes from my presentation, which is to give you a high-level financial overview. I'll provide a brief recap of some of the elements from our recent FY '21 results briefing and expand on some areas that typically raise questions in our briefings to hopefully give you a better understanding of the key drivers behind the numbers. First up is the revenue summary. It shows that we've delivered sustained revenue growth with a compound annual growth rate of 14.4% over the last 6 years, which is well ahead of the sector growth. We're particularly pleased with the growth in our public cloud revenues, which increased by 36% to $792 million in FY '21 and now represent 40% of our total revenue. It's also important to note that approximately 62% of our total revenue is recurring to derive from contracts with government and large corporate customers. The other point I'd like to make is that the revenue mix has changed significantly over this period. And my next slide illustrates this in more detail. So just to summarize, Data#3 comprises a wide portfolio of IT businesses, and the chart on the left splits the total revenue into 3 broad areas, which is Infrastructure, Software and Services. And this clearly shows the change in revenue mix with strongest growth in Software, which is also where most of our public cloud revenue is recognized. So public cloud revenue as shown on the chart is the blue line just so that you can see the trend there in the very strong growth. Then the table on the right gives the breakdown of the FY '21 revenues and growth by individual business unit within each of these 3 areas. We have a range of Services businesses, which collectively generated $240 million in revenue in FY '21. And while that $240 million looks relatively small compared to our Software and Infrastructure revenues, it is very substantial in its own right, making Data#3 one of the largest IT service providers in Australia. It's also important to note that there are very significant interdependencies between these different business areas and our solutions typically comprise a combination of these elements. I'd like to explain these interdependencies in a bit more detail. So Data#3 partners with some of the world's largest IT vendors to resell and support their technology offerings. And these partnerships typically require a very significant commitment and investment by Data#3 in terms of sales and technical resources and expertise. And the services that Data#3 provides are essential to ensure that the customers get their desired outcomes from their IT investment. Therefore, Software and Services -- Software and Infrastructure revenues depend on Data#3 Services and vice versa. It's also important to note that the vendor rebate programs, which apply to channel partners like Data#3, are shifting emphasis away from simply reselling solutions and increasingly rewarding partners based on customer adoption or customer usage, experience and customer outcomes. And these changes definitely play to Data#3's strengths and mean that rebate recognition will gradually shift from Infrastructure and Software to Services. I've also included a bit more detail on our recurring revenues on this slide. This revenue is derived from term-based Software Licensing and Support Services contracts where the customer spend is committed, and the total recurring revenue grew to approximately $1.2 billion in FY '21. And the sizable component of this of approximately $750 million comes from public cloud solutions. The next point I wanted to highlight is the opportunity to accelerate our services growth, and this is one of our strategic priorities. The key areas for accelerated growth are Consulting, Project Services and Managed Services. Managed Services forms part of our Support Services area. The most significant opportunity is in Managed Services. And over the past 4 years, we have invested in transforming our Managed Services business, moving it into a public cloud environment and developing new service and support offerings. This has also involved Data#3 obtaining a highly specialized and sought-after Microsoft certification as an Azure Expert Managed Services Provider. These investments have provided us with a very competitive platform and range of services offerings. And we're starting to see an increasing return on investment with our success in winning new Managed Services contracts. So while revenue growth is obviously very important, we place even greater emphasis on gross profit. And the slide I'm showing you now expands on the earlier revenue mix summary to show the relative gross margins generated by the different business units, and simply rated as low, medium and high in terms of the typical gross margin spectrum. The change in revenue mix in recent years has been caused by the very strong growth in software and public cloud which are both relatively low gross margin areas, and that has reduced the overall gross margin percentage. This is purely a mix issue. The gross margins have remained relatively stable within each of the individual business units. So the key point I want to emphasize is that our objective is to achieve sustained growth in total gross profit dollars. And we are -- we consider that a far more important measure of success than the blended gross margin percentage. However, moving forward, we do expect that the accelerated services growth will definitely boost the overall gross profit dollars and should also increase the blended gross margin percentage. The next area I would like to cover is our operating leverage which has improved steadily over the past 6 years, and this slide shows the short-term and the longer-term factors that impact operating leverage. Short-term factors include the product delivery delays that we've experienced caused by the computer chip shortages, which is a global issue. There's some wage pressure and resource constraints, and there's also our investment in a new ERP platform. Longer term, we have considerable opportunity to continue to drive further operating leverage in our Services businesses and especially in Managed Services. And now for a brief review of our earnings and dividend trend. Our goal remains to deliver sustainable earnings growth, and shareholders have been rewarded with strong dividends and significant growth in share price which have generated an average 45% total shareholder return over the past 7 years. And now for my final slide which gives a summary of our financial position and cash flow. The IT sector typically experiences a very significant fourth quarter sales spike, which skews our profit to the second half and inflates our trade receivables, cash and trade payables at year-end. Our FY '21 results briefing includes a detailed working capital analysis to help explain the seasonal impact. And that analysis shows that the underlying working capital position remains stable and positive despite the significant seasonal fluctuations. It's also important to note that we have a very efficient working capital model so our business is effectively self-funding. This is due to our very low inventory levels comprised of allocated stock, our short collection cycle and the favorable trade terms offered by our key suppliers. The seasonality also has a significant impact on operating cash flows due to the timing differences in collections and payments around 30th of June each year. This also magnifies the temporary cash surpluses at year-end. However, our underlying free cash is typically in the $10 million to $20 million range. Our cash conversion is strong, even though the operating cash flow can vary significantly due to the seasonal swings. And based on the period from FY '15 to FY '21, the total free cash flow was $221 million, and our total net profit after tax was $121 million. So that gives a cash conversion of 182% for that period. The other points I'd like to note are the relatively low levels of capital expenditure and the high dividend payout ratio of approximately 90%. So I hope this information has helped give you a better understanding of the key drivers of our financial results. And if you have any questions, please submit them for the Q&A session that will follow.

Hello. I'm Tash Macknish, Group Manager, Organizational Development and HR. I'll be providing you an overview of the Data#3 through people strategy. I'll also be introducing you to Janelle Phillips, General Manager of People Solutions, who will provide an overview of how the People Solutions business provide expertise and ICT resourcing support to Data#3's talent strategy. My role in the business is to provide strategic and operational management of Data#3's organizational development and human resource activities. This includes developing, implementing and executing the strategies and programs which develop and grow our people and culture aligned to our core values. I have been with the business for over 13 years and have worked in the IT industry for over 25. I'm passionate about people, and I firmly believe in adding value and commercial success by creating an environment that supports and nurtures our people. The core to the success is creating a strong culture of care, providing support of both the operational and strategic directions of the business to support Data#3 to continue to successfully grow. During my time leading the people business of Data#3, we have witnessed increased profitability, improved customer and people engagement and received numerous external awards, reinforcing the approach that supporting our employees and focusing on culture drives better outcomes for everyone. Unsurprisingly, COVID-19 has presented a significant challenge in the last 18 months. And while we are well positioned to deal with the immediate changes it's brought on, we are continually working to navigate the ongoing and ever-changing challenges it presents. It has been an unprecedented, once-in-a-lifetime event that has forced us to make considered yet swift decisions, process an avalanche of new information and communicate appropriately to manage our people's, customers' and vendor expectations. No one had time to prepare for the transition that was thrust upon us. Yet, as a business, we have adapted to the situation that was presenting. We really didn't have another choice. The parameters of the new ways of working have changed and will be with us permanently. From HR perspective, I think it's been important for our leadership teams to take our people on the journey with them. We haven't been able to fully plan or predict the future. And even today, there is still so much uncertainty that our leaders will continue to be required to consider. These include our employees' fears and needs, their working preferences, organizational culture, vaccinations and our customers, et cetera. Disruption has enabled us to reprioritize and adapt quickly. We have been able to use the disruption as an opportunity to enhance and develop our people strategy. The disruption allowed us to speed up rolling out collaboration projects, training and implementing new processes. Disruption has heightened the need to assess and reassess our digital culture. Disruption has enabled us to build a hybrid work model that has provided the flexibility for our people and our business to optimally perform. We will continue to evolve this model over time as our people, business and customers adapt. In some ways, however, the disruption has united us as a business like we have never been united before. This is reflected in our turnover. Pre-COVID, our turnover was around 21%. If you look at mid-COVID, turnover had dropped to as low as 8.8%. And currently, we're sitting at an all-time low of 7.5% year-to-date, which is well below the industry average of 18%. I believe our turnover will slightly increase over the coming months, but this is to be expected because there is an ongoing skill shortage in the ICT market and our people are highly sought after expertise, especially technical skills and demand from within our Services business. As a result of COVID-19, we have all experienced significant changes, not only to the way we work, but where, when and how we work. For those who do have parenting and caring responsibilities, approximately 60% of our business, it can sometimes feel challenging to meet the demands of both professional and personal worlds. This is why we took steps to become accredited as a family inclusive workplace to help support our people, supporting their families and balancing the needs of both. We have seen a positive increase in engagement trends as a result of care, transparency, open communication, trust, flexibility, empathy and attention to well-being during COVID. Moving forward, the role of technology will continue to evolve and adapt to the business needs. As a HR leader, though, I think we need to be careful to get that balance of technology and people connectivity right. Whilst technology allows us to work effectively -- efficiently from anywhere at any time, there is still the human element that our people price. The cornerstone of Data#3's culture, leadership and strategic direction is heart. We are a company with heart. We work and lead with heart. Honesty, excellence, agility, respect and teamwork are our core value. These values are tangible, visible and real to our people and our customers. Our culture of growth, innovation and well-being ensures the continued success of our remarkable people. Overall, our people strategy directly feeds into Data#3's annual strategic plan to embrace diversity, inspire our people and grow with heart. The community is a key stakeholder to Data#3 strategic plan. As part of our environmental, social and governance program, SOUL, of which the HR team is an executive sponsor, raised over $100,000 in FY '21, despite the global pandemic, and facilitated over 400 volunteer hours for multiple charity partners. As we grow as a company, so does our obligation and commitment to the communities in which we live and work. As a business, we are invested in enhancing the communities to give back and help support those who are less fortunate. Supporting our communities and promoting volunteering activities is part of the Data#3 culture to create a real and everlasting effect. Our focus on people and support for both operational and strategic directions of the business has helped Data#3 continue to grow, reporting record growth in several consecutive years with continued increase in our employee satisfaction scores, steady increases from 4.38 in 2018 to 4.54 out of 5 in 2021. We were awarded 2 Employer of Choice Awards in FY '21, and our Tasmanian business was awarded best ICT employer in Tasmania. These results are recognition that we continue to put our people first and invest in their health, well-being and growth. Our size enables us to get personal with our people and reach them where they are and make them feel safe, seen and valued. We work in a diverse community, and this is reflected in our workplace. We see the many unique perspectives, skills and experiences of our people as a strength to be nurtured. This year, we launched Data#3 Embrace program to do exactly that. Embrace brings together our diversity and inclusion policies, activities and support services and actively seeks new opportunities to ensure our people feel a sense of belonging. Diversity and inclusion is a strategic priority for the business as we want to ensure that all of our people feel a sense of inclusion and belongingness while working at Data#3. While our Embrace program has several focal areas, last financial year, we concentrated our efforts on supporting gender diversity. This was evident through our CEO's membership with a nationally recognized Champions of Change Coalition with a mission to help achieve gender equality and to see increased and sustained representation of women in leadership roles. As part of this involvement in the coalition, we partnered with Microsoft and other ICT organizations to sponsor a number of women in the Women Rising program. This program was designed to support women in technology to rise, build confidence, influence and achieve their leadership goals. But our efforts to increase gender equality don't stop there. And over the last 5 years, we have undertaken several targeted acquisition strategies, which has resulted in an increase of almost 5% of females employed across our business. The number of women in our business is almost 7% higher than the industry average. We have also relaunched a number of policies, including our parental leave and domestic family balance policy. And in addition, we have delivered mental health first day training for our managers to better support our people and company-wide unconscious bias training to help increase staff awareness and to start the conversation about this important topic. A critical part of the continued evolution of Data#3 is our talent strategy. This enables the creation and successful implementation of innovative, industry-leading approaches to continue development of our people, talent attraction and alternate sourcing strategies to ensure we deliver the digital future to enable customer success. Alternative sourcing is a key focus for not only attracting talent to our business but also for our D&I strategy. We are committed to partnering with Microsoft on their traineeship program, which is focused on [ skill ] leaders and underrepresented and marginalized populations, and Microsoft returnship program, which is focused on women returning to the workforce. The pandemic, the global skill shortage, approximately 60,000 roles per year in Australia, increased competition in the market for talent and the changing needs and expectations of talent continues to be a focus for our business. Due to increased customer demands and new projects, we have grown our workforce by 6% across all locations, which is a significant achievement given the global pandemic and the technical skill shortage. [indiscernible] prepared for these challenges in FY '21, we launched the Data#3 Academy, which unifies our learning and development opportunities across sales, customer service, technical leadership and emerging skill sets. The Academy saw over 9,000 hours of learning rolled out and over 13,000 training courses accessed via LinkedIn Learning. We are committed to supporting the ongoing development of our people and capabilities through personal development plans, individual coaching, succession planning and offering mentoring opportunities, both internally and externally. To successfully execute our talent strategy, we have a dedicated talent acquisition team working with our business to understand their workforce plans to source the best talent for our business. We have an additional benefit of having a talent sourcing business within Data#3, our Data#3 People Solutions business. People Solutions are experts within the ICT market and have access to skilled talent pools. Janelle Phillips, General Manager of Data#3 People Solutions, will provide an insight on how Data#3 People Solutions supports the successful implementation of our talent strategy.

Thank you, Tash. Hello. I'm Janelle Phillips, the General Manager of People Solutions. I have been with the business over 16 years and am responsible for the financial outcome, resourcing solutions and operational direction of the People Solutions business. As Tash mentioned, the People Solutions team are experts within the ICT market in sourcing talent. Our key focus is about resourcing the best ICT talent to harness the power of people and technology for a better future. Data#3 is unique in our structure, which differentiates us from others, having our own embedded recruiting and sourcing division, enabling our business with talent. People Solutions specializes in contracting the labor hire, permanent recruitment and staff augmentation services across all technology platforms, providing alternative sourcing strategies to both Data#3 and our customers. The key elements to talent attraction and recruitment are engagement, connection, brand and flexibility. We have a dedicated national team of specialist recruiters focused daily on sourcing, connecting and engaging the best available ICT talent for both our customers and Data#3. Providing the right talent to our customers, either directly or via our services team, enables our customers in delivering the digital future. As an employer of choice, we are positioned well to attract and engage talent to Data#3, as is recognized as our connection with our people. Our technology capability has enabled the implementation of automated onboarding and engagement, assisting us and our customers during these changing times, our flexible working arrangements and work from home. The digital future is rapidly changing, and training and skill development is critical. Our team ensure our talent have access to online learning platforms, industry training options and on-the-job skill development. Our team remains focused on these key elements to ensure we adapt to this changing market and continue to attract skilled talent. As Tash mentioned, the market is facing challenges with the pandemic. We are seeing evidence of a global skill shortage and increased competition in the market for skilled technical talent. You may have heard terms in the market like war for talent. The industry predicts large skill shortages each year, and a Gartner survey in September revealed talent shortages as the biggest barrier to emerging technology adoption. The war for talent is real. And organizations need to ensure they have a key focus on their talent strategy. People Solutions is focused on delivering talent attraction and alternative sourcing strategies for Data#3 by ensuring we stay connected and supportive across the talent market. As Tash confirmed, Data#3 have grown their workforce by 6%, exceeding the annual technology industry growth of 4.3%. The growth is evidence we are working on the right approaches. I confirm our key focus is about resourcing the best ICT talent to harness the power of people and technology for a better future.

Thank you, Janelle, for providing this overview, and thank you and your team for the support and expertise you continue to provide the business to attract top talent. On behalf of Janelle and I, I would like to thank you for your time today. If you have any questions or require any additional information, please don't hesitate to ask during the Q&A period today. Thank you.

Thank you, Janelle, and thank you, Tash. Now we'll move on to the question and answers. So you'll see a section on the platform allowing you to submit questions as the presentations are taking place. I'd like to introduce our moderator, Kerry Absalom, for any questions that have been submitted. Kerry, have you got any questions?

Yes, Laurence, we do. The first question asks, some of your international peers disclosed gross invoiced income, GII, to adjust for revenue recognition differences between principal and agency revenue streams. Is there a material difference between GII growth and the revenue growth at DTL? Can you expand on what types of revenues are recognized principal versus agent and how this might change in the future?

Well, thank you, Kerry. Double gross income, that sounds interesting. I think that's one for our CFO, Brem Hill.

Thank you, Laurence. So maybe a simple way to answer that question is that most of our revenue is treated as principal. So we book the gross revenue, and we also book the cost of sale. There are a smaller proportion of transactions related to certain Microsoft licensing transactions where we don't actually book the gross income. We just book effectively our margin -- our gross margin as revenue. So what some companies do is they gross that component up and add that to their revenue. We don't actually do that. However, if we did, the impact would not be material, i.e., it would not increase our reported revenue significantly, and we don't expect that situation to change. As I said at the start, most of our revenue is booked as principal in that we have control over the pricing. We have -- we're exposed to the credit risk. So we are deemed to be the principal in the transaction. And I say that's the vast majority of our revenue. Thank you.

Okay. Thanks, Brem. Kerry, do we have any other questions?

We do, Laurence. There is one more question, which has been asked in 2 parts. I will ask the first part first. Public cloud wasn't spelled out in the high, medium, low gross profit slide. Are you able to make some comments on gross margins of public cloud or cloud versus services associated with cloud?

Okay. Another question -- financial question. Brem, I'm going to pass straight over to you.

Thank you, Laurence. So I didn't disclose the detail on that slide, but the majority of our public cloud revenue is reported in that Software Licensing line, which is low margin. So if we look at our $792 million of public cloud revenue, the majority of that is low. However, the services component associated with that would be high margin. So if I wondered -- if there's that rough split I gave in my presentation that -- of that revenue, about $750 million, the recurring component of the public cloud revenue, that is typically low margin. And the balance, which is the $40-odd million, would be high margin. So it is a mix. And over time, what we're aiming to do is to grow that services component. Thanks.

Thanks, Brem. Kerry, do we have any more questions?

Continuing with the second part of that question. It asks, does DTL's substantial scale and numerous awards from key vendors give you better buying power and/or better payment terms, working capital benefits in comparison to your competitors?

Okay. Thank you. I think, Brem, you're going to -- this will be a hat trick of questions. So over to you. You're popular this morning.

All right. Thanks. [indiscernible] I suppose, to be expected. The -- what I'd say there is, look, we aim to be the largest or one of the largest partners with the key vendors. So in doing so, we do get the best support that you can. So that can be in terms of the best buy prices. It can be in terms of, I guess, the other support that the vendors provide. So yes, they give us favorable payment terms. They should give us more support in terms of some of the co-funding initiatives that they have, simply because we do a lot more business with them. So if you look at our competitors, we're probably on a par with the large competitors, they probably have similar influence with the vendors. But then, obviously, the smaller organizations would definitely have less influence. I think that's probably the best way I'd phrase that.

Okay. Thank you. Thank you, Brem. I think it spells out the importance of scale. I think that's what we've experienced certainly through our growth and working with our vendors. So Kerry, do we have any more questions?

There are no more questions for this section, Laurence.

Okay. Thank you. Thanks, Kerry. I think we'll now go on for a short 3-minute customer story with the Melbourne Cricket Club discussing their digital transformation journey. Then after this 3-minute video, we'll rejoin the presentation agenda with Garrett MacDonald. Thank you. [Presentation]

Hi, my name is Garrett MacDonald. I'm the Chief Marketing Officer of Data#3. My role on the business is to provide strategic direction and deliver operational execution of Data#3's marketing, sales management and tender management business units. I've been with the business for over 10 years now and in the IT industry for more than 15. Prior to that, I was in various sales roles in some different industries. I'm here today to introduce you to Data#3's customer base and the experiences that we provide them. For over 40 years now, Data#3 has had a reputation of delivering customer success. This has helped us build a strong and diverse customer portfolio that brings balance to our performance across the ups and downs of various industries and even indeed regions. At the highest level, we have over 5,000 active customers year-on-year. But if you want to break that down a little bit, our top 100 customers made up 67% of our total revenue in FY '21. If we look at the traditional 80-20 model, you'll see that there are 210 customers who make up 80% of our total revenue. And as Brem stated earlier, we have 62% of our customers on various types of contracts, delivering recurring revenue that gives us a strong financial position to start each year. The balance in our portfolio really comes down to the spread across our regions and industries, which ensures we can build on our year-on-year performance. Again, at the highest level, 24% of our total revenue comes from our ACT customers, 21% out of our Queensland branch, a further 19% from Victoria and 14% from our New South Wales customers. When I think about the future for Data#3, I can't help but be excited in a sense there is still plenty of market share and growth to be achieved in some of those bigger markets. And finally the slide here is that our customer set being broken down by key industries. We get around 55% of our total revenue from government, which will be broken down further into federal, state and local. And then there's 45% of our revenue from our rolled together commercial sector. Our key industry focus areas are education, health and resources. As mentioned, this all comes together in a balanced portfolio of customers who rely on Data#3 to deliver their digital future. As you can see, the balance in our customer portfolio underpins our financial performance. But our customers keep coming back to Data#3 due to our consistent approach with them. So let me give you some insight into how we engage with our customers. In the IT industry, we are always in a rapid rate of change. The changes certainly sped up in recent years from the rise of as-a-service models to the rise of digitization of business, to the impacts of COVID. Our industry has been at the forefront of change for our customers, both large and small. While the industry and customers have transformed around us, we have kept ahead of our competition with a simple approach to customer engagement, which is the land, adopt, expand, renew model. Through our sales and marketing efforts that are underpinned by our investments in Challenger sales methodology, we have a tried and tested process for landing new customers and delivering a great initial experience with our brand. We then work with the customers to help them adopt the technology they are investing in. Then as customer confidence grows, we expand our presence in the account by offering a wider portfolio of solutions and services, ultimately gaining more customer wallet share. As we deliver consistent engagements over time and prove that we can help customers realize outcomes from their investments, they renew their contracts, all key projects with Data#3 when the time arises. And as our industry and customers evolve towards a consumption-based transformation, our land, adopt, expand and renew model is becoming more and more relevant. And this prompted more investment in our customer success team which you'll hear more about from John Tan shortly. Customers keep engaging with Data#3 over the full technology life cycle. This happens due to a consistent approach in delivering customer experience. We do this through a whole of business approach to customer engagement, blending people, process and technology. Our customers will engage with all parts of our business over the course of the 12-month period. We pride ourselves on delivering a consistent engagement regardless of the individual system or process that the customer touches. This is due to a dedicated focus on building and maintaining a consistent customer-first culture. But it's driven by our values that you've heard Tash talk about earlier and delivered with a transparent nature to communication. What our culture and consistent engagement brings is great results on our customer satisfaction scores. Here we are looking at the past 3 years of our overall customer satisfaction. And as you can see, we have maintained high scores. But importantly, we continue to increase our scores off an already high base. And as mentioned, this has come due to our customer-first culture. We also talk to our innovative approach to customer experience. One example of an innovative approach and proof that we are delivering on our own digital future is Data#3 Velocity. Data#3 Velocity is our commitment to simplifying our customers' technology journey so they can accelerate their business outcomes and enable success. Leveraging the full service platform that facilitates everything from online procurement through to adoption in operation, the vision for Data#3 Velocity is to ensure our customers get a seamless, intuitive experience when engaging with our business. Data#3 Velocity is an example that we don't stand still and continue to innovate the experiences we deliver to our customers. And you will see more about Data#3 Velocity as we roll this out to market in the coming months. I wanted to close out on focusing on the theme that matters: Our customers. As I mentioned, we are constantly innovating how we engage with our customers. And the key to Data#3 remaining competitive and customer relevant is through constantly evolving our solutions and services, which I won't go into as you'll hear more about this from Brad Colledge shortly. So I'll talk to a couple of different customer stories now. The first being the Sydney Football Stadium. The story is that the New South Wales government is redeveloping the Sydney Football Stadium into an iconic world-class venue to ensure Sydney has a sporting and entertainment precinct of an international standard and that New South Wales remains the #1 choice of sporting and entertainment events. This project is being delivered in tight conjunction with a major construction company. And working in a highly competitive environment, Data#3 was selected to deliver a modern networking solution for the new stadium. Our experience with a similar successful project delivered to the MCG helped deliver the confidence that Data#3 was the perfect technology partner for this project. This solution, when completed, will deliver a robust new networking solution which is needed to provide services to more than 40,000 fans on game day. Extending the digital experience on game day at the stadium and delivering a world-class experience will bring patrons back time and time again. The final customer story I will touch on is one of our many education customers, the South Regional TAFE. This customer has a reputation for delivering quality, flexible, occasional education to meet the needs of students entering diverse industry sectors. We take the spacing an aging IT environment, which is due for upgrade, both to ensure compliance with the Western Australian government requirements and to maintain South Regional TAFE's ability to deliver a quality service to their students. The next step for the South Regional TAFE was to issue a tender for consulting services. But we give them an independent perspective on the organization's needs and how to best meet them. This is a great example of where Data#3's whole of business delivering the digital future for our customers together. Since South Regional TAFE is familiar with Data#3, both as a Microsoft licensing partner and from previous experiences working across a range of unrelated projects. Well, we're not previously engaged with Data#3's wholly owned subsidiary business aspect, an awareness of their consulting capability made them a logical inclusion among a number of other IT organizations to bid on this project. After carefully considering the bid in detail, the TAFE chose to work with Business Aspect because of their breadth of experience in the education sector, their collective business understanding of the TAFE's Microsoft position and business aspects, quality resource base of consultants. Then Business Aspect kicked off the engagement by taking an in-depth look at the organization's ICT environment before the customer's cloud transition and presented the team with detailed inventory of their current technology state, which set them up for success with a complex technology transformation. I thank you for your attention over the past few minutes, and I trust that I've given you some insight into the makeup of Data#3's customers portfolio and giving you a view on how we engage and retain our customers. And of course, if you have any questions, please feel free to reach out through the Q&A segment. Thanks again.

Hello. I'm Brad Colledge, Executive General Manager, and I'm going to talk about our solutions and vendors and how Data#3 is delivering the digital future. I will also be introducing Jelaine Doncaster, our General Manager for Software Solutions, to provide a brief spotlight on our largest vendor, Microsoft. Let's talk about digital transformation. Data#3 delivers the foundation layer that enables our customers' digital transformation. Let's look at a simple example. Taking a simple annual leave form that may be paper-based and we want to digitize that e-form. To do that, we're going to need something from the modern workplace. We're going to need the end-user computer. We're going to need some software. We're going to need someone to store that e-form, perhaps the public cloud or an on-prem server. We're going to need a network and connectivity to access that e-form, and we're going to need to do that in a very secure environment. Now if we introduce another foundation element in data and analytics, we provide the foundation for advanced applications such as artificial intelligence, IoT and 3D printing. Data#3 is constantly evolving our solutions to deliver real innovation and deliver digital transformation. Digital transformation is one of the biggest growth drivers in the Australian economy and our business. Our role in digital transformation is providing these integrated solutions that support our customers through the full life cycle, from consulting at the start, through to design and implementation with project services and providing support services. Ongoing reoccurring revenues are based on support contracts. So this is a key focus area for growth. By combining the right solutions from the right vendor partners allows Data#3 to deliver the digital future across multiple areas. Our partnerships with some of the world's largest vendors account for approximately 70% of our customer spend. In FY '21, Data#3 was the #1 partner for each of the top 3 vendor partners and in the top 5 for Dell. We then have over 400 other partners. At any point in time, there are emerging vendors that we can onboard quickly and become important to the overall solution we provide to customers. Now let's spot one, our largest vendor, Microsoft, and let me introduce Jelaine Doncaster, General Manager of Software Solutions.

Thank you, Brad. Microsoft is the market leader. The market is evolving rapidly as customers transition to consumption-based solutions such as public cloud. Data#3 has $792 million in public cloud revenues, the majority of which is Microsoft. The market opportunity is huge with so many solutions growing at accelerated rates. Data#3 is a leader in Microsoft solutions. In fact, we are #1 in Asia Pacific. Let's look at some of the Microsoft solutions in which Data#3 is investing. Applications in infrastructure with Azure; data and analytics, which is one of our fastest growing solutions as customers grapple with their ever-increasing data; security, which continues to be the #1 focus area for the bulk of our customers; Microsoft 365 or modern workplace and devices. There is a large opportunity with Microsoft Teams, calling and Teams rooms, which incorporates the Surface Hub. And lastly, business applications, such as Microsoft Dynamics, including CRM. And at the heart of it all is implementing these solutions with customers to ensure their success. Back to you, Brad.

Thank you, Jelaine, and we'll hear more on customer success from John Tan soon. Well, we have shown some solutions from 1 vendor, Microsoft. However, most solutions require multiple vendors. By combining the best solutions from multiple vendors such as Microsoft and Cisco, Data#3 is delivering the digital future.

I'm John Tan, the General Manager for our Infrastructure Solutions Business at Data#3. I've been at Data#3 for now 14 years and have over 22 years experience in the IT industry. I also have a background in accounting. I'm responsible for the Infrastructure Solutions, sales strategy and performance, strategic vendor partnerships and driving a great customer experience. I also represent Data#3 on a number of global advisory roles with vendors such as HP, Dell, Microsoft and Cisco. And as you've seen today, enabling our customer success is at the core of our strategy. And something I'm really passionate about is how we embed our strong customer success focus into our business. Today, I'll be covering what we're doing in the customer success phase. We are all consuming technology differently today to how we have done previously and how we consume services like Netflix or Spotify, these services are all based on subscriptions. They're also based on how we use these applications as each selection of a movie or a song then drives further usage and a better overall experience. Well, the same consumption models apply to the technology industry in selling the larger scale solutions to our customers, whether it's networking, data center or cloud solutions. And we, too, have seen a shift to new annuity and recurring revenue models and also how the technology is consumed. In terms of how real it is, well, Brem mentioned 62% of the Data#3 business is now under a recurring revenue model. Brad talked about our solutions and also how our vendors are making changes. Over 77% of our business today is based on our top vendors, and they are all heavily focused on customer success. Today, we're also talking about delivering the digital future. And key to that future is also about how we deliver these services. All of these shifts to new buy models and new delivery models are part of a global industry shift to focus on customer success and the life cycle. And let me explain what that shift is and how Data#3 is becoming one of the leaders when it comes to customer success. We used to sell large technology solutions, install them and then run on to the next customer. Our engagements have moved where our obligations run for longer and are more meaningful over time. And what this means is there's profit to be had throughout these engagements, whether they're subscriptions as a service, cloud or consumption models. And what's changed is how we consume technology as consumers is fast becoming how our customers manage their large-scale technology environments. So in a way, our role as a systems integrator has evolved. We used to pride ourselves on how strong we are technically. Now it's also about how much business relevance we can enable by using technology as a platform. And sure, we're still very technical, but increasingly, we're focusing on coupling strong business outcomes with our technology foundation. At Data#3, this has meant a fundamental shift in how we operate, how we organize ourselves and how we think about our customers. This change focuses further on customer outcomes. And from an industry perspective, this is known as customer success. Customer success can be mistaken as customer satisfaction. Well, it's more than that. Our customers are wanting more value from our engagement, and that's what they're telling us. Customers are also buying their subscriptions and want to ensure they get the most value from them. Customer success for us is purposeful engagement throughout the life cycle of any solution we sell. And this means we have a bigger focus on helping our customers use and adopt the technology. Our customers need to take full advantage of the subscriptions they've purchased, and our role is to enable that usage to take place. For example, you're all using video technology right now, and we're actively selling video solutions for large government and corporate customers today. And whilst we can install these solutions, we also ensure that we have an ongoing focus on training the end users, ensuring they're using all the features and benefits available. And by doing so, the customers may see benefits like reduced travel expenditure, providing a better linkage between colleagues and driving productivity up by, say, 20%. These are outcomes we're now seeking to further contribute to together with our customers. And doing this consistently and doing it well is something where we've been investing in building. Customer success is important to our customers, and it's also important to Data#3. The reasons include it's a longer-term engagement with our customers, it drives true business transformation through outcomes, it enriches our value above the great products we sell, it also uncovers additional and ongoing opportunities, and it drives longer-term profitability for Data#3. Customer success also means Data#3 success. By helping the adoption of technology, we can see at least a 25% increase in the value of services delivered over the life of a solution and significantly increase the chances of customers renewing with us. This really ensures we're driving towards that 5-year mark that Garrett mentioned in maximizing lifetime value with our customers. The economics also has a heavy investment side as its transformation of our business, too. So the cost of building customer success can be extensive, and doing it right over time requires a solid maturity plan and a focus on new metrics. We're now 5 years down the path of this journey, and I think we're on the front foot taking advantage of the emerging vendor offers. Our vendors are also acknowledging our progress and co-investing in Data#3's customer success capabilities. In terms of what we're building, we have pivoted our business to really connect our operations more to our strategy of driving customer success. And our customer success approach is all about driving a great experience throughout the entire life cycle. And some of the things that we've done to drive our customer success motion forward includes having a methodology around a customer success life cycle, creating and hiring new customer success roles with specific skills and focus. And a big component is the digital shift, so investing in platforms which ensure we drive the right activity at the right time. Bringing these to life also includes extensively using data and AI to drive these engagements. With the increase in subscription and cloud services sold, we can leverage more telemetry and data to drive more services and new offerings. We're also changing the way we consult and talk to customers around outcomes. Changing our digital approach and branding to align to a different style of engagement with our customers is also important. So our digital strategy is constantly evolving. We're doing these engagements today, so let's look at a great customer example. The Melbourne Cricket Club, founded in 1838, has over 103,000 members, making it the biggest sporting club membership within Australia. The MCC manages the stadium and has expanded its role as an entertainment center and a world-class tourist destination. The [ MCG ] now hosts more than 90 days of events, largely cricket and football each year, with attendance exceeding 2.5 million people annually. We provide MCC with a number of technology-based solutions, which underpin a strong focus on digital transformation whilst maintaining a strong focus on the customer experience. What's been important for MCC is our approach is centered around a business conversation based on outcomes to the -- around their large volume of customers visiting the stadium. Our customer success engagements are continuing with MCC and in driving the adoption of all technology we're providing, be it Cisco, Dell or any other technologies. And as you can see from the quotes, Ray talked about these outcomes delivered with Data#3 in a really positive way and how that's having the impact on MCC and the customer base. MCC is a great example of what we aspire to do across our entire customer base as well. Well, that's a very quick insight into customer success at Data#3. These changes have required company-wide transformation. And in some ways, we're forging our own path when it comes to driving maturity across these areas because it's also about playing to our strengths. Our customer success strategy focuses on building a bright future of repeatable business with our customers. Customer success is a long play. It's about investing in our customers for our longer-term engagement. It drives adoption of the technology we're selling and ensures that we have a more sustainable long-term profit model based on recurring revenue. Thank you for your time today.

Okay. Thank you, John. And thank you, Brad, Jelaine and Garrett. Great insight into our customers, our solutions and our vendors. Let's go back to Q&A with the audience. Kerry, are there any questions on the online platform?

Yes, Laurence, we've had 3 questions. The first question asks, how do you deal with risk when submitting tenders for large projects?

Okay. Thank you. I think, Brad, I think you're well positioned to maybe answer this one.

Thanks, Laurence. Happy to. Yes, we've had a tender management process in place for many years now. And one area of that is, in particular, important aspect is the executive bid brief. The executive bid brief makes sure that we go through looking at the risks associated with any contract that we may be looking at bidding on. And the areas in particular are the technical aspects, the commercial aspects and, of course, those legal aspects. So once we review that through the tender management process, then we're ensuring that from -- in terms of our project methodologies, we have the right governance in place throughout the contract itself. So we have some fairly mature processes in place.

Okay. Thank you, Brad. I think what I'd also say is, adding to that, as we grow our business, and we certainly have grown our business, the compliance also grows with us as well. And one thing that we're very conscious of, having come from, as you saw it right at the beginning, the humble beginnings of starting Data#3 in a garage, we still want to maintain our agility, our ability to make decisions quickly in the market and be close to our customers. So that is very important to us, but obviously adhering to compliance at the same time. So thank you. Kerry, any more questions?

Yes. The second question is, when you did the Q&A with our Brisbane team Invest group last November, I raised the issue of Dell competing directly with Data#3 for large customers. Has there been any change in Dell's operations since then?

Okay. Thank you. I remember that presentation. I'll throw this one over to you again, Brad. A starting point.

That's fine, Laurence. And no, a good question. Dell has a model in Australia where they do have a direct go-to-market for some customers and also a very mature partner model as well. So the short answer is, no, the model hasn't changed. However, we do spend a fair bit of time with Dell planning where we go to market, which territories and what solutions we take to market with them.

Okay. John, do you want to add anything to that? Or...

Yes. Well, I think given the partnership that we have with Dell, we have some great success. And even though the model is mixed in terms of its approach to customers, we have seen a great level of success and performance with Dell over the last 12 to 18 months. So I think the partnership is stronger than ever, and it's an integral part of our vendor strategy.

Okay. All right. Thank you. I've actually got a roundtable meeting with Michael Dell next week. I'll ask him the same question. And hopefully, Dell will start to see the light in terms of increasing their channel business. Over the years, they certainly have done, and we've been working with them and leading the way in many respects in the Australian market. So I think that we'll see more of that as we go forward. Thank you. Kerry, any more questions?

Yes, there are 2 more, Laurence. The third question says, can you elaborate a little more on co-investment with partners? What kind of programs and why are the vendors so motivated to invest?

Okay. On that one, Brad, do you want to kick off with that one, and we'll see how we go in terms of the question -- the answers?

Absolutely. Yes, with the co-investment with partners is an integral part of our whole go-to-market. So the transaction for either the hardware or the software, that's just one small aspect of the overall customer relationship. So when we're investing with our vendors, jointly, it can be in our skill sets in terms of ensuring that Data#3 has the ability to deploy the software for our customers to adopt the software and use the software. And then there's other models where the customer is actually investing directly in the customer through additional investments post sale. And then Data#3 is working with the vendor and the customer to implement those solutions. So there's a lot of different models in terms of how the vendors will work with us and co-invest in skills and resources and solutions really.

Okay. Thank you. And John, do you want to add anything just in terms of maybe some of the changing programs at the vendors? You touched on it in your presentation.

Absolutely. As Brad mentioned, there is investment there, and there is -- some of it's programmatic, and some of it's ad hoc. Our vendors are going through significant transformation and a shift in their strategy as well. So we're finding out together what does that mean in terms of engagement with customers differently. So investing in data or investing in platforms and investing in the life cycle are certainly areas that they're focusing on. And they're looking to us to share in the different style of engagement, and that sometimes requires condensing what is longer-term transformation into a shorter period of time. So it's an exciting time. And very much our role is working with customers, understanding what's changing there as well as working with our vendors and provide that insight.

That's great. Thank you. I think what I'd just add to that is it's -- from our perspective, it's great that our vendors are focusing on the long term and the value that we're providing and recognizing the value that we've been providing our customers for many years. And so for vendors to get behind us in terms of those long-term strategies, we see this as an excellent move in an excellent direction. So Kerry, any more questions?

We have had some more coming, Laurence. Yes. This question asks, could Brad please talk to the shift in Microsoft rebates, shifting from product sales to services, and whether this is simply profit shifting from one part of the business to the other, or is it a net benefit to Data#3?

Okay. Well, as the question was directed to you, Brad, you might as well have the first go.

Thanks, Laurence. It's -- look, the transition from the actual transaction to the services has been occurring from Microsoft, in particular. I think the question was directed around Microsoft for quite some time, actually. And so we have been evolving our certifications and skills. The Microsoft Azure Managed Service Provider certification, for example, is one example of that, where rather than just providing the software, the Managed Services certification is an example where there's funding from Microsoft to ensure that rather than just selling the software or deploying or consuming the software, that we're helping the customers to manage the environment ongoing. So I guess, we are seeing a shift of rebates or incentives and funds to those service offerings. And overall, it's -- I mean to say, is there a shift from the transaction to services, essentially, it is. But overall, it's maintaining profitability. And in fact, because there are so many Microsoft products in market now and being consumed by the customers, it's actually more of an opportunity for us to leverage off that licensing base and help our customers consume through the services. So it's actually working in our favor.

Thank you. Thanks, Brad. Kerry?

The final question is, what is the road map for your key vendors? And how do you align with those to further consolidate these key relationships?

Okay. Thank you. I think that flows on probably from the last couple of questions, so it certainly complements those questions. John, do you want to kick off on that one?

Yes, sure. Over the last few years, we really focused on our core vendors and going deeper with them around our investment and their investment in us as well. So those core vendors remain key to our strategy and key to our road map into the future. In terms of consolidating, I think they all have their own strengths. They all have their own strategies. And we're well accustomed to those. So we've got a good eye on what those strategies look like, our role in delivering solutions to our customers. And yes, we constantly review what is the right approach from a vendor perspective moving forward, but we remain very, very committed to the core vendors that we've got. We've also got a long tail of vendors and at least over 120 others that we transact with. And so there's constantly a movement of different technology vendors coming in and out. But we think the mix we've got right now is where our customers need the most help in terms of technology.

Thank you. Thanks, John. And just maybe elaborate maybe, Brad, if you could maybe elaborate with some of our core vendors. In terms of the road maps, our access to some of the -- those road maps. We're working very closely with the global leaders of those organizations through Advisory Boards, maybe you want to elaborate?

We've been fortunate in being included in a number of, not just worldwide partner Advisory Boards, which is really important from a strategy perspective, but also local Asia Pacific and Australian Advisory Boards as well because the vendors will set the strategy at the highest level at corporate level. And then how it's implemented within region as well also makes a difference. But it is very valuable for us. In terms of the technology road map for Microsoft, for example, I talk about the 3 clouds: There's Dynamics, there's Microsoft 365, and there's Azure. And there's a whole bunch of programs underneath those 3. With Cisco, for example, which John is obviously very familiar with through the infrastructure business, Cisco is very much moving to software defined, software-defined networking. So what we've been able to do there, for example, is leverage a lot of the intellectual property that we've developed over many years of being very good at Microsoft software and leveraging that into the Cisco space. So understanding the vendor's technology road maps is very important for us because then we can marshal our resources in the right direction to ensure that we help our customers.

Thank you. Kerry, you said no more questions?

There are no more questions, Laurence.

Okay. Thanks. Thanks. Now let's move on to another short 3-minute customer story and customer story with Surfers Paradise Surf Life Saving Club, about their Microsoft 365 migration. And after this short video, we'll then rejoin the presentation agenda. We're starting with Michael Bowser talking about all things security. So thank you. [Presentation]

Welcome to another delivering a digital future presentation from Data#3. This segment talks to what Data#3 is doing both internally and externally with cybersecurity. I've been with the business for 34 years. I had extended periods of time with technical sales and management roles in the business. What I hope to do in this short presentation is first give you a context on cybersecurity while offering a simplistic perspective on the topic. And from that point, I'll talk to some of the reasons for customer demand. And hopefully, that will make the opportunities for Data#3 that I talk to a little more clearer. Finally, I'll provide a short summary of what we're doing internally regarding cybersecurity. My overall objective is to leave you with a sense of what this complex topic consists of and how we're approaching it in the market. The simplest explanation I could come up with to provide context and use a visual to explain cybersecurity was a bit of a challenge. The topic can be complex to capture everything. It starts, however, with understanding what key assets of the business are. These assets consist of data application, infrastructure, people and reputation. All of the assets have vulnerabilities, weaknesses, if you like, to all kinds of cyber threats, threats such as corruption, theft and ransomware, just to name a few. When you identify these vulnerabilities and the threats, you've actually identified the risks to those assets. To convent the risks, there are basically 2 types of controls employed, governance and technical. Both are equally important. Governance ensures policies and processes in the business are organized and correctly followed. Technical controls or security technology, if you like, enforces those policies and processes, empowering an organization to identify, protect, detect, respond and recover from threats. I often refer to them as the rules and tools in the business where one cannot work properly without the other. And finally, their standards such as the ISO 27001, which provides businesses a best practice guy to implementing the governance and technical controls. Hopefully, that context, the next few slides will make a little more sense. Data#3 provides security selections to its customers across all industry verticals. And in doing so, I understand many of the considerations that the organization face. The demand for cybersecurity solutions is increasing and driven by many factors. Our customers know the threats are real. Many are also aware that these threats are becoming more sophisticated and targeted. You're going to have to read the news to understand the devastating impacts that cyber threats can have on individuals, companies and countries. Cybersecurity is neither simple, nor cheap, and customers are faced with the decision of balancing costs of implementing the necessary cybersecurity control to ensure they are safe and they're taking resources they need with the commercial constraints of their business. Each customer has a different level of maturity in how they approach cybersecurity, determined by the understanding of the risks they face and the tolerance to those risks. When these are known, they're able to form a level of priority in their organization. Customers typically, knowingly or unknowingly, then set a benchmark for their cybersecurity approach and then spend to the necessary investments they've determined they need. We find that most customers are working to be prepared for cybersecurity events by understanding their assets and what they need to protect. Using the benchmark and what they believe they need, they will typically then prepare and invest in their cyber defenses appropriately. Adding to the challenges of costs and preparing cyber defenses, all organizations, including Data#3, are faced with staying up to date. This is key. Technology is constantly evolving. It's a game of cat and mouse. As threat actors update their methods, technology must evolve to protect organizations. The opposite is also true. As protection technologies evolve, so too the threat actors' methods. If customers have an old technology that don't stay up to date, they potentially had an increased risk of an attack or breach. Finally, compliance is another area that drives the demand for cyber. Many of our customers have multiple standards of the frameworks that they need to comply to in order to do business. This can be a significant impact on the customers' cybersecurity strategy and can affect all items that I've spoken to in this slide. With some of these challenges that I've mentioned, you can imagine there's a significant opportunity for organizations who are able to assist customers with cybersecurity solutions. Data from our customer survey reporting saw cybersecurity has been the #1 priority for customers for the last 7 years. So working with the simple context of security that I've spoken to and the challenges facing our customers hopefully now made some sense on where the opportunity is for Data#3. If you look at the graphic on the screen, I've used part of the National Institute of Standard and Technologies, it's often referred to as NIST, cybersecurity framework to help explain how Data#3 is able to assist its customers. In the middle of this graphic are the terms identify, protect, detect, respond and recover. Paraphrasing the definition of these terms, identify is understanding the key assets and how to manage cybersecurity risks; protect is applying the appropriate safeguards to ensure the delivery of critical services; detect is a identifying the occurrence of cybersecurity events; respond is taking action after a detected cybersecurity event; and recover is maintaining plans for resilience to restore any capabilities or services that were impacted during a cybersecurity event. Clearly, there's more to this framework. However, for the sake of explanation, you can see that Data#3 is broadly able to provide all products and services for all of the areas of the cybersecurity spectrum. A typical example of a customer utilizing Data#3 security solutions in a life cycle goes something like this. Customer may call us to help them understand where their cybersecurity gaps are. We'll offer the services of business aspect, our consulting arm, to engage them and assess their organization from leadership to policies and processes, resources and technical controls. Once the assessment is made, BA may recommend some priority steps, but will offer a systematic process for creating and building on the foundations for governance controls and engaging our security practice for options around their technical controls. From that point, the solutions begin to work in parallel. Infrastructure and software teams are able to advise and recommend technologies to meet customer objectives from the many different options we have access to. Assisting our customer are the professional services teams, who will implement the technology, and our Managed Services teams, who can offer solutions in operating the technology, such as monitoring services. BA will also continue to review and provide advisory services as the maturity of the customer progresses. Other technology solutions sold to the customer will also be evaluated for their security features and how these features add to the overall customers' IT architecture. To give you some sense of this opportunity, Gartner estimated the Australian market spend in 2021 for information security and risk management, technology and services will surpass $5 billion. In summary, security is pervasive in all technology and across all parts of an organization. Each of the Data#3 business units are well placed to their security solutions for customers in their respective technology or service domains. The challenges of our customers are equally the same for Data#3 and many other businesses. My last slide talks at a high level or what Data#3 is doing with its own security. I mentioned previously that each company looks to understand what their benchmark is for security investment, balancing their asset risks, their tolerance for risk and the cost for protecting the business. At Data#3, we set a high benchmark that we wish to establish and then continue to maintain. Staying up-to-date is key, as I mentioned before, and to ensure the investment is continually improving for the reasons I've previously discussed. To that point, we're currently implementing a significant security program of work to uplift to the new benchmark we've set ourselves. We're consistently looking at tried-and-tested ways to improve our cybersecurity posture across the business. We've put in place the cybersecurity committee that conducts the role of the Chief Information Security Officer, or CISO, which oversees the governance and technical controls we have in place for all of our business units. An example of this is the introduction of Data#3 Defend. It's our new internal training and awareness program. Of the many threats that exist, the unauthorized access to organization is often through stolen credentials of techniques, such as phishing. Our training is designed, for example, to test and teach our staff to watch for the sophistication of these types of threats. From a sales perspective, we're continually training our teams to ensure cybersecurity is in their day-to-day narrative. We want our customers to know whatever technology solutions they're buying from Data#3, it has a security element to them, and we can help them. I hope this brief presentation gives you a perspective on cybersecurity and how we're approaching it. It's obviously a high-level summary given the allowable time to present to you, but thank you for your time today.

Hello. I'm Carlos Gouveia, and I'm the General Manager for Victoria and Tasmania at Data#3. I've been fortunate to enjoy 25 years in IT industry, 10 of which have been with Data#3. In addition to my regional responsibilities, I have the privilege of leading our whole company focus on accelerating our services growth. Services is centric to our overall strategy. And today, I'll be covering aspects of our operating market and the great work that the team is doing to deliver the digital future. The focus of our services strategy aligns to our core purpose, ensuring customer success. Maybe today, you would have heard from Laurence that the latest projections by IT research firm Gartner is that the global IT spend will increase by 5.5% for 2022. An area of expected accelerated growth is in services as organizations work towards modernizing underlying systems in their journey to digital transformation. Let's take a closer look at these drivers. Organizations across public and private enterprise are grappling with a raft of transformation demands to remain relevant and safe. The COVID-19 pandemic has certainly added to the complexity on what the future of work needs to look like. Most organizations have implemented virtual communication systems, but now need to maintain them and secure them requiring specialist knowledge. Getting effective virtual collaboration has been hit and miss in the market as organizations that were further behind in their digital transformation have tried to accelerate their progress. The move towards better governance and security has also contributed to a need for consulting and specialist services capabilities. The business needs to innovate, adapt and scale IT capability to meet customer needs has put significant pressure on in-house IT skills. Gartner has forecast an 8.6% growth rate for IT services globally, which is higher than the overall IT market growth. The fastest-growing technology market segments are both aligned and complementary to Data#3's focus and capabilities. Data#3 is well positioned to address these areas of services demand. Let's switch focus to the supply side of equation. Like many other industries, the COVID-19 pandemic has reduced our national ability to attract skills from other countries into Australia. Australia's ability to organically meet the growth demand of IT skills is also not keeping pace with demand. Earlier today, Tash Macknish, our Group Manager for OD and HR highlighted the initiatives and steps Data#3 is taking to grow the talent pool at 6% growth versus the industry annual growth of 4.3%. This demonstrates that our culture and approach to staff well-being has been recognized as a key differentiator for available skilled people. But this only covers some of the demand we are experiencing. And a little later on in my presentation, I'll spend time articulating some of the key differentiators in the IT services space that is helping our customers scale to meet these demands. John presented on the details of our customer success life cycle and how our customers are gaining better value from Data#3 as we help them use and adopt the technology for its maximum benefit. Each customer has different internal IT capabilities that may map to the entire life cycle or may only map to certain phases. This will also change from one technology to another even if they have all the capability, the capacity to address all their business requirements is not sustainable organically. Data#3 is on a continual innovation cycle to ensure our services meet customer demands and requirements. Broadly, our customers will draw on 3 towers of service, namely, consulting, project services and support services. Within each of these towers are further layers of specialist skills that support our company go-to-market strategy that our customers can draw on at any point in the customer success life cycle. Data#3 continues to invest in people, technology and processes to ensure consistent delivery capability, giving our customers confidence in their partnership with us. No matter what the circumstances, we always encourage, support and recognize our staff to live up to our core purpose to ensure our customers' success. Data#3 continues to invest in our people, technology and processes to ensure a consistent delivery capability, giving our customers confidence in their partnership with us. No matter what the circumstances, we always encourage, support and recognize our staff to live up to our core purpose: To ensure our customers' success. Our customer feedback via regular surveys indicates that Data#3's flexibility in services engagements is working and something that differentiates us. They're more likely to engage Data#3 in more of their services requirements as a result. Whether they need their team augmented for a period of time, a critical project outcome delivered, a packaged service to accelerate their governance capability or a customizable managed service to operate all or part of their landscape, Data#3 is there to help them achieve their goals. Microsoft's exponential growth in cloud-based solutions, such as Azure, Microsoft 365 and Dynamics 365, is well documented. That growth has stretched beyond many organizations' ability to resource against. Data#3 was selected by Microsoft to be part of a handful of Australian-based partners that could demonstrate the investment required to live up to the high standards of services required to be a trusted outcome partner. Once the Azure Expert Managed Service Provider certification is achieved, it is then audited regularly to ensure no degradation of service. Customers are recognizing the value of this certification and the risk reduction to their business. In recent tenders, customers have required responding parties to be Azure Expert MSP certified as a mandatory requirement. Data#3 sees great opportunity in being the trusted digital transformation partner across the Microsoft Cloud portfolio. Enterprise software growth is forecast by Gartner to grow by over 11% despite significant growth brought on by the COVID-19 pandemic. Customers are now trying to regain control of what they've deployed or used in platforms like Microsoft Azure, but are struggling to deploy the third-party tools and processes required to do this. Data#3 has developed a number of packaged services that customers can leverage quickly to give them more control and security of these environments. These packaged services are quick and easy to initiate and typically help customers uncover other issues that Data#3 is able to assist them with. Waiting for a governance or security service to be effective in a few months is no longer an option. For most of our customers, partnering with Data#3 is about achieving critical services success at scale with an Australian-centric company that is committed to their success. So I mentioned at the start that I'm leading a team for our whole of company focus on accelerating our services growth. What does that look like? And what are we trying to achieve? At first glance, the tiered water feature might seem a little out of place, but indulge me for a few minutes and visualize Data#3's business as a tiered water fountain in terms of our lines of business. You'll notice that all the tiers are connected with each other and that each tier contributes to the overall growth of the business and the tiers around it. Our team is trying to drive all tiers to fill up quicker and grow by focusing on a few services that get the flow going into the rest of the business. We believe we will achieve this by accelerating the following 3 areas: firstly, solution development that addresses security and Microsoft Cloud customer requirements; secondly, packaged services offerings; and third, consulting and broadening our Managed Services. Thank you for attending this session. I look forward to our Question-and-Answer Session.

Okay. Thank you, Carlos, and thank you, Mike. I never thought I'd see a tiered water fountain presentation in Data#3 Investor Day, but thank you, Carlos. Great example. Let's now rejoin with the audience and our final Q&A for the day. Kerry, are there any questions?

Yes, Laurence, we have quite a few questions. The first question asks, what or who is Data#3 generally replacing on new Managed Services contracts?

Okay. That's -- it's an interesting one. Mike, I'd get you to give some perspective on this. Before you do, maybe if I put some context around my initial answer in terms of Managed Services. We've be aware over many years, and you've seen through the presentation, that we're investing a good deal of time and effort in rebuilding and reinventing our Managed Services business. It comes from and our focus today is more around the smaller contracts, more around the complementary contracts around our vendors. And some examples of the successes that we're gaining in the market today, if I maybe provide one example is the South Australian government. For many years, the South Australian government has outsourced all of their IT to a large multinational organization. They've just this year have now broken that down and not really got the outcomes that they needed with one singular contract to one organization. They've now broken it down into multiple components, into more manageable components to get a better outcome. From our perspective, that's exactly the sweet spot in terms of where we are aiming our attention is smaller contracts where we're able to provide greater value to customers. So Mike, do you want to add anything more to that just in terms of some of the other?

Yes. Thanks, Laurence. So I think some of those customers, they want to break away from the broader view, as you just said. You probably answered the question actually. They're looking for some focus areas, so we fit nicely into that slot where we can focus onto those smaller parts of what those customers are looking for. And I think there's another set of customer that is trying to get out of the smaller service providers and into others that are, like Data#3, that are a little bit more mature about how we go about our business.

So again, I mentioned earlier, our focus is on maintaining our ability to be agile and to make decisions quickly and serve our customers quickly. We see a great competitive advantage against the multinationals, so it's something that has been with us for many years and will continue to be with us for many years to come. So Kerry, any more questions?

Yes. The next question is, what synergies are there between services, consulting, security and data management? And how does that provide Data#3 with a competitive advantage?

Okay. We're onto a competitive advantage again. Carlos, this may be something akin to your tiered water fountain. How about answering that question?

Thank you, Laurence, and hello to everyone from a sunny Melbourne. I think there's a very strong connection between these services and these technologies, and they all have strong complex integration points and requirements. We've got -- Data#3 has got skills across all of these disciplines. And sometimes, our challenge is to engage the customer in the full life cycle as they're potentially trying to do some of those components themselves or different partners. I think the advantage that Data#3 can provide is the largest solutions and the scale for us to be able to address those as well as being able to work with niche providers to provide the customer with a complete outcome. And I think, honestly, from an unrivaled in-country service capabilities is one of the key things that customers look at us for and would certainly make it very difficult for new entrants into the market to compete with us in that space. Data#3 is the largest Australian owned IT service provider in revenue terms. Thank you, Laurence. Back to you.

Okay. Thanks very much, Carlos. Kerry, any more questions? I'm sure we have.

We do. We have a few. This next one asks, given the massive undersupply of new IT roles, what is Data#3 doing to fill the supply gap with new overseas hires now that borders are slowly reopening? Do you think that Australia and Data#3 can be the destination of choice for skilled candidates?

Okay. Thank you. Destination of choice, it's great that we've got a question around our people. So Tash, how about answering this one?

Thanks, Laurence. Thanks, Kerry. Great question. Still, obviously, the boarders are still opening. We're still waiting for them to completely open. Pre COVID, Data#3 absolutely was a supplier of skilled resources from overseas candidates, and that has obviously the digital skills market globally has been impacted by border closures. We are excited about the borders opening and are continuing to work and support with avenues overseas looking at -- talking to our migration consultants, et cetera. So we absolutely believe that the border's opening will help to fill the gap in our skills shortage market. I hope that helps.

Thank you. Kerry?

Laurence, Brem noted an expectation of GPM and GP -- sorry, GPM dollars and GPM percentage rising. Is this margin lift a realistic expectation in FY '22 and FY '23? Is the improvement in GPM anticipated to a slowing in software sales or acceleration in services revenues with a higher margin?

That's; a great question, and I think it's directed at you, Brem.

Great. Thank you. The short answer is, yes, we are -- we do expect to see improvement in the gross profit obviously dollars, but also margin we'll see that in FY '22 and then continuing in FY '23. The mix will shift a bit. So just the second part of the question, we don't expect the software revenues to grow as rapidly as they did in FY '21. That was abnormal. The growth was something like 27%, yet our services growth was more around the 10%. So what we'd expect moving forward is that software growth will probably come back to more sustainable levels, and our services growth will pick up higher than what it has been in FY '21. So the combination of those 2 changes will definitely see an improvement in the gross profit dollars and margin.

Okay. Thanks, Brem. Kerry, any more questions?

There are, Laurence. The next question asks, how was your proportion of recurring revenue changed over time? What proportion of revenue was recurring 3 to 5 years ago? And what will it look like in the future?

Okay. Maybe if I have a go at answering that one. The -- as you heard through the presentation probably several times today, 62% of our revenues are recurring revenues. And if we go back maybe 3 to 5 years, it was in the high 50s, so 58%, 59%. What we've been able to do, and as you've seen with the shift in our focus within our business, is almost every year shift that needle a percentage, so almost 1 percentage each year. So if you go out for the -- maybe in the next 5 years, it could well be looking to achieve a 67% recurring revenue. That's probably the best that we can do to answer that question.

Thank you, Laurence. The next question, and this is the final one that I have for today, asks, what are your targets for growth in Managed Services contribution over the next few years?

Okay. I'd say that's a great question. I'll pass over to one of my colleagues. How about Brad, would you like to have a go at that one?

Thanks, Laurence. Yes, absolutely. We've been investing quite heavily in our Managed Services operations, including the support platforms that we have to deliver on our services to our Managed Services customers. So we're expecting that we will see quite good growth over the next few years with our Managed Services offerings. We've also, I guess, tailored our offerings very specifically to provide some Managed Services offerings around the Microsoft products, like Microsoft Azure and also M 365; again, on the Cisco area around managing the software-defined network, for example. So what we're going to see is probably different levels of growth overall based on the different offerings that customers are choosing. However, we're expecting very good growth over the next few years in Managed Services.

Okay. Thank you. I think just in addition to that, and it's something which I'm sure many of you will be familiar with, but in managed services, it gives us the greatest opportunity for operating leverage, meaning we've got -- as Brad said, we've invested a lot in people, systems, around processes as well. And our aim certainly this year and next year and the near future is to bring on board as many new customers as possible obviously under the risk parameters that we described before. And once we do that, we'll -- our aim is obviously to lift our margins.

Thank you, Laurence. We have had a final question come through the platform. This question asks, given the cost involved with your new ERP system, what do you anticipate to be the financial payback on the multimillion-dollar investment for this ERP upgrade?

Okay. Thank you. I think as you're well aware, we have made significant investments and continue to make multiyear significant investments in the ERP system. And this year is the final year in terms of the implementation. So in terms of the payback, Brem, would you like to give a...

Yes, sure, I'll have a go at that one. It is actually hard to be specific about the payback. The -- but maybe if I just give a bit more detail to what we are doing, so this has been probably a 4-year project to get a complete replacement of our core ERP system, and that's based on the Microsoft Dynamics platform. So that program is scheduled to complete late or around about the fourth quarter of FY '22. We will have incurred a fair over the term, probably about $4 million worth of expense, and we will have about $6 million capitalized at the end of that period. And we will then amortize that capitalized cost over the next 5 years, which is what we thought is a probably pretty conservative view of the project benefit term. The payback is going to come in so many different forms. It's actually quite difficult to be specific. And it will be a gradual build of the payback. So day 1, we are not expecting significant improvements in terms of productivity. There's definitely enhancements in certain areas. But the key benefit is that we are on a much more flexible and stable and secure platform than the current system. It then gives us a whole lot of opportunity to modify and make that system more flexible to provide greater functionality that will improve the productivity of our people and give our customers a much better interface with -- interact with Data#3. So the payback will build over the 5-year term, but I cannot be any more specific than that.

Okay. Okay. Thank you. And what I'd also say and to date, and I certainly don't want to speak too soon, however, it is one of the great examples in terms of transforming our business into a public cloud environment as well. So obviously, we're helping our customers to do that on a day in, day out basis. It's also great that we as a business are doing that and are doing similar work that we are advising our customers on. So it's something which we're certainly looking forward to having a stable, secure and robust platform going forward. Okay. Kerry, any more questions?

There are no more questions from the audience, Laurence.

No more questions. Thank you. So that just about wraps up the agenda, and I think we've done it in a reasonable time frame as well. So thank you very much for joining us today. We certainly hope that you found the content valuable and engaging, gave you a better insight into our business, as we said at the beginning, a deeper dive into Data#3. Now you've heard from 10 separate presenters over the past -- this morning, and it's given you the opportunity to ask questions that you've had, and we've had many questions of many in varied. And it's -- from a personal point of view, I normally and Brem normally get to share the load of the questions over many years in terms of working with investors. So it's been great to be able to share the load with my colleagues within the business. So thank you very much. Thank you for the questions. Thank you for my colleagues that have put together the presentations. And thank you for your time and support of Data#3. Have a wonderful day.