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

Good morning, everyone. Thanks very much for joining us at our Investor Day. A lot of very familiar faces. And hopefully, you got something from that video, just a little bit more in terms of what we actually do. We get asked that question quite frequently that I get that -- asked that question quite frequently for my family. What is Data#3? What do you do? And what does Data#3 do? And anything that we can do to provide you more information about what we do is important. And today is certainly very much along that line. We and -- Cherie and I do many meetings with many of you in the room today in terms of working through operationally what we do and what our strategy is. Today is all about having a deeper dive as far as what Data#3 does. And that's certainly one of the objectives. The other objective today is for you to see a few other faces as far as the executive Data#3 is concerned. So we've got a range of Data#3's executive team. Actually, on that note, we've also got a management transition as well. Many of you may have heard that I'm transitioning out of the CEO role. We're working through a 4-month transition. I'll be handing over the baton to Brad Colledge, who you're going to be seeing, in fact, a lot more of over the next little while this morning. And the -- certainly, hopefully, you'll see that the management transition will be a very smooth one, and we're very confident in terms of what the long-term future of Data#3 is. In fact, I'm so confident as well in terms of handing over to Brad. He's a relative new boy to Data#3. He's only been with the business 28 years and have been -- certainly been a pleasure working with Brad hand in hand in terms of growing the Data#3 business over that period of time. So you'll see a lot more. In terms of the agenda today. I'll also be passing over in a moment to Mark Gray, who is our new Chairman as of the AGM from 2 weeks ago. Mark took over as the new Chair. And Mark isn't necessarily a new boy either, being with the business 6 years as a Nonexecutive Director. The -- once -- and Mark will be handing over to Brad, who will be providing an overview and our strategy just to an understanding from the top and from the top down, which hopefully will then feed into a lot of the other presentations that you'll see on the agenda as well. The agenda is broken into 2 parts. So we'll end up with the first session with Cherie, who will provide financial insights and touch on ESG as well. We'll then move into the area of artificial intelligence, which I'm pretty sure there will be some questions on artificial intelligence. And Graham Robinson, our CTO, will be covering all things AI. So if you've got any questions on that, we'll be rounding up with a Q&A session at the end of the first session. So not at the end of the individual speakers. So we'll collectively handle the Q&As at the end of the first session. We'll then have a morning tea break outside. And hopefully, some wonderful tea, coffee and wonderful food as well and -- by courtesy of JPMorgan, so thanks very much. Then we'll move into the second session. And John Tan, our Chief Customer Officer, will be talking all things customers. Then we'll go back into AI but AI from a different lens. We've got Steven Worrall, who will be joining us. He has some time restrictions, but he will be joining us for the second session. Steven Worrall is the Managing Director of Australia and New Zealand for Microsoft, and he'll be covering Microsoft and, in particular, the role of Microsoft with artificial intelligence in the market as well. We'll take Q&A when Steven is presenting as well because we'll take Q&A after he presents rather than waiting to the end of the session 2, as Steven's got some time constraints. We'll then move into the people section. And Brad Colledge will be coming back to the stage, presenting people. We originally had our Head of HR and People, Tash Macknish, down for this, but unfortunately, she's unwell, COVID-related, and I'm sure you'll understand. And Brad stepped in. So thank you, Brad, for doing that. And we'll then round out the session 2 talking about cybersecurity and one of the -- and it is the #1 topic of our customers as well, that and AI, but also the relationship with AI and security as well. And Richard Dornhart, the Head of our Security Practice, will round us out on session 2. We'll then go into Q&A and have all the presenters available for questions, and then we'll break for lunch. And we'll -- the time as far as the Q&A is concerned, we'll be out of this room by 1:00. So that's the agenda for today. On that note, I'd like to welcome Mark Gray. So good morning, Mark, and welcome.

Thanks very much, Laurence, and good morning all. Great to see you. Thanks for being here today and especially thanks for your interest in Data#3. Laurence has gone through some of the changes that have recently occurred. And I'm delighted to be here in my new role as Chairman of Data#3 since the AGM as Laurence indicated, following the retirement of Richard Anderson, who was in the role for some 23 years and on the Board for some 26 years. So enormous effort by Richard, and I'd like to just acknowledge his enormous contribution to the company over that long period of time. So I've been on the Board for 6 years, as Laurence mentioned, so I'm hardly new there. But in terms of the 28 years of Brad and still serving [indiscernible], I do feel like a relative newbie. But the 6 years has been an interesting journey. Over that time, I've also been Chair of the Nomination and Remuneration Committee. And as Laurence indicated, he's stepping down from his role, and Brad is taking over. This is all part of a very carefully planned and managed strategic succession planning process, which started several years ago with the appointment of Cherie as the new CFO and now transitioning into the new Chair and new CEO, MD roles. So it's never an ideal time to make these sorts of changes. But this time is probably as good as any. We've got significant momentum in the business, and that's reflected in our strong financial performance for FY '23 and also reinforcing our recent update at the AGM on our first quarter performance and also on our first half projections. In September, we're also delighted to be included in the ASX 200 for the first time, and it's a significant milestone in our journey as an ASX-listed company. We're operating in a growth market for large corporates and government customers, and our pipeline for large integration projects remain solid. Data#3 is ultimately built on great experience, culture and tenure. And we have significant longevity across the team very generally. We want to take this opportunity to reaffirm that our strategy -- despite the changes at the top, the strategy remains unchanged. Strategy is fundamentally sound, and there's enormous value in continuity, consistency and stability of our strategies. Our strategic framework continues to be underpinned by a focus on customer success. As far as we're concerned, the more successful our customers are, the more successful we become. Our strategy also revolves around having the best people and the most secure, scalable and innovative solutions in the market whilst operating our business as efficiently as possible. We'll continue to focus on accelerating growth in services given this is the fastest-growing area in the market. We've seen strong performance in higher-margin areas of Consulting and Managed Services, and this has helped stabilize the overall blended gross margin of the business. Brad and I have both been involved in the development and evolution of the company's strategy over the last few years. So we both have a strong commitment to and ownership of that strategy. I don't -- I certainly don't see the need for significant changes to that strategy. Any change is likely to be incremental rather than substantive. In my experience, issues tend to arise in the execution of the strategy, not in the strategy itself. And there are certainly areas where we can improve in execution, and of course, as the market evolves, we'll evolve as well. Along with my fellow Directors, we will be reviewing Board composition to ensure that we have the right mix of skills to see the company successfully through the next chapter and as Data#3 continues to grow and change with the market. I'm encouraged by the momentum within the business and the significant growth runway ahead. The market opportunity remains substantial. The IT market continues to grow both domestically and internationally as decision-makers increasingly seek automation and opportunities for driving greater efficiencies. Gartner has forecast the Australian IT spend to grow 7% in calendar 2024 to exceed $133 billion, led by digital investment programs. We're ideally placed to deliver much of that growth. And I'll now hand over to Brad to discuss our strategy in more detail, and I look forward to meeting many of you during the course of the day. Thank you.

Good morning, everybody. I met a few of you at this time last year. So a few was here last year. And so we have a few new people. It's going to be great to get across you all over the years to come. And so I thought I'd kick off with -- just before we get into the Data#3 update and strategy, just a little bit more detail about me since you're going to be stuck with me for a few years to come. So let's kick off a little bit of the background. So I completed my business degree in Brisbane at QUT, and I started my IT career here in Sydney just across the bridge in North Sydney working for NCR Australia. Do you want to know what NCR stands for? National Cash Registers. National Cash Registers is arguably the oldest computer company in the world, and when I say arguably because if you Wikipedia it, it says that IBM is. A little story there is that John H. Patterson who started NCR actually had this gentleman working for him. And he ended up firing that gentleman in about 1914, and he went on to set up IBM, which became the biggest computer company in the world. So I started with the oldest. And then after a few years with NCR, I moved back to Brisbane. I spent a few years with a software and services company before joining Data#3 in 1995. So Laurence hired me to look after, amongst other things, this new thing that was called Microsoft Volume Licensing. So we started the Software Licensing team at the time, which is now Software Solutions, and that business is now over 150 people but, more importantly, produces over $1.5 billion of our $2.5 billion in revenue. So that software business has certainly been incredibly successful and continues to be. So over the years, I've been a General Manager of Infrastructure Solutions as well, having responsibility for our services sales and services delivery and various other functions across the business. In my current role as Executive General Manager, I also have involvement with the strategic planning, as Mark said, also a member of the strategy team and senior leadership team, so just confirming. As Mark said, we have a very sound strategy. And as the market evolves, we'll continue to evolve our strategy to maximize the opportunities in market. Our culture is second to none, with our team focused on our core values, and we'll -- actually, I'll talk about that. Tash won't talk about that a little later, about HEART, which is our core values around honesty, excellent, agility, respect and teamwork. We'll talk about that in the People section a little later today. We have a great team. The market has plenty of potential, and I am excited of leading our team into the future. So that's enough about me. Now let's introduce you to Data#3, if you are new to Data#3 and update you if you are familiar with us. So we have 46 years in business. And we just had our 46th birthday last week. So not quite as old as NCR. We now have revenues of $2.5 billion, and this is seen across our lines of business -- so let's just move that slide down. Across our lines of business of Software, Infrastructure and Services. And of course, we have our Business Aspect, which is our fully owned consulting business. We listed on the ASX in 1997, which was one of the first Australian IT companies to do so. And as Mark mentioned, we are recently now into the ASX 200. Now have over 4,800 people across our technical sales, marketing and administration roles and 9 locations across Australia and the Pacific. And what those 9 locations allow us to do is to work with our customers, stay close to our customers to help them execute right across the region. Our customers do range from federal, state and local government, large commercial customers and smaller corporate customers. We've had great success as well across our industry focus with education, health, mining and construction. So as Mark said, the Gartner say this year in terms of FY '24, it started off at 5.8% growth, and they've updated that to 7.8% for next calendar year, so a growing market. You're going to hear plenty about artificial intelligence or AI, as we'll call it this morning. And there's a reason for that because there's plenty of opportunity that presents not only for the industry but also for Data#3. This time last year, you may remember that like many industries, we had challenges with supply chain, and this has improved significantly, which means that we have more current stock for our customers rather than our warehousing configuration centers filling up with stock that's waiting for that last piece to arrive before we can ship it off to the customers, so that certainly improved our inventory position. And we also have predicted growth in Security and cloud, and that reflects what Data#3 is seeing today as well. Okay. So let's talk a little bit about our strategy and how we execute on the market opportunity. For those that have known us for a little while, you may have seen this before, this is our strategic framework, and it is important to cover, if you're not familiar with it or even an updated version of it because this is where we really put the stake in the ground and then work towards our performance. Customer success is at the center of our strategy. In fact, it's our core purpose to enable our customers' success. And it's always been at the center of our strategy as it's proven to be successful. We achieve customer success by investing in our remarkable people through our professional development, increasing skill sets and technical certifications. We have the best people in the industry, and our vendors and customers tell us that regularly. We have innovative solutions. I mentioned on the previous slide about the growth in cloud. This has driven the need for solutions to migrate customers to the cloud and manage those customers while in the cloud. We invested in state-of-the-art technology solutions ourselves to manage our clients' cloud environments. We've also invested in upgrading our ERP. We did that a couple of years ago, and we continue to enhance that. It's a Microsoft system, of course, and upgraded our administrative and -- systems and processes that provide efficiencies and excellence in operations. So all of this leads into a customer success for our -- or success for our customers, which in turn leads for exceptional performance with Data#3. So that's our strategic framework. We expect technology and specifically what the industry calls digital transformation to continue to play a leading role in Australia's economic future. The trend to digital transformation is not 1 or 2 years, but rather, it's a long-term strategy. Data#3 provides a foundation layer that allows more advanced use of technologies such as the Internet of Things, robotics and extended reality. In our foundation layer, we have 5 solution categories: multicloud, and I'll explain what multicloud is in a minute; hybrid work, I'll explain that too; security; data and analytics, not to be confused with AI; and connectivity. So cloud continues to grow at incredible rates and comes in multiple forms. We are familiar with the explosion of public cloud solutions such as Microsoft Azure, and many of our customers still have private cloud solutions, either on their own premises or in partner organizations such as in XDC, in data centers. Data#3 has opportunities to provide the cloud solutions that best meet the customers' requirements. However, the larger opportunity is to help the customers manage those environments. For example, we've had great success in helping customers manage their Microsoft Azure and M365 environments. So hybrid work. Hybrid work includes end-user devices, applications, [ team ] collaboration environments such as Microsoft Teams. Hybrid work environments are important for productivity when we have a distributed workforce. However, also important to reduce travel and greenhouse gas emissions. You don't need to jump on a plane for that internal meeting or even an external meeting. It certainly reduces your carbon footprint. We continue to be busy implementing hybrid work solutions in our customers' offices around the country that both connect to your offices and also individual personal mobile devices. Of course, implementing secure environments is increasingly important. Our security business has grown steadily in recent years, and the number of offerings continues to expand. Richard Dornhart, our Security Practice Manager, will talk more to the ongoing security opportunity shortly. So data and analytics. Data and analytics continues to be an incredible opportunity. With the evolution of sensors and data and gathering techniques, there is more data to analyze than ever before. From sensors and electric vehicles to monitoring rainfall patterns in farms and fields, the applications of data and analytics is endless. High-performance sports such as Formula 1 cars, MotoGP motorcycles and SailGP 50-foot foiling catamarans are all driving exponential development in data and AI. Closer to home, Data#3 has been involved in projects from monitoring and managing refrigerated temperatures for customers through to analyzing computer networks and security data. Some of the industries we've been successful with data and analytics include emergency services, health, manufacturing and public sector. Last but not least is connectivity. Connectivity remains critical for connecting all devices together and to the cloud. We've seen our partners such as Cisco and Aruba advanced substantially with software-defined networking, which makes the management of the network so much more efficient, more powerful. But what about our artificial intelligence, so here you asked? AI has been around for years. However, with increasing computing power and launch of ChatGPT last year, we've seen a groundswell of activity and development in generative AI. We believe AI is fast becoming a digital milestone in the same vein as computing and the Internet. AI enables all of our foundational technologies, which in turn enable our operational technologies. This means AI is increasingly integral to all of our solutions. AI has been maximized into all of our vendor solutions and integrated into those solutions, and we are well placed to maximize that opportunity. Data#3 has also a handful of customers and the only channel partner in Australia to be invited into the Early Access Program for Microsoft's M365 Copilot. I'll just explain what M365 Copilot is very briefly. M365 is Microsoft's modern work platform that covers the traditional Microsoft Office products, Windows and some of the newer applications around security and also collaboration. And the Microsoft Copilot platform is an artificial intelligence platform that integrates with M365. So we're on that Early Access Program, and we're already helping customers on their Copilot journey. So Graham Robinson, our CTO, Chief Technology Officer, will talk to more -- this in his presentation. And of course, Steven Worrall, Managing Director for Microsoft Australia will be joining us this morning. As you listen to Graham's presentation, listen carefully for the difference between AI and generative AI [indiscernible]. All right. One of our competitive advantages is being able to integrate all of these solutions and support our customers through the full solution life cycle from consulting, project services and support services. Let's look a little further at our life cycle services. You'll see this a couple of times as John digs into it a little bit later as well. So from our learning and consulting perspective, procurement with our infrastructure and software businesses, implementation and adoption with our Project Services and the operate phase with our Support Services through Maintenance and Managed Services. The closed-loop approach with our customers means we're continually working with them to ensure their success. And John will -- our Chief Customer Officer, will talk to this in more detail in his presentation. So there's going to be a number of customer scores mentioned throughout the morning that have solutions incorporating various stages of that solution life cycle that we just showed. And I encourage you to all to visit our knowledge center on our new data3.com site to see how our solutions have been adopted by our customers. There's many, many customer stories out there. And we also have a deliberate strategy to invest in partners who are leading the industry globally. This includes significant investment in technical capability and certifications. This strategy ensures we're able to obtain the support we need from the vendors to execute effectively locally and provide our customers with the confidence they are obtaining quality solutions from Data#3, which is supported by industry leaders. Our top vendors represents approximately 70% of our customer spend. However, we complement these with hundreds of smaller vendors. It's an ongoing process right now, and we have about 37 new vendors that we're onboarding to provide complementary solutions around those global leading vendors. Vendors will vary as customers' needs change, and the diversity in vendors ensures that our ability to shift with the customers' requirements. Speaking of vendors, so our team just returned from the global Cisco Partner Summit in the United States, where Data#3 was announced as the global Software Partner of the Year and the Customer Experience Partner of the Year for the region for Asia Pacific, Japan and China. These awards are rewarding as we are up against thousands of Cisco partners from all around the world, and they recognized our customer-centric approach to providing the Cisco solutions. It was great Amanda Toogood could join the team this year and receive the award personally, and Amanda manages our customer success team. So it's direct representation that her team is doing a great job. The global award is our sixth consecutive award -- global award across various categories, including software, networking and security. In addition to Amanda and Garrett, our Chief Marketing Officer, up on that slide in the picture, we also have several Cisco senior executives, including their global CEO. So it's great to see the support from Cisco as one of our major partners. The Cisco Awards are the most recent examples. However, proof of our expertise is seen in award recognition by many of our vendor partners. These awards are validation of our strategy, that is, where we invest, we succeed. They also add to our competitive advantage in market, providing confidence to our customers that we have the proven expertise to help them achieve their technology and business objectives. Continuing on the theme of competitive advantage. There are many factors that set us apart in the market: our people, partners, expertise, innovation, agility, financial stability and brand. While each of these are great competitive advantages in their own right, together, they provide a unique value proposition only Data#3 can provide. So we have substantial opportunity: services growth that will complement software and infrastructure leading to improved margins in life cycle services. Growth in cloud services continues to be much faster than the overall market as is the investment in security. Generative AI is a game-changer, and all of our solutions will benefit from this technology. We have a growing pipeline in large infrastructure projects, as Mark said earlier. This sets us up well to continue that momentum, particularly with the investments we'll see for the Brisbane Olympics. That's it for me at the moment. You will hear from me a little later with our People slides. I would like to now introduce you to Cherie O'Riordan, our Chief Financial Officer.

Thank you, Brad. Morning, everyone. Welcome again. Hopefully, you can see me okay. I'm told my color is so brand that I might blend into the slides this morning. So I just want to start by providing some commentary around our gross margin trends in recent years because that's something that we get asked quite often about. Before I do, I just wanted to reiterate our consistent message that as a business, we're focused on growing sustainable gross and net profit rather than our gross margin percentages. That being said, some factors to influence our gross margins in each financial period include the product mix sold in any given period; the occurrence of large deals, which can significantly impact on the blended gross margins; our vendors and customers moving from hardware spend to software spend, which spreads profitability across financial periods, giving us better retention in [indiscernible]; customers taking up consumption and as-a-service offerings, which again spreads profitability across future years. Vendor programmatic change is also shifting. More rebates throughout the life cycle. That is post sale rather than upfront, which doesn't change the overall quantum of rebates, it just makes them less lumpy. Supply chain has also skewed the time line of delivery in recent years. So the true performance was spread across a longer time line, but the impact of that is thankfully largely behind us. We also win larger deals with a profit strategy. For example, we might incur lower margins for infrastructure and then drive services growth in the future. We're increasingly doing this, and it should result in improved profitability over time of a potentially lower-margin deal at the outset. While market conditions may be more challenging and competitive and we have seen a tapering in product margins in recent years, we've still been able to achieve growth above market levels and continue to focus on our growth profit. I want to next touch on the company's inbuilt protections against price and wage inflation. We're largely protected from increases in the cost of wages and product by our ability to pass through these costs through the majority of our customer contracts. Our reseller agreements enable us to pass through any vendor price increases on products and software. We also have inbuilt protection in the terms of our professional services contracts such as time and materials contracts, which are obviously lower risk from a pricing perspective, and fixed price contracts, which are managed closely against budget and have inbuilt contingencies to minimize risk. We undertake an annual review of our Professional Services rate cards and our Managed Services cost models to adjust for price increases, but we balance these increases with remaining competitive in market. Lastly, our goal is for all Managed Services contracts to include clauses relating to periodic price reviews. Our preference is to use CPI increases to determine the amount of the price increase. However, in some instances, this is fixed for the initial term. I'd like to now provide some insights around our enterprise managed services contract cycle and the relative profitability at the various stages. Stage 1 is the sales and transition process. The sales process can be elongated up to 12 to 18 months while we build confidence and trust with our customers and we work with them on their in-house outsource strategy. On commencement of a contract, the transition process can begin, which includes investigating and connecting a customer's environment, assessing key risks and gaps and providing recommendations for risk mitigation. Significant investment is required by Data#3 for the engagement to be successful which, although factored into the contract pricing, results in minimal return during this phase as typically billing would be straight-lined across the life of the contract rather than matched with internal effort. The year following the transition of a new customer can be viewed as a stabilization period, where we build maturity and knowledge of the customers' environment. There is a continued high level of effort required which results in year 1 being less profitable than subsequent years. The years 2 and 3 of an enterprise managed service contract would involve further refinement of the customer environment with, for example, reduced volumes of incident tickets. It's renewed [ till we start ] to realize the benefits of [ made ] and see improved profitability. Finally, from year 4 onwards, we see continued profitability, especially if the contract is renewed for a second generation as it would obviously require significantly less effort than the initial onboarding. Incremental profitability in our Managed Services business also comes from the modernization of legacy technology within the customer environment, for example, a product refresh implementation and adoption. An enterprise managed service relationship also gives us the first right of refusal for our customers' new projects, which generates cross-line of business and life cycle sales opportunities. On this slide, I'd like to highlight a few ways in which we can and have increased profitability over time. Cross-selling across all our solutions and services drives increased profitability, especially where we can provide our customers with value-add, higher-margin services. Being a market leader in new solutions such as Microsoft Copilot enables us to play an important role in our customers' digital transformation strategies from consulting to product sales, never disconnecting from our customers from Consulting through to Managed Services. Driving our security sales strategy, as security is the #1 concern for our customers and can lead to sales across most of our solutions and services portfolio. And lastly, increasing our market share across all core vendors will drive increased sales and profitability. Moving on to our internal cost ratio and opportunities for operating leverage in the business. As previously reported, our ICR has reduced from 88% in FY '16 to 80.3% in FY '23, with FY '23 slightly up on the previous year due to increased travel costs returning to more normal levels and our continued investment in people and systems, particularly in Managed Services, where we onboarded several new customers and contracts during the year. The system and process improvements made during FY '22 and '23 relating to the implementation of our Dynamics 365 ERP should enable us to put more volume through the business with proportionately fewer additional resources through digital connection as shown by the following examples. We've invested heavily in our ERP and its integration framework, allowing for customers and suppliers to work seamlessly with Data#3. We've invested in AI technologies like Azure OCR, optical character recognition, where basically AI keys in order for us. This gives us scalability for large contracts without having to take on additional resources, thereby moving staff away from data entry to checking and value-add activities. Teams can now bulk input orders, further improving our ability to deal with increased demand. Order assistant is a system-driven workflow that checks a number of order elements automatically, for example, a customer's credit rating, reducing the time to convert a customer quote to an order by automatically verifying information in data fields. We're investing heavily into our digital platform, D3 Commerce, to complement the way our customers can connect and work with Data#3, including orders, maintenance and asset management, but John will talk to that later in his presentation. We're also working on an API package to allow our customers to self-serve with orders and avoid duplication with procurement. Basically, this means customers' procurement system can push orders directly into Data#3 systems. We continue to assess new ways of building AI and automation into our processes, such as customer invoicing portals, where we upload sales invoices directly into our customer systems and have them automatically match against the purchase orders for prompt payment. The continuous service improvement initiatives in our Managed Services business will also drive efficiencies and automation in the areas of incident reporting and monitoring in addition to providing greater visibility over contract profitability with reporting and time shedding enhancements being made. Next, I wanted to talk briefly to working capital. Data#3 has an efficient working capital cycle driven by favorable trade terms with our suppliers, which often extend beyond our customer payment terms. We continue to be self-funded with a strong cash position and have therefore benefited from increases in the cash rate this year, unlike a number of other businesses. The seasonal peaks in sales towards the end of Q2 and Q4 each year are reflected in the inflated cash positions shown at the end of June and December. However, most of the funds held are committed to trade payables. The black line in the graph shown reflects our net working capital position, which you can see is pretty consistent across the last 5 financial years. We have a very low default rate on customer payments and continue to work on reducing our days sales outstanding to prepandemic levels. All inventory is committed to customer contracts and is closely managed to ensure timely delivery and invoicing. Instances of parts shipments from suppliers can hold up this process, but these have returned to more BAU levels. The next slide contains explanatory notes on the types of revenue and expenses that sit into the various lines of our consolidated income statement. Its main purpose is to show the allocation of employee costs between cost of goods sold and internal employee costs. The employee and contractor costs directly on charge includes all payments to contractors working on services contracts. The internal employee cost line represents all costs for Data#3 employees, including both billable and nonbillable staff for all lines of business, including services. This line includes salaries and wages and all staff on costs such as super, insurance, leave, commissions, training among others. I've included some other explanatory notes on the other expense line items that you can read at your leisure to give you some insight around which lines our various overheads sit in. Finally, I'd like to provide you with an update on the company's ESG strategy. ESG is integral to our company's strategy, and we have a cross-functional ESG committee working hard on making our company better for the world, not only because it's the right thing to do, but increasingly, it's what is expected by our key stakeholders such as our customers and shareholders. We released our 2023 ESG Report to ASX on the 24th of October. And while we're proud of our achievements to date, we recognize that there's a lot of opportunities for improvement and greater impact. We also released our Reflect Reconciliation Action Plan during the year, and we'll continue to build on this during FY '24 through our RAP working group. We're on our third year of greenhouse gas emissions data collection and measurement to determine our scope 1, 2 and 3 baseline emissions, of which electricity and internal IT equipment are the biggest scope 2 and 3 contributors. From here, we'll formulate more detailed plans for achieving carbon neutrality by 2032 and commence formulating our net zero strategy alongside our external partners. Lastly, we're working towards integrated climate reporting for FY '25, but we'll be taking a staged approach by making incremental improvements and additional climate-related disclosures for FY '24 within the 4 pillars of the Task Force on Climate-Related Financial Disclosures, or the TCFD, which are governance, strategy, risk management and metrics and targets. Thank you for your attention. I'll now hand over to Graham Robinson, our Chief Technology Officer, to talk AI.

Thanks, Cherie. Good morning, everyone. I think we're going to change gears here pretty quickly. It's great to see a whole bunch of faces, fresh faces, I didn't get to meet last year. So thank you very much for joining us today. For those of you I haven't had a chance to meet yet, my name is Graham Robinson. I'm the Chief Technology Officer at Data#3. I've been with Data#3 for about 16 years, and I do have a background in tech in business and in law, but I'm an engineer. So just to understand what you're going to get today. If I wasn't here, I'd probably be designing something, building something, coding something or, if I was in my really happy place, would be down by the harbor playing my bagpipe, but that's probably a different presentation. My focus at Data#3 really revolves around working closely with our global partners, understanding how the technology that they're evolving, technology they bring to market, how that's going to impact our customers and then really working across our organization to build the services, the life cycle services, the Professional Services, Consulting services, Managed Services, the adopting services, how we add value to those technologies and really how we connect the technologies that we sell to the outcomes our customers are looking for. And AI, of course, is one of those significant technologies which offers great opportunities for our customers, for us and for the market more broadly. Being a technology company, we tend to talk about the digital milestones. We talk about computing. We talk about the Internet. But these are just part of a history punctuated by disruptive innovations, innovations that have fundamentally changed industry, creating new technology and also enhancing the technologies that we already have. Generative AI is doing exactly that. We are at the beginning of a new era, an era in which AI is already testing at about 155 IQ, putting it smarter than about 98% of the population. We're in an era where in online dating experiments, 40% of the participants can't tell whether they're talking to an AI or to another human being. And we're at the start of a new era where an AI doctor in health care trials was found to be 7x more empathetic than a real doctor. Not really surprising. Generative AI technology is being -- is evolving and being adopted at an astonishing rate. In fact, if I was to give you a really recent example, just last night, the CEO of OpenAI came out and said they actually had to stop accepting new ChatGPT paid subscriptions because they can't meet the demand. We're talking about unprecedented rate of acceleration for a technology that is evolving faster than anything I've ever seen. So the question becomes how does generative AI show up in the industry broadly for our customers and the solutions that we continue to develop? Last year, I outlined 5 trends that we saw as influencing our customers' investments. Over the last year, these trends have continued, but now they're being influenced by generative AI. It's one of the many things driving these different trends and driving the changes that we see across our customers and within Data#3. From a talent perspective, as digital transformation continues to reshape business, almost every company is now a digital company, which means they need access to digital skills. The Digital Pulse paper -- for those of you who saw it this week, the Digital Pulse paper from the Australian Computer Society actually highlighted the growing challenges in access to digital skills, not just now but the impact that generative AI is having on the workforce and will continue to have on the workforce as we look out to 2030. Our investments in building life cycle services, those consulting, professional, managed and adoption services that I talked to earlier and that Brad talked to earlier today, continue to be key to our ability to deliver outcomes for our customers. From a security perspective, again, this week has been a week of announcement. So the Australian Signals Director earlier this week came out, for those of you who saw the news probably yesterday morning, really released and released its Australia -- sorry, it's annual cybercrime report, highlighting the fact that the cybersecurity incidents have increased by about 23% compared with the same period last year. So security was already one of the most challenging and complex environments for our customers to deal with. And generative -- the introduction of generative AI is driving an increase in the veracity of those cyber attacks but also in the capabilities of the cybersecurity defense solutions that we provide for our customers. I'm going to leave security here because we've got Richard Dornhart very shortly presenting, and he will take you through how we're helping our customers address the complexity and rapidly changing security environment. So I don't want to double up on content. Automation remains a key focus for our customers. Now it doesn't matter whether it's to address skills shortages, cost constraints or even to meet the expectations of end users, we expect everything on instantly now. And automation is actually -- is how we are addressing that. But AI or generative AI, more specifically, is extending our existing services and our solutions, enabling us to combine generative AI with data and analytics. And that means that we can automate and optimize the way our customers' business processes work and optimize the way that our companies deliver value to their customers. From our global partners, such as Microsoft, Cisco and HP, and they're just 3 of a long list of great partners that we work with, AI is already being embedded into those automation solution or automatic or automated -- automation-enabled solutions, I should say. That's enabling us to increase the value that we are able to deliver for our customers now. In the decentralized space, I won't spend too much time on this, but decentralized continues. The decentralization trend continues, both physically and virtually. Distributed teams power our businesses today, really supported by those hybrid work solutions that we continue to provide such as, I believe, either Brad or Laurence -- Brad mentioned Microsoft Teams as one of a number of examples. But our customers also rely on distributed applications across distributed clouds. These are being powered by the hybrid cloud and multicloud solutions that we continue to work with them on and ensure they're delivered securely for their environment. And the digital experience again, a really cool space. But we continue to see amazing advances in augmented or digitally augmented experiences. And I'm talking about the HP, the Apple, Meta, all with amazing video technologies. And I'm talking virtual reality, augmented reality, mixed reality. These are all in now even made more impactful by generative AI, not just in the physical devices like you may have seen Meta doing with in Ray-Ban in their Stories line, but also into the virtual metaverse space where our education customers are looking for new ways to train or new ways to help students learn and understand the world. But as AI drives and accelerates all these trends, it's valuable for us to ask, what's driving AI? And the crazy thing is we've actually -- we know the answer because we've been watching it since 1960s. Many of you will be familiar with Moore's law, the observation that our computing power that we have access to is doubling about every 2 years. It's commonly shown on a graph like this, and I've mapped out a few significant points in our industry's history. Just as points in time. The purple circle you're looking at on the left was about the mainstream shift to broadband Internet back around 2000. The green dot is where Google released its All You Need is Attention (sic) [ Attention is All You Need ], basically the pivotal research paper that drove the introduction of generative AI in 2017. And then the blue dot on the right is this year. It includes OpenAI's release of GPT-4, the most advanced model that OpenAI have today. Moore's law is typically pretty much always shown as a graph like this, as a logarithmic graph. It shows a steady, slow upwards increase in computational power. But those of you who appreciate numbers and graphs, as many of you do, know that logarithmic graphs hide linear trends. So you look back at Moore's law and look back at the graph and look at the same data from our industry on a linear chart, hence a very different picture. Over the 17 years leading up to the Google paper, we added about 20 billion transistors to each processor. That sounds like a lot because it is. But then in the last 6 years, we've added about another 880 billion transistors to each processor. So what we're talking about is a 44x increase in the number of transistors in 1/3 of the time. So Google changed the world with their research paper, and that started a lot of the generative AI conversations. But the exponential growth in computing power is actually what's made it all possible. So if artificial -- so artificial intelligence is absolutely benefiting from this explosion in computing power in an exponential growth in an exponential world, but so are about half a dozen other incredible and disruptive technologies. And now AI in turn is interacting with these technologies. AI is being applied to these technologies, which is just -- which is not just about adoption of AI technology itself, but it's making all the rest of the technology easier to adopt. It's accelerating the adoption of these technologies. And our customers are already attempting to apply these technologies to create outcomes never before possible. We're talking about compound exponential interactions in a way that we've never seen before, creating opportunities for our customers to create new services for their customers to drive their business in new ways. What this means for us? In the operational technology line that Brad presented earlier, the operational technology line continues to grow in size, scale and complexity. And that, as it does, the foundational solutions that we provide to our customers become even more critical. Our global partners are already embedding generative AI into their -- into our foundational solutions, enabling us to better support our customers and our customers' operational technologies, really maximize the benefit that they get from their investments. To give you some practical examples. Again, I'm not going to go too deep into this, but I really want to showcase how generative AI is showing up in what we sell today in the solutions that we take to market and how it's already transforming what we are doing on a day-to-day basis for our customers. I'm going to keep it really simple. We've broken our solutions down into 3 layers: a computing layer at the bottom, an AI layer in the middle and an application layer at the top. I'm happy to take questions and answers on this a little bit later. But really, what you see is that many of our customers are already using cloud-based productivity platforms like Microsoft 365, M365, that Brad mentioned earlier. By embedding generative AI technology in that middle layer, Microsoft has extended the productivity solutions with a set of AI assistant capabilities called Copilot. That enables our customers to dramatically increase their employee productivity. One of the opportunities for Data#3 is not just to provide access to them through licenses and subscriptions and all but, rather, the life cycle services to help our customers understand how to structure their data, how to protect their data, how to create responsible usage of AI policies inside their organization and then train their people on how to use these emerging tool sets. In the multicloud world and many of our customers, particularly our government ones, there's a real need to deploy generative AI services into their own data centers to align with data security and data sovereignty policies. As we start to deploy AI within customers' own environments, AI is driving -- not about the AI itself, but AI is driving a significant refresh of the server storage and network infrastructure that underpins it in order to actually deliver business applications and AI models. From a security perspective, our partners are already embedding AI directly into their cloud and on-premises applications. Generative AI, it's not an add-on. It's being embedded directly into what we're already selling, and customers are looking at bringing forward their refresh cycles to take advantage of the new capabilities that generative AI is creating. And from a device perspective, end-user devices, laptops, tablets, in the end user space, we see a step change. Well, in the end-user technology space, we actually see a step change, causing a deviation from traditional procurement conversations. What I mean by that is many -- for many years, customers have had 2 conversations: what about the hardware and what about software? But the demands created by generate AI technology into Windows Copilot and the work that Microsoft is doing to increase the productivity applications on the devices itself is having a ripple effect through the actual hardware layer itself, causing the conversations we're having the customers to be not just about software, not just about hardware, but software, hardware and the applications all at the same time. How can they deliver a better outcome for their people? Through that process. In each case, the opportunity being created by the introduction of generative AI technology isn't just about a software upgrade. It's also commonly requiring an upgrade to the underlying infrastructure, too. I know Laurence and I share a love of the gold rush conversation and picks and shovels and the importance of providing our customers in a gold rush world looking at the value of AI and everyone rushing towards getting [ value ], the importance of providing picks and shovels to our customers and being there to support them as they see -- as they look to actually deploy generative AI technology into their organizations. AI is a new type of gold. It requires a new type of pick and a new type of shovel. And that's absolutely what we're focused on building for our customers. With that, I'd like to hand back to Laurence for some questions and answers.

Thanks very much. That concludes the first session of presenters. We'll now open up for Q&A. If I -- I'd like to bring any of the presenters from the first session up to the front. [Operator Instructions] We've got Nick Harris putting up his hand as a starting point.

Just a question for Graham, really on the AI picks and shovels side of things. Just [indiscernible] in my head, what I -- what you were saying was you don't necessarily make a lot of money out of the AI itself, but you make money out of businesses [indiscernible] so basically upgrading your infrastructures so that they can -- people look out into the AI [ agents ]. Is that the right way to think about it?

Let me repeat the question. It's along the lines of the picks and shovels analogy regarding AI. And essentially, it's -- where do we make our money, Graham?

It's a great question. So you are heading in the right direction. The common misconception is that AI is just about something like ChatGPT and it's a website. The reality is in order to successfully deploy AI into an organization to get value out of it, our customers are investing in the software layer, the actual applications that use AI. They're investing in access to those AI services. So that would be such things like the OpenAI stack on Microsoft Azure, so you can access the OpenAI technology through Azure, and we provide that to our customers. But then there's also -- in many cases, there's actual physical hardware and infrastructure refreshes that our customers need to look at when it's not cloud-based, it may be on-premise or on a particular device. So again, it goes back to data sovereignty and the consideration of how do I deploy -- what do I need to physically run the AI technology if I'm not running it? So yes, Microsoft might be running it for many services. But what we're going to find is we're not living in a homogenous world, where it's all just one AI technology. There will be AI on many different devices. And those devices in many cases will be needed to be upgraded and refreshed in order to run the AI technology. And with all that, then you get our lifecycle services, how we actually help them structure secure and manage the data and their data policies to get value out of it from right out. So it's entire stack top to toe..

Is there anyone else who'd like to add anything to the question?

No, he did a good job.

Yes, did a reasonable job.

I've got a question. Can I ask a question?

Sure.

Did Graham cover off the differences between AI and generative AI sufficiently for you? Would anyone like to explain it? Okay. If anyone has any questions, I can ask whoever.

Probably just following on, I'll add my two cents' worth as well, following on from Graham. The other point is, and as Brad made the point and, in fact, Mark made the point as well, that our overall market is growing and the IT market is growing faster than we've ever seen before. AI is fueling a lot of that growth. And we see being a leader in the current market, in the IT market and having that market growing is -- it's more than just the picks and shovels and the solutions that we're providing, the overall market, the overall pie is growing. The last point is, as Cherie mentioned, we have an opportunity to make our business more efficient as well. So that's the other point of AI from an internal perspective and making ourselves more productive, which we are currently doing. Yes?

Ed from Jarden. I have a follow-on from the AI picks and shovels comment. I understand that you are going to benefit across a variety of your solutions. But could you just give us some details about Copilot? And is there any sort of how will you partner the revenue model there and the actual, okay, how you're going to make money out of that with the rebates given to the rest of the portfolio and your products?

Okay. All right. Thank you for the question. I'll just look to repeat that, another AI-related question specifically around Microsoft and Copilot and really the -- how do we -- what is it looking like in terms of monetizing that and monetizing that opportunity? So what's the current thinking on that? Graham, how would you like to have a go at it?

Let's ask the question again to Steve maybe when he comes in for Microsoft, what's the opportunity for partners? But to answer your question, Ed, it's absolutely -- the opportunity for us is particularly around services, our consulting business in terms of making sure that our customers' data is ready to be able to handle this tool that's coming over and looking at their data, the security aspects, all of that, the platforms piece, picks and shovels is really the platform piece. So for us, it's not going to be so much in getting a margin or a channel incentive from the vendor for the software. It's going to be around everything associated with it and the pull-through of all the technology solutions that we provide around it.

Anyone else like to add anything? Another question? We'll start here.

Ben Jones, JPMorgan. I mean, just touching on the point you just made on the [indiscernible], I mean, there's been a lot made about AI products for the market and use of AI to leverage products. I mean, how material do you think then that you will see from the use of AI on your prospects?

Okay. Let's -- let me just repeat the question. And thank you very much for hosting us today. The question is how material is the impact of AI from productivity and from our existing cost base? And what are we currently seeing? And what do we expect to probably see going forward? Cherie, would you like to answer that one?

I can start and Brad can supplement. So I think the short answer is that it will be probably a slower burn than what we would all like it to be. But I think the initial estimates of Copilot and [indiscernible] that it will help with that 30% productivity gain. Is that correct? Yes. So we're starting to see some benefits. But it's still early days for Data#3 internally. I guess, we'll see over the next couple of years what happens with our internal cost ratio. But I think it will be steady improvement.

So there was the question more generally or specific to Data#3. Yes, so there will be some further examples in the people section that I'm presenting on behalf of Tash a little later. Cherie is absolutely right in terms of percentage, it's all potential. So when -- we're just like any other customer, we're currently looking at the technology and creating the use cases for the technology. Some use cases will create incredible benefits and others, not so. So it's a matter of working through those use cases. And Data#3 has only 1,400 people. You take organizations that have tens of thousands of people and massive amounts of data like in the financial industry, for example. And you'll see that the benefits can be massive, depending on the use case that it's applied to. So it is a bit of a how long is a piece of string, the question to answer. But it -- with the right use cases, it can provide benefit across all our operations really, not just customer-facing or research areas.

Yes?

[indiscernible] from Jefferies. Two questions [indiscernible], which is [indiscernible] put up on the spending, like [indiscernible]. I thought that was a very interesting ground to cover. [indiscernible]

Okay. The question is related to the -- to customer spending and the average tenure as well. One thing that we will be doing is in our customer section, I'm pretty sure our Chief Customer Officer will be in an ideal position to answer that question. But from Cherie's point of view, do you want to offer any?

Yes, I think -- I mean, the question is around how we make our customers sticky and long-tenured. So Brad is focused on the competitive advantages. And as Laurence said, John will touch on a lot of that content later this morning. I think in terms of our average tenure, it's not usually a metric that we disclose or actively measure. But yes, it's all around creating that long-term relationship and cross-selling across all services and solutions is really, I guess, the crux of the answer. Anything else, Brad?

Can you give an example of one of our customers that you...

Yes. There's one customer which Brad mentioned earlier in terms of the first customer -- first Microsoft customer that Data#3 had 29 years ago that is still with us. It's a large customer, the Department of Education in Queensland. It's a $20 million contract at the time. So it was very material as far as Data#3 was concerned at those stages. And every 3 years, we've managed to succeed in winning competitive tendering on that particular piece of business. So to give an example in terms of the stickiness of customers, that's one. Yes, sir?

[indiscernible] TNE, obviously, has some connections in terms of generative AI. What's our opportunity? That's the first question. What about someone like Breville? Is this an opportunity for Breville and for you to work here as an example of a device manufacturer?

Okay. So the question was generative AI. Does the -- is there any relationship between TechnologyOne and ourselves? Is that correct? That's one. And then secondly...

Opposite end of the scale. So here comes a device manufacturer that you've done work with, but basically [indiscernible] maybe it's an urban council that's got lots of [indiscernible] use of AI, generative AI [indiscernible]

So it's really where the opportunity is across a range of different sectors, including the likes of manufacturers such as Breville or local government organizations. Okay. That's a wide-ranging question there for you, Brad.

You're lucky. So it's -- the opportunity is really for everybody. So I've got -- when I need to service my Breville coffeemaker, I now get out of my app and I press the button, and it tells me what to do and what buttons to press and it cleans the coffee for me. So behind that, there's a whole bunch of data. They now know that Brad just cleaned his coffee. And he might -- they might hit me up with -- next, I'll get an e-mail saying, "Hey, do you want to buy some more coffee?" So there's a lot of data behind all of that. That's more data and analytics. On the generative AI, which is more content creation based on data, then Breville could use the generative AI technologies to help them create their next marketing strategy, their next business plan for a particular product or getting into a new market and use -- ask the generative AI tool questions that their team might take 6, 12, 18 months to generally gather to be able to build a business case. With generative AI, it's going to accelerate that business decision-making substantially. Yes, I hope that answers the question.

And the one with TNE?

TNE? And sorry, do you want to just want to repeat the...

TechnologyOne.

Well, so TechnologyOne is like any other application provider. So they're an application provider, and we provide the infrastructure and the connectivity that TechnologyOne applications run on. So again, for them, generative AI will be an opportunity for them to streamline operations and also potentially to look at the likes of a Copilot application and how they integrate into their systems and work with their data and help their customers. So I think you mentioned the local accounts before, creating the use -- again, it's fairly new, but creating each of those use cases for how TechnologyOne's applications can benefit the customer and the data that their applications create and then putting AI across that. So yes, absolutely.

Thank you. So moving across.

Just going back to the question on the customer lifecycle. Perhaps you could go back to the slide, which showed the revenue through time over 12 years or so. And it probably surprised you a bit in what it showed, we only get acceleration, then it's moved a bit, then it accelerated a bit. Perhaps you could talk about what drives that. Obviously, the initial revenue contribution and then a dip and then a reacceleration around recontracting, initial contracting and additional services.

Yes.

I think that's mine, the time slide. Yes, I think what actually drove that was there was an anomaly in the unblind data, where there was just a really significant customer, I think it was year 7 where you saw that dip. So that's why I added in that linear trend line so that you can see it without that look. Sorry, that one there, yes. Yes, so I think you're probably better placed to look at the dotted line in terms of trend. It does flatten slightly across that 7- to 8-year period and then ramps up again in terms of spend over time.

So that's an average across all of the customers?

Yes, it is, yes.

Then what customer can move the dial that much?

Yes, there was a pretty significant customer in that year. I think it's year 7, yes, that did actually skew that. Sorry, yes, I did look into that when put that together because I was equally surprised there.

Yes?

Yes, Nick Weal from Evans & Partners. How do you think about margins on AI [indiscernible] consume more transactional software sale [indiscernible] the customers need ongoing support [indiscernible] services? If that's the case, what does that actually look like?

Thanks, Nick, for the question. The question is regarding AI and the associated gross margin, what does that look like and what do we expect it to look like coming through. So Brad?

I think we had a similar question before around the opportunity. The opportunity is really going to be around the services is the short answer as opposed to the licensing transaction. However, Graham also mentioned that AI is being built into many of the products and solutions that our vendors are bringing to market. So we take Microsoft Teams for example. Microsoft Teams is a premium SKU within the Microsoft Office suite. And we transact that. And because it's a premium SKU, there's better margins in there -- around those products. So it's really aligning with the vendors' go-to-market and vendors' strategies, whether it's collaboration in AI within Teams or some of the security solutions. So it's really up to us to make sure that we've got the right ability to execute on that market opportunity. But it is both. It's both the transactional, there will still be opportunity there, but it's more so in the services.

Okay. Yes, sir?

[indiscernible] We've got this new era of potential growth, very exciting. Is the strategy just to concentrate on this business in Australia? And if you [indiscernible], can you extend your relationships with Microsoft to other geographic areas?

Thank you for the question. I'll repeat the question. In terms of the exciting growth in our industry, are we -- have we got any plans to extend outside of Australia? And if so, what does that mean in terms of our major vendors such as Microsoft? Brad?

Thanks, Laurence. The answer is there are no current plans. But it's never off the table. We have decided over the years, and I can just talk about our experience over the years, is that there's still so much more to do in Australia. Whenever we look at where we can invest, there's still so much more that we can do in Canberra or Victoria or Perth around different technologies and different solutions. So that's what we have decided to do to date. And we still think that some of the statistics that we saw earlier in terms of the growth of the IT industry in Australia is strong, stronger than it has been in previous years. So while we could expand into Asia, we've chosen not to. If we were to do that, it's more than likely that we would get good support from our vendors, you would think, because we've been successful in market. And we've actually been asked by various vendors over the years to do that because they don't have necessarily the partner community that they need overseas and throughout Asia as well. But we've found that the best return on our resources and to provide a return to our stakeholders is to continue to invest in Australia.

Okay, thanks very much. And also, in the second session, again John Tan, our Chief Customer Officer, will be talking about the total addressable market as well and where our concentration is, so watch this space.

Can I ask just one last question? So from [indiscernible] and a second one for Cherie, just can you talk about what made you [indiscernible]. But when you're talking to the managed services before at the end of year 4 being the most profitable, if you look at your current portfolio of managed services agreements, what's the average tenure there?

Yes, your question is regarding managed services, which typically is 5-year contract, back to Cherie's presentation. And the most profitable would be around year 4. Then what is the...

What's the average tenure of your current one?

Yes, what's the average tenure of current contracts? Cherie?

So short answer, I don't know. But as you know, we've built that managed services business up from pretty much ground zero over the last 2, 3 years, correct? Yes, so we sort of did a recorrection of the business model and a reset a couple of years ago. So if I was going to have a stab, I'd probably say we're probably partway through the 4 year on average. But it also depends on what we've bought on year-to-date FY '24. Obviously, we're continuing to grow that business substantially. So it will be a blended tenure. So I'll give you that vague answer.

I'd also say with the contracts, with the enterprise managed services part of our business, they are typically 5-year agreements as we've stated before, usually with options to extend either a further 3 or 5 years. So over time, that average tenure is likely to be 5-plus. Yes, sir?

[ Alan Coleman ] here, [indiscernible]. I was fascinated to hear the comments about it being a slow burner. And as you can see by my gray hair, I'm old enough to remember when the Internet was first being spoken of in the same way that AI and generative AI are now being spoken about. And I was just old enough to be around at the time. So you were around at the very beginning when people were starting to say, "Can we somehow use this new technology called the Internet?" And most of them didn't need to get an e-mail. And that landed up being a very slow burner, if I'm correct. But correct me if I'm wrong, you're still getting part of that slow burn helping your business grow or our business grow [indiscernible] over all these years. So does that suggest to you that this runway here in AI and generative AI means working with customers for maybe another 26 years as it has been since the Internet was in its infancy?

Okay. Great question. So let me see if I can repeat that as well. So the question is regarding the longevity of AI and its impact on the market and our customers. And the relationship, for instance, with when the Internet was first released, and as we both described and we were both around at the same time because we both got gray hair, that's -- the opportunity at the time was a slow burn with the Internet and still is currently as far as Data#3 is concerned. Will AI follow the same path? Is that reasonable?

Yes, the expected journey.

Yes, what do we expect. I think it's a great one for our Chief Technology Officer.

I have a great photo from a 2000 paper that's basically where everyone looks like the Internet is just a fad. Everyone has given up on the Internet. There was a time when -- there was absolutely a time when we didn't understand the implications of the Internet. But I don't think -- I think that we've learned a lot. And this is very different. I don't see -- it is a slow burn at the organizational level for us to understand exactly what the right use cases are, how we deploy AI and how we get the benefits to our organization. I think there's a very, very long tail of impact across the entire industry and across the entire world as to the way generative AI will be applied to every industry. But to my point in the presentation, it's not just generative AI. We're dealing with a whole bunch of new technologies that will also be influenced by generative AI. So yes, we are still the beneficiaries of the digital milestone that we look at from a computing perspective and from an Internet perspective. We've had everything built on that. We've had cloud, we've had video and mobile technologies. Everything has been built upon the Internet that came out around about the year 2000. Now the question is what are we going to build with generative AI? And that is one I can't answer yet. But it is absolutely a huge opportunity for all of us, both inside Data#3 and for our customers. And we're actively looking on a daily basis to understand what can we do. So short answer is yes. This is a -- I won't call it a slow burn as an industry, but every organization needs to take a measured approach to how they apply it for themselves to get the right results.

Okay, thank you. I think that we're just going to wind up the questions right now. We're going to have an opportunity of coming back after the next session with some more questions with a longer Q&A session. So in the interest of time, we'll take a break. How long is the break, 15? 20-minute break and then we'll come back, and we'll have our Chief Customer Officer, John Tan, who will be answering some of the questions that we had as well. So thanks very much. [Break]

Okay. Let's kick things off for the second session. Thanks very much. Everyone is taking their seats, that's great. And I'll hand over to John Tan, our Chief Customer Officer, who would be talking, of all things, guess what, customers.

Yes. Thank you, Laurence. Welcome back to Session 2. I see we've got a darked room now. So let's get into it. All right. So I'm John Tan, Chief Customer Officer. And I am responsible for the sales performance of the business and also a heavy focus on our customers, our customer experience strategy as well. 16 years at Data#3, I've held various management roles, including running our maintenance practice, which has turned into a maintenance and annuity practice, our Infrastructure Solutions business. And now I look after our Infrastructure and Software business and our overall sales performance. So I'm going to be covering how we bring this all together and how we win in market, covering more in our industry, our customers, our vendors and the overall sales strategy for Data#3. Let's look at the tech market. We've talked a bit about this, this morning, and some observations. This information is from Gartner. I've really pulled out the areas in which we play the most. So from a data center and devices perspective, fairly flat growth expected over the next few years, so flat across the data center and devices that they are very much markets that we play in and we have plenty of success in. So our ability to get market share above that growth is absolutely still there. Okay. So you're going to have to excuse me as I juggle a few different screens here. But certainly, opportunity in services and software. Services has grown 7.1% and software, 13.3%. And as I said, regardless of these numbers, I think Brad mentioned around $120 billion total tech market, $62 billion from the Australian enterprise market or B2B perspective. So plenty of opportunity out there. So if we look at it by our segment size, we typically play in a customer segment of around 300 and above. So the customer growth throughout those markets remain strong. And there's also continued room for growth from a market share perspective. Obviously, you can see it really skews upwards as we get towards that over 5,000-seat organization. We've got a good spread of customers across all segments, particularly 250 and above. So in terms of the sales environment, there's plenty of opportunity, especially in the areas that we focus on, continue to have strong market opportunity in security, AI, software and as-a-service. So with the market continuing to move, we expect more growth and we're positioned to take more advantage. As Graham mentioned, our investments in these areas will only strengthen our capabilities and our go-to-market. So large opportunities remain despite the market growing and fluctuating across the different areas. We don't have the backorder position that we have had in previous years. And the public sector also remains strong and engaged across many years of engagement with those agencies as well and large corporate and enterprise remain solid. We also see a shift in buying models. And traditionally, we have services really well in terms of product transactions, a focus on the solution sale and also managed services as well. And what is emerging is an increased focus on marketplace via Azure, AWS, customers consuming cloud and then leveraging the cloud spend to consume further purchases of IT and technology via their cloud spend with those hyperscalers. We also see the shift towards buying models of as-a-service and consumption models. And last year, I talked about that shift. And our customer base or the customers are really choosing to consume in that way as they're consuming in their own lives as well. So how we've addressed that is really to drive the right sales motions across our business to ensure that we can have consumption-based conversations with customers and really take them on a journey of consumer subscriptions and enterprise agreements to really take advantage of shifts in technology and the move towards software-based technologies as well. We've talked a lot about what's going on externally and how we connect our customer conversations with our solutions. I think there's four key areas from a business perspective: enabling a multi-cloud approach for customers, that is continuing a strong focus on moving between public and private cloud, on-premise; providing hybrid work solutions, we've talked about that this morning as well of working from home, working from the office, having conversations in the office with someone at home at the same time and all the solutions that support that; the shift towards buying models; and also the rapid adoption of AI. What that means is we're connecting our solutions to those business problems. And these are some of the solutions that we're carrying to market today around public cloud, private cloud, the services around them, also collaboration, devices, security, connectivity, the buying models I've just talked to and then generative AI, enterprise AI, the data management and security aspects of that as well. From a customer perspective, I think there were some questions before about the profile of our customers. There's over 2,000 customer groups that we deal with. And beneath those customer groups are many customers. And you can see the mix of our customers today still heavily around government, federal government, state government, local as well as corporate or commercial customers as well. We've got strong diversification across many verticals, in particular, education, a strong hybrid approach to learning, a smart campus approach coming into those learning environments. And they are continuing to invest as well. Health care has always been a focus for us for both public and private health. With an aging population, we see further growth in private and public and a need to have a strong technology footprint and a secure environment as well. Construction, you saw the video at the start covering Queen's Wharf. But there are a whole bunch of other construction projects, including Sydney Football Stadium, Melbourne Cricket Club and other customers really moving towards a stronger technology footprint as well as being buoyed by the 2032 Olympics in Brisbane or Southeast Queensland as well. Mining has always been a strong vertical for us, particularly out of WA and Queensland. And we see that experience dealing with mining customers and those shifts really creating ongoing opportunity for us. In addition to our existing customers, we also have a strong focus on business development and acquiring new customers to the mix and bringing them into the Data#3 experience as well. So there's a large customer base that we have an existing footprint. But we also I see opportunity within those customers to cross-sell and upsell them through managed services, further services, areas that we haven't done business with them previously. So with a large customer footprint, a lot of our focus is on ensuring that we are going deeper and broader and wider with customers and having the right skills to have different conversations and evolving conversations with our customers. A key part of our sales strategy or sales approach is delighting our customers through a customer success approach. And Brad talked about our customer success lifecycle. This is something we've been building on for the last 5 years. And we're really evolving this strategy to focus further on customer outcomes. We're building processes and we're also embedding platforms to really drive the customer conversation around this infinity loop. So if you look at each phase of this infinity loop, our customer success approach, it is carefully applied to each of our solutions to ensure that we understand what journeys our customers could take, what is best practice, what is most meaningful to them throughout the lifecycle of our solution. And we do this on a per solution basis, not a per customer basis really to ensure that every solution that they engage with us on has a meaningful, outcome-driven engagement that delivers outcomes for them but also delivers outcomes that mean that they can consume more technology, engage further with us and really get more value over time. So what we've been doing is really focusing further on adoption and consumption, having different skills within our business to really drive, beyond that procure phase, a great technology implementation but also great adoption of the solutions that we're selling. And great adoption means that they will consume -- they will get business value and they'll consume more over time and have a great experience, more likely to renew and more likely to go around this solution process with us throughout the lifecycle so that they can repeat it with confidence on future projects. We're also measuring it by customer health. And customer health score -- our customer health score is an aggregation of all the interactions that we're having with our customers. We did talk about this last year as well. Because it is allowing us to get visibility of how impactful we are throughout the lifecycle. So if we're engaging well throughout every stage of our customer success approach, then we'll see the health score improve. And the health score could be a combination or is a combination of many things, including successfully completed adoption engagements, win-loss ratio, are they paying their bills, what's their CSAT, all those factors combined, so we can get a sense of how are we engaging and what does that mean for our customers. We're starting to see some strong metrics based on the last 4 to 5 years of doing this across a growing number of customers. So we've selectively looked at customers that could really benefit from this. And we're starting to see some fantastic metrics. Some of those metrics include an improvement in opportunity volume and opportunity value. And we are also seeing an increase in win rates and also an improvement in gross margin as well. So the increase in win rates ensures that -- or is a result of us being closer to a customer. Them going through a lifecycle engagement with us means that we're more connected to them. We understand what's driving them, what outcomes they're seeking. And we're obviously embedded to really position ourselves to together build future solutions with our customers. So we've taken this approach across many customers. And that number of accounts or engagement is growing. And we should only see further continuous improvement in terms of these metrics across our customer base. A big part of moving towards that is the digitization piece. So we're digitizing ourselves as well so that we're more organized. We're building best practice into our processes so that we can turn up predictably in a meaningful way across many, many more customers. And face-to-face engagement may not be for every customer. So we're also segmenting our customers to ensure that some of our largest customers get face-to-face engagement through this process and then other customers that may be more a digital engagement to give us scale and efficiency as well. One customer that I'd like to take you through is Griffith University in Queensland. Griffith University, established in 1971, is one of Australia's leading universities, ranked in the top 2% of universities worldwide and over 50,000 students across 130 countries. So it has been a customer for some time. And we did actually sell them a Cisco Enterprise Agreement in 2019. And from that point, we then assigned a customer success manager. In addition to implementing technology, the CSM was engaged, really embedded into the business to understand the business further and really engaged more closely with the customer around those technology outcomes. We had support from our vendors, both Microsoft and Cisco. And we've got a track record of supporting and understanding their environment. So we've really engaged from design through the implementation, supporting the EA and were then awarded the network transformation project recently. So we're currently going through that project implementation. But through that engagement, you can see that, that's then led into a smart campus proof of concept. And a smart campus proof concept is really grabbing all the data from the network and from their environment and turning it into meaningful customer experience metrics and insights so that they can really tune their environment to their students and drive the right student and research and business engagement with their end users based on data and based on what type of campus experience they want to drive for the future. As you can see, it's -- well, this also involves technology. And while it's access points and switches, it is about business outcomes. It's not about selling more wireless access points and switches and licenses. It's about engaging with the customer around outcomes and how it impacts their future as well. Through that, they will buy technology. But we're obviously engaged around those business outcomes. You can see the quote from Mark Keenan, supporting the way that we've engaged from a business perspective that then leads to those business outcomes. Okay, in terms of the team and our sales and go-to-market, our sales team is a differentiator. I believe we are the best team in the market. And there's some reasons for that. We certainly have the scale and capability. And we do have salespeople all the way around Australia, supported by a sales operations team and a customer success team. We also have a growing number of specialists. And our sales specialists are in the areas of security, networking, et cetera, areas that are of focus for us and where we've invested where we need deeper specialization to really engage further with customers. The sales channel is a face-to-face sales channel. But increasingly, we see our customers wanting more of a digital channel. And we do have a D3 Commerce platform and a Lifecycle 360 platform that are ways of engaging our customers, so they can procure and engage with us from a digital perspective as well. And we see that increasing into the future, where our digital footprint needs to be more engaging, bigger and wider to really capture a larger part of the market and also engage with our customers over time. I'm going to talk about that in a second. Okay. And in terms of customer and tenure, we've got a mix of long-term customers. We've talked about some of those customers being large government customers and some of them being corporates as well. But the opportunity is absolutely to cross-sell and upsell into these customers even further, given our footprint. As I mentioned, our digital platforms, our -- my vision for a digital future is to even go further with these platforms. Our D3 Commerce and Lifecycle 360 platforms are coming together to really drive a broader, more meaningful engagement with customers. They are connected or will be connected with our vendors. And through that connection, our customers can really purchase, engage, visualize and optimize their environments by seeing their entire environment through a digital platform. So whether they've got assets that are aging or moving or need to be optimized, they can see that environment. They're already doing this with us today. But we're connecting this platform even further for a greater digital future. And what that means is more customers, more engagement, more meaningful engagement. And we apply those customer success methodologies into the platform, so it's not only dependent on our face-to-face engagement, we're digitizing the great customer success approach we have via our platform. So some of the reasons we're winning in market, I think, are down to the people that we have in the team. We've got a great sales team with a great culture. We've got people that understand business. They understand technology as well. And they really engage with customers across a number of different verticals, depending on their skill set. We do partner with great partners. And shortly, you'll be meeting Steven Worrall from Microsoft as a great example of one of our key partners. And how we partner is key to how we turn up. It's supported by our culture. It's also supported by the completeness of our services approach from a lifecycle perspective as well. And when we bring all these elements together, we are really successful with customers, but we're also really successful with partners and really successful with each other as well. So these are some of the reasons that when we approach the market, when we respond to a tender, when we partner and we get the right solutions for our customers, we are successful. Another thing that's shifting is our vendor strategies. Our vendors are shifting their strategies as are we. And so Brad and Graham both talked about our key partners. And we've got a long list of partners beyond these four. But when we think about our core vendors and where we're really focused, we build vendor strategies with them together so that we know how we're focused and how they're focused and how that complements or works with them to deliver great solutions for our customers. What is happening is there's a shift. And we've talked about a shift towards lifecycle. We've talked about how our customers are consuming technology differently from a software and as-a-service perspective. What comes with that is also incentives and focus shifting throughout the lifecycle as well. So we've always had focus on selling and procuring products and services for our customers and implementing them as well. But we are now, and with our partners, really moving towards this era of moving towards more adoption, more consumption and an increased focus on managed services, operating and optimizing environments as well. Okay, with that, I'd like to move onwards to Steven Worrall, who is the Managing Director of Microsoft Australia and New Zealand, been with Microsoft since 2017. And Microsoft has more than 10,000 partners in Australia and New Zealand as well, and we are one of them. So with that, Steven, over to you.

I appreciate it very much. Thank you. Do I need that?

Yes.

Thank you.

I think you'll need that.

So I think I'm just using the -- I thought I've been given a couple of instructions already in terms of some of the technical difficulties that we've had so far this morning. So what are the odds for a Data#3 investor presentation that we would have a technology issue? Laurence has assured me that it's not Windows. Is that right, Laurence?

[indiscernible]

We'll have to check that later. But look, John, thank you so much for the introduction. I appreciate that very much. Also, very interested to see your model here in terms of how you're thinking about managing your relationship with organizations like Microsoft. I'd be very happy to offer some thoughts on our perspective of that model as we get into the dialogue. But I think I have just a few slides that I wanted to share. And Laurence, I'm going to take questions as we go or at the end of my segment?

At the end of the segment.

Very good. And then I might have to exit stage right, if that's okay. So if I can then jump to the first one here. I do know how to use a clicker, there you go. So look, I had just a couple of messages to share. The first and most important is the relationship we have with Data#3. It's fundamental to the operation of our business here in this part of the world. Data#3, as you'll know, have been in operation for many years. We've been a partner together since 1994. In fact, that was the time, Laurence has just explained to me, that he joined the organization. And back then, I personally was working at another firm, a company you might have heard of called IBM. So I've known Laurence for more than -- well, coming up to 29 years. And it's a long-term partnership both personally and professionally that, I think -- well, the results speak for themselves in terms of what Data#3 has achieved over so many years. This summary just gives you a sort of perspective of the things that we think about when we look at our partner community. I won't go into all of these. But suffice to say, as I said, Data#3 are fundamental to the operation of our business. They go to the heart of how we operate our business. Our business model is built on relationship with our partners and the role that they play, the crucial role that they play in managing our client engagement and, of course, helping our clients to get the value from their investment in the Microsoft portfolio. A couple of things here that stand out that I think are really important. You'll see at the top right, I'm going to say the Copilot Early Access Program. Data#3 are one of the small number of participants in that program. I'm sure there may be some questions on all things Copilot as we get into that segment of our conversation. But suffice to say, this is a big part of the future of our business here and, of course, around the world. And Data#3, as they are in every part of our business, are at the forefront of how we think about bringing those new services to market. You'll also see the number of individual exam, certifications and assessments that goes to the heart of a fundamental reality of the partner community, which is it's the partners that have the deepest skill and the deepest capability that inevitably allow our clients to get the best value from their investment with us. And that's another reason why we so value the relationship with Data#3 because an organization that's operated so long and so successfully in this market has clearly understood that issue over many, many years. And whether it is with other partners is certainly true in our relationship that Laurence and Brad and the team invest deeply in ensuring that they bring the very best capability to the market because they know how fundamental that is to ensuring that they are the chosen partner for our clients more often than not. So that's a little summary of the Data#3 relationship. Look, and then a couple of slides maybe to talk about a topic that is of deep interest to all of us, which is this new wave of artificial intelligence that we see sweeping across the sector. We have been fundamental, I think, to much of what has happened over the last 12 months. But we know that this is a market segment that is evolving rapidly. And there's so much to play out. When you zoom back for a moment and think about some of the technology evolutions that we have participated in or that have played out over hundreds of years, in fact, over the last 1,000 years, you'll see the impact that technology has had on GDP and indeed productivity more broadly. We think this moment, as early as it is in this wave of artificial intelligence, we think this moment is as profound as some of the others that you see listed here, whether that's the advent of mobile computing as you see there; the evolution of cloud computing; and of course, going all the way back to the printing press back in the 1400s. We feel that, over time, this period will prove to be as important as some of those evolutions and the use of technology. At the same time, that's happening -- and this might go to add further weight to that first thought, we're seeing a fundamental shift in the business model that is at the heart of how my industry operates. Cloud computing, which has been popularized now for, let's say, a decade was all about providing access to compute services wherever you were and by sharing the capital load associated with the delivery of that service, thereby, democratizing access to services for the largest and, of course, the smallest organizations to leverage. Under the covers, of course, that meant organizations like Microsoft and other hyperscale providers had to use their balance sheets to provide that infrastructure. This moment with AI is turbocharging that transition. And just last year, we saw for the first time in our history, the crossover between capital investment and our investment in R&D. For an organization like Microsoft, that's a pretty telling moment because it points to the future where that capital expenditure line is only likely to continue to accelerate very dramatically. In fact, this year, we will -- in fact, last year, we spent something in the order of $34 billion in capital across our operation. We were running at about $4 billion to $5 billion to $6 billion a quarter. And we're now running closer to $10 million. It gives you a sense of something very, very deep that is happening in our business. And that is the compute capacity required to provide these AI services is unlike anything that we've seen before. And the demand that we see in the market for these services, the signal we are seeing here in Australia and elsewhere, tells us that we need to build out that infrastructure and build it out rapidly. That's why we're seeing such interesting developments in the AI market. NVIDIA, in particular, we're seeing a massive demand for that organization, given the scarcity of GPUs in the market. And of course, while that particular issue won't last going forward, what you do see there is a massive realization across the sector more broadly that investing in this infrastructure is vital to ensure that you are able to provide these services for your customers and to the market more broadly. And so this is a very fundamental shift in our business that is capturing a lot of attention in our financial briefings. I do want to talk briefly about the use of this technology because it's one thing for the industry to be excited about the potential. And indeed, many people who are using these AI services are genuinely excited about how this will transform the way in which they live their lives and how they conduct their work. But of course, there's so much more that needs to be done in terms of the permission and the social license that goes along with the use of artificial intelligence. We are participating very directly in those conversations as you might expect. Because we feel that's fundamental to the relationship we have with our customer base. It's also part of the partnership we have with Data#3. Because for us to continue to develop and build our partnership, trust in the services that we provide and trust in the services that Data#3 and Microsoft provide together is at the heart of our value proposition. I think it was true for Data#3 back when it was formed. It's certainly true today. And it's fundamental to how we think about the evolution and use of these new services. Interestingly, we're seeing different models evolve, state-based approaches in some countries, more rules-based approach in the European Union. Just recently, the President of the United States signed an executive order to lead to a more of a market-based approach, which I expect Australia will fall into that sort of category. Our minister, Ed Husic, was in the U.K. just recently, engaging on these conversations. So there's a lot to play out here in Australia in terms of how this technology will be used and, of course, the many, many applications of AI that we have yet to see. While we are bringing many first-party services to market, we are really just at the beginning of this wave. And it's an exciting moment because I think it means that for our business, we see a great opportunity to continue to add value and be relevant in the sectors of the market that we serve but also talks to the future of Data#3. Because this wave is as consequential and is as significant as any I have seen in my 32 years in the industry. And working side-by-side with an organization like Data#3, we fully expect to bring the full value of these services to our customers here in this part of the world. Maybe the last thought then. Yes, I wasn't sure about the image. But anyway, here it is. Look, you may have seen in the press recently, we made an investment announcement with the Prime Minister in relation to building a data center infrastructure here in Australia. This is important because it goes to the heart of how do we contribute as Microsoft to the growth of the local economy, how do we think about our role here, 40 years here in operation in Australia. We feel -- we think very deeply about the role that we play and how we can continue to play a constructive role in helping the Australian industry leverage the very best technology so that we can evolve the shape of our economy, so that we can address the productivity challenges that we have. And so that ultimately, we can participate in creating roles, opportunities, economic opportunities for the next generation that have been as positive as the ones that we have enjoyed or I have enjoyed during my working career. The announcement also included the intention to continue our work with skilling programs to ensure that more Australians have access to the digital skills that they need to participate in the digital economy. More than 300,000 Australians will be able to leverage some of those assets. And we're working closely with government, state government and federal government, to continue to develop new pathways for the development of new curriculum and new ways of helping people to pick up skills. Including the New South Wales government, their announcement of the Institute of Applied Technology out of Meadowbank, a purpose-built facility working with TAFE to create new pathways for many, many, many more Australians to get access to the skills that will be necessary for them to continue their career journey, or indeed, to get a job in the technical and digital sector. And so we're very proud to make this announcement. We also made an announcement in relation to our participation working side-by-side with the Australian Signals Directorate to create the Microsoft-ASD Cyber Shield, which will contribute directly to establishing a more safe and secure environment for all of us to live within. And if you saw the ASD announcement yesterday, the latest cyber threat report for the nation, you'll know this is a pressing and urgent issue for all of us. So that's probably more than enough for me. Maybe I'll stop there, Laurence, and I'm very happy to take questions or comments from anyone. And you can tell me when I should get the hook to get off.

If you get the questions, if you could repeat the question.

I'll be happy to. And we have one over here. Hello.

I'm Ed Woodgate from Jarden. Two questions. The first [indiscernible] asked the question about before, it's redirected to you. So can you just talk to the [indiscernible] model that [indiscernible], et cetera, say? And then I guess also, [indiscernible] do you expect [indiscernible] get more value [indiscernible] because it's a new solution? And then the second question is, I guess, over the course of your career, you've seen the reliance on the challenging [indiscernible] the vendors [indiscernible]

So for the record, Ed has asked two questions about the commercial model for our partners in relation to the use of Copilot. And then secondly, an observation or a question about partners' dependence on technology firms in the market.

Vendors reliance on the partners?

Vendors reliance on the partner. So my reliance on Laurence and the team, for example, got it. So first and foremost on Copilot, we haven't finalized and formalized all of the commercial arrangements in relation to how partners will participate in the sale and then implementation of Copilot. Suffice to say what you have seen in the market is that we're looking -- we have an early adopter program, which is underway in the country. We have early availability also here. And what we're seeing is those early lessons being applied within organization to determine how they will move forward. And so some of the commercial details are yet to be finalized. What we can say is the -- and you'll see this reported by the financial press when some of these services first came to market. The profound impact this is likely to have on our business. The fact that Microsoft 365 Copilot, I'll just use that one because there are several co-pilots, is intended to be price of about $30 per user per month. And when you think about the number of Microsoft 365 users we have on the planet about $400 million. You can make your own assessments of what that might do if a decent share of them took up the Copilot service. Of course, there's Copilots in security, [ GitHub ] and other aspects of our portfolio. To your question, I fully expect partners to participate fully in the execution of those services into the market, because it perhaps comes to your second question. We -- the vast majority of that revenue goes through partners as a business model. I talked a bit about some of the changing aspects of our business model. What's not changed is that dependence. And dependence is probably the wrong word it's -- partnership is the right way to describe it because Data#3 and other partners here in the country provide an essential service to connect our clients with the value delivery of the capability that we provide. As you might imagine, as a manufacturer and designer of these services given the ubiquity with which these services are now seeing in the market, it becomes very difficult for us to play that role. We have it in the past and we have no intention of in the future. And we also know that it becomes very client-specific industry applications. The value-added goes around the services because rarely use it all of our Microsoft. It's about an ecosystem capability. And as organizations like Data#3 who have their deep understanding as a client, their industry, the circumstances, that provide that necessary translation. So the answer to the second question is that dependence and partnership will continue to deepen and strengthen, I think, as a consequence of these announcements because the value delivery will be significant for our clients, and you might expect that for our partners actually participate in the rewards that come along with that outcome. Is that helpful?

Yes, very helpful.

We've got one here and then one there.

[indiscernible] how important is speed to market when you're thinking about the [indiscernible] available for AI structure? And then a follow on that -- feel like your company is self-sufficient [indiscernible]?

So Ben's question was in relation to the speed to market and having the compute capacity to meet the market. It's an excellent question because that's the deliberation is -- Amy Hood, our CFO, and [indiscernible] and the leadership team make regularly in terms of how quickly do we need to deploy our balance sheet. You can see the rapid acceleration from the earlier slide, Ben, that would suggest that we've made some very clear decisions about how quickly we need to act. Equally also, this is a very important moment for the industry and for Microsoft because through our partnership with OpenAI, we invested $10 billion in OpenAI last year, as you well know. And now we're bringing those services and getting them in Microsoft capability, the demand signal that we're seeing is sufficient to suggest we have to move very, very rapidly. Even so far as in the last 12 hours, we've made a public announcement that we will be -- are investing in our own silicon and our own hardware capability because of the shortages we're seeing of GPU capacity. So this is a very different time, right? Microsoft has historically not made those sorts of decisions, perhaps because we haven't needed to. But here we are now investing in compute capacity silicon to ensure that we can creep up with the demand that we see. So very significant. Are we making enough of an investment here? I can tell you that the announcement that I made 3 weeks ago is not the sum total of the investments that we're making in the nation. And you should expect to see further announcements from us over time. And then there's one over here.

[indiscernible] moving very quickly in the infrastructure [indiscernible] so there's quite an extension on to question just how I guess you're seeing balance the structure and software demand and then maybe on the infrastructure side, in particular, self-build as opposed to like -- third parties to help you [indiscernible] capacity?

Yes. So it was Rus. Yes, the question from Rus was similar in terms of how we're managing the dynamic between the software capability, which seems to be rushing ahead and then the compute capacity that's required to ensure that you can deliver that service. Of course, Rus, a lot of it comes down to the actual take-up of the service. And so our first-party strategy to bring Microsoft Copilot to market, Security Copilot, [ GitHub ] Copilot is very deliberate. We want to get this technology in the hands of users as rapidly as possible. And the demand signal that we've seen so far has obviously led us to make some of the decisions that have got us to this point. We're being very thoughtful about that signal. In regards to what we see 3, 6, 9 months out, so that we can continue to monitor and align the delivery of capability through the software, but also then ensure we have the compute capacity where it's needed. As you might imagine, for these services, you quickly get into sovereignty issues as well and the need for clients to be confident that particular data doesn't leave offshore for argument. So you're not just talking about mega data centers in certain locations in the world. You're also thinking about the geographic footprint, which again is why the announcement we made, we think is so consequential because it's part of the U.S. Australia partnership that we would logically want to invest here side by side as Alliance partners. We think that's a massive vote of confidence in the Australian economy and the opportunity for us. But to your point, getting that balance right is obviously something that we look at very carefully. And as I said a couple of times, we were at the beginning. And so as we see take up as we see the use of these services, as we see the business cases that start to flow from the use of these capabilities, I expect that will then inform even further how we think about that time line. It's also, again, why we're working on this topic in multiple ways. So we're working with NVIDIA. We're working with our other chip partners. We're now providing GPU capacity from NVIDIA as a third-party service. We're providing OpenAI on our platform. We're working with the ecosystem. There are multiple routes to market as well. And so that also is part of their calculation that we have to undertake to work out how do we have the right capacity at the right place at the time that is needed.

[indiscernible] customers due to supply constraints and obviously [indiscernible] has some challenges [indiscernible] during operations -- services? And how do you get to [indiscernible] to help you actually get that market [indiscernible] timeframe?

What was your name?

Nick Harris.

Nick Harris, question about the process to ensure that we build the capability here in Australia and obviously working side by side with government to -- actually get it done. Yes. It's a really important question. And again, part of the reason why we've -- the announcement is obviously important, but hopefully, [indiscernible] of what really matters, which is the close collaboration that we work on and invest on -- investing with the government. These sorts of investments require collaboration across federal and state government. They also go to the heart of a shared vision of what we think these investments can do for the country. And so we observe every protocol and every approval process, as you might expect, in any jurisdiction across the country, but the investment here, of course, is a great signal to the Australian government about our intentions. We talked to a shared belief in what this will mean for the country and how we can hopefully stimulate further economic activity, especially at this time, when we talk about productivity as a nation. This seems is a really important topic, creation of high-paying jobs for more Australians. These are really core topics for all of us as members of the community. And so working side by side with state and federal governments, we feel confident that we can achieve the things that need to be achieved. Again, being mindful of the fact that we're early in this wave. And I'm sure there will be changes and adjustments as we go forward. The great news, I think, is that these sorts of investments haven't been announced in every country around the world quite obviously. And we're very proud working here in Australia to bring those investments to our country.

[indiscernible], capital to service or [indiscernible]?

Yes. The capital and so how is the capital being used, it's a combination of land. So we -- part of this announcement is 9 new physical locations. To this point, we have partnered with third parties to provide data center capacity, and we still do, and we'll do it going forward. But this announcement specifically was about 9 new data centers that we will own and operate. So it's the land, it's the construction of the data -- the physical data center. It's obviously all the service and technology that goes into those data centers, and it's 300 people that typically operate a medium-sized data center around 24/7 basis. So it's all of the above. So there's a slide out of Kemps Creek. So it's a beautiful spot in the west. So I'd love to take you out this Sunday if you'd like to come out, Nick. I'm sure you enjoy it. Maybe one more question, [indiscernible].

[indiscernible] question about function [indiscernible] every entity without [indiscernible] Copilot can be -- into my spreadsheet -- functionality, that's...

The functionality that we are talking about in Copilot -- Microsoft Copilot is essentially the ChatGPT capability. And so obviously, ChatGPT is available publicly and any information that you ingest in that engine is then available publicly. One of the simplest ways to describe the value and benefit of course is that in Microsoft 365, then it is constrained within your organization with your security protocols in place. So yes, you will be able to ingest data, whether it's an annual report, financial data and other to create summaries and other perspectives that information that hopefully allow you to consume it and work with it in a more effective way. It sounds like we need to get you onto the Copilot program. That's the intent. So I'm going to finish. I just want to say, finally, I wanted to acknowledge Laurence, my friends and a colleague someone has achieved a great deal in the market over a very long period of time. I think transitioning late February, early March. So congratulations to you on -- for all that you achieved the Data#3, and I wish the Data#3 management team all very best with the transition. Brad, I know you'll do a fantastic job. Thanks very much.

So yes, unfortunately, [indiscernible] isn't able to join us today at a fairly late notice. So you have the pleasure of me talking about our people, which is excellent. So we wouldn't -- there's no way that we can possibly be successful without our people and our development and our people. And Steve mentioned a number of the things that we're about to cover in terms of investment in the right skills. So let's go in a little bit of a people journey for a few slides before I hand over to Richard to talk about our security operations. So our people costs are $200 million annually, which accounts for 87% of our expenditure. So 87% of the expenditure. You want to make sure that you've got a pretty good people strategy in terms of how to look it after it and encouraging your people. Substantial investment underscores our commitment and nurturing our greatest assets at workforce. The investments we make in our people are instrumental in our mission to not only attract our top-tier talent, but also to empower and support our ongoing development of our people. As an employer of choice and a certified a great place to work, our values of heart, which I mentioned earlier, which is honestly excellence agility, respect and teamwork have long underpinned our exceptional culture. This culture has yielded remarkable outcomes including consistently high levels of people satisfaction, lower than industry average turnover and an average tenure of 5.7 years, and a work environment where we can harness the power of people and technology to deliver a digital future for our customers. So let's talk a little bit about our key people opportunities and risks. Even with these strong fundamentals in place, we're not immune to the risks supposed by macroeconomic trends. We are, however, well positioned to seize the opportunities that these trends present. We see key people opportunities and risks for our business as being talent shortages, skills for the future, diversity and inclusion, and a technology-enabled innovation and automation. Let's look more closely at each of these opportunities and risks. The labor market continues to be employee-centric, means due to lower unemployment and migration and further exacerbated by our industry skill shortages and key technologies. Financial pressures due to the rise of interest rates and cost of living have driven wage inflation, resulting in the need to ensure our employee value proposition is clearly articulated and driving our strong reputation in employee brand. Without that employee brand, how are we going to attract the right staff and the right talent that we need in our business. Tactical improvements such as the enhancement of our careers page and social media platforms, along with the release of our ESG report, support our brand and promoting compelling elements of what we offer prospective candidates. Data#3 is a key differentiator in having our own embedded recruitment and sourcing division called People Solutions. This gives us the firepower and expertise of a recruitment agency. People Solution provides us with an in-depth understanding of the technical skills and competencies our customers need to achieve the full value from their technology investments. People Solutions source talent for Data#3 and many of our customers for ourselves and our customer environments, including contracting permanent and -- permanent recruitment and staff augmentation. These services give us the flexibility to increase our tech workforce quickly and effectively for the project work and staff changes. We are committed to forging accessible pathways for individuals at the onset of their careers and in the ICT industry. We have fostered connections with collaborations with the education sector, including universities [indiscernible]. And Steve mentioned previously, where he needs about that 300 people as well as further investments underneath the cyber shield investment that they also discussed. We have initiated numerous training opportunities aimed at supporting early career students, women in technology and First Nations people, thereby enriching and diversifying our talent pool. Our strategy to source across multiple platforms saw an increase in applications from LinkedIn. We saw a 280% increase in applications from LinkedIn. LinkedIn and Microsoft company, of course. And Data#3 career site, a 215% increase from our Data#3 career-site data#3.com, with, however, a decrease from set placements. This highlights the importance of using and improving these platforms as key sourcing streams. Employee referrals, resulting in placements increased by more than 20%. So that's good. And the use of external agency recruitment decreased, which resulted in some cost savings. Talent remains scarce in critical areas, and there is fierce competition for top skill professionals, for example, specialized vendor technologies such as cybersecurity and specialist sales roles. Our opportunity lies in attracting and retaining top talent across the board. A stable and highly skilled workforce is critical for our profitability and also for achieving our strategic objectives. Let's talk about the skills for the future. As part of our FY '24 strategic plan, we've established an operational action focused on people development. The outcome of which will be a 3-year workforce plan chart in the course of developing and maintaining critical skills needed to future-proof our business. The tech council predicts Australia is on track to have 1.2 million tech workers by 2030. With the current workforce at 935,000, so it's a pretty big increase over the next few years. This is due to strong growth with an 8% increase in technical jobs, double the growth of all other jobs in the past year. Tech is the seventh largest employee industry -- employing industry in Australia. We have strong relationships with our vendor partners, as you've just seen, which provide access to exciting technologies with -- and Steve just covered off that we're one of the first partners to internally deploy M365 Copilot. And we also already have service offerings for Copilot in Microsoft marketplace. So we've already worked with Microsoft to upskill our staff, which in turn assist us to support our customers in developing their AI strategies and adopt the benefits of AI across their organizations. It is exciting and leading-edge and innovative solutions and technologies, you've Data#3 through the edge to attract and retain talent. Who wouldn't want to work on M365 and Copilot, it's the newest latest thing out there. Come and join Data#3. All right. On learning -- ongoing learning ensures our workforce stays agile and responsive at consistent meeting dynamic challenges. Beyond the significant amount of technical and vendor training our people undertake regularly, we have a robust learning and development program, which delivered over 10,000 hours of professional development training and coaching for our people in FY '23. Innovation, diversity and inclusion. Our culture is primed for innovation and the era of AI is upon us, not only are we helping our customers, we're leveraging this technology internally. And there have been a few questions asked about how Data#3 is leveraging this technology already today. A recent example is how we've utilized Microsoft's AI capability to remove the manual effort in managing our customer supply chain data. We can now automatically categorize nearly 2 million products, meaning more efficient and accurate quoting. You can imagine all the vendors that we have from Microsoft through to Cisco and others and how many products do we have in our catalogs that we have to manage and make meaningful for people to be able to quote them effectively. More importantly, this provides a reallocation of human time and effort into more high-value activities. In doing so, we're not only increasing the operational efficiency of the business, we're also creating opportunities for our talented people to work on more innovative and high-value assignments. The productivity gains of using AI will potentially provide up to 30% guide right our output. We discussed this earlier. And I think the percentage of the productivity will depend on the use case. Some will be a lot higher, some will be a little lower with increasing staff costs, which allows us to leverage our staff base and drive our internal cost ratio down. The opportunities for enhanced productivity efficiencies and cost savings are immense and Data#3 is working to ensure we capitalize on these fully. Data#3 is a diverse workplace with 28% of our workforce having English as their second language. Additionally, over 60% of our workforce have carrying responsibilities. Data#3 is dedicated to providing our people with the support they need to balance their personal and professional commitments. It's a core part of our culture and reputation is one of Data#3's leading employers. Data#3 became one of the first organizations in Australia to be accredited as a family inclusive workplace. This accreditation not only endorses our commitment to fostering an inclusive culture that bolsters the support we need to provide all of our people with care and responsibilities. Inclusivity in our workplace leads to more innovative and creative teams, which fuels innovation and strengthens our competitive advantage. We're actively fostering a diverse culture and promote inclusivity, collaboration, innovation and supporting employees well being essential for improving morale and productivity. Managing an intergenerational workforce is a challenge we actively embrace. Different generations bring diversity and expectations, life experience and world views, all of which we strive to accommodate through our core values. We have made significant strides in enhancing gender diversity within our workplace with women representing 25% of our workforce, which is around 7% higher than the industry average. Succession planning continues to be a key focus for us all, and I can certainly advance for that. This is evident in the recent succession plans with the new appointments across the board and senior management. These plans obeyed by our strong talents and development programs. Workforce growth. We've seen a consistent increase in our headcount over the past 5 years with a remarkable 14% growth in the last 12 months. This growth has primarily been in our services business, fueled by the addition of several large high-profile customers and a surge in demand across our comprehensive services portfolio. Our managed services have successfully commenced service delivery for new customers in finance, government, retail and hospitality sectors. Our professional services business has managed and delivered major projects across construction, resourcing and education. Resource levels across our business have grown in line with the increased growth in activity with the potential for further operating leverage as we continue to grow the business with less incremental headcount growth. Our average tenure of 5.7 years underscores our wealth of experience, IP and skilled talent. We're diversifying our talent pools with a mix of permanent, limited term, casual and offshore talent to navigate talent shortages effectively. For 8 consecutive years, Data#3 has been recognized as an employer of choice in HRD Magazine. In 2023, we have earned certification as a great place to work. These external validations underscore our culture and employee experience, further positioning Data#3 as an attractive employer in the Australian IT market. This investment in our people has successfully reduced turnover, increased retention, enable us to attract highly sought after talent and ensure the fulfillment of our strategic and operational goals. The key workforce data highlights that we have a solid foundation from a talent perspective, an exceptional employee of brand, a highly engaged workforce and values-led culture, which provides fertile ground for innovation and exceeding customers' expectations. These people-related opportunities are central to our future success. Our $200 million investment and commitment to creating a diverse, inclusive and adaptable workforce underpinned by an innovation and commitment to continuous learning, up-skilling, and this differentiates us in the dynamic IT market and positions us for success. By addressing and investing in these key people opportunities, we empower ourselves to navigate challenges effectively meeting strategic objectives and driving profitability and sustainable growth. In doing this, we will ensure the future success of our people, partners and customers. That's it for our people. Thank you. I will now hand over to Richard Dornhart, our Security Practice Manager to provide an update on security.

So it's Richard Dornhart, I'm the Security Practice Manager at Data#3. And what that essentially means is I'm responsible for our go-to-market strategy and sales within specialist organizations within one of the -- run one specialist business that's been spoken about. I also have the privilege of managing our security sales specialists and solution architects. And I'm actually a retreated Data#3. So what essentially that means is when I migrated to Australia, in 2003, I started as a consultant at Data#3, implementing some of the technology that I'm going to talk about today. And I left in 2006 and spent some time at a couple of different vendors and 10 years ago. So I just clicked over 10 years. 10 years ago, I rejoined. And here I am in front of you today. So thank you very much. So I recently attended a presentation by one of our strategic vendors, Palo Alto Networks. And the presentation focused on the cybersecurity challenges that our customers are facing as they work through some of their top business objectives. And obviously, this isn't a full list, but it's -- I just chose 3 for the purposes of this presentation. But what I really want to do is I want to drill into the digital initiatives that are connected to each one of these business outcomes. And these are things that CIOs or Chief Information Officers are focused on in terms of ensuring that they can deliver the outcomes around these business initiatives. And so they all represent significant opportunities for the organizations. However, not without introducing a level of complexity for the IT teams and the Chief Information Security Officer, which I'll narrow down to the CISO from here now. So if we take a moment and maybe put ourselves in the shoes of CISO, so the typical -- when you look at each of these initiatives, they see risk and they have to think about how they mitigate that risk in an organization. So they start thinking about the cybersecurity projects that they need to deliver each one of these initiatives. And you can see that the level of complexity that they have to deal with increases as they start thinking about the cybersecurity projects. And once they've been -- once they've started to think -- once they got that sorted, they have to then start thinking about or considering the tools each project will need from a solutions perspective in order to ensure a successful outcome. And as you can see now, the complexity of the problem increases significantly when you start thinking about the tools. And it's at this point that the CISOs have identified the digital initiatives. They understand the different projects and have identified the tools that they need to look at and contend with. But then they have to start thinking about choosing solutions. And you would think that, that would be pretty simple, but it's not. And I've been using this for a long time. And I'd have to say that cyber is probably one of the only industries where you can put a slide like this up and so many vendors and so many areas of focus for organizations. So this slide, if I was to summarize what you can see here because it is a bit of an eye chart, and there will be a test at the end of this, so no. So there are 18 primary categories, as you can see on this slide. And if you start thinking about -- if we look at the subcategories, there's 47 subcategories. And so each one of these solves a particular business challenge for an organization, and that's what our security teams are thinking about. So if we just -- I thought there was no [indiscernible] there, but it's gone, so that's okay. So if we couple this with the evolving threat landscape, and the fact that more data is online than ever before. And the fact that organizations are looking, and I'm sure each and every one of you is probably significant cybersecurity controls in your organization, and you want that to be as frictionless as possible. You want to know it's there, but you don't want it to impact how you interact with your customers and the information that you manage on a daily basis. We're also all very highly mobile in terms of how we approach our day-to-day jobs. And just about -- and we've had a lot of discussions here about cloud today, and just about everything we do today is in the cloud. And so that actually -- so you get a sense of the complexity that cyber teams have to deal with, the challenges, but also the opportunities that cyber brings because it will give us the opportunity to interact with our customers in ways that we never thought was possible and with our employees and just to ensure that we can do that securely. So in our practice, we have a saying complexity is the enemy of security, and so our objective is to help our customers navigate the complexities of cybersecurity, ensuring their digital ecosystems and information remains secure. And we -- and while Data#3 is taking advantage of the market opportunity that cyber has. And so there's been a number of slides put up here today around the total addressable market. This is just one view of the total addressable market from a cybersecurity perspective, it's not a complete view. But it absolutely would come at no surprise to any of you in the room that this is -- that the security solutions in the market -- the security solution market will continue to increase, and cyber will continue to be a focus for every organization. It's an area that we're continuing to see significant growth. And I want to focus now on how we'll capitalize on that growth. And I'll start by talking about what we do in the practice. And so I guess in the spirit of remaining trying to simplify things, we have worked to break down what we do into 5 [ distinct ] areas. And I should call out because there's been so many conversations about AI, and AI is absolutely embedded in all of these areas, and we're continuing to see increases in how that AI is being utilized. But if I first focus on safeguarding our customers' identity, information, infrastructure and applications this is essentially where we're talking to our customers about the business challenges they have and the technical controls that they need to ensure that they can keep their employees and customers safe and their information. So we're doing a lot of implementation, a lot of our architecture. Second is around proactively assisting our customers, managing cybersecurity risk. So in the beginning, I think Brad mentioned Business Aspect, our consulting organization. They have immense capability in this space. And this is often how we lead the cybersecurity conversation, talking to our customers how we manage governance, risk and compliance. And I'll talk to some of the solutions and services that we offer about that in some future slides. So managed services and SOC. So I think Steve mentioned some of the skills gaps. Cyber is absolutely not immune to this. I was at a presentation at Griffith University, and there's a number of different statistics on what the skills gap looks like for cyber, but it's significant. And we hear numbers upwards of 30,000 individuals. So there's a lot of focus on helping our customers bridge that skills gap by providing managed services and SOC services to help them deliver on the security challenges and opportunities in their organization. The infinite loop or the racetrack, John spoke about it. I almost called in JT. That's what we call them around the office. But John spoke about the [indiscernible] it's come up for many times. This is super important in terms of how we approach security with our customers, because oftentimes, our customers are investing in significant technology platforms and organizations like Microsoft, Palo Alto networks or Cisco. And we want to make sure that we work with them throughout the life cycle of their requirements to ensure that they get as much ROIs as they can out of the platforms that they're acquiring. And they utilize that technology and they implement it so that we utilize through best practice approaches. And finally, through talking about cloud and helping our customers build strategies to migrate to cloud to ensure that they do that securely. So what I -- what we've done is we've broken down how we approach this and how we work with our customers, we broke it down to 4 questions, and I'm going to take you through how we would talk to a customer about what we do? But you can see the 4 areas that we focus on within the practice, advisory, assurance, technology and managed services. And we often start with what does an organization need to plan for? And so we're helping them understand some of the security requirements around maybe a particular industry that they work in or their regulatory compliance frameworks. And this is primarily driven by the Business Aspect team. And this helps organizations ensure that they do have the appropriate level of compliance, et cetera. And you see there's a number of offerings that we have there. One that's particularly of interest at the moment is information, protection and governance. As we talk and think about AI, obviously, information is a big part of that. And we want to make sure that when we implement the AI, it's done securely. Second, we want to help organizations answer the question, am I protected? Now this is integral to any cybersecurity strategy because we want to make sure that we understand where our gaps are -- through solutions and services like penetration testing and vulnerability assessment. That gives us the window into where there might be gaps that could be exploited. We also want to make sure that we're helping our customers through education. So I suspect and I hope everybody in this room has been through some form of cybersecurity education. Yes, I would expect. And it's super important because we are the last line of defense. It's very easy. We implement a lot of technology, but ensuring that our employees and our customers are educated in how to defend themselves against potential malicious activity is very important. And we have a number of solutions and services there. So the next thing is technology, and there's been a lot of conversation today about the technology we deliver. And we want to help as an organization. So if you think about the business challenges over there the tools that I talked about and the vendors, when we get down to the technology, there's a lot of options. And so we want to make sure that our customers understand the technology that they need. And it typically boils down into these 5 areas that we focus into. And finally, something that we're working on maturing is helping our customers run the technology. So we do that through our professional services organization and our managed services business, and there's a number of -- and actually a number of our partners, and there's a number of solutions and services. So what you see here is our offerings across the 4 pillars of the practice, and this is how we engage with our customers and talk about cybersecurity on a daily basis. Now as you can imagine, we have a number of solutions -- or a number of tools that we provide. Now if you remember back to the eye chart, this is where the test comes up, but no -- so what we've done is we've looked at those vendors, and we've built our own portfolio and our own platform. Each one of these vendors represents an opportunity for us to engage with our customers to help them solve business challenges. Some solve individual issues like privileged access management, and others have a full range of capabilities. And that's really what we see between where the blue and the vendors that aren't in the blue, the differences there. So I could -- I just -- I could spend an hour talking to you just about the customers that we engage in, but I only have a couple of minutes left according to [indiscernible], who just told me that. So what I'm going to do is I'm going to focus in on 2 quick examples to talk about where we're helping our customers and delivering outcomes. And first one, I'm going to talk about the Western Australia government and a project that we've jointly delivered over the last 2 years called Project Fortify. And Project Fortify was an initiative by the WA government -- digital government or as they call DGOV and the Department of Finance to deliver upon the goals of the WA cybersecurity policy. And we've been assisting the government in deploying security services across 3 key domains. And the first is the -- yes, including security operations, Essential [ Aid ] compliance, which is a regulatory framework that's been put out by the federal government to help organizations ensure that they're secure and also legacy systems and risk assessment. To imagine there's a lot of old technology out there that needs to be protected. We can't always migrate as fast as we'd like to. Therefore, we have to have solutions and services in place to protect legacy information. And we've delivered these services across a number of different government agencies. And the second one is a very recent one. It's the Melbourne Racing Club. So with cyber crime increasing and frequency and complexity, the Melbourne Racing Club as a cybersecurity partner to help improve visibility for vital round-the-clock support to ensure -- to support its IT team. Working with our SOC partners, Security HQ, we're delivering a 24/7, 365 visibility of security threats in the environment and acting as an extension of their team. And I have a quote from their General Manager. And this is, we lean on Data#3 and Security HQ to provide expert advice and help us align the technology stack in our environment going forward. Whether we're doing a refresh or other projects, it gives us more visibility and helps us enhance our cybersecurity posture. So this is just 2 examples of the outcomes that we deliver for our customers. So I'd like to end where I started, and I'd like to -- our objective is to help our customers navigate the complexities of cybersecurity, ensuring that their digital ecosystems and information stay secure. And so that's it for me. I'll pass it back to Laurence. Thank you very much.

Thanks very much, Richard. And that concludes the presentations for the second session. We'll now go straight into Q&A. So I ask the presenters to come up to the front and round out or any questions that we've got or anything that you've seen or heard this morning.

Just to ask -- just following on from question earlier, and [indiscernible] managed services. And the fact that sort of relatively new statement targeting them just how is -- how confident [indiscernible] margins and if you have data internally that gives you the confidence that the longer [indiscernible] better margins.

The question on -- [indiscernible], you're going to join us because I think this is one for you. The question is around managed services and the margin improvement as we'd see as we progressively work on the -- say, a 5-year contract and what's our confidence levels?

It's on top of mind because we're reviewing this regularly. So the I guess, ongoing where costs were reviewing our skill sets, tools and efficiencies to be able to deliver on those contracts profitably. So ongoing, ideally, we continue to increase profitability through automation and enhancing our systems and processes as well. So I think there's a question asked earlier today as well about the -- contracts and renewals and how long we have our managed services customers. I think that we have the opportunity to -- and that's what we're seeing at the moment is that as our managed services customers on board with us and then they add additional services, and then they have the confidence that we're managing their environment effectively, then they all roll forward with us as well, and that's the opportunity to continue to drive the margins as we add additional product lines or services to the -- perhaps the initial core managed service that we offered. And you've probably got a bit of a taste from today about the breadth of products and services that we do offer. We may start off with managing a customer's environment in one area, which provides a bit of profitability and then continue to add additional services and offerings, which increases the profitability over time as well. So does that answer your question? More or less. So, yes, we do have the data.

Okay. Thank you. Next question.

My name is [indiscernible]. I think you mentioned offshore [indiscernible] just wondering what proportion of your talent is outside [indiscernible].

So the question is what proportion of our people and resources are onshore and offshore. Thank you. Over to you, Brad.

I represented the content, so I'll answer the question. So the -- it's a fairly small percentage. It's -- it would probably be around the 5% mark, and we can vary that on a week-to-week basis, which provides us that flexibility. But the main goal is whether it's onshore or offshore that we're providing the right services to the customers. Our customers are aware of where that service is coming from, and what skill sets we're providing. John, you got team members in that model. Is there anything you'd like to add to that one?

Yes, it's a journey we started some years ago, and we have grown that over time in a controlled way based on the roles that we see, we are the right roles to do offshore functioning from. And that's something we evaluate on a monthly basis actually. So as a whole. So it's a very conscious process that we go through to select the right role and the right individuals as well.

Thank you. And probably one additional thing. As we've increased the number of offshore roles, we've increased the number of onshore or people that we've hired more so at a faster pace as well. So we've grown in both areas.

Just sort of driving profitability through sort of [indiscernible]. I mean, can you just focus through how the sales function is incentivized? And interesting there's going to -- need to make any changes in that incentive structure that drives [indiscernible]?

Okay. So the questions around the sales incentives? And how is that driving increased profitability? Okay. So over to you, John. You'll notice that I've got very good at passing the question over. It's actually part of the transition period. So to do a handover.

Yes. Thanks for the question. It's an ongoing focus for us to get that mix of compensation incentive price. And as our strategy changes year-on-year, we need to incent our teams to focus on different things. And there's a number of ways we can do that through their standard compensation players as well as additional blitz incentives on certain things to really drive and uptick depending on the maturity of that solution. So as an example, our consumption offers for a period of time, have attracted additional compensation to ensure that our teams get to upskill in the proposition and also are rewarded for doing so because some of these agreements are have been typically sold as a CapEx transaction and they are moving to a 5-year annuity model, and that requires a different compensation plan. So we'll do that for a period of time. And in addition to that, from a cross-sell, upsell perspective, some of that is the right target setting. It actually gets down the mechanics of what the individual's territory looks like and what opportunity we see incremental to that within that territory. So we have a -- we do not have a broad brush. It's done quite at a granular level for territory and based on the sales environment in that territory.

Okay. Thank you. Any other questions?

Are you guys [indiscernible] customers moving away from AWS [indiscernible] hybrid solution?

Okay. So the question is are we seeing any customers moving away from AWS, Amazon and Microsoft, so public cloud into what are more on-premise or a hybrid environment? Who would like to answer that? Brad?

So we have seen some customers decide to move back from public cloud back to on-premise or in their own data centers. It really does depend on the workload. But the amount of customers that we're seeing going the other way into public cloud is multiples of those that have come back on-prem. I think those that have come back on-prem are those that haven't necessarily considered all the factors before they've moved their workload up into the cloud to see whether it was appropriate for them in terms of the efficiencies or the connectivity and all the other aspects associated with that. So we have seen some instances, but it's not material.

Let me go to someone who hasn't asked the question, Nick, if you don't mind?

Yes. It's [indiscernible] from Canaccord Genuity. It's a question about cybersecurity. I guess now first part is [ consistent ] level of readiness in corporate Australia around cybersecurity, lot of press reporting [indiscernible] last year. Secondly, on the view prompting that you're going to say that's I'm not very ready the data you put up about the market size, do you expect that to grow, say, 25%, 26%, 27%? And third parties selling up to the side, is it a different motion of selling from other products. It feels to me later that is important that is -- insurance policies. So how do you kind of navigate that?

Okay. So 3 questions related to cybersecurity. One is the readiness -- the corporate readiness. Second one is the growth in the market -- do we expect the market to grow as a consequence of that? And the third one is the [indiscernible]. So Richard, there we go.

All right. We'll start with the corporate readiness. I think every organization is focused on improving, and that's probably the best way to put it. And cyber is constantly evolving. And so it's a moving target. And so really what corporate America is focused on corporate America. I'm not in America. I'm in Australia I do have an American -- in America for 20 years. I am in Australia and also if you can believe it have Australian passport anyway. So it is a moving target. Second question was TAM. I absolutely think that this will continue to -- I think the total addressable market will continue to grow. What that growth looks like, we'll have to just wait and see what it looks -- it is in the future, if the past does anything to show, and the future looks positive. And thirdly, the...

The sales capability.

Yes. Sales in the context of...

So it's different type of sales. It feels to me like it is like an insurance product. We have still roll [indiscernible].

Look, it's interesting because some -- or it's kind of -- there's 2 answers to that. So some organizations have business problems or security issues that they know they need to fix. And they can get very specific about the solution and focus that they need to do to deliver that. Alternatively, not everything is that simple. Therefore, it can be very much a consultative sale, where we actually have to come in and help an organization understand the business challenge or the regulatory framework and how it specifically applies to their organization. So it can often be a very consultative sale.

Probably got time for a couple more questions.

Chenny Wang, Morgan Stanley. Just quick sense of your people and cost base to end FY '23 at about 1,400 people, so interested how do you guys see that people [indiscernible] over the next 2 to 5 years, you guys having mutual thoughts on what kind of how that -- yet over the medium term?

So the question is regarding our people and what's the near and midterm plans in terms of people growth? Have you presented on people, Brad? Over here.

The answer will be it will completely depend on the contracts that we win. So we did talk a bit about earlier about our managed services contracts and some of the new contracts that we brought on forward. So they're people heavy. For certain functions, it depends on the functions that we -- the managed services functions and services that we're offering as well. So it's a really hard question to answer because depending on the service that we offer will depend on the number of headcount that we need and some services can be automated and others can't. And then we can also look at the models that we spoke about before, whether we're onshore or whether we're offshore, whether it's full-time resources, part-time resources. So I'm not trying to dodge the question, but it will depend on the customer contracts that we win.

Yes. As Brad said, it won't be linear. This -- okay. Let's move on to what we've got competing interest Ed and Nick, who's going to go first with the last question?

Just a quick one here [indiscernible] throughout the '25 [indiscernible]?

So question is Microsoft start supporting Windows 10 encouraging everyone to move to Windows 11. Is that a catalyst for growth in our business. In fact, Graham Robertson, our Chief Technology Officer, has just gone to an event on Windows 11, so he's hosting it with our customers on Windows 11. So it is a big driver.

I'll start off. And if anybody else would add to it. I just had the perfect segue. We've got an event on right today, we've got about 70 or 80 customers understanding the value of moving to Windows 11. And also there's the value also that just to support at some point in time, you do need to move on. So for us, it's a multi-pronged opportunity. So there's the new devices as well as the software and the services associated with that. And I can't remember whether it's this year or last year because we've won a few lately, but the -- so with Microsoft, Microsoft have 2 awards. We -- certainly, last year, we won the worldwide Surface award. We also won an award, which is their OEM partners. And a lot of that is around sort of HP, Lenovo and the other vendors and the operating systems. So a lot of that growth is based on moving people to the new platforms to be able -- so they're easier to support and get the benefits of that. So it's a great opportunity.

And why do you procure them [ Tech Data ]?

Why we procured them from [ Tech Data ]? We will procure a sum from [ Tech Data ]. So we've got -- so they're a supplier of ours. So not competitive in any way, shape or form. We have direct relationships with the vendors for some of the volume commitments. And then we also have -- we use distribution, whether it's [ Tech Data ] or Ingram, others for certain products. So yes, we will voice up -- probably use other [indiscernible] and vendors as well.

Okay. I think that's about it. I think we're out of time as far as Q&A is concerned. So I'll just wrap things up, and then we'll head to lunch, which is outside. First of all, I just wanted to make you aware that we are recording. And as you're well aware, as we keep using the microphone. The recording will be available hopefully, tomorrow on our Investor Website. So we'll put it up as soon as we're able to do that. As far as the summary of the morning is concerned, I said there were 2 objectives and hopefully, we've achieved both. The first one is getting a deeper dive into Data#3 and what we actually do. Hopefully, it's given you a much clearer understanding of some of the high-level strategies that we've gotten, how it translates into more operational and what it actually means. So hopefully, you've got a better understanding than you did when you first walked into this room. And then secondly, also to provide you the opportunity to meet and see and hear from the executive management team, the wider executive management team. So hopefully, we've been able to achieve that. In addition to that, we're also fortunate to gain some more time as well. And hopefully, you found that of interest at a higher level in terms of what's actually driving the market and what's Microsoft's perspective as well. So hopefully, we've been able to achieve those objectives. So from that point of view, I just wanted to thank you for your time, for your interest in DTL and your support of DTL as well. So thank you very much, and look forward to seeing you and having a chat next door over lunch. So thank you.