REG - Bytes Technology Grp - Interim Results
25/10/2023 07:00
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RNS Number : 1688R Bytes Technology Group PLC 25 October 2023
25 October 2023
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Results for the six months ended 31 August 2023
Strong first half extending our track record of double-digit growth
BTG (LSE: BYIT, JSE: BYI), one of the UK and Ireland's leading software,
security, AI, and cloud services specialists, today announces its half year
results for the 6 months ended 31 August 2023 ('H1 FY24').
Neil Murphy, Chief Executive Officer, said:
"I am delighted that we have delivered another strong financial performance
over the first half of the year. Our success in the period was driven by the
combination of our skilled workforce and strong vendor relationships, which
have once again enabled us to support our customers and grow our business. We
are pleased that our customer and staff satisfaction levels continue to be
amongst the best in our industry.
"While the economic backdrop remains mixed, we have continued to see strong
demand from our corporate and public sector customers for security, cloud
adoption, digital transformation, hybrid datacentres and remote working
solutions. This has allowed us to invest in our business, growing our
headcount to more than 1,000 for the first time while equipping our people
with the skills to advise customers on the latest software, services, and
hardware offerings.
"A shift to Artificial Intelligence (AI) products will be one of the defining
trends in the IT Services sector in the coming years, and we are well-placed
to capitalise on that opportunity. We stand to benefit from our long-standing
relationship with Microsoft, whose Copilot product we are already trialling
and will be available more widely in the near future. We are also looking
forward to working with our other vendor partners that are developing AI
software tools.
"Looking ahead, we have made a good start to the second half of the year and
are well-placed for the remainder of the financial year."
Financial performance
£'million H1 FY24 (six months ended 31 August 2023) H1 FY23 (six months ended 31 August 2022) % change year-on-year
Gross invoiced income ('GII')(1) £1,081.6m £786.2m 37.6%
Revenue(2) £108.7m £93.5m 16.3%
Gross profit ('GP') £75.3m £65.5m 15.0%
Gross margin % (GP/Revenue) 69.3% 70.1%
GP/GII % 7.0% 8.3%
Operating profit £30.6m £27.3m 12.1%
Adjusted operating profit ('AOP')(3) £33.9m £29.8m 13.8%
( )
AOP/GP % 45.0% 45.5%
Cash £51.7m £35.8m 44.4%
Cash conversion(4) 48.7% (2.8)%
Cash conversion (rolling 12 months)(4) 107.2% 65.3%
Earnings per share (pence) 10.60 9.06 17.0%
Adjusted earnings per share(5) (pence) 11.71 10.11 15.8%
Interim dividend per share (pence) 2.7 2.4 12.5%
Financial highlights
International Financial Reporting Standard measures (IFRS):
- Revenue increased 16.3% to £108.7 million (H1 FY23: £93.5 million).
- GP growth of 15.0% to £75.3 million (H1 FY23: £65.5 million) was
driven by higher GII and increased GP per customer of £16,300 (H1 FY23:
£14,800).
- Gross margin was broadly stable at 69.3% (H1 FY23: 70.1%).
- Operating profit increased by 12.1% to £30.6 million (H1 FY23: £27.3
million).
Alternative performance measures (non-IFRS):
- GII increased by 37.6% to £1,081.6 million (H1 FY23: £786.2
million), exceeding £1 billion in H1 for the first time. The exceptional
level of growth was underpinned by some large, strategically important,
contract wins in the public sector (most notably with the NHS and HMRC) and by
continued demand from corporate customers.
- The reduction in GP/GII% to 7.0% (H1 FY23: 8.3%) reflects the impact
of these large contracts transacting at a reduced margin in the initial year
of the agreements.
- AOP increased by 13.8% to £33.9 million (H1 FY23: £29.8 million);
AOP as a percentage of GP has remained in line with the previous year at 45.0%
as we continue to invest in the business.
- Adjusted earnings per share increased 15.8% to 11.71 pence (H1 FY23:
10.11 pence).
- Half year cash conversion of 48.7% (H1 FY23: (2.8%)) is in line with
our expectations, reflecting the seasonal timing of cash flows and weighting
to the second half of the financial year. Our rolling cash conversion for the
year ended 31 August 2023 stood at 107.2%, meeting our sustainable annual
target of 100%.
Interim dividend
- Interim dividend of 2.7 pence per share, a 12.5% increase on last
year's interim dividend (H1 FY23: 2.4p).
Operational highlights
- Strong levels of demand for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions have
underpinned the Group's continued growth in H1 FY24.
- 98% of GP came from customers that traded with BTG last year (H1 FY23:
97%), at a renewal rate of 113%.
- Increased headcount by 10% since the FY23 year end to service high
levels of customer demand, with over 1,000 staff at the half year.
- The Group enrolled in Microsoft's early access programme for Copilot,
an AI assistant feature for Microsoft 365 applications, to improve
productivity internally and in preparation to support our customers.
- Both Bytes Software Services and Phoenix Software named among the UK's
Best Workplaces in Tech in Great Place to Work's Large and Super Large
Category.
- Phoenix Software named Microsoft's Global Modern Endpoint Management
Partner of the Year 2023.
- In April 2023, the Group acquired a 25.1% interest in Amazon Web
Services (AWS) partner, Cloud Bridge Technologies, to bolster our multi-cloud
strategy in the years to come.
Current trading and outlook
We reported another strong performance in H1 FY24, extending our track record
of delivering robust double-digit growth across our key financial metrics.
The business has started the second half of the year well, continuing the
momentum delivered in H1 FY24. Whilst we remain mindful of the challenging
macroeconomic environment and geopolitical uncertainty in Ukraine and the
Middle East, we are confident in our ability to capitalise on the growth
opportunities we see ahead. The Group's proven strategy of acquiring new
customers and then growing our share of wallet, building on our strong vendor
relationships and the technical and commercial skills of our people, ensures
we are well placed to continue our progress over the remainder of FY24.
Analyst and investor presentation
A presentation for analysts and investors will be held today via webcast at
9:30am (BST). Please find below access details for the webcast:
Webcast link:
https://stream.brrmedia.co.uk/broadcast/651d406c8fb8fe0aea8cc7f6
(https://stream.brrmedia.co.uk/broadcast/651d406c8fb8fe0aea8cc7f6)
(https://stream.brrmedia.co.uk/broadcast/651d406c8fb8fe0aea8cc7f6)
A recording of the webcast will be available after the event at
www.bytesplc.com (http://www.bytesplc.com) .
The announcement and presentation will be available at www.bytesplc.com
(http://www.bytesplc.com) from 7.00am and 9.00am (BST), respectively.
Enquiries
Bytes Technology Group plc Tel: +44 (0)1372 418 500
Neil Murphy, Chief Executive Officer
Andrew Holden, Chief Financial Officer
Headland Consultancy Ltd Tel: +44 (0)20 3805 4822
Stephen Malthouse
Henry Wallers
Jack Gault
Forward-looking statements
This announcement includes statements that are, or may be deemed to be,
'forward-looking statements'. By their nature, forward-looking statements
involve risk and uncertainty since they relate to future events and
circumstances. Actual results may, and often do, differ materially from
forward-looking statements.
Any forward-looking statements in this announcement reflect the Group's view
with respect to future events as at the date of this announcement. Save as
required by law or by the Listing Rules of the UK Listing Authority, the Group
undertakes no obligation to publicly revise any forward-looking statements in
this announcement following any change in its expectations or to reflect
events or circumstances after the date of this announcement.
About Bytes Technology Group plc
BTG is one of the UK's leading providers of IT software offerings and
solutions, with a focus on cloud and security products. The Group enables
effective and cost-efficient technology sourcing, adoption, and management
across software services, including in the areas of security, cloud and AI
solutions. It aims to deliver the latest technology to a diverse range of
customers across corporate and public sectors and has a long track record of
delivering strong financial performance.
The Group has a primary listing on the Main Market of the London Stock
Exchange and a secondary listing on the Johannesburg Stock Exchange.
(1) 'Gross invoiced income' ('GII') is a non-International Financial Reporting
Standard (IFRS) alternative performance measure that reflects gross income
billed to customers adjusted for deferred and accrued revenue items. The
effect of these adjustments for the year ended 28 February 2023 is included on
p146 of the annual report and accounts for that period. GII has a direct
influence on our movements in working capital, reflects our risks and shows
the performance of our sales teams.
(2) 'Revenue' is reported in accordance with IFRS 15, Revenue from Contracts
with Customers. Under this standard the Group is required to exercise judgment
to determine whether the Group is acting as principal or agent in performing
its contractual obligations. Revenue in respect of contracts for which the
Group is determined to be acting as an agent is recognised on a 'net' basis
(the gross profit achieved on the contract and not the gross income billed to
the customer). Our key financial metrics of gross invoiced income, gross
profit, adjusted operating profit and cash conversion are unaffected by this
judgement.
(3) 'Adjusted operating profit' is a non-IFRS alternative performance measure
that excludes from operating profit the effects of significant items of
expenditure which are non-recurring events or do not reflect our underlying
operations. Amortisation of acquired intangible assets and share-based payment
charges are both excluded. The reconciliation of adjusted operating profit to
operating profit is set out in the Chief Financial Officer's review below.
(4) 'Cash conversion' is a non-IFRS alternative performance measure that
divides cash generated from operations less capital expenditure (together,
'free cash flow') by adjusted operating profit. It is calculated over both the
current reporting period and over a rolling 12 months, the latter taking the
previous 12 months free cash flow divided by the previous 12 months adjusted
operating profit, in over to reflect any seasonal variations during the full
year up to the reporting date.
(5) 'Adjusted earnings per share' is a non-IFRS alternative performance
measure that the Group calculates by dividing the profit after tax
attributable to owners of the company, adjusted for the effects of significant
items of expenditure which are non-recurring events or do not reflect our
underlying operations ('Adjusted earnings'), by the weighted average number of
ordinary shares in issue during the year. Amortisation of acquired intangible
assets and share-based payment charges are excluded in arriving at Adjusted
earnings. The calculation is set out in note 16 of the interim condensed
consolidated financial statements.
_________________________________________________________________________________________
Chief Executive Officer's Review
A strong half year performance delivering on our strategy.
We are delighted with the strong performance in H1 FY24, which saw the Group
deliver growth in adjusted operating profit ('AOP') of 13.8% and gross profit
('GP') of 15.0%, driven by a 37.6% increase in gross invoiced income ('GII').
We have maintained our track record of strong double-digit year-on-year growth
despite the ongoing uncertainty caused by the challenging macroeconomic
conditions. Our business continues to benefit from the wide-ranging product
offering that we have developed, with a substantial suite of software, IT
services and hardware solutions from the world's leading vendors and software
publishers.
The exceptionally strong growth in GII primarily reflects the success of the
business in winning large public sector Microsoft contracts, demonstrating our
strength and credibility when bidding for substantial government software
opportunities under the Crown Commercial Services framework agreements. The
Group's success in winning these new contracts resulted in our public sector
GII increasing by 44.4%. Due to the competitive tendering process involved,
these sales are typically won at reduced initial margins. However, over the
course of the contracts, typically 3 to 5 years, we have a strategy and track
record of growing the profitability of those contracts and opening up other
software, hardware, or services opportunities within those accounts.
Additionally, we have seen continued success in the corporate sectors, growing
GII by 25.7% across these customers.
The growth above is reflected in our 39.1% increase in software GII, supported
by a 15.7% rise in our internal services GII and hardware growth of 15.3%. The
double-digit growth across both our key sectors and our three primary products
and services areas reflects the continued demand from our customers to invest
in resilient and efficient IT applications and services.
Our customers' ongoing appetite for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions underpinned
the strong growth reported in H1 FY24. These investments increasingly take the
form of contracts of an annuity type and therefore we remain confident in the
Group's growth prospects going forward. This reinforces the potential for
future up-selling and cross-selling opportunities with existing clients. The
double-digit growth in GII and GP reflects the buoyant and robust nature of IT
spend across the UK and Ireland.
We continue to expand our IT services capability, underpinned by the renewal
of our Microsoft Azure Expert status for the provision of managed services,
along with many other key vendor accreditations, augmented with our own IP in
the form of Quantum and Licence Dashboard. Our broad suite of services enables
us to expand our relevance to new and existing clients who need support and
assurance as they seek to strengthen their IT resilience and security.
We expect to see a strong customer response to Microsoft's AI products,
including Copilot. We are preparing for this to gain increasing momentum into
2024 and beyond, and to open up associated services opportunities to support
customer readiness and adoption. Our broad roster of vendors also have a
strong pipeline of AI-supported software solutions that we look forward to
rolling out to our customers.
We remain proud of the energy, enthusiasm and professionalism demonstrated by
our people. Our current and future growth is being supported by increasing
headcount, training, and development in all areas from front-end sales and
delivery teams and across all supporting areas. As a management team, we are
extremely pleased with the way our people continue to embrace our
collaborative, team-based culture. Our flexible working regime continues to
deliver positive results for our business, while also meeting our people's
aspirations for a healthy work/life balance. In June 2023, we launched our
third Share Save Plan, which has again been well received by our workforce,
with over 50% of employees participating in one or more of these plans.
To support the growth in sales and people, we continue to invest in, and
evolve, our internal systems both to improve user experiences and to drive
efficiencies. Notwithstanding this investment, our AOP as a percentage of GP
has remained in line with the previous year at 45%, and therefore achieving
our target to exceed 40%.
Our relationships with key partners continue to go from strength to strength
and we are especially pleased to have been recognised by leading industry
vendors. Following Phoenix Software being awarded the Microsoft Partner of the
Year for the UK for 2021 and Bytes Software Services being named Microsoft
Partner of the Year for Operational Excellence in 2022, Phoenix has followed
this up by being named 2023 Microsoft Modern Endpoint Management Global
Partner of the Year and Sophos Public Sector Partner of the Year. These awards
reflect the status and high esteem that the Group has with global technology
leaders and is testament to the expertise of our staff and the customer
success stories that we deliver.
We remain committed to executing our strategy in a responsible manner, with
sustainability rooted in everything we do. Our sustainability framework aims
to deliver positive impacts for our stakeholders across key themes which we
have identified as most relevant for the environment in which we operate.
Within each theme - financial sustainability, corporate responsibility,
stakeholder engagement and good governance - we set ourselves focus areas that
drive our activities. Through our staff-led working groups, we allocate time
and resources to various environmental initiatives, and to corporate social
responsibility activities. We remain committed to supporting diversity
throughout our business and are proud of the balance represented across our
people. We continue our efforts to align with broader diversity targets to
reflect the society in which we, and our stakeholders, operate. Further
details in respect of our sustainability initiatives are set out below.
Our dividend policy is to distribute 40% of the Group's post-tax
pre-exceptional earnings to shareholders by way of normal dividends.
Accordingly, we are pleased to confirm that the Board has declared an interim
dividend of 2.7 pence per share which will be paid on 1 December 2023 to
shareholders on the register at 15 November 2023.
I wish to extend my gratitude to all my colleagues for their hard work and
dedication to the business during FY24 to date. Finally, I would like to thank
our clients for their support and entrusting their business with us; together,
our staff and customers are our lifeblood and will always be our top priority.
Continued focus on Environment, Social and Governance (ESG)
Our approach to responsible business and ESG is aimed at helping to build a
sustainable future and create long-term value for the Group and its
stakeholders. Our strategy is underpinned by our purpose and values, which
fosters an aligned culture across the organisation. During the period, we
further progressed our ESG initiatives in the following ways.
Increasing our carbon reporting
In H1 FY24 we have disclosed our reported emissions for FY23 and future
targets to Carbon Disclosure Project (CDP). This is the first year in which
our disclosure will be independently scored by CDP, with the results expected
in our Q4 FY24. In July 2023, we made a Group commitment to submit our targets
to the Science Based Targets initiative (SBTi) for validation against the
Paris Agreement's aim for less than a 1.5 degree global temperature
increase. We expect to have our targets validated during 2024.
As part of our ongoing reporting, our Taskforce for Climate-Related Financial
Disclosures (TCFD) will be incorporated into the S1 and S2 requirements under
IFRS, once endorsed by the UK. We will monitor progress towards this and
report in our annual report and accounts following adoption.
Within our businesses, we are supporting the transition to greener transport
to reduce business travel and commuting emissions. The Group has successfully
deployed an Electric Vehicle company car scheme during the period.
Positively impacting our society
Employee support and wellbeing remain key focus areas for the Group,
particularly in light of the continuing cost-of-living crisis, with wellbeing
days an important part in driving a healthier and happier workforce. In
addition to this, employees have been engaged in, and managers trained in, the
impact of menopause and in neurodiversity as part of a wider 'Breaking Taboos'
programme.
Our strong culture remains a driving force behind our successful growth. We
continue to support this through staff events and the development of our
people with continued learning and training opportunities and social groups
for more remote workers to connect. Staff are also listened to through various
channels and improvements are made based on their ideas and initiatives.
During H1, we supported our communities through donations, fundraising events,
and volunteer days, such as with the London Wetland Centre. Charity sport
days have continued over the summer months, engaging with vendors to widen the
impact.
Changes in directorate since the year end
Sam Mudd was appointed as an Executive Director at the Annual General Meeting
held on 12 July 2023. Sam continues in her role as the Managing Director of
Phoenix Software Limited, a wholly owned subsidiary of the Group, following
her appointment to the Board.
Also, after 23 years with the Group, David Maw stepped down as a non-executive
director at the 2023 AGM. Following David's retirement, Dr. Erika Schraner
assumed the role of Designated Non-Executive for employee engagement, building
on the constructive work carried out by David in this role.
Having served on the Board since 6 November 2020, Dr. Alison Vincent has
indicated that she wishes to retire from her role as independent
non-executive director at the conclusion of her three-year term, with effect
from 1 November 2023. A process to recruit an additional independent
non-executive director with relevant experience is underway and a further
announcement will be made in due course and, as previously announced, Dr Erika
Schraner will be Chair of the Remuneration Committee with effect from 1
November 2023.
Chief Financial Officer's review
H1 FY24 H1 FY23 Change
Income statement £'m £'m %
Gross invoiced income (GII) 1,081.6 786.2 37.6%
GII split by product:
Software 1,027.3 738.4 39.1%
Hardware 24.1 20.9 15.3%
Services internal(1) 15.5 13.4 15.7%
Services external(2) 14.7 13.5 8.9%
Netting adjustment (972.9) (692.7) 40.5%
Revenue 108.7 93.5 16.3%
Revenue split by product:
Software 67.1 57.8 16.1%
Hardware 24.1 20.9 15.3%
Services internal(1) 15.5 13.4 15.7%
Services external(2) 2.0 1.4 42.9%
Gross profit (GP) 75.3 65.5 15.0%
GP / GII % 7.0% 8.3%
Gross margin % 69.3% 70.1%
Administrative expenses 44.7 38.2 17.0%
Administrative expenses split:
Employee costs 35.7 29.7 20.2%
Other administrative expenses 9.0 8.5 5.9%
Operating profit 30.6 27.3 12.1%
Add back:
Share-based payments 2.9 1.7 70.6%
Amortisation of acquired intangible assets 0.4 0.8 -50.0%
Adjusted operating profit (AOP) 33.9 29.8 13.8%
Interest receivable 2.9 0.0
Finance costs (0.3) (0.3)
Share of profit of associate(3) 0.1 0.0
Profit before tax 33.3 27.0 23.3%
Income tax expense (7.9) (5.3) 49.1%
Profit after tax 25.4 21.7 17.1%
(1) Provision of services to customers using the Group's own internal
resources
(2) Provision of services to customers using third party contractors
(3) Cloud Bridge Technologies 25.1% share of profits since April 2023
Overview of H1 FY24 results
H1 FY24 has seen continued double-digit growth across all our key performance
measures. With hybrid working widespread across our whole customer base, and
heightened requirements around cybersecurity, customers have continued to
engage with us to support their move into the cloud, or extending their
presence in it, with more sophisticated and resilient security, support, and
managed service solutions. This has resulted in operating profit increasing by
12.1% to £30.6 million (H1 FY23: £27.3 million) and AOP growing by a
slightly higher 13.8% year on year from £29.8 million to £33.9 million. The
adjusted operating profit excludes the impact of amortisation of acquired
intangible assets and share-based payment charges which do not reflect the
underlying day-to-day performance of the Group.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some small adjustments
for deferred and accrued items (mainly relating to managed service contracts
where the income is recognised over time). We believe that GII is the most
useful measure to evaluate our sales performance, volume of transactions and
rate of growth. GII has a direct influence on our movements in working
capital, reflects our risks and demonstrates the performance of our sales
teams. Therefore, it is the income measure which is most recognisable amongst
our staff, and we believe most relevant to our customers, suppliers,
investors, and shareholders for them to understand our business.
GII has increased by 37.6% year on year, with growth spread across all the
business's income streams, but most significant for software which remains the
core focus, contributing 95% of the total GII for the six months (H1 FY23:
94%). The Group's already substantial presence in the public sector, has been
bolstered by a number of key strategic and substantial wins relating to
government Microsoft Enterprise Agreements where the Group bids under highly
competitive tenders, either for single contracts or for several public body
contracts in aggregate, the latter enabling the Group to gain multiple new
clients from a single bid process.
This continual high level of government investment in IT technologies, and the
Group's success in winning new contracts, has resulted in our public sector
GII increasing by £221.9 million, up 44.4%, to £721.7 million (H1 FY23:
£499.8 million). Our corporate GII increased by £73.5 million to £359.9
million (H1 FY23: £286.4 million), representing a very pleasing rise of
25.7%.
This means that our overall GII mix has moved slightly compared to last year
with 67% in public sector (H1 FY23: 64%) against corporate of 33% (H1 FY23:
36%)
Revenue
Revenue is reported in accordance with IFRS 15 Revenue from Contracts with
Customers. Under this reporting standard, we are required to exercise judgment
to determine whether the Group is acting as principal or agent in performing
its contractual obligations. Revenue in respect of contracts for which the
Group is determined to be acting as an agent is recognised on a 'net' basis,
that is, the gross profit achieved on the contract and not the gross income
billed to the customer.
Our judgements around this area are set out in notes 1.4 and 1.11 of the full
year financial statements for the year ended 28 February 2023. In summary,
software and external services revenue is treated on an agency basis whilst
hardware and internal services revenue is treated as principal.
It should be noted that GII, gross profit, operating profit, and profit before
and after taxes are not affected by these judgements, neither are the
consolidated statements of financial position, cashflows and changes in
equity.
With the significant increase in software GII, as noted above, and its
treatment on a net, or agency, basis, the 16.3% increase in revenue in the six
months is lower than the rise in GII.
Gross profit (GP) and gross profit/GII (GP/GII%)
Gross profit increased by 15.0% to £75.3 million (H1 FY23: £65.5 million).
This growth is less than that for GII due to the high level of new or renewed
GII derived from the public sector and the highly competitive nature of the
tendering process, governed under the Crown Commercial Services framework
agreements. This has meant that large software contracts, most notably with
Microsoft, have been won or renewed at reduced margins. This tends to be
particularly prevalent in the first year of new agreements with public sector
entities, and as a result we have seen a reduction on our GP/GII% in the first
6 months to 7.0% (H1 FY23: 8.3%). That said, if the impact of the two largest
new contracts is removed from the calculation, the percentage reverts to 8.3%,
therefore equivalent to last year and demonstrating the overall strong
performance of the business in maintaining its margins.
Deals such as these are consistent with the Group's strategy of winning new
customers and then expanding share of wallet. Our objective is to ensure we
build our profitability within each contract over its term, typically 3 to 5
years, by adding additional higher margin products into the original agreement
as the customers' requirements grow and become more advanced. This is further
enhanced by focusing on selling our wide range of solutions offerings and
higher margin security products, whilst maximising our vendor incentives
through achievement of technical certifications. We track these customers
individually to ensure that the strategy delivers value for the business, and
our other stakeholders over the duration of the contracts.
Our long standing relationships with our customers and high levels of repeat
business is again demonstrated in H1 FY24 with 98% of our GP coming from
customers that we also traded with last year (H1 FY23: 97%), at a renewal rate
of 113% (which measures the GP from existing customers this period compared to
total GP in the prior period), which also demonstrates our ability to increase
our share of wallet with our customers.
Administrative expenses
This includes employee costs and other administrative expenses as set out
below.
Employee costs
Our success in growing GII and GP continues to be as a direct result of the
investments we have made over the years in our front-line sales teams, vendor
and technology specialists, service delivery staff and technical support
personnel, backed up by our marketing, operations, and finance teams. It has
been, and will remain, a carefully managed aspect of our business.
In addition to continuing to hire in line with growth, our commitment to
develop, promote and expand from within the existing employee base, giving our
people careers rather than just employment, is at the heart of our progress as
a business. This has contributed to long tenure from our employees which in
turn supports the long relationships we have established with our customers,
vendors, and partners. This is at the very heart of our low employee churn
rate, the growth in gross profit per customer and our high customer retention
rate.
During the period we have seen total staff numbers rise above 1,000 for the
first time, to 1,026 on our August 2023 payroll, up by 10% from the year-end
position of 930 on 28 February 2023. Employee costs included in administrative
expenses rose by 20.2% to £35.7 million (H1 FY23: £29.7 million) but
excluding share-based payments of £2.9 million (H1 FY23: £1.7 million), the
rise was lower at 17.1%.
Other administrative expenses
Other administrative expenses increased by 5.9% to £9.0 million (H1 FY23:
£8.5 million). This increase included additional spend on internal systems,
professional fees, staff welfare and travel costs. This reflects the costs of
running, and investing in, a growing organisation and in operating a listed
Group, including evolving our governance structure, controls, and processes
with the support of our professional advisors.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the effects of:
- Share based payment charges as, whilst new employee share schemes are
being launched, the charge to the income statement will increase each year.
Accordingly, the charge for the current year has risen to £2.9 million,
compared to £1.7 million last year.
- Amortisation of acquired intangibles as this cost only appears as a
consolidation item and does not arise from ordinary operating activities.
We believe that adjusted operating profit is a meaningful measure which the
Board can use to effectively evaluate our profitability, performance, and
ongoing quality of earnings. Adjusted operating profit in H1 FY24 increased to
£33.9 million (H1 FY23: £29.8 million), representing growth of 13.8%. Our
operating profit increased from £27.3 million to £30.6 million equating to
an increase of 12.1%.
Adjusted operating profit as a percentage of GP is one of the Group's key
alternative performance indicators, being a measure of the Group's operational
effectiveness in running day-to-day operations. We set a target of no less
than 40% and we have again achieved this, with a ratio of 45.0% (H1 FY23:
45.5%).
Interest receivable and finance costs
This period has seen significant interest being earned from money market
deposits, totalling £2.9 million in the 6 months (H1 FY23: nil), as interest
rates have risen steeply. This has resulted in our profit before tax growing
by 23.3% to £33.3 million (H1 FY23: £27.0 million).
Our finance costs largely comprise arrangement and commitment fees associated
to our revolving credit facility (RCF), noting that to date the Group has not
drawn down any amount. This balance also includes a small amount of finance
lease interest on our right-of-use assets, increasing slightly in the current
period due to the introduction of a staff electric vehicle (EV) scheme.
Share of profit in associate
Following the acquisition of a 25.1% interest in Cloud Bridge Technologies in
April 2023, in accordance with IAS 28 Investments in Associates, we have
accounted for the Group's share of its profits since the date of our
investment, £0.1 million for the 5-month period.
Income tax expense
The 49.1% rise in our income tax expense to £7.9 million (H1 FY23: £5.3
million) reflects the growth in profits and the increase in the UK corporate
tax rate from 19% to 25% effective from 1 April 2023.
Profit after tax increased by 17.1% to £25.4 million (H1 FY23: £21.7
million), underlining our growth in operating profits and with the impact of
higher tax rates largely offset by the increase in interest income.
Balance sheet and cashflow
Closing net assets stood at £60.0 million (31 August 22: £46.1 million)
including the Group's £3.1 million interest (25.1%) in Cloud Bridge
Technologies, acquired in April 2023. Closing net current assets were £5.2
million (31 August 22: (£1.6) million).
Cash at the end of the period was £51.7 million (31 August 22: £35.8
million) which is after the payment of dividends totalling £30.2 million
during the 6 months, being the final and special dividends for FY23.
Cash flow from operations after payments for fixed assets (free cash flow) was
strong during the reporting period, generating a positive net inflow of £16.5
million (H1 FY23: (£0.8) million). Consequently, the Group's cash conversion
ratio for the period (free cash flow divided by AOP) was 48.7% (H1 FY23:
(2.8)%).
The difference to the prior half year illustrates the sensitivity of this
ratio to even small delays in payments from customers, particularly when
measured over a fixed period rather than on a rolling 12 month basis. This
makes it susceptible to short-term, but potentially high value, timing of
customer receipts.
Our rolling cash conversion for the year ended 31 August 2023 stood at 107.2%,
(year ended 31 August 2022: 65.3%) and the Group has now delivered a
cumulative cash conversion ratio above 100% since 1 March 2017 which is in
line with our sustainable annual cash conversion target.
Over our half year fixed periods, we expect H1 cash conversion to be lower
than H2 due to the timing of receipts and payments in relation to some our
largest Microsoft software enterprise agreements. For our public sector
customers in particular, many of the agreement anniversaries fall on 1 April,
aligned to the public sector year end. With these orders needing to be placed
at least 30 days ahead of anniversary we often see the customers pay us prior
to the end of our financial year (in H2), whilst the corresponding payments to
Microsoft do not fall due until the first quarter of the following year (in
H1)..
If required, the group has access to a committed revolving credit facility
(RCF) of £30 million with HSBC. The facility commenced on 17 May 2023,
replacing the Group's previous facility for the same amount and runs for three
years, until 17 May 2026. To date, the Group has not utilised the facility.
Interim dividend
As stated above, the Group's dividend policy is to distribute 40% of post-tax
pre-exceptional earnings to shareholders. Accordingly, the Board is pleased to
declare a gross interim dividend of 2.7 pence per share. The aggregate amount
of the interim dividend expected to be paid out of retained earnings at 31
August 2023, but not recognised as a liability at the end of the half year, is
£6.5 million.
The salient dates applicable to the dividend are as follows:
Dividend announcement date Wednesday, 25 October 2023
Currency conversion determined and announced together with the South African Monday, 13 November 2023
(SA) tax treatment on SENS by 11.00
Last day to trade cum dividend (SA register) Tuesday, 14 November 2023
Commence trading ex-dividend (SA register) Wednesday, 15 November 2023
Last day to trade cum dividend (UK register) Wednesday, 15 November 2023
Commence trading ex-dividend (UK register) Thursday, 16 November 2023
Record date Friday, 17 November 2023
Payment date Friday, 1 December 2023
Additional information required by the Johannesburg Stock Exchange:
The GBP:ZAR currency conversion will be determined and published on SENS on
Monday, 13 November 2023
1. A dividend withholding tax of 20% will be applicable to all
shareholders on the South African register unless a shareholder qualifies for
exemption not to pay such dividend withholding tax.
2. The dividend payment will be made from a foreign source (UK).
3. At 25 October 2023, being the declaration announcement date of the
dividend, the Company had a total of 239,482,333 shares in issue (with no
treasury shares).
4. No transfers of shareholdings to and from South Africa will be
permitted between Tuesday, 14 November 2023 and Friday, 17 November 2023 (both
dates inclusive). No dematerialisation or rematerialisation orders will be
permitted between Wednesday, 15 November 2023 and Friday, 17 November 2023
(both dates inclusive).
Principal risks
The Group Board has overall responsibility for risk. This includes
establishing and maintaining our risk management framework and internal
control systems and setting our risk appetite. In doing this it receives
support from our Audit Committee, our internal audit partner, and our
executive management teams. However, through their skills and diligence,
everyone in the Group plays a part in protecting our business from risk and
making the most of our opportunities.
We have identified principal risks and uncertainties that could have a
significant impact on the Group's operations, which we assign to four
categories: financial, strategic, process and systems, and operational. BTG's
management review each principal risk looking at its level of severity, where
it overlaps with other risks, the speed at which it is changing, and its
relevance to the Group. We consider the principal risks both individually and
collectively, so that we can appreciate the interplay between them and
understand the entire risk landscape.
We continue to closely monitor new and emerging risks, including the ongoing
global risk of climate change and sustainability. We also determined that
social change may represent a future risk. Changes to people's needs and
perspectives, as happened when priorities shifted during the pandemic, and
more generally with younger generations, may affect our ability to attract and
retain talent. Like many risks, these could provide opportunities as well as
downsides. For example, inflation might encourage customers to spend more on
automation with us or, on the other hand, to cut investment in IT. We have
mitigating plans to cover these different outcomes, such as broadening our
portfolio of vendors and the solutions we can offer.
The invasion of Ukraine continues to affect the global economy, contributing
to higher energy prices and inflation over the past year. We recognise the
impact of this increased cost of living on our employees' welfare. These
conditions are expected to continue into the next financial year, and we have
maintained this as a principal risk.
Cybersecurity continues to be a risk, heightened by the current geopolitical
uncertainties in the Ukraine and Middle East. Our chief information security
officer function and technology solutions reduce our risk, but the residual is
covered by cyber insurance. This insurance has been renewed, at a greater cost
than in the previous year, due to the increased threat level.
Although we performed strongly and managed risks well in the FY23 and
continuing into H1 FY24, we have made some amendments to our principal and
emerging risks to account for changes in the market, society and with our
vendors.
These changes comprise:
New principal risks:
· 'Climate change and sustainability' moved from an emerging risk to a
principal risk re-named 'Sustainability / ESG'. Whilst the physical threats
from climate change will remain as emerging, the elevated principal risk
relates to regulatory requirement changes as well as keeping ahead of
expectations from investors, employees, customers, and other stakeholders.
· New principal risk in 'Supply chain management'. Risk is based on
the time and effort to manage the supply chain with increasing focus on
compliance, audits, sustainability, and reporting.
New emerging risk:
· New emerging risk added for the 'Impacts of AI and Machine
Learning' due to the potential of this technology to change the IT and working
landscape and the associated risks from moral, legal, and ethical standpoints.
Existing principal risks with updated focus:
· 'Economic disruption' risk expanded to focus on economic impacts
affecting our customers, in addition to the existing risk to ourselves.
· 'Inflation' risk expanded to focus on the internal impact to our
workforce, in addition to the existing risk to the business.
· 'Increasing debtor risk' re-defined as 'Working Capital' risk, to
include risk of vendors changing their payment terms, in addition to the
existing risk of an increased age debt profile.
· 'Competition' risk definition expanded to include the evolution
of the competitor landscape, such as through AI and direct purchasing
platforms and marketplaces.
· 'Relevance and emerging technologies' risk expanded to include
the need to use new technologies internally to remain agile and productive, in
addition to the existing need to offer cutting edge products and relevant
services to our customers.
· 'Business continuity failure' risk expanded to include risk to
and from people, such as insider threats, in addition to the existing risk of
failure to our internal systems or IT infrastructure.
· 'Attract and retain staff whilst keeping our culture' risk
amended to replace the general existing "skills shortage in the IT sector"
with a more specific skills shortage in emerging areas, such as AI, where
expertise is in high demand.
Full details of the updated principal risks and uncertainties that the Board
believes could have a significant effect on the Group's financial performance
are:
FINANCIAL 1 ECONOMIC DISRUPTION Risk owner CEO
The risk How we manage it
This includes the impact of the crisis in Ukraine, the uncertainties caused by We have so far continued to perform well during the conflict in Ukraine, and
global economic pressures and geopolitical risk within the UK post-Brexit. under the current effects of inflation, the cost-of-living crisis and leaving
the EU.
Despite the economic shocks of the past year and continued pressure from the
Ukraine conflict, we have not seen an adverse impact on our business.
These real-life experiences have shown us to be resilient through tough
economic conditions. The diversity of our client base has also helped to
maintain and increase business in this period. We are not complacent, however
- economic disruption remains a risk and we keep operations under constant
review.
Our continued focus on software asset management means that we continue to
advise customers in the most cost-effective ways to fulfil their software
needs. Changes to economic conditions mean many organisations will look to IT
to drive growth and/or efficiency.
Externally, we have seen in increase in customers looking to avoid increased
staff costs through outsourcing their IT via Managed Services. This may create
an opportunity to accelerate our service offerings
The impact
Major economic disruption - including the risk of continuing high inflation
(see below) and potentially higher taxes - could see reduced demand for
software licensing, hardware, and IT services, which could be compounded by
government controls. Lower demand could also arise from reduced customer
budgets, cautious spending patterns or clients 'making do' with existing IT.
Economic disruption could also affect the major financial markets, including
currencies, interest rates and the cost of borrowing. Economic deterioration
like this could have an impact on our business performance and profitability.
High inflation could create an environment in which customers redirect their
spending from new IT projects to more pressing needs.
2 MARGIN PRESSURE Risk owner MDs of subsidiary businesses
The risk Profit margins are affected by many factors at customer and micro levels. We
can control some of the factors that influence our margins; however, some
BTG faces pressure on profit margins from myriad directions, including factors, such as economic and political ones, are beyond our control.
increased competition, changes in vendors' commercial behaviour, certain
offerings being commoditised and changes in customer mix or preferences.
In the past year we have sought to increase margins where possible; cost
increases from vendors have grown our margins organically. Our diverse
portfolio of offerings, with a mix of vendors as well as a mix of software and
services, has enabled us to absorb any changes - and we continue to innovate
to find new ways to deliver more value for our clients. Services delivered
internally are consistently measured against competition to ensure we remain
competitive and maximise margins.
We aim to agree acceptable profit margins with
customers upfront. Keeping the correct level of certification by vendor, early
deal registration and rebate management are three methods deployed to ensure
we are procuring at the lowest cost and maximising incentives earned.
This risk area is reviewed monthly.
The impact
These changes could have an impact on our business performance and
profitability.
3 CHANGES TO VENDORS' COMMERCIAL MODEL Risk owner CEO
The risk How we manage it
BTG receives incentive income from our vendor partners and their distributors. We maintain a diverse portfolio of vendor products and services. Although we
This partially offsets our costs of sales but could be significantly reduced receive major sources of funding from specific vendor programmes, if one
or eliminated if the commercial models are changed significantly. source declines, we can offset it by gaining new certifications in, and
selling, other technologies where new funding is available.
We closely monitor incentive income and make sure staff are aligned to meet
vendor partner goals so that we don't lose out on these incentives. Close and
regular communication with all our major vendor partners and distributors
means we can manage this risk appropriately. In some areas we have seen a
positive change from vendor commercials, where we have been able to adapt
practices.
The materiality of this risk has not yet been realised, but it remains a risk.
The impact
These incentives are very valuable and contribute to our operational profits.
Significant changes to the commercial models could put pressure on our
profitability.
4 INFLATION (internal impacts) Risk owner CFO
The risk How we manage it
Inflation in the UK, as measured by the Consumer Price Index (CPI), is Staff costs constitute the majority of our overheads, therefore our attention
currently 6.7% in the year to August 2023, which is driven by three main is focused on our staff and their ability to cope with the rising cost of
drivers: Electricity/gas, transport costs and food/non-alcoholic beverages living.
At the start of FY 2023/24 wage increases, of varying levels, with a greater
percentage to lower paid staff were rolled out across the employee base. This
is to assist our employees in maintaining their standard of living and being
able to keep up with the essentials such as rent / mortgage payments, energy
bills, food bills.
The impact
Wage inflation, increased fuel and energy costs have a direct impact on our
underlying cost base.
If our competitors increase wages to a higher level, then we potentially have
a risk in retaining and attracting staff
5 WORKING CAPITAL Risk owner CFO
The risk How we manage it
As customers face the challenges of inflation and rising interest rates in the Our credit collections teams are focused on collecting customer debts on term
current economic environment, there is a greater risk of an increasing aged and maintaining our debtor days at targeted levels. Debt collection is
debt profile, with customers slower to pay and the possibility of bad debts. reported and analysed continually and escalated to senior management as
required.
Vendors changing payment terms, could also have a significant impact
A large part of a successful outcome is maintaining strong, open relationships
with our customers, understanding their issues, and ensuring our billing
systems deliver accurate, clear, and timely invoicing so that queries can be
quickly resolved.
We have similarly strong relationships with vendors and suppliers such that,
if necessary, we are able to negotiate payment terms. This is facilitated by
ensuring that invoices are paid on time so there is less likelihood of terms
being tightened.
The impact
This could adversely affect the businesses profitability and/or cashflow
STRATEGIC 6 VENDOR CONCENTRATION Risk owner CEO
The risk How we manage it
Over reliance on any one technology or supplier could pose a potential risk, We work with our vendors as partners - it is a relationship of mutual
should that technology be superseded, be exposed to economic down cycles, or dependency since we are their route to the end customer. We maintain excellent
the vendor fails to innovate ahead of customer demands. relationships with all our vendors, and have a particularly good relationship
with Microsoft, which relies on us as a key partner in the UK. Our growth
plans, which involve developing business with all our vendors, will naturally
reduce the risk of relying too heavily on any single one.
Hardware is not a core element of our business, but is a growing sector, so we
will be monitoring supply closely. However, we monitor the geopolitical
situation, continuously and work closely with suppliers and industry bodies to
identify any potential supply chain disruptions and impacts. This enables us
to remain fully informed, so that we can respond quickly should the landscape
change, to ensure that we have diverse supply routes. With a diverse portfolio
of suppliers and vendors we are able to offer alternatives to customers if
there is a particular vendor with a supply issue.
As this risk is largely driven by geopolitical and macroeconomic factors, we
maintain a watching brief so that we can react swiftly if required.
The impact
Too heavy a reliance on any one vendor could have an adverse effect on our
financial performance, should that relationship break down.
Geopolitically, global shortages of computer hardware, components and chips
could occur, which might limit our, and our customers', ability to purchase
hardware for internal use. This could lead to delays in customers purchasing
software, which is linked to, or dependent on, the hardware being available.
Reduced access to computer chips could also slow down vendor innovation,
leading to delays in the creation of new technology to resell to customers.
7 COMPETITION Risk owner CEO
The risk How we manage it
Competition in the UK IT market, or the commoditisation of IT products, may We closely watch commercial and technological developments in our markets.
result in BTG being unable to win or maintain market share.
The threat of disintermediation by vendors has always been present. We
Mergers and acquisitions have consolidated our distribution network and minimise this threat by continuing to increase the added value we bring to
absorbed specialist services companies. This has caused overlap with our own customers directly. This reduces clients' desire to deal directly with
offerings. vendors.
The vendor landscape continues to evolve through, Equally, vendors cannot engage with millions of organisations globally without
the sort of well-established network of intermediaries that we have.
- Increased use of AI
- Potential move to direct vendor resale to end customers
(disintermediation) We currently work with AWS Marketplace and can sell our other vendors'
products through their platform, which gives discounts to the customer versus
- platforms, like marketplaces, with direct sales to customers buying directly.
could also be viewed as disintermediation
Artificial Intelligence / Machine Learning have been identified as a new
emerging risk, and so will be monitored and explored for risks and
opportunities to the business.
Currently, there's no sign of commoditisation of any kind that would be a
serious threat to the business model in the short or medium term.
The impact
This would have a material adverse impact on our business and profitability.
A huge change would need a big shift in business operations, including a
strategic overhaul of the products, solutions, and services that we offer to
the market.
Further consolidation could lead to less competition between vendors and cause
prices to value-added resellers, like us, to rise and service levels to fall.
Direct resale to customers could also increase.
This could erode reseller margins, given the purchase cost is less for the
distributor than the reseller. This could reduce our market, margin, and
profits.
8 RELEVANCE AND EMERGING TECHNOLOGY Risk owner CEO
The risk How we manage it
As the technology and security markets evolve rapidly and become more complex, We stay relevant to our customers by:
the risk exists that we might not keep pace and so fail to be considered for
new opportunities by our customers. - Continuing to offer them expert advice and innovative solutions.
- Specialising in high-demand areas
- Holding superior levels of certification
- Maintaining our good reputation and helping clients find the
right solutions in a complex, often confusing IT marketplace.
We defend our position by keeping abreast of new technologies and the
innovators who develop them.
We do this, for example, by running a cyber accelerator programme for new and
emerging solution providers, joining industry forums, and sitting on new
technology committees. We have expanded the number and range of our subject
matter experts, who stay ahead of developments in their areas and communicate
this internally and externally.
By identifying and developing bonds with emerging companies, we maintain good
relationships with them as they grow and give our customers access to their
technologies. This is core to our business, so the risk from this is
relatively low.
The impact
As customers have wide choice and endless opportunities to research options,
if we do not offer cutting-edge products and relevant services, we could lose
sales and customers, which would affect our profitability.
PROCESSES AND SYSTEMS 9 CYBERTHREATS - DIRECT AND INDIRECT Risk owner Chief Information Security Officer
The risk How we manage it
Breaches in the security of electronic and other confidential information that We use intelligence-driven analysis, including research by our internal
BTG collects, processes, stores and transmits may give rise to significant digital forensics team, to protect ourselves.
liabilities and reputational damage.
This work provides insights into vulnerable areas and the effects of any
breaches, which allow us to strengthen our security controls.
We have established controls that separate customer systems and mitigate
cross-breaches. Our cyberthreat-level system also lets us tailor our approach
and controls in line with any intelligence we receive. Our two subsidiaries
share insights and examples of good practice on security controls with one
another and the security operations centre located at Phoenix Software's
offices provide the whole business with up-to-date threat analysis.
The impact
If a hacker accessed our IT systems, they could infiltrate one or more of our
customer areas. This could provide indirect access, or the intelligence
required to compromise or access a customer environment.
This would increase the chance of first- and third-party risk liability, with
the possible effects of regulatory breaches, loss of confidence in our
business, reputational damage, and potential financial penalties.
OPERATIONAL 10 BUSINESS CONTINUITY FAILURE Risk owner CFO
The risk Our Chief Technology Officer and Head of IT effectively manage and oversee our
IT infrastructure, network, systems, and business applications. All
Any failure or disruption of BTG's people, processes and IT infrastructure to Operational teams are focussed on the latest vendor products and educate sales
a degree that may negatively affect our ability deliver to our customers, teams appropriately. Regular IT audits have identified areas of improvements
reputational damage and losing market share. and ongoing reviews make sure we have a high level of compliance and uptime.
This means our systems are highly effective and fit for purpose.
For business continuity, we use different locations, sites, and solutions to
limit the impact of service outage to customers. Where possible, we use active
resilience solutions - designed to withstand or prevent loss of services in an
unplanned event - rather than just disaster-recovery solutions and facilities,
which restore normal operations after an incident.
Employees are encouraged to work from home or take time off when sick, to
avoid spreading diseases within the workplace. There are also processes to
ensure that there isn't a single point of failure and resiliency is built into
the employees' skillsets. Increased Automation means a heavier reliance on
technology. Reduce human error, but increase reliance on other vendors
potentially
The impact
Systems and IT infrastructure are key to our operational effectiveness.
Failures or significant downtime could hinder our ability to serve customers,
sell solutions or invoice.
Major outages in systems that provide customer services could limit clients'
ability to extract crucial information from their systems or manage their
software.
People are a huge part of our operational success and processes rely on people
as much as technology to be able to deliver effectively to our customers.
Insider threats, either intentional or otherwise, could cause issues to our
ability to deliver and damage our reputation. Sickness and absence of
employee, if in significant number, such as a communicable disease through a
particular team, could make effective delivery difficult.
11 ATTRACT AND RETAIN STAFF WHILE KEEPING OUR CULTURE Risk owner CEO
The risk How we manage it
The success of BTG's business and growth strategy depends on our ability to We continually strive to be the best company to work for in our sector.
attract, recruit, and retain a talented employee base. Being able to offer
competitive remuneration is an important part of this.
One of the ways we manage this risk is by growing our own talent pools. We've
used this approach successfully in our graduate intakes for sales, for
Three factors are affecting this: example. BTG also runs an extensive apprenticeship programme to create a new
security skill set.
- Inflation is still impacting salary expectations and wage growth.
- Skills shortage in emerging, high demand areas, such as AI/ML.
Review Management bandwidth to enable coaching time for new staff.
- With remote or hybrid working becoming the norm, potential
employees in traditionally lower-paid geographical regions are able to work
remotely in higher-paying areas like London.
Maintaining our culture is important to retain current staff. That small
company feel is maintained through regular communications, clubs, charity
events and social events. We aim to absorb growth rate whilst keeping our
Maintaining BTG culture also affects the attraction and retention of staff, culture.
which growth can change.
The impact
Excessive wage inflation could either drive up costs or mean we are unable to
attract or retain the talent pool we need to continue to deliver our planned
growth.
12 SUSTAINABILITY / ESG Risk owner CEO
The risk How we manage it
The growth in the importance of sustainability / ESG with our customers, Our Board manages and monitors this risk closely, with oversight from the
investors, and employees, means we need to stay at the forefront of reporting Audit Committee. The Group appointed a Sustainability Manager in March 2023,
and disclosures, whilst the requirements and standards are continually to drive the reporting and initiatives, whilst also working with an appointed
updated. third party to provide guidance and assurance on reported data.
The Sustainability Steerco enables decision makers from across Group and the
individual Operating Companies to drive towards a common goal and report on
challenges.
Disclosures are made through several avenues and the feedback from these is
used to develop changes in the business. Therefore, as the disclosure
methodologies stay up to date, so should the business, where possible and
relevant.
The impact
Falling behind our peers or expectations may lead to challenges in:
1. Legal - Maintaining adherence with global standards.
2. Maintaining customers - as they drive to reduce emissions.
3. Investor relations - meeting criteria for ESG funds
4. Attracting and maintaining Employees - as younger generations seek to
work for more purpose driven businesses
13 SUPPLY CHAIN MANAGEMENT Risk owner CEO
The risk How we manage it
Failure to understand suppliers may lead to regulatory, reputational, and Supplier set up forms include questions to ask suppliers to disclose
financial risks if they expose our business to practices that we would not information relating to compliance and adherence to our Supplier Code of
tolerate in our own operations. The time and effort to monitor and audit Conduct
suppliers is considered a risk
Any unethical, illegal, or corrupt behaviour that comes to light is escalated
and appropriate actions is taken.
Phoenix Software has appointed a Procurement Manager and Bytes Software
Services has established a cross-disciplinary group to work on managing
suppliers.
The impact
Management of supply chains is important to the sustainability of the business
from a legal, financial, reputational, ethical, and environmental viewpoint.
- Unethical working conditions & pay.
- Financial mismanagement and unethical behaviour
- Environmentally damaging
- Operations in sanctioned regions
Going concern disclosure
The Group performed a full going concern assessment for the 6 months ended 31
August 2023 undertaking the review and process set out in note 1.2. As
outlined in the Chief Financial Officer's review above, trading during the
period demonstrated the Group's strong performance and our resilient operating
model. The Group has a healthy liquidity position with £51.7 million of cash
and cash equivalents available at 31 August 2023. The Group also has access to
a committed revolving credit facility that covers the going concern period to
28 February 2025 and which remains undrawn.
The directors have reviewed trading and liquidity forecasts for the Group, as
well as continuing to monitor the effects of macro-economic, geopolitical and
climate related risks on the business. The directors have also considered a
number of key dependencies which are set out in the Group's principal risks
report, and including BTG's exposure to inflation pressures, credit risk,
liquidity risk, currency risk and foreign exchange risk. The Group continues
to model its base case, severe but plausible and stressed scenarios, including
mitigations, consistently with those disclosed in the annual financial
statements for the year ended 28 February 2023, with the key assumptions
summarised within the interim condensed financial statements below. Under all
scenarios assessed, the Group would remain cash positive throughout the whole
of the going concern period without needing to utilise the revolving credit
facility.
Going concern conclusion
Based on the analysis described above, the Group has sufficient liquidity
headroom through the forecast period. The directors therefore have reasonable
expectation that the Group has the financial resources to enable it to
continue in operational existence for the period up to 28 February 2025.
Accordingly, the directors conclude it to be appropriate that the interim
condensed consolidated financial statements be prepared on a going concern
basis.
Responsibility statement pursuant to the Financial Services Authority's
Disclosure and Transparency Rule 4 (DTR 4)
Each director of the company confirms that (solely for the purpose of DTR 4)
to the best of his/her knowledge:
· The financial information in this document, prepared in accordance
with the applicable UK law and applicable accounting standards, gives a true
and fair view of the assets, liabilities, financial position, and result of
the Group taken as a whole.
· The Chief Executive Officer's and Chief Financial Officer's reviews
include a fair review of the development and performance of the business and
the position of the Group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board
Neil Murphy Andrew Holden
Chief Executive Officer Chief Financial Officer
25 October 2023
Interim condensed consolidated statement of profit or loss
For the six months ended 31 August
Six months ended Year ended
31 August 31 August 28 February
2023 2022 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Revenue 3 108,699 93,533 184,421
Cost of sales (33,365) (28,045) (54,848)
Gross profit 75,334 65,488 129,573
Administrative expenses (44,725) (37,000) (77,753)
Increase in loss allowance on trade receivables - (1,193) (937)
Operating profit 30,609 27,295 50,883
Finance income 4 2,859 - -
Finance costs 4 (244) (255) (491)
Share of profit of associate 6 120 - -
Profit before taxation 33,344 27,040 50,392
Income tax expense 5 (7,956) (5,333) (9,971)
Profit after taxation 25,388 21,707 40,421
Profit for the period attributable to owners of the parent company 25,388 21,707 40,421
Pence Pence Pence
Basic earnings per ordinary share 16 10.60 9.06 16.88
Diluted earnings per ordinary share 16 10.17 8.74 16.28
The consolidated statement of profit or loss has been prepared on the basis
that all operations are continuing operations.
There are no items to be recognised in other comprehensive income and hence,
the Group has not presented a statement of other comprehensive income.
Interim condensed consolidated statement of financial position
As at As at As at
31 August 31 August 28 February
2023 2022 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 8,654 8,128 8,380
Right-of-use assets 1,134 856 783
Intangible assets 41,086 42,027 41,526
Investment in associate 6 3,147 - -
Contract assets 3,020 109 397
Deferred tax assets 436 - -
Total non-current assets 57,477 51,120 51,086
Current assets
Inventories 58 45 58
Contract assets 13,985 4,206 10,684
Trade and other receivables 8 180,148 176,674 185,920
Cash and cash equivalents 9 51,663 35,756 73,019
Total current assets 245,854 216,681 269,681
Total assets 303,331 267,801 320,767
Liabilities
Non-current liabilities
Lease liabilities (1,170) (897) (917)
Contract liabilities (1,567) (1,769) (1,976)
Deferred tax liabilities - (787) (635)
Total non-current liabilities (2,737) (3,453) (3,528)
Current liabilities
Trade and other payables 10 (222,909) (199,585) (231,717)
Contract liabilities (16,046) (18,265) (23,914)
Current tax liabilities (1,460) (239) (36)
Lease liabilities (188) (188) (75)
Total current liabilities (240,603) (218,277) (255,742)
Total liabilities (243,340) (221,730) (259,270)
Net assets 59,991 46,071 61,497
Equity
Share capital 2,395 2,395 2,395
Share premium 633,636 633,636 633,636
Other reserves 10,516 4,775 7,235
Merger reserve (644,375) (644,375) (644,375)
Retained earnings 57,819 49,640 62,606
Total equity 59,991 46,071 61,497
Interim condensed consolidated statement of changes in equity (unaudited)
Attributable to owners of the company
Share Share Other Merger Retained Total
capital premium reserves reserve earnings equity
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 March 2023 2,395 633,636 7,235 (644,375) 62,606 61,497
Total comprehensive income for the period - - - - - 25,388 25,388
Dividends - - - - - (30,175) (30,175)
paid
13(b)
Share-based payment transactions 15 - - - 2,900 - - 2,900
Deferred tax - - - 381 - - 381
Balance at 31 August 2023 2,395 633,636 10,516 (644,375) 57,819 59,991
Balance at 1 March 2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income for the period - - - - - 21,707 21,707
Dividends paid 13(b) - - - - - (24,906) (24,906)
Share-based payment transactions 15 - - - 1,702 - - 1,702
Deferred tax - - - 1 - - 1
Balance at 31 August 2022 2,395 633,636 4,775 (644,375) 49,640 46,071
Balance at 1 March 2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income for the period - - - - - 40,421 40,421
Dividends paid 13(b) - - - - - (30,654) (30,654)
Share-based payment transactions 15 - - - 4,188 - - 4,188
Deferred tax - - - (25) - - (25)
Balance at 28 February 2023 2,395 633,636 7,235 (644,375) 62,606 61,497
Interim condensed consolidated statement of cash flows
Period ended 31 August Period ended 31 August Year ended 28 February
2023 2022 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Cash flows from operating activities
Cash generated from/(utilised by) operations 11 17,417 (238) 48,889
Interest received 2,859 - -
Interest paid (196) (229) (443)
Income taxes paid (7,222) (5,276) (10,295)
Net cash inflow/(outflow) from operating activities 12,858 (5,743) 38,151
Cash flows from investing activities
Payments for property, plant and equipment (885) (595) (1,363)
Investment in associate (3,027) - -
Net cash outflow from investing activities (3,912) (595) (1,363)
Cash flows from financing activities
Principal elements of lease payments (127) (118) (233)
Dividends paid to shareholders 13(b) (30,175) (24,906) (30,654)
Net cash outflow from financing activities (30,302) (25,024) (30,887)
Net (decrease)/increase in cash and cash equivalents (21,356) (31,362) 5,901
Cash and cash equivalents at the beginning of the financial year 73,019 67,118 67,118
Cash and cash equivalents at end of year 9 51,663 35,756 73,019
Notes to the interim condensed consolidated financial statements
1. Accounting policies
1.1 General information
The interim condensed consolidated financial statements of Bytes Technology
Group plc, together with its subsidiaries ("the Group" or "the Bytes
business") for the six months ended 31 August 2023 were authorised for issue
in accordance with a resolution of the directors on 24 October 2023.
The Company is a public limited company, incorporated and domiciled in the UK.
Its registered address is Bytes House, Randalls Way, Leatherhead, Surrey, KT22
7TW.
The Group is one of the UK's leading providers of IT software offerings and
solutions, with a focus on cloud and security products. The Group enables
effective and cost-efficient technology sourcing, adoption and management
across software services, including in the areas of security and cloud. The
Group aims to deliver the latest technology to a diverse and embedded
non-consumer customer base and has a long track record of delivering strong
financial performance. The Group has a primary listing on the Main Market of
the London Stock Exchange (LSE) and a secondary listing on the Johannesburg
Stock Exchange (JSE).
1.2 Basis of preparation
The annual consolidated financial statements of the Group will be prepared in
accordance with UK-adopted International Accounting Standards ("UK-adopted
IFRSs").
The interim condensed consolidated financial statements for the six months
ended 31 August 2023 have been prepared in accordance with UK-adopted
International Accounting Standard ("IAS") 34 Interim Financial Reporting.
The interim condensed consolidated financial statements have been reviewed,
but not audited, by Ernst & Young LLP and were approved by the Board of
Directors on 24 October 2023. The financial information contained in this
report does not constitute statutory accounts within the meaning of section
434 of the Companies Act 2006. The interim condensed consolidated financial
statements should be read in conjunction with the annual consolidated
financial statements for the year ended 28 February 2023, which were prepared
in accordance with UK-International Accounting Standards in conformity with
the requirements of the Companies Act 2006. The annual financial statements
for the year ended 28 February 2023 were approved by the Board of Directors on
22 May 2023 and have been delivered to the registrar. The auditor's report on
those financial statements was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section 498(2) or (3)
of the Companies Act 2006.
The Group's interim condensed consolidated financial statements comprise the
interim condensed consolidated statement of profit or loss, interim condensed
consolidated statement of financial position, interim condensed consolidated
statement of changes in equity and interim condensed consolidated statement of
cash flows and a summary of significant accounting policies and the notes
thereto.
All amounts disclosed in the Group's interim condensed consolidated financial
statements and notes have been rounded off to the nearest thousand, unless
otherwise stated.
Going concern
The Group has performed a full going concern assessment for the 6-month period
ended 28 February 2023. As outlined in the Chief Financial Officer's review
above, trading during the period demonstrated the Group's continued strong
performance and resilient operating model with double digit growth in gross
invoiced income, gross profit, and operating profit against the prior year.
The Group has a healthy liquidity position at 31 August 2023 with £51.7
million of cash and cash equivalents available, and net current assets of
£5.2 million, after having paid final and special dividends in relation to
the year ended 28 February 2023 totalling £30.2 million during the period.
The Group has also seen an increase in its cash conversion during the six
months, compared to the equivalent prior period, and targets a sustainable
cash conversion ratio of 100% on a rolling 12-month basis. The Group has
access to a £30 million committed revolving credit facility (RCF) that covers
all its reasonably expected cash requirements up until the end of the going
concern review period and extends further beyond that date to May 2026. The
facility has never been used and we do not forecast its use over the going
concern assessment period.
In continuing to adopt a going concern basis for preparing the interim
condensed financial statements for the period ended 31 August 2023, the
directors have reviewed trading and cash forecasts prepared for the Group up
to 28 February 2025. This included considering the availability of liquidity
headroom on the revolving credit facility, and a number of uncertainties which
are set out in the Group's principal risks above, as well as the Group's
exposure to credit risk, liquidity risk, currency risk and foreign exchange
risk as described in note 12 of the interim condensed financial statements and
considered further below.
The Directors have also considered impacts on future trading and liquidity in
the context of the current operational performance and the macro-economic and
geopolitical environments.
Operational performance and operating model
The Group is now in its fourth year of trading since it listed in December
2020, following the previous three years of strong growth. In the current
period of reporting the Group has again achieved double-digit growth in gross
invoiced income, revenue, gross profit, and operating profit.
Resilience is built into the Group's operating model from its wide customer
base, high levels of repeat business, strong vendor relationships, and
increased demand driven by heightened IT security risks, migrations into the
cloud, and hybrid working. The key elements of the model are explained in
further detail on pages 132-133 in the annual financial statements for the
year ended 28 February 2023 to which we are already seeing emerging
requirements for AI functionality within IT applications. This will further
bolster our resilience and create new opportunities in the coming months and
years.
As a result, the directors believe that the Group continues to operate in a
resilient industry, which will enable it to continue its profitable growth
trajectory but are also very aware of the risks which exist in the wider
economy. Over the past 18 months, other risks have become more prominent
around energy, wage, and commodities inflation; supply problems caused by the
conflict in Ukraine; product shortages; and climate change. These risks align
to those identified in our principal risks statement, notably economic
disruption, inflation, and attraction and retention of staff. The Board
monitor these macroeconomic and geopolitical risks on an ongoing basis. They
are considered further below.
Macroeconomic risks
• Energy cost inflation - Our businesses are not naturally heavy
consumers of energy, and hence this element of our overall cost base is a very
small part of the total group administrative expenses. Even a substantial
percentage rise would not have a significant impact on our operating profit.
• Cost of sale inflation and competition leading to margin pressure -
Whilst pricing from our suppliers may be at risk of increasing, as they too
face the same macroeconomic pressures as ourselves, our commercial model is
based on passing on supplier price increases to our customers. We also see
pressure from our customers, notably in the public sector space where new
business must often be won under highly competitive tendering processes.
Hence, whilst there has been a reduction in our gross profit/gross invoiced
income (GP/GII%) in the period, this is almost entirely attributable to two
exceptionally large new public sector contracts which were secured at reduced
margins, for strategic reasons, in order to monetize those accounts over the
longer contract terms. Excluding those deals, we have maintained our GP/GII%
compared to the prior period and this remains one of the biggest focus areas
in our business.
• Wage inflation - the business has been facing pressure from wage
inflation over the past two years. Where strategically required we have
increased salaries to retain key staff in the light of approaches from
competitors, especially where staff have specialist or technical skills. We
monitor our staff attrition rate and have maintained a level below 15% which
is consistent with last year. We do not believe there has been any significant
outflow of staff due to being uncompetitive with salaries. We have a strong,
collaborative, and supportive culture and offer our staff employment in a
business which is robust and which they are proud of, and this is a key part
of our attraction and retention strategy.
Moreover, when we look at our key operational efficiency ratio of adjusted
operating profit/gross profit (AOP/GP) we have achieved 45% which is in line
with last year, hence demonstrating the control over rising staff costs in
response to the growth of the business. Whilst we have already aligned staff
salaries to market rates, further expected rises have been factored into the
financial forecasts in line with those awarded in the past year.
• Interest rates - interest rates rising rapidly in the UK and
internationally have had a negative financial impact on many organisations and
households. The Group however does not have any debt, and hence currently no
exposure, nor has it ever needed to call upon its revolving credit facility.
We have taken advantage of the recent higher interest rates to generate a
significant £2.9 million of interest income in the 6-month period, due to the
timing difference we see in our cashflow model between customer receipts and
supplier payments, and by placing cash on the money markets through our
monthly cash cycle.
• Foreign currency rate changes - fluctuations in the value of the
pound can have both positive and negative impacts but we have the ability to
self-hedge as we make both sales and purchases in the primary currencies of
USD and Euro. Risk is further diminished as our foreign currency transactions
are only a small part of our business.
• Inflation and rising interest rates impacting on customer spending -
whilst customers may consider reducing spending on IT goods and services, if
it is seen as non-essential, we have seen increased spending by our customers
as IT may in fact be a means to efficiency and savings elsewhere. As our
customers undergo IT transformation, trending to the cloud, automation, and
managed service and with growing cybersecurity concerns also heightening the
requirements for IT security, we are seeing no let-up in demand, as
illustrated by our reported trading performance. This is supported by our very
robust operating model, with business spread over many customers in repeat
subscription programs and service contracts, and high renewal rates.
• Inflation and rising interest rates impacting on customer payments -
across the period we have seen a small reduction in our debtor days compared
to prior year and with no evidence that customers ultimately do not pay. As in
previous years, the majority of our GII came from the public sector,
traditionally very safe and with low credit risk, whilst our corporate
customer base includes a wide range of blue-chip organisations and with no
material reliance on any single customer.
Geopolitical risks
The current geopolitical environment, most notably the conflict in Ukraine,
has created potential supply problems, product shortages and general price
rises particularly in relation to fuel, gas, and electricity.
• As noted above, increasing energy prices are not having a noticeable
impact on our profitability.
• In terms of supply chain, we are not significantly or materially
dependent on the movement of goods and hence physical trade obstacles are not
likely to affect us directly with hardware only making up 2% of our gross
invoiced income during the period. Nevertheless, we have ensured that we have
a number of suppliers with substitute, or alternative, technologies which we
can rely on if one supplier cannot meet our requirements or time scales; this
indicates that we have managed the supply chain well.
• Software sales though continue to be the dominant element of our
overall gross invoiced income and hence is not inherently affected by
cross-border issues.
Climate change risks
The Group does not believe that the effects of climate change will have a
material impact on its operations and performance over the going concern
review period considering:
• The small number of UK locations it operates from.
• A customer base substantially located within the UK.
• A supply chain which is not reliant on international trade and does
not source products and services from parts of the world which may be impacted
more severely by climate change.
• It sells predominantly electronic software licences and so has no
manufacturing or storage requirements.
• Its workforce can work seamlessly from home should any of their
normal work locations be impacted by a climatic event, although in the UK
these tend to be thankfully infrequent and not extreme.
Climate risks are considered fully in the Task Force on Climate-related
Financial Disclosures (TCFD) included in the Annual Report for the year ended
28 February 2023.
Going concern assessment
The Group continues to forecast cashflows under a base case scenario modelled
on continued growth, and then two downside scenarios, severe but plausible and
stressed, both of which include certain appropriate mitigations. This approach
to stress testing is consistent with the disclosure on page 135 in the annual
financial statements for the year ended 28 February 2023.
In its assessment, the Board has considered the potential impact of the
current economic conditions and geopolitical environment as described above,
most notably general inflation, wage inflation, the conflict in Ukraine and,
climate change. Whilst there is resilience against such pressures, as noted
above, if any of these factors leads to a reduction in spending by the Group's
customers, there may be an adverse effect on the Group's future gross invoiced
income, gross profit, operating profit, and debtor collection periods.
In the most stressed scenario, we have forecast both gross invoiced income and
gross profit falling by 30% year on year, and by 39% compared to the base
case, commencing in December 2023, and debtor days increasing by 10 at that
same point in time. The directors consider that such deteriorations remain
appropriate to reflect the potential collective impact of all the
macro-economic and geopolitical matters considered above, albeit highly
unlikely.
Under such downsides the Board have factored in the extent to which they might
be partially offset by freezes in recruitment, pay rises and general costs
(including a natural reduction in commissions and bonuses if gross profit
falls) and with further mitigation measures including reductions in headcount
(through natural attrition by not replacing leavers). These mitigations are
within the control of the Group to implement quickly in response to any
downward trends should they be necessary.
Under all scenarios assessed, the Group would remain cash positive throughout
the whole of the going concern period, with no requirement to call upon the
revolving credit facility and remaining compliant with the facility covenants.
Going concern conclusion
Based on the analysis described above, the Group has sufficient liquidity
headroom through the forecast period. The directors therefore have reasonable
expectation that the Group has the financial resources to enable it to
continue in operational existence for the period up to 28 February 2025.
Accordingly, the directors conclude it to be appropriate that the interim
condensed financial statements be prepared on a going concern basis.
1.3 Critical accounting estimates and judgements
The preparation of the interim condensed consolidated financial statements
requires the use of accounting estimates which, by definition, will seldom
equal the actual results. Management also needs to exercise judgement in
applying the Group's accounting policies.
The accounting estimates and judgements adopted for these interim condensed
consolidated financial statements are consistent with those of the previous
financial year as disclosed in the Group's annual report and accounts for the
year ended 28 February 2023.
1.4 New standards, interpretations and amendments adopted by the Group
There were no new standards, interpretations and amendments adopted by the
Group during the period to 31 August 2023 that have a material impact on the
interim condensed consolidated financial statements of the Group.
1.5 Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are the same as those set out in the Group's
annual consolidated financial statements for the year ended 28 February 2023,
except for the new accounting policy in note 1.6 below.
1.6 Investment in associates
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies. The Group's investment in its associate is accounted for
using the equity method.
Under the equity method, the investment in an associate is initially
recognised at cost. The carrying amount of the investment is adjusted to
recognise changes in the Group's share of net assets of the associate since
the acquisition date. The statement of profit or loss reflects the Group's
share of profit of the associate. Where there is objective evidence that the
investment in associate is impaired, the amount of the impairment is
recognised within 'Share of profit of associate' in the statement of profit or
loss.
1.7 Finance income and costs
Finance income comprises interest income on funds invested. Interest income is
recognised as it accrues in profit or loss, using the effective interest
method.
Finance costs comprises interest expense on borrowings and the unwinding of
the discount on lease liabilities, that are recognised in profit or loss as it
accrues using the effective interest method.
2. Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer, who is
considered to be the chief operating decision maker for the purposes of
resource allocation and assessment of performance, is based wholly on the
overall activities of the Group. The Group has therefore determined that it
has only one reportable segment under IFRS 8, which is that of 'IT solutions
provider'. The Group's revenue, results, assets and liabilities for this one
reportable segment can be determined by reference to the interim condensed
consolidated statement of profit or loss and the interim condensed
consolidated statement of financial position. An analysis of revenues by
product lines and geographical regions, which form one reportable segment, is
set out in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure which excludes
the effects of amortisation of acquired intangible assets and share-based
payment charges.
Adjusted operating profit reconciles to operating profit as follows:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Adjusted operating profit 33,949 29,802 56,377
Share-based payment charges 15 (2,900) (1,702) (4,188)
Amortisation of acquired intangible assets (440) (805) (1,306)
Operating profit 30,609 27,295 50,883
3. Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with customers:
The Group derives revenue from the transfer of goods and services in the
following major product lines and geographical regions:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
Revenue by product £'000 £'000 £'000
Software 67,088 57,884 114,108
Hardware 24,112 20,865 38,355
Services internal 15,473 13,350 28,454
Services external 2,026 1,434 3,504
Total revenue from contracts with customers 108,699 93,533 184,421
Software
The Group's software revenue comprises the sale of various types of software
licences (including both cloud-based and non-cloud-based licences),
subscriptions and software assurance products.
Hardware
The Group's hardware revenue comprises the sale of items such as servers,
laptops and other devices.
Services internal
The Group's internal services revenue comprises internally provided consulting
services through its own internal resources.
Services external
The Group's external services revenue comprises the sale of externally
provided training and consulting services through third-party contractors.
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue by geographical regions
United Kingdom 105,296 90,042 177,882
Europe 2,111 2,425 4,358
Rest of world 1,292 1,066 2,181
108,699 93,533 184,421
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
3(b) Gross invoiced income by type £'000 £'000 £'000
Software 1,027,305 738,448 1,346,110
Hardware 24,112 20,865 38,355
Services internal 15,473 13,350 28,454
Services external 14,751 13,538 26,395
1,081,641 786,201 1,439,314
Gross invoiced income 1,081,641 786,201 1,439,314
Adjustment to gross invoiced income for income recognised as agent (972,942) (692,668) (1,254,893)
Revenue 108,699 93,533 184,421
Gross invoiced income reflects gross income billed to customers adjusted for
deferred and accrued revenue items. The Group reports gross invoiced income as
an alternative financial KPI as management believes this measure allows
further understanding of business performance and position particularly in
respect of working capital and cash flow.
4. Finance income and costs
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Bank interest received 2,859 - -
Finance income 2,859 - -
Interest expense on financial liabilities (219) (229) (443)
Interest expense on lease liability (25) (26) (48)
Finance costs expensed (244) (255) (491)
Net finance income / (costs) 2,615 (255) (491)
5. Income tax expense
Income tax expense is recognised based on management's estimate of the
weighted average effective annual income tax rate expected for the full
financial year. The estimated average annual rate used for the period to 31
August 2023 is 23.9%, compared to 19.7% for the period to 31 August 2022. The
tax rate is higher in the current period, due primarily to the increase in the
UK corporate tax rate from 19% to 25% effective from 1 April 2023.
The major components of the Group's income tax expense for all
periods are:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
Current tax expense £'000 £'000 £'000
Current income tax charge in the year 8,723 5,734 10,483
Adjustment in respect of current income tax of previous years (77) - 66
Total current income tax charge 8,646 5,734 10,549
Deferred tax credit
Current year deferred tax credits (690) (401) (402)
Adjustments in respect of prior year - - (75)
Effect of change in tax rates - - (101)
Total deferred tax credit (690) (401) (578)
Total tax charge 7,956 5,333 9,971
Amounts recognised directly in equity
Period ended 31 August Period ended 31 August 2022 Year ended 28 February 2023
2023 Unaudited Audited
Unaudited
£'000 £'000 £'000
Aggregate deferred tax arising in the reporting period and not recognised in
net profit or loss or other comprehensive income but directly credited to
equity:
Deferred tax: share-based payments 381 1 (24)
381 1 (24)
6. Investment in associate
With effect from 18 April 2023 the Group acquired 25.1% interest in Cloud
Bridge Technologies Limited for £3.0 million, settled in cash. The Group's
interest in Cloud Bridge Technologies Limited is accounted for using the
equity method.
7. Financial assets and financial liabilities
This note provides information about the Group's financial instruments,
including:
· an overview of all financial instruments held by the Group;
· specific information about each type of financial instrument; and
· information about determining the fair value of the instruments,
including judgements and estimation uncertainty involved.
The Group holds the following financial instruments:
Financial assets As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Financial assets at amortised cost:
Trade receivables 8 165,293 166,598 178,386
Other receivables 8 12,015 7,753 5,896
177,308 174,351 184,282
Financial liabilities As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Financial liabilities at amortised cost:
Trade and other payables - current, excluding Payroll tax and other statutory 10 218,970 196,109 217,253
tax liabilities
Lease liabilities 1,358 1,085 992
220,328 197,194 218,245
8. Trade and other receivables
As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
Financial assets £'000 £'000 £'000
Gross trade receivables 166,835 168,541 179,928
Less: loss allowance (1,542) (1,943) (1,542)
Net trade receivables 165,293 166,598 178,386
Other receivables 12,015 7,753 5,896
177,308 174,351 184,282
Non-financial assets
Prepayments 2,840 2,323 1,638
2,840 2,323 1,638
Trade and other receivables 180,148 176,674 185,920
9. Cash and cash equivalents
As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Cash at bank and in hand 51,663 35,756 73,019
51,663 35,756 73,019
10. Trade and other payables
As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Trade and other payables 172,447 139,597 138,307
Accrued expenses 46,523 56,512 78,946
Payroll tax and other statutory liabilities 3,939 3,476 14,464
222,909 199,585 231,717
11. Cash generated from operations
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Profit before taxation 33,344 27,040 50,392
Adjustments for:
Depreciation and amortisation 1,145 1,394 2,480
Loss on disposal of property, plant and equipment - - 3
Non-cash employee benefits expense - share based payments 15 2,900 1,702 4,188
Finance (Income)/costs - net (2,615) 255 491
Share of profit of associate (120) - -
(Increase)/decrease in contract assets (5,924) 2,401 (4,365)
Decrease/(increase) in trade and other receivables 5,772 (19,065) (28,310)
Decrease in inventories - 51 38
(Decrease)/increase in trade and other payables (8,808) (18,027) 14,105
(Decrease)/increase in contract liabilities (8,277) 4,011 9,867
Cash generated from/(utilised by) operations 17,417 (238) 48,889
12. Financial risk management
This note explains the Group's exposure to financial risks and how these risks
could affect the Group's future financial performance. Current period
consolidated profit or loss and statement of financial position information
has been included where relevant to add further context.
Management monitors the liquidity and cash flow risk of the Group carefully.
Cash flow is monitored by management on a regular basis and any working
capital requirement is funded by cash resources or access to the revolving
credit facility.
The main financial risks arising from the Group's activities are credit,
liquidity and currency risks. The Group's policy in respect of credit risk is
to require appropriate credit checks on potential customers before sales are
made. The Group's approach to credit risk is disclosed in note 24 in its
annual consolidated financial statements for the year ended 28 February 2023.
12(a) Derivatives
Derivatives are only used for economic hedging purposes and not speculative
investments.
The Group has taken out forward currency contracts during the periods
presented but has not recognised either a forward currency asset or liability
at each period end as the fair value of the foreign currency forwards is
considered to be immaterial to the consolidated financial statements due to
the low volume and short-term nature of the contracts. Similarly, the amounts
recognised in profit or loss in relation to derivatives were considered
immaterial to disclose separately.
12(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the reporting
period, was as follows:
As at 31 August 2023 As at 31 August 2022 As at 28 February 2023
Unaudited Unaudited Audited
USD EUR NOK USD EUR NOK USD EUR NOK
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Trade receivables 10,462 3,858 - 9,646 3,958 - 13,529 1,900 -
Cash and cash equivalents 3,799 3,892 - 4,898 1,734 606 250 214 -
Trade payables (20,651) (2,132) (611) (12,207) (2,015) (30) (15,286) (1,981) (221)
(6,390) 5,618 (611) 2,337 3,677 576 (1,507) 133 (221)
The aggregate net foreign exchange gains/losses recognised in profit or loss
were:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Total net foreign exchange (losses)/gains in profit or loss (186) 15 32
(186) 15 32
12(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient cash to meet
obligations when due. The Group generates positive cash flows from operating
activities and these fund short-term working capital requirements. The Group
aims to maintain significant cash reserves and none of its cash reserves are
subject to restrictions. Access to cash is not restricted and all cash
balances could be drawn upon immediately if required. Management carefully
monitors the levels of cash held and is comfortable that for normal operating
requirements, no further external borrowings are currently required.
As at 31 August 2023, the Group had cash and cash equivalents of £51.7
million (2023: £73.0 million), see note 8. Management monitors rolling
forecasts of the Group's liquidity position (which comprises its cash and cash
equivalents) on the basis of expected cash flows generated from the Group's
operations. These forecasts are generally carried out at a local level in the
operating companies of the Group in accordance with practice and limits set by
the Group and take into account certain down case scenarios.
(2) Revolving Credit Facility
On 17 May 2023 the Group entered into a new three-year committed Revolving
Credit Facility (RCF) for £30 million, including an optional one-year
extension to 17 May 2027, and a non-committed £20 million accordion to
increase the availability of funding should it be required for future
activity. The new facility replaced the previous RCF which was entered into in
December 2020. The new facility has incurred an arrangement fee of £0.1
million, being 0.4% of the new funds available. The Group has so far not drawn
down any amount on this facility and to the extent that there is no evidence
that it is probable that some or all of the facility will be drawn down, the
fee has been capitalised as a prepayment and amortised over the period of the
facility. The facility also incurs a commitment fee and a utilisation fee,
both of which are payable quarterly in arrears. Under the terms of the
facility, the Group is required to comply with the following financial
covenants:
· Interest cover: EBITDA (earnings before interest, tax, depreciation
and amortisation) to net finance charges for the last 12 months shall be
greater than 4.0 times;
· Leverage: Net debt to EBITDA for the last 12 months must not exceed
2.5 times.
The Group has complied with these covenants throughout the reporting
period.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual maturity for its
financial liabilities based on undiscounted contractual payments:
Total contractual cash flows
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Carrying amount
31 August 2023 - Unaudited Note £'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables(1) 10 218,970 - - - 218,970 218,970
Lease liabilities 247 363 864 - 1,474 1,358
219,217 363 864 - 220,444 220,328
Total contractual cash flows
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Carrying amount
31 August 2022 - Unaudited £'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables(1) 10 196,109 - - - 196,109 196,109
Lease liabilities 231 116 694 198 1,239 1,085
196,340 116 694 198 197,348 197,194
Total contractual cash flows
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Carrying amount
28 February 2023 - Audited Note £'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables(1) 10 217,253 - - - 217,253 217,253
Lease liabilities 116 463 545 - 1,124 992
217,369 463 545 - 218,377 218,245
(1) excludes payroll tax and other statutory liabilities
13. Capital management
13(a) Risk management
For the purpose of the Group's capital management, capital includes issued
capital, ordinary shares, share premium and all other equity reserves
attributable to the equity holders of the parent. The primary objective of
the Group's capital management is to maximise shareholder value.
The Group manages its capital structure and makes adjustments in light of
changes in economic conditions and the requirements of shareholders. To
maintain or adjust the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders or issue new shares.
In order to ensure an appropriate return for shareholders' capital invested in
the Group, management thoroughly evaluates all material revenue streams,
relationship with key vendors and potential acquisitions and approves them by
the Board, where applicable. The Group's dividend policy is based on the
profitability of the business and underlying growth in earnings of the Group,
as well as its capital requirements and cash flows. The Group's dividend
policy is to distribute 40% of the Group's post-tax pre-exceptional earnings
to shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider returning excess
cash to shareholders over time.
13(b) Dividends
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
Declared and paid during the period £'000 £'000 £'000
Interim dividend - - 5,748
Final dividend 12,214 10,058 14,848
Special dividend 17,961 14,848 10,058
Total dividends attributable to ordinary shareholders 30,175 24,906 30,654
Dividends not recognised at 31 August 2023
Since the end of the half year the directors have recommended the payment of
an interim dividend of 2.7 pence per fully paid ordinary share (2022: 2.4
pence). The aggregate amount of the proposed dividend expected to be paid on
1 December 2023 out of retained earnings at 31 August 2023, but not
recognised as a liability at the end of the half year, is £6.5 million.
14. Related party transactions
In the ordinary course of business, the Group carries out transactions with
related parties, as defined by IAS 24 'Related Party Disclosures'. There have
been no related party transactions that materially affect the current period.
Related party transactions materially affecting the prior periods reported
relate to the final and interim dividends paid to the Group's former parent
group, disclosed in note 12(b).
15. Share-based payments
For the six months ended 31 August 2023, 1,578,955 share options were granted
to eligible employees.
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Share-based payment employee expenses 2,900 1,702 4,188
2,900 1,702 4,188
16. Earnings per share
The Group calculates earnings per share (EPS) on several different bases in
accordance with IFRS and prevailing South Africa requirements. The Group is
required to calculate headline earnings per share (HEPS) in accordance with
the JSE Listing Requirements.
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
pence pence pence
Basic earnings per share 10.60 9.06 16.88
Diluted earnings per share 10.17 8.74 16.28
Headline earnings per share 10.60 9.06 16.88
Diluted headline earnings per share 10.17 8.74 16.28
Adjusted earnings per share 11.71 10.11 18.83
Diluted adjusted earnings per share 11.23 9.75 18.16
16(a) Weighted average number of shares used as the denominator
Period ended 31 August 2023 Period ended 31 August Year ended 28 February 2023
Unaudited 2022 Audited
Unaudited
Number Number Number
Weighted average number of ordinary shares used as the denominator in 239,482,333 239,482,333 239,482,333
calculating both basic EPS and HEPS
Adjustments for calculation of both diluted EPS and diluted HEPS:
- share options((1)) 10,105,688 8,866,180 8,760,684
Weighted average number of ordinary shares and potential ordinary shares used 249,588,021 248,348,513 248,243,017
as the denominator in calculating both diluted EPS and diluted HEPS
(1) Share options
Share options granted to employees under the Save As You Earn Scheme, Company
Share Option Plan and Bytes Technology Group plc performance incentive share
plan are considered to be potential ordinary shares. They have been included
in the determination of diluted earnings per share on the basis that all
employees are employed at the reporting date, and to the extent that they are
dilutive. The options have not been included in the determination of basic
earnings per share.
16(b) Headline earnings per share
The table below reconciles the profits attributable to owners of the company
to headline profits attributable to owners of the company:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Profits attributable to owners of the company 25,388 21,707 40,421
Adjusted for:
- Loss on disposal of property, plant and equipment - - 3
- Tax effect thereon - - (1)
Headline profits attributable to owners of the company 25,388 21,707 40,423
16(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative performance measure
which is consistent with the way that financial performance is measured by
senior management of the Group. It is calculated by dividing the adjusted
operating profit attributable to ordinary shareholders by the total number of
ordinary shares in issue at the end of the year. Adjusted operating profit
is calculated to reflect the underlying long-term performance of the Group by
excluding the impact of the following items:
· Share-based payment charges
· Amortisation of acquired intangible assets
The table below reconciles the profit for the financial year to adjusted
earnings and summarises the calculation of adjusted EPS:
Period ended 31 August 2023 Period ended 31 August 2022 Year ended 28 February 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Profits attributable to owners of the company 25,388 21,707 40,421
Adjusted for:
- Amortisation of acquired intangible assets 440 805 1,306
- Deferred tax effect on amortisation (110) - (301)
- Share-based payment charges 2,900 1,702 4,188
- Deferred tax effect on share-based payment charges (580) - (522)
Total adjusted earnings attributable to owners of the company 28,038 24,214 45,092
(1) The prior year has not been restated to include the deferred tax effect on
the adjusting items as the impact was considered to be immaterial. Had the
prior year been restated the adjusted profits attributable to owners of the
company would have been £23.8 million.
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