REG - Bytes Technology Grp - Interim Results
15/10/2024 07:00
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RNS Number : 1405I Bytes Technology Group PLC 15 October 2024
15 October 2024
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Results for the six months ended 31 August 2024
Strong performance, capitalising on continued demand
Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the UK's leading
software, security, cloud and AI services specialists, today announces its
half year results for the 6 months ended 31 August 2024 (H1 FY25).
Sam Mudd, Chief Executive Officer, said:
"I am pleased to report another set of positive results for BTG, with a strong
increase in operating profit, driven by continued demand for our broad range
of software, solutions and services. Despite the challenging economic climate
and political uncertainty over the past six months, we have increased our
share of wallet amongst our existing customers as they continued to invest in
their IT needs. We have also expanded our client base in both the public and
corporate sectors."
"The Group has again made strategic investments in personnel, internal
systems, and new vendor accreditations to drive future growth and support our
customers in navigating the complexities of agile, yet secure, IT
environments. Our strong relationships with Microsoft and other top tier
vendors allow us to seize exciting opportunities in cloud adoption, workload
migrations, storage, security, and virtualisation technologies. Meanwhile, we
continue to collaborate with our customers to enable their teams to roll-out
the use of emerging AI technology, such as Copilot. With sustained demand in
all these areas, and our expanding technical capabilities, these will be our
key focus areas in the remainder of FY25 and beyond."
"Our passionate, talented, and experienced staff continue to position BTG to
provide high-quality licensing advice, technical enablement and support to
meet our customers' needs. This differentiates us from the competition and
underpins our confidence for continued growth during the remainder of the
year."
Financial performance
£'million H1 FY25 (six months ended 31 August 2024) H1 FY24 (six months ended 31 August 2023) % change year on year
Gross invoiced income (GII)(1) £1,230.2m £1,081.6m 13.7%
Revenue(2) £105.5m £108.7m (2.9)%
Gross profit (GP) £82.1m £75.3m 9.0%
Gross margin % (GP/Revenue) 77.8% 69.3%
GP/GII % 6.7% 7.0%
Operating profit £35.6m £30.6m 16.3%
Operating profit/GP% 43.4% 40.6%
Cash £71.5m £51.7m 38.3%
Cash conversion(3) 56.2% 54.0%
Cash conversion (rolling 12 months)(3) 112.6% 119.7%
Earnings per share (pence) 12.67 10.60 19.5%
Interim dividend per share (pence) 3.1 2.7 14.8%
Financial highlights
- GII increased by 13.7% to £1,230.2 million (H1 FY24 : £1,081.6
million), primarily driven by software. There continued to be a strong
contribution from the public sector and the large prior year contract wins
from NHS & HMRC have seen further growth.
- Revenue reduced by 2.9% to £105.5 million (H1 FY24 : £108.7 million)
primarily due to a decrease in hardware GII (all of which is booked as
revenue) and which exceeded the growth in software GP (where only the GP is
included in revenue rather than the full GII). This has resulted in an
increase in gross margin % (GP/revenue) from 69.3% to 77.8% with GP increasing
against the slight decline in revenue.
- Growth in GP of 9.0% to £82.1 million (H1 FY24 : £75.3 million) in
part reflects a greater weighting towards aggregated public sector sales under
competitive tendering processes. This led to a corresponding small reduction
in GP/GII from 7.0% last year to 6.7% this year. Behind this figure however we
saw growth in our two key income streams, software and internal services, by
11.3% and 28.1% respectively.
- Operating profit increased by 16.3% to £35.6 million (H1 FY24: £30.6
million), with a corresponding rise in the ratio of operating profit to GP
from 40.6% to 43.4%, reflecting the balance achieved between investing in the
business whilst driving efficiencies.
- Earnings per share increased 19.5% to 12.67 pence (H1 FY24: 10.6
pence).
- Half year cash conversion of 56.2% is in line with our expectations
reflecting the seasonal timing of cash flows, with a stronger weighting in the
second-half of the financial year (H1 FY24: 54.0%). Our rolling cash
conversion for the 12 months ended 31 August 2024 stood at 112.6%, meeting our
sustainable annual target of 100%.
- Closing cash was £71.5 million (H1 FY24: £51.7 million).
Interim dividend
- Interim dividend of 3.1 pence per share, a 14.8% increase on last
year's interim dividend (H1 FY24: 2.7 pence).
Operational highlights
- Customers that traded with BTG in H1 FY24 contributed 98% of our GP in
this half year (H1 FY24: 98%), at a renewal rate of 107%.
- Increased headcount in the period by 7% to 1,130 (29 February 2024:
1,057) with particular focus on bolstering sales and service delivery teams.
- Continued to grow our physical footprint with the opening of offices
in Sunderland and Portsmouth and expansion of floorspace in London.
- Sold over 130,000 Copilot licenses across our client base to date,
generating annualised GII of circa £39 million, and Copilot now also used
widely within our business.
- Renewed our Microsoft Azure Expert MSP status and secured further
security and cloud specialisms.
- Received multiple vendor awards including from Palo Alto, HP, Nutanix,
Checkpoint, Sophos, Cato Networks, Bitdefender, Adobe and Druva.
- Both Bytes Software Services and Phoenix Software named among the UK's
top 50 Best Workplaces 2024.
- Vesting of our first Share Save Plan from 2021 which has seen
participating staff able to exercise their options to become shareholders in
BTG.
Current trading and outlook
The Group traded strongly in the first half of FY25 whilst operating in highly
competitive markets and despite challenging macroeconomic conditions. Our
focus remains on executing our growth strategy by nurturing customer
relationships, extending our strong vendor partnerships, and leveraging the
technical and commercial skills of our teams. We are well positioned to
benefit from the structural demand drivers we see in our markets including
cloud computing, cyber security and AI for the remainder of FY25.
Analyst and investor presentation
A presentation for sell-side analysts and investors will be held today at
9:30am (BST) via a video webcast that can be accessed using the link:
https://brrmedia.news/BYIT_HY_24 (https://brrmedia.news/BYIT_HY_24)
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
Sam Mudd, 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 UK Listing Rules of the Financial Conduct 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, security, and AI products. The Group enables
effective and cost-efficient technology sourcing, adoption and management
across software services, including in the areas of security and the cloud. 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. 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
judgement 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) 'Cash conversion' is a non-IFRS alternative performance measure that
divides cash generated from operations less capital expenditure (together,
'free cash flow') by operating profit. It is calculated over both the current
6 month reporting period and over a rolling 12 months, the latter taking the
previous 12 months free cash flow divided by the previous 12 months operating
profit, in order to reflect seasonal variations between the two halves of the
year.
_______________________________________________________________________________
Chief Executive Officer's review
A strong performance delivering on our strategy
H1 FY25 was another set of strong results for BTG, with a 13.7% increase in
gross invoiced income, a 9.0% rise in gross profit, and a 16.3% increase in
operating profit. Despite the challenging economic climate, we have
delivered a strong performance underpinned by our diverse range of software
and IT services offerings from leading vendors and software publishers, and
reflecting the robust nature of IT spending across the UK and Ireland.
Our continued success in securing large public sector contracts again
illustrates our credibility and strength in bidding for significant government
software opportunities under the Crown Commercial Services and other framework
agreements. While these sales are initially won at reduced margins, due to the
competitive tendering process, we have a strategy and track record of growing
the size and profitability of these contracts over time as they predominantly
take the form of multi-year agreements. This provides confidence in our future
growth prospects and the potential for up-selling and cross-selling
opportunities.
Customers choose to partner with BTG because of the broad range of solutions
and services we offer, including multi-cloud migration and adoption, digital
transformation, storage, and a wide array of security products. Many have
built long standing relationships with us over many years underpinned by our
excellent software advisory expertise and knowledge around procurement routes,
which enables us to guide customers on best value. We intend to double down on
this strength by investing further in pre-sales and specialist technical
skills, allowing us to service a larger market and scale up to meet our
customers' needs.
Examples of our services delivery capability includes a consultancy team with
expertise across the entire Microsoft Cloud and AI portfolio and our Security
Operation Centre (SOC), plus Governance, Risk and Compliance (GRC) and
Software Asset Management (SAM) offerings, including licensing spend
optimisation supported by our own IP in the form of Quantum and Licence
Dashboard. The expansion of our IT services capability is further enhanced by
the renewal of our Microsoft Azure Expert status for the provision of managed
services, along with attaining 11 service delivery specialisations (4 in
security solutions) and 6 solution partner designations from Microsoft.
We have seen strong interest in AI products, including Microsoft's Copilot for
M365, selling over 130,000 licenses into our customer base since its launch in
H2 FY24, and we continue to develop associated in-house services to support
customer readiness and adoption. We will further expand our existing in-house
AI-dedicated teams, creating repeatable sector specific solutions with broader
data and GenAI services across our vendor offerings as this income stream
continues to grow in the second half of FY25 and beyond.
In addition to our partnership with Microsoft, we have also continued to
deepen our relationships with other key partners and are especially pleased to
have been recognised by leading industry vendors including Palo Alto, HP,
Nutanix, Checkpoint, Sophos, Cato Networks, Bitdefender, Adobe and Druva,
reflecting the status and high esteem that the Group has with global
technology leaders. These awards are highly competitive and our success is
testament to the expertise of our staff and the customer success stories that
we deliver.
We work with our vendors to align our sales efforts and service offerings with
their strategic objectives, and they incentivise us accordingly. While not yet
finalised, a change to one of the key vendor's incentive plans is scheduled to
take effect from 1 January 2025 as part of the evolution of their partner
program, and while this might result in lower incentives in a few areas, the
overall incentive opportunity is expected to grow. We have a long track record
of successfully adapting to such changes and do not expect there to be a
material impact in the current or next financial year.
We are proud of the energy, enthusiasm and professionalism demonstrated by our
people, now totalling 1,130 staff across multiple offices and regions. They do
a tremendous job supporting our customers and providing outstanding service.
We continue to focus on targeted recruitment and training, and attracting
talent into front-end sales, delivery teams and all supporting areas, and from
apprentices through to senior roles to help with our ambitious growth plans.
As a management team, we are extremely pleased with the way our people
continue to work hard in these challenging times, and 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 August 2024, we launched our
fourth Share Save Plan, which has again been well received by our employees,
with over 50% participating in one or more of these plans. August 2024 also
saw the vesting of our first Share Save Plan which was launched in 2021, with
participants now able to exercise their options and become shareholders in the
BTG Group.
To support the growth in sales and people, we are investing in both our
internal and customer facing systems, and in our office environments including
expanding our regional presence. This will improve our staff user experiences
and drive internal efficiencies, whilst more closely supporting our customers
and making it easier for them to do business with us.
We are 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 the key themes 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. More details
in respect of our sustainability initiatives are set out below.
Our dividend policy is to distribute 40%-50% 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 3.1 pence per share to be paid on 22 November 2024 to shareholders
on the register at 8 November 2024.
I have been hugely impressed by the commitment and professionalism of all of
our staff as they remained focused on delivering our strategic priorities in
the first half of FY25 and wish to extend my gratitude for their hard work and
dedication to the business. Finally, I would like to thank our clients for
their support and entrusting their business to 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
foster an aligned culture across the organisation. During the period, we
further progressed our ESG initiatives in the following ways.
Achieved Science Based Targets initiative (SBTi) validation
At the end of June 2024 we received SBTi validation for our near-term and net
zero carbon reduction targets and, further to this, we continue to align our
activities to our Scope 1 and 2 targets for FY26. As part of the continual
publication of our net zero efforts, we have submitted our annual Carbon
Disclosure Project (CDP) for FY25.
We continue to monitor the progress of the IFRS S1 and S2 standards being
adopted by the UK Government, through the UK Sustainability Disclosure
Standards and will align to these as required. The standards will incorporate
the recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD), so we expect to be in a good position to transition, having fully
complied with the TCFD's recommendations in our last Annual Report. Within our
businesses, we are supporting the evolution to greener transport to reduce
business travel and commuting emissions. The Group successfully implemented an
electric vehicle scheme in FY24 which has expanded further in H1 FY25 across
the business. Early in FY25 our York office saw the addition of solar panels,
which further supports carbon reduction and increases energy security.
Self-generated energy is also being assessed for our other owned offices.
Unity through diversity and inclusion
Employee support and wellbeing continue to be key focus areas for the Group,
with wellbeing days an important part in driving a healthier and happier
workforce, which we continue to measure through the annual employee Net
Promoter Score (eNPS) survey. Understanding diversity within our business has
also been a focus across the Group, with the roll-out of voluntary
self-reporting for gender, ethnicity, disability and neurodiversity. A more
detailed understanding of the demographics of our business will aid in
attracting and retaining talent and support innovation through diversity of
thought.
Our strong culture remains a driving force behind our successful growth. We
continue to support this through staff events, incentive trips and the
development of our people with continued learning and training opportunities.
There has been an expansion of our apprenticeship scheme into more areas of
the business and into degree-level apprenticeship programmes. We engage with
staff through various channels and several improvements are made based on
their ideas and initiatives. During H1 FY25, we have continued to support our
communities through donations, fundraising events and volunteer days, such as
with the Wildlife Aid Foundation, the Rainbow Trust and St Leonard's
Hospice.
Board composition and committee memberships
In H1 FY25 there have been some changes to the composition of the Board and
committee memberships. On 25 March 2024, Erika Schraner was appointed as
Senior Independent Director and Interim Chair of the Audit Committee,
replacing Mike Phillips, who resigned as an Independent Non-Executive
Director. At the same time Shruthi Chindalur assumed the role of Designated
Non-Executive Director (DNED) for employee engagement. On 10 May 2024 Sam Mudd
was appointed as CEO.
On 1 June 2024 additional Board appointments were made, and the ESG Committee
was established. Ross Paterson was appointed as an Independent Non-Executive
Director, Chair of the Audit Committee, and member of the Nomination,
Remuneration and ESG Committees. Anna Vikström Persson was appointed as an
Independent Non-Executive Director, Chair of the ESG Committee, and member of
the Audit, Nomination and Remuneration Committees.
Following the aforementioned appointments of Ross Paterson and Anna Vikström
Persson, we are now again compliant with provisions 24 and 32 of the UK
Corporate Governance Code 2024.
Chief Financial Officer's review
H1 FY25 H1 FY24 Change
Income statement £'m £'m %
Gross invoiced income (GII) 1,230.2 1,081.6 13.7%
GII split by product:
Software 1,187.2 1,027.3 15.6%
Hardware 12.5 24.1 (48.1)%
Services internal(1) 16.6 15.5 7.1%
Services external(2) 13.9 14.7 (5.4)%
Netting adjustment (1,124.7) (972.9) 15.6%
Revenue 105.5 108.7 (2.9)%
Revenue split by product:
Software 74.7 67.1 11.3%
Hardware 12.5 24.1 (48.1)%
Services internal(1) 16.6 15.5 7.1%
Services external(2) 1.7 2.0 (15.0)%
Gross profit (GP) 82.1 75.3 9.0%
GP/GII % 6.7% 7.0%
Gross margin % 77.8% 69.3%
Administrative expenses 46.5 44.7 4.0%
Administrative expenses split:
Employee costs 37.2 35.7 4.2%
Other administrative expenses 9.3 9.0 3.3%
Operating profit 35.6 30.6 16.3%
Operating profit/GP% 43.4% 40.6%
Add back:
Share-based payments 2.5 2.9 (13.8)%
Amortisation of acquired intangible assets 0.4 0.4 0.0%
Adjusted operating profit (AOP) 38.5 33.9 13.6%
Interest income 6.0 2.9 106.9%
Finance costs (0.2) (0.3) (33.3)%
Share of profit of associate(3) 0.1 0.1 0.0%
Profit before tax 41.5 33.3 24.6%
Income tax expense (11.1) (7.9) 40.5%
Effective tax rate 26.7% 23.7%
Profit after tax 30.4 25.4 19.7%
Add back:
43.4%
40.6%
Share-based payments
2.5
2.9
(13.8)%
Amortisation of acquired intangible assets
0.4
0.4
0.0%
Adjusted operating profit (AOP)
38.5
33.9
13.6%
Interest income
Finance costs
Share of profit of associate(3)
6.0
(0.2)
0.1
2.9
(0.3)
0.1
106.9%
(33.3)%
0.0%
Profit before tax
41.5
33.3
24.6%
Income tax expense
(11.1)
(7.9)
40.5%
Effective tax rate
26.7%
23.7%
Profit after tax
30.4
25.4
19.7%
(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
Overview of H1 FY25 results
H1 FY25 has continued to see customers engaging with us for our core software
licencing offerings. We have experienced increasing demand in areas such as
cloud computing, cyber security and AI, which we have responded to by
expanding our technical and service solutions.
This demand contributed to operating profit increasing by 16.3% to £35.6
million (H1 FY24: £30.6 million) and profit before tax rising by 24.6% to
£41.5 million (H1 FY24: £33.3 million).
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
measure which best enables us 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 that is most recognisable
among our staff, customers, suppliers and shareholders for them to understand
our business.
GII increased by 13.7% year on year, with growth coming from our core software
and internal services income streams. Software remains the largest
contributor, providing 97% of the total GII for the period (H1 FY24: 95%).
Whilst growth has reduced compared to FY24, the prior year saw some
exceptionally large public sector contracts won. These are now in their second
year in H1 FY25, with the agreements running over five years.
Hardware, whilst not the primary focus for the Group (representing only 1% of
GII), has seen a 48% reduction, reflecting the more one-off nature of sales as
they typically reflect the timing of large infrastructure projects by
customers, and a more general reduction in hardware spend across the IT
sector.
We have seen a small reduction in GII from external services delivered in the
period, which will fluctuate according to customer requirements and whether we
have the capability and capacity to deliver these projects in house.
Correspondingly we have seen a rise in our internally delivered services
figure and will continue to invest in this part of the business to meet future
demand.
The continued high level of government investment in IT, and the Group's
success in winning those new contracts, has resulted in our public sector GII
increasing by £141.0 million, up 19.5%, to £862.8 million (H1 FY24: £721.7
million). Our corporate GII has been more impacted by the ongoing economic
uncertainty but still increased by 2.1% to £367.4 million (H1 FY24: £359.9
million).
This means that our overall GII mix has moved slightly compared to last year,
with 70% in public sector (H1 FY24: 67%) against corporate of 30% (H1 FY24:
33%).
Revenue
Revenue is reported in accordance with IFRS 15 Revenue from Contracts with
Customers. Under this reporting standard, we are required to exercise
judgement 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.
It should be noted that GII, gross profit, operating profit, and profit before
and after taxes are not affected by these judgements, and neither are the
consolidated statements of financial position, cash flows and changes in
equity.
Our judgements around this area are set out in notes 1.4 and 1.10 of the
financial statements for FY24 but in summary, software and external services
revenue is treated on an agency basis while hardware and internal services
revenue is treated as principal. With software being our dominant income
stream, this therefore gives rise to our GII being subject to a substantial
"netting adjustment" to arrive at a much lower revenue position.
This reporting of revenue as a mix of GP and GII across the four income
streams has given rise to a 2.9% reduction to £105.5 million (H1 FY24:
£108.7 million) as the growth in software GP (where only the GP is included
in revenue rather than the full GII) is outweighed by the reduction in the
hardware GII (all of which is taken to revenue). Hence, due to revenue being a
mix of metrics, we focus on GII to provide a consistent measure of our sales
performance and billed income.
Gross profit (GP)
GP increased by 9.0% to £82.1 million (H1 FY24: £75.3 million).
Breaking this down by income stream, for the Group's two most strategic focus
areas, we have seen both achieving double digit growth, software GP up by
11.3%, and with only a very small decline in its GP/GII%, while internal
services GP is up by 28.1%, driving it's GP/GII margin up to over 20%. Against
these positive trends, the declining hardware GII noted above, and to a
smaller degree the reduction in external services, have brought about
corresponding reductions in GP for those income streams.
Looking across our two main customer segments, the Group has seen strong
growth in public sector GII, bidding under highly competitive tenders, either
for single contracts or for several public body contracts in aggregate, the
latter enabling us to gain multiple new clients from a single bid. Despite
more pressure on margins under this process the public sector GP has grown by
over 20%. Against this, the relatively low growth in GII from the corporate
sectors is mirrored by GP growth there of 3%.
Lower margins in public sector are as expected but in fact our GP/GII% for
both public and corporate sectors has improved slightly from the previous
year. However, the greater mix of GII derived from public sector has resulted
in an overall reduction in GP/GII from 7.0% in H1 FY24 to 6.7% this year. When
comparing GP to revenue, we have seen an increase in the gross margin % from
69.3% to 77.8% due to the GP increasing against the slight decline in revenue
noted above.
The growth in the public sector again demonstrates 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 three to five years, by adding additional higher-margin products
into the original agreement as the customers' requirements grow and become
more advanced. Adding AI products such as Copilot will become part of these
contract expansions going forward. This process is further enhanced by
focusing on selling our wide range of solutions offerings and higher-margin
security products, while 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 was again demonstrated in H1 FY25 with 98% of our GP coming from
customers that we also traded with last year (H1 FY24: 98%), at a renewal rate
of 107% (which measures the GP from existing customers this period compared to
total GP in the prior period).
Administrative expenses
This includes employee costs and other administrative expenses as set out
below.
Employee costs
Our success in growing the business 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 and to ensure we have
the expertise required to provide our clients with the best service, 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.
During the half year we have seen total staff numbers rise to 1,130 on our
August 2024 payroll, up by 6.9% from the year-end position of 1,057 on 29
February 2024 and up 10.1% over the full year period since 31 August 2023.
Employee costs, included in administrative expenses, rose by 4.2% to £37.2
million (H1 FY24: £35.7 million). However, this figure has been impacted by
the effects of:
· a reduction in share-based payment charges by £0.4 million as
our first three share option schemes issued post-IPO have now vested and the
cost of the new schemes launched in FY24 and FY25 have been slightly lower.
· capitalising £0.7 million of staff costs onto the balance sheet.
This relates to the salaries of employees who are developing new IT platforms,
one to provide a 'marketplace' gateway for our customers to more seamlessly
purchase products online from a range of vendors and the other to enable us to
improve our operational processes around customer order processing. This
treatment is in line with our accounting policy for intangible assets which
can be found in our Annual Report and Accounts.
Without the impact of these two items, the underlying increase in our employee
costs is 7.3%, hence in line with the increase in headcount and less than our
GP growth, reflecting the balanced and proportional way in which staff
investments are made.
Other administrative expenses
Other administrative expenses increased by 3.3% to £9.3 million (H1 FY24:
£9.0 million) including continued investment in staff welfare and internal
systems.
As part of the software development project referred to above, we have also
spent £0.9 million with a third party development company to supplement our
own internal resources. This engagement was taken wholly for this purpose,
hence not in the prior year figures, and the cost has been capitalised in full
alongside our own salary costs, making a total of £1.6 million added to
intangible software assets during the period (see balance sheet below).
Operating profit and adjusted operating profit (AOP)
Our operating profit increased by 16.3% from £30.6 million to £35.6 million,
which shows the balance we have achieved between growing GP in a challenging
market whilst effectively managing our cost base.
Some of this increase has been positively impacted by the £0.7 million
capitalisation of software developers staff costs noted above (previously
expensed in the prior half year when their work was focused on maintaining
legacy systems). Even after adjusting for this, the increase remains very
positive at 14.1% with a like for like comparative operating profit figure of
£34.9 million in H1 FY25.
Our operating efficiency ratio which measures operating profit as a percentage
of GP is a key performance indicator in understanding the Group's operational
effectiveness in running day-to-day operations. We aim to sustain it in excess
of 40% and have achieved this, with an increased ratio of 43.4% (H1 FY24:
40.6%). Excluding the capitalised staff costs, the ratio for this period is
42.5%.
In previous results announcements we have also focused on AOP which removes
the effects of share-based payment (SBP) charges and amortisation of acquired
intangibles, notably due to the growth of the SBP over the time since IPO from
a near zero starting position in FY21 of £0.3 million to £5.7 million in
FY24. Given that we have now moved out of that growth cycle (as older schemes
vest and new schemes are introduced), the current SBP are now viewed to be
stable and normalised as business as usual recurring expenses. Similarly, our
amortisation charges are stable at £0.4 million for the current and prior
half year. Hence AOP is no longer considered to add value to understanding our
results. We will therefore now focus on operating profit which brings us in
line with other similar businesses in our market segment.
For reference, our AOP has increased by 13.6% to £38.5 million (H1 2024:
£33.9 million) and the ratio of AOP to GP increased from 45.0% to 46.9%.
Interest income and finance costs
This half year has seen significant interest being earned from money market
deposits, totalling £6.0 million (H1 FY24: £2.9 million). Whilst last half
year included only four months of earnings, we have nevertheless substantially
increased this income stream, backed up by our strong cash management which
has enabled us to place more cash on deposit and for longer periods.
This effort has been so effective that our half year figure has already
exceeded the £5.1 million we generated in the whole of FY24. There is some
seasonal impact here, due to the timing of the largest Microsoft enterprise
agreements which primarily transact in our first six months, and hence our
interest earnings will be lower in our second half.
Our finance costs primarily 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, including from our 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 and Joint
Ventures we have accounted for the Group's share of its profits amounting to
£0.1 million for H1 FY25 (H1 FY24: £0.1 million).
Profit before tax
The combined impact of increased operating profits and high levels of interest
received has seen our profit before tax increasing by 24.6% to £41.5 million
(H1 FY24: £33.3 million).
Income tax expense
The £3.2 million (40.5%) rise in our income tax expense to £11.1 million (H1
FY24: £7.9 million) reflects the growth in profits described above and the
increase in the UK corporate tax rate from 19% to 25% effective from 1 April
2023. Hence March 2023 in the prior year was at the lower rate giving rise to
an effective rate of tax of 23.7% last year. The higher effective rate in H1
FY25 of 26.7% is also attributed to a re-statement of the deferred tax asset
from February 2024 relating to our unexercised share options, given the
reduction in the share price since year end.
Profit after tax
Profit after tax increased by 19.7% to £30.4 million (H1 FY24: £25.4
million), underlining our growth in operating profits and interest income,
offset by the higher effective rate of tax.
Earnings per share
As a result of this strong growth in profits attributable to owners of the
company (post tax), our earnings per share have risen accordingly. Basic
earnings per share are up 19.5% from 10.6 pence to 12.67 pence.
Balance sheet and cash flow
As at
31 August 29 February
2024 2024
Balance sheet £'m £'m
Investment in associate 3.3 3.2
Property plant and equipment 8.2 8.5
Intangible assets 41.9 40.6
Other non-current assets 3.3 4.9
Non-current assets 56.7 57.2
Trade and other receivables 211.8 221.8
Cash 71.5 88.8
Contract assets 10.9 11.8
Current assets 294.2 322.4
Trade and other payables 250.6 277.9
Lease liabilities 0.5 0.4
Contract and tax liabilities 18.8 19.6
Current liabilities 269.9 297.9
Lease liabilities 1.3 1.3
Other non-current liabilities 2.1 2.1
Non-current liabilities 3.4 3.4
Net assets 77.6 78.3
Share capital 2.4 2.4
Share premium 635.6 633.7
Share-based payment reserve 12.5 11.0
Merger reserve (644.4) (644.4)
Retained earnings 71.5 75.6
Total equity 77.6 78.3
Closing net assets stood at £77.6 million (29 February 2024: £78.3 million
and 31 August 2023: £60.0 million) including the Group's £3.3 million
interest (25.1%) in Cloud Bridge Technologies (which includes our £0.3
million share of profits since it was acquired in April 2023).
Intangible assets includes the £1.6 million addition in the period of
capitalised software development costs, a combination of internal staff costs
of £0.7 million and £0.9 million of external contractor costs, both referred
to above. As this work continues through the second-half of the year, we
expect this asset to stand at £3.2 million by our February 2025 year end, and
ultimately to be in the region of £5.0 million when the work is complete.
Currently, while we are in development phase, there is no amortisation of the
asset, this will commence once we move to live production mode, scheduled for
FY26.
There is an unrelated £0.4 million amortisation which is included in the
current income statement in respect of the historic customer relationships
intangible asset carried on the balance sheet.
Net current assets closed at £24.3 million (29 February 2024: £24.5 million
and 31 August 2023: £5.3 million).
Our debtor days at the end of the half year stood at 41, in line with August
2023, and our average debtor days for the period was 37 (H1 FY24: 36). Our
closing loss allowance provision at 31 August 2024 reduced to £2.2m, down
from £2.5 million at the February 2024 year end, with £0.4 million bad debts
written off against the provision but a further £0.1 million added to reflect
our current expected loss calculated under IFRS9. We believe this remains a
prudent position given that our gross trade receivables have reduced since
year end and the level of write offs is very low considering our GII of £1.2
billion.
The Group has paid its suppliers on schedule through the year, with its
average creditor days remaining in line with prior year at 48 for the six
months and standing at 49 at the end of the period.
The consolidated cash flow is set out below:
H1 FY25 H1 FY24
Cash flow £'m £'m
Cash generated from operations 22.0 17.4
Payments for fixed and intangible assets (2.0) (0.9)
Free cash flow 20.0 16.5
Net interest received 5.9 2.7
Taxes paid (9.5) (7.2)
Lease payments (0.2) (0.1)
Dividends (35.4) (30.2)
Issue of share capital 1.9 -
Investment in associate - (3.0)
Net decrease in cash (17.3) (21.3)
Cash at the beginning of the period 88.8 73.0
Cash at the end of the period 71.5 51.7
Operating Profit 35.6 30.6
Cash conversion 56.2% 54.0%
Cash conversion (rolling 12 months) 112.6% 119.7%
Cash at the end of the period was £71.5 million (31 August 2023: £51.7
million), which is after the payment of dividends totalling £35.4 million
during the period - being the final and special dividends for FY24.
Cash flow from operations after payments for fixed and intangible assets (free
cash flow) generated a positive cash flow of £20.0 million (H1 FY24: £16.5
million). The Group's cash conversion ratio for the year has historically been
measured as free cash flow divided by AOP but in line with the other profit
and efficiency measures referred to above we are now measuring free cash flow
against operating profit which was 56.2% in the period (H1 FY24: 54.0%).
Whilst we target our long term sustainable cash conversion at 100%, a figure
closer to the 50% we have seen in H1 this year and H1 last year is in line
with our expectations given the seasonality of our cash flows, particularly
around the timing of receipts and payments for our large Microsoft enterprise
agreements. For reference, our rolling 12 month cash conversion measured
across the full year up to the end of August has exceeded the 100% target.
The £1.9 million cash received from the issue of share capital relates to the
exercising of circa 500,000 share options by participating staff, primarily
under our 2021 CSOP & SAYE (Share Save) plans which vested in June 2024
and August 2024 respectively. There is a corresponding increase in the share
premium value in the balance sheet above.
If required, the Group has access to a committed 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, with
an optional one year extension to 17 May 2027. To date, the Group has not
utilised the facility.
Interim dividend
The Group's dividend policy is to distribute 40-50% of post-tax
pre-exceptional earnings to shareholders. Accordingly, the Board is pleased to
declare a gross interim dividend of 3.1 pence per share. The aggregate amount
of the interim dividend expected to be paid out of retained earnings at 31
August 2024, but not recognised as a liability at the end of the half year, is
£7.5 million.
The salient dates applicable to the dividend are as follows:
Dividend announcement date Tuesday, 15 October 2024
Currency conversion determined and announced together with the South African Monday, 4 November 2024
(SA) tax treatment on SENS by 11:00
Last day to trade cum dividend (SA register) Tuesday, 5 November 2024
Commence trading ex-dividend (SA register) Wednesday, 6 November 2024
Last day to trade cum dividend (UK register) Wednesday, 6 November 2024
Commence trading ex-dividend (UK register) Thursday, 7 November 2024
Record date Friday, 8 November 2024
Payment date Friday, 22 November 2024
Additional information required by the Johannesburg Stock Exchange:
1. The GBP:ZAR currency conversion will be determined and published on
SENS on Monday, 4 November 2024.
2. 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.
3. The dividend payment will be made from a foreign source (UK).
4. At Tuesday, 15 October 2024, being the declaration announcement date
of the dividend, the company had a total of 240,917,315 shares in issue (with
no treasury shares).
5. No transfers of shareholdings to and from South Africa will be
permitted between Monday, 4 November 2024 and Friday, 8 November 2024 (both
dates inclusive). No dematerialisation or rematerialisation orders will be
permitted between Wednesday, 6 November 2024 and Friday, 8 November 2024 (both
dates inclusive).
Principal risks
The Group Board has overall responsibility for risk. This includes maintaining
our risk management (ERM) 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 five
categories: financial, strategic, process and systems, operational and
regulatory. BTG's management reviews 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.
For us, risk management is a continuous journey, requiring review throughout
the year. It starts with defining our risk appetite, which was unchanged this
year, as we maintained our cautious approach. Our ERM framework enables us to
identify and manage risk, and we believe that it continues to serve us well
with the inclusion of risk management as a standing agenda item at each of the
subsidiary board meetings illustrating the Group's bottom-up approach to risk.
The ongoing unsettled geopolitical and macroeconomic environment, particularly
Russia's war in Ukraine and the continuing tensions across the Middle East has
served as a strong reminder of the importance of having a robust, agile
approach to managing risk. Our ongoing risk monitoring process enables us to
assess current and emerging risks, and while we remain vigilant, our business
has performed strongly through various external crises in recent years,
demonstrating its resilience.
Our 14 principal risks which were set out in our last Annual Report have been
updated and included below. Whilst the risks themselves have not changed, with
no additions or deletions, in some cases we have updated the status of the
risk with increased focus, and for one there is now a decrease in focus.
Additionally, we continue to monitor our three emerging risks relating to the
physical risk from climate change, keeping pace with social change, and the
impact of AI.
Financial 1 Economic disruption Risk owner CEO
increase focus due to conflict escalations in Middle East
The risk How we manage it
This risk includes the impact of the conflicts in the Middle East and in We have so far continued to perform well during high inflation, the conflict
Ukraine. It encompasses the uncertainties caused by global economic pressures in Ukraine and the UK leaving the EU, as well as with the conflict in the
and geopolitical risk within the UK. Middle East.
The recent real-life experiences of high inflation, rising cost of living,
Covid-19, exchange rate fluctuations and the UK leaving the EU have shown us
to be resilient through tough economic conditions. The diversity of our client
base has also helped us maintain and increase business in this period. We are
not complacent, however - economic disruption remains a risk and we keep our
operations under constant review.
Our continued focus on software asset management means that we advise
customers of 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 more customers looking to avoid increased staff
costs through outsourcing their IT to managed services. This may create an
opportunity to accelerate our service offerings.
The impact
Major economic disruption 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. The high inflation rates
seen in 2022 and 2023 have decreased but are still above target rates.
Economic deterioration like this could have an impact on our business
performance and profitability. Inflationary pressure could still 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
no change
The risk How we manage it
BTG faces pressure on profit margins from a myriad of directions, including Profit margins are affected by many factors at customer and micro levels.
increased competition, changes in vendors' commercial behaviour, certain
offerings being commoditised and changes in customer mix or preferences.
We can control some of the factors that influence our margins but some, such
as economic and political factors, are beyond our control.
In the past year we have again sought to increase margins where possible,
while cost increases from vendors have grown our margins organically. Our
diverse portfolio of offerings, with a mix of vendors, 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 customers. Services delivered
internally are consistently measured against our 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 we use to make sure we are procuring
at the lowest cost and maximising the incentives we earn.
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
increase focus for potential upcoming changes
The risk How we manage it
We receive incentive income from our vendors and their distributors. This We maintain a diverse portfolio of vendor products and services. Although we
partially offsets our costs of sales but could be significantly reduced or receive major sources of funding from specific vendor programmes, if one
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.
Vendors, such as Microsoft, which form a significant part of BTG's gross
profit, have previously changed their commercial models and are again doing so
in the near future. The Group has successfully adapted to different commercial
models over time. So, although we see this risk increasing, we are confident
in our ability to adapt and maintain profitability.
We closely monitor incentive income and make sure staff are aligned to meet
vendors' goals so that we don't lose out on these incentives. Close and
regular communication with all our major vendors and distributors means we can
manage this risk appropriately. In some areas we have seen a positive change
in vendors' commercial terms, where we have been able to adapt practices.
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 Risk owner CFO
decrease focus as CPI has reduced to close to BoE target
The risk How we manage it
Inflation in the UK, as measured by the Consumer Price Index (CPI), was 10.1% Staffing costs make up most of our overheads, so our attention has been
in March 2023 and more than halved to 3.2% by March 2024. At September 2024 focused on our employees and their ability to cope with the rising cost of
this is now 2.2%. This rate is above the Bank of England's target of 2%. living.
The impact
Wage inflation and 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 for retaining and attracting employees and customers.
5 Working capital Risk owner CFO
increase focus in line with rise in economic disruption
The risk How we manage it
As customers face the challenges of inflation and elevated interest rates in Our credit collections teams are focused on collecting customer debts on time
the current economic environment, there is a greater risk of an increasing and maintaining our debtor days at or below target levels. Debt collection is
aged debt profile, with customers slower to pay and the possibility of bad reported and analysed continually and escalated to senior management as
debts. required. In the past financial year, BTG hasn't had any significant bad debt
or write-offs.
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
We have seen debtor days stabilise as inflation has reduced, but the number of quickly resolved.
days is yet to return to historic low levels.
The impact
This could adversely affect our businesses' profitability and/or cash flow.
Strategic 6 Vendor concentration Risk owner CEO
no change
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 or exposed to economic down cycles, or if dependency because we are their route to the end customer. We maintain
the vendor fails to innovate ahead of customer demands excellent 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.
Group has a diversified vendor list, as well as a focus on services, using
in-house and third-party specialists, which diversifies and mitigates some of
the vendor concentration risk.
The impact
Relying too heavily on any one vendor could have an adverse effect on our
financial performance, should that relationship break down.
Uptake of AI is expected to increase rapidly. While this represents an
opportunity, the development of AI by a handful of companies, including
Microsoft, has the potential to further concentrate revenue and profit across
fewer vendors.
An increase in the use of marketplaces, heightens the risk of more
transactions going through the same route.
This risk is also heightened by changes to shipping routes, if certain
channels are made unsafe.
7 Competition Risk owner CEO
no change
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.
A move to direct vendor resale to end customers (disintermediation) could Equally, vendors cannot engage with myriad organisations globally without the
place more pressure on the market opportunity. Platforms, like marketplaces, sort of well-established network of intermediaries that we have.
with direct sales to customers, could also be seen as disintermediation.
We currently work with the dominant marketplace providers and can sell to our
Frameworks, particularly in the public sector, are a procurement route of vendors through its platform, which gives discounts to the customer versus
choice for some customers. We risk narrowing our route to customers if we are buying directly.
not part of these frameworks.
AI/machine learning has been identified as a new emerging risk, and so will be
AI risks becoming a partial competitor, if it becomes able to provide accurate explored and monitored for risks and opportunities to our business.
and beneficial licensing and infrastructure advice direct to customers.
Currently, there is no sign of any commoditisation that would be a serious
threat to our business model in the short or medium term.
The impact
This risk could have a material, adverse impact on our business and
profitability, potentially needing a shift in business operations, including a
strategic overhaul of the products, solutions and services that we offer to
the market.
More 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
no change
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
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
increase focus as this is a growing risk worldwide
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.
Internal IT policies and processes are in place to mitigate some of these
risks, including regular training, working abroad procedures and the use of
enterprise-level security software.
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. Both businesses use a security operations centre and have internal
specialists to provide up-to-date threat analysis.
The impact
If a hacker accessed our IT systems, they might 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 CTOs of subsidiary businesses
no change
The risk How we manage it
Any failure or disruption of BTG's people, processes and IT infrastructure may Our Chief Technology Officer and Head of IT manage and oversee our IT
negatively affect our ability to deliver to our customers, cause reputational infrastructure, network, systems and business applications. All our
damage and lose us market share. operational teams are focused on the latest vendor products and educate sales
teams appropriately.
Regular IT audits have identified areas for improvement, while 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 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 transmitting illness within the workplace. We also have processes to
make sure there isn't a single point of failure, and that resiliency is built
into employees' skillsets.
Increased automation means a heavier reliance on technology. Although it can
reduce human error, it can also potentially increase our reliance on other
vendors.
The risk is also mitigated through policies and process implementation such as
Phoenix achieving ISO 22301 and Bytes Software Services implementing an
incident management policy.
Our efforts to reduce the risk from insider threats are multifaceted and
involve pre-employment screening, contracts, training, identifying higher-risk
individuals and technology to reduce potential data loss. This risk
is reviewed through frequent vulnerability assessments.
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 deliver effectively to our customers. Insider
threats, intentional or otherwise, could compromise our ability to deliver
and damage our reputation. Employee illness and absence - if in significant
numbers, such as a communicable disease in a particular team - could make
effective delivery difficult.
11 Attract and retain staff while keeping our culture Risk owner CEO
increase focus due to scarcity of suitable applicants, as well as higher
salary expectations
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 across multiple
business divisions. We also review the time that management has to coach new
· Salary and benefit expectations staff.
· BTG's high rate of growth
· Skills shortage in emerging, high-demand areas, such as AI and Maintaining our culture is important to retaining current staff. BTG regularly
machine learning engages with employees through surveys, such as the employee Net Promoter
Score (eNPS) and Great Places to Work, feedback from this and other feedback
· With remote or hybrid working becoming the norm, potential employees avenues is used to review and develop our employee benefits. We maintain our
in traditionally lower-paid geographical regions being able to work remotely small company feel through regular communications, clubs, charity events and
in higher-paying areas like London. social events. We aim to absorb growth while keeping our culture.
The impact
Double impact from scarcity of appropriate candidates for new roles and salary
expectations will challenge our ability to attract and retain the talent pool
we need to deliver our planned growth.
In addition, we may lose talented employees to competitors.
12 Supply chain management Risk owner CEO
no change
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. Any unethical, illegal or corrupt behaviour that comes to light is
suppliers is considered a risk. escalated and appropriate action is taken.
There is a risk to our business if we engage with suppliers that: Onboarding questionnaires have been reviewed and improved.
· Provide unethical working conditions and pay.
· Are involved in financial mismanagement and unethical behaviour. Phoenix has appointed a procurement manager, and Bytes has established a
cross-disciplinary group to work on managing suppliers.
· Cause environmental damage.
· Operate in sanctioned regions.
We consider the impact from shipping risks to be lower, given that only a
small part of our profit and revenue come from hardware.
The impact
The impact to the business is across multiple streams from legal, financial,
reputational, ethical and environmental.
Escalating conflicts could also affect our supply chain - for example,
rerouting shipping around southern Africa adds journey time and increases
carbon emissions.
Regulatory 13 Sustainability/ESG Risk owner CEO
no change
The risk How we manage it
The growing importance of sustainability and ESG for our customers, investors Our Board manages and monitors this risk closely, with oversight from the ESG
and employees means we need to stay at the forefront of reporting and and Audit Committees.
disclosure, especially given that requirements and standards are continually
updated.
The Group sustainability manager continues to drive sustainability reporting
and initiatives, and to work with an appointed third party to provide guidance
and assurance on reported data. Environmental Management Systems are also in
place and certified by ISO 14001.
Our Sustainability Steering Committee enables decision makers from across the
Group and our two operating companies to work towards a common goal and report
on challenges. In June 2024 we enhanced the governance of ESG, through the
creation of the Board's ESG Committee.
Disclosures are made through several channels, including CDP and EcoVadis. We
had our near-term and net zero targets validated by the SBTi in June 2024, as
part of our programme to drive sustainability through best practice
approaches. Feedback from disclosures is used to guide changes in the
business. So, as disclosure methodologies stay current, so should the
business, where possible and relevant.
The impact
Falling behind expectations or our peers may lead to challenges around:
· Legal compliance, such as adhering to global standards
· Retaining customers, as they push to reduce emissions
· Investor relations, such as meeting criteria for ESG funds
· Attracting and retaining employees, as younger generations seek to
work for more purpose-driven businesses.
14 Regulatory and compliance Risk owner CEO
increase focus as regulations expand
The risk How we manage it
Our business faces inherent risks from evolving regulatory and compliance We engage external experts. BTG works closely with external authorities,
landscapes. Changes in laws, regulations and industry standards could including through internal and external audits and paid-for consultancy, to
significantly affect our operations, financial stability and reputation. advise on expected changes to regulations and the Group's response to them.
We monitor regulatory developments. Individuals with responsibilities in the
business stay up to date with changes in their field through professional
memberships and trade publications, and through directly following regulatory
and compliance bodies.
We work to enhance internal controls. Compliance teams in each operating
company hold a register of policies and organise reviews, updates and signoffs
with policy owners to make sure policies are kept current.
Our steering committees, operating company board meetings and BTG Board
meetings are forums for raising and discussing changes that affect multiple
areas of the business.
The impact
Operational teams and processes face administrative burdens and effects under
rapidly changing regulations.
Failing to keep up with regulatory, reporting and compliance changes could
lead to fines, legal challenges and reputational damage.
If regulatory compliance is not maintained, there are risks to the Group and
to individuals, which could lead to expensive legal challenges and
reputational damage to the business among all stakeholders.
Going concern disclosure
The Group has performed a full going concern assessment from 31 August 2024
for the period up to 28 February 2026. As outlined in the Chief Financial
Officer's review above, trading during the year demonstrated the Group's
strong performance in the period and our resilient operating model. The Group
has a healthy liquidity position with £71.5 million of cash and cash
equivalents available at 31 August 2024. The Group also has access to a
committed revolving credit facility that covers the going concern period to 28
February 2026 and that remains undrawn. The directors have reviewed trading
and liquidity forecasts for the Group, as well as continuing to monitor the
effects of macroeconomic, 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 29
February 2024, with the key assumptions summarised within the 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 2026.
Accordingly, the directors conclude it to be appropriate that the consolidated
financial statements be prepared on a going concern basis.
Responsibility statement pursuant to the Financial Conduct 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
Sam Mudd
Andrew Holden
Chief Executive Officer Chief Financial Officer
15 October 2024
Interim condensed consolidated statement of profit or loss
For the six months ended 31 August
Six months ended Year ended
31 August 31 August 29 February
2024 2023 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Revenue 3 105,472 108,699 207,021
Cost of sales (23,355) (33,365) (61,243)
Gross profit 82,117 75,334 145,778
Administrative expenses (46,377) (44,725) (87,839)
Increase in loss allowance in trade receivables (127) - (1,227)
Operating profit 35,613 30,609 56,712
Finance income 4 5,979 2,859 5,111
Finance costs 4 (158) (244) (393)
Share of profit of associate 7 72 120 166
Profit before taxation 41,506 33,344 61,596
Income tax expense 5 (11,059) (7,956) (14,745)
Profit after taxation 30,447 25,388 46,851
Profit for the period attributable to owners of the parent company 30,447 25,388 46,851
Pence Pence Pence
Basic earnings per ordinary share 15 12.67 10.60 19.55
Diluted earnings per ordinary share 15 12.19 10.17 18.85
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 29 February
2024 2023 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 8,215 8,654 8,478
Right-of-use assets 1,517 1,134 1,411
Intangible assets 6 41,848 41,086 40,646
Investment in associate 3,265 3,147 3,193
Contract assets 1,327 3,020 2,689
Deferred tax assets 525 436 834
Total non-current assets 56,697 57,477 57,251
Current assets
Inventories 17 58 60
Contract assets 10,898 13,985 11,756
Trade and other receivables 8 211,756 180,148 221,815
Cash and cash equivalents 9 71,507 51,663 88,836
Total current assets 294,178 245,854 322,467
Total assets 350,875 303,331 379,718
Liabilities
Non-current liabilities
Lease liabilities (1,337) (1,170) (1,314)
Contract liabilities (2,049) (1,567) (2,137)
Total non-current liabilities (3,386) (2,737) (3,451)
Current liabilities
Trade and other payables 10 (250,593) (222,909) (277,917)
Contract liabilities (17,059) (16,046) (19,348)
Current tax liabilities (1,732) (1,460) (243)
Lease liabilities (520) (188) (423)
Total current liabilities (269,904) (240,603) (297,931)
Total liabilities (273,290) (243,340) (301,382)
Net assets 77,585 59,991 78,336
Equity
Share capital 2,408 2,395 2,404
Share premium 635,554 633,636 633,650
Other reserves 12,539 10,516 11,050
Merger reserve (644,375) (644,375) (644,375)
Retained earnings 71,459 57,819 75,607
Total equity 77,585 59,991 78,336
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 2024 2,404 633,650 11,050 (644,375) 75,607 78,336
Total comprehensive income for the period - - - - 30,447 30,447
Dividends - - - - (35,373) (35,373)
paid
12
Shares issued during the year 4 1,904 - - 1,908
Transfer to retained earnings - - (778) - 778 -
Share-based payment transactions 14 - - 2,489 - - 2,489
Tax adjustments - - (222) - - (222)
Balance at 31 August 2024 2,408 635,554 12,539 (644,375) 71,459 77,585
Balance at 1 March 2023 2,395 633,636 7,235 (644,375) 62,606 47,567
Total comprehensive income for the period - - - - 25,388 25,388
Dividends paid 12 - - - - (30,175) (30,175)
Share-based payment transactions 14 - - 2,900 - - 2,900
Tax adjustments - - 381 - - 381
Balance at 31 August 2023 2,395 633,636 10,516 (644,375) 57,819 59,991
Balance at 1 March 2023 2,395 633,636 7,235 (644,375) 62,606 61,497
Total comprehensive income for the period - - - - 46,851 46,851
Dividends paid 12 - - - - (36,641) (36,641)
Shares issued during the year 9 14 - - - 23
Transfer to retained earnings - - (2,791) - 2,791 -
Share-based payment transactions 14 - - 5,708 - - 5,708
Tax adjustments - - 898 - - 898
Balance at 29 February 2024 2,404 633,650 11,050 (644,375) 75,607 78,336
Interim condensed consolidated statement of cash flows
Period ended 31 August Period ended 31 August Year ended 29 February
2024 2023 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 11 22,009 17,417 67,333
Interest received 5,979 2,859 5,111
Interest paid (113) (196) (330)
Income taxes paid (9,483) (7,222) (15,109)
Net cash inflow from operating activities 18,392 12,858 57,005
Cash flows from investing activities
Payments for property, plant and equipment (354) (885) (1,334)
Payments for intangible asset (1,642) - -
Investment in associate - (3,027) (3,027)
Net cash outflow from investing activities (1,996) (3,912) (4,361)
Cash flows from financing activities
Proceeds from issue of shares 1,908 - 23
Principal elements of lease payments (260) (127) (209)
Dividends paid to shareholders 12 (35,373) (30,175) (36,641)
Net cash outflow from financing activities (33,725) (30,302) (36,827)
Net (decrease)/increase in cash and cash equivalents (17,329) (21,356) 15,817
Cash and cash equivalents at the beginning of the financial year 88,836 73,019 73,019
Cash and cash equivalents at end of year 9 71,507 51,663 88,836
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 2024 were authorised for issue
in accordance with a resolution of the directors on 14 October 2024.
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.
The interim condensed consolidated financial statements for the six months
ended 31 August 2024 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 14 October 2024. 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 29 February 2024, 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 29 February 2024 were approved by the Board of Directors on
22 May 2024 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 going concern of the Group is dependent on maintaining adequate levels of
resources to continue to operate for the foreseeable future. The directors
have considered the principal risks, which are set out above, in addition to
ever-present risks such as the Group's exposure to credit risk, liquidity
risk, currency risk and foreign exchange risk.
When assessing the going concern of the Group, the directors have reviewed the
year-to-date financial actuals, as well as detailed financial forecasts for
the period up to 28 February 2026, being the going concern assessment period.
This represents 18 months from the end of the reporting period, rather than
the minimum 12 months required under International Accounting Standard (IAS)
1, to reflect the possible effect of events occurring after the end of the
reporting period up to the date that the interim condensed consolidated
financial statements are authorised for issue.
The assumptions used in the financial forecasts are based on the Group's
historical performance and management's extensive experience of the industry.
Taking into consideration the Groups principal risks, the impact of the
current economic conditions and geopolitical environment, and future
expectations, the forecasts have been stress-tested through a number of
downside scenarios to ensure that a robust assessment of the Group's working
capital and cash requirements has been performed.
Operational performance and operating model
Following the previous years of strong growth, in the current period of
reporting the Group has again achieved double-digit growth in gross invoiced
income and operating profit and high single digit growth in gross profit. It
finished the period with £71.5 million of cash.
Resilience is built into the Group's operating model from its wide customer
base, high levels of repeat business, strong vendor relationships, and the
back-to-back nature of most of its sales, with increased demand driven by our
customers navigating the complexities of agile, yet secure, IT environments.
The key elements of the model are explained in further detail on pages 150-151
in the annual financial statements for the year ended 29 February 2024. Our
strong relationships with Microsoft and our other top tier vendors allows us
to take advantage of opportunities in cloud adoption, workload migrations,
storage, security, and virtualisation technologies. Additionally, we continue
to collaborate with our customers to enable their teams to experiment with,
trial, and internalise the use of emerging AI technology, such as Copilot
which has generated huge interest since its launch.
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 and political landscape. 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
• Cost of sales inflation and competition leading to margin pressure -
While 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. Our
sales mix has moved a little in favour of public sector during the period,
hence resulting in a reduction in our gross profit/gross invoiced income
(GP/GII%) although underlying this impact of the change in mix, the respective
margins in each of our public and corporate customer bases have improved
slightly, and this remains one of the biggest focus areas in our business.
• Wage inflation - The business has been facing pressure from wage
inflation in recent 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 around 16%, 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 that is robust and they are proud of. This is a key part of our
attraction and retention strategy.
In addition, when we look at our key operational efficiency ratio of operating
profit/gross profit, we have achieved 43%, which is up on last year,
demonstrating the control over staff costs in response to the growth of the
business. While 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 - The Group has only a very small level of debt in
respect of its property and vehicle leases and so minimal interest cost
exposure, nor has it ever needed to call on its revolving credit facility
(RCF). During the period we have continued to take advantage of the recent
high interest rates to generate a significant £6.0 million of interest income
in the reporting period by placing available cash on the money markets through
our monthly cash cycle. While there are indications that interest rates may
start to fall in the coming months, as inflation comes down, we still see
substantial earnings opportunity over the going concern period.
• Foreign currency rate changes - The vast majority of our business is
transacted in GBP. Where we do transact in foreign currencies, fluctuations in
the value of the pound sterling can have both positive and negative impacts
but we have the ability to self-hedge as we make both sales and purchases in
US dollars and euros.
• Economic conditions impacting on customer spending - While customers
may consider reducing spending on IT goods and services, if they are seen as
non-essential, we have seen increased spending by our customers, because IT
may be a means to efficiencies 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.
• Economic conditions impacting on customer payments - Across the
period we have seen our average debtor days maintained year on year at 37, and
with minimal evidence that customers ultimately do not pay. We have suffered
only a small level of bad debt during the period: £0.4 million against GII of
£1.2 billion. As in previous years, the majority of our GII (70%), came from
the public sector, traditionally very safe and with low credit risk, while 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 conflicts in Ukraine
and the Middle East, has created potential supply problems, product shortages
and general price rises, particularly in relation to fuel, gas and
electricity.
• 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, so physical trade obstacles are not likely
to affect us directly, with hardware only making up 1% of our GII during the
period. Nevertheless, we have ensured that we have a number of suppliers with
substitute, or alternative, technologies that we can rely on if one supplier
cannot meet our requirements or timescales. This indicates that we have
managed the supply chain well.
• Software sales, though, continue to be the dominant element of our
overall GII and so are 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
29 February 2024.
Liquidity and financing position
At 31 August 2024, the Group held instantly accessible cash and cash
equivalents of £71.5 million and the balance sheet shows net current assets
of £24.3 million; these amounts are after the Group paid final and special
dividends for the prior year totalling £35.4 million.
The Group has access to a committed 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. The new facility
includes 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. To date, the Group has not been required to use
either its previous or new facilities, and we do not forecast use of the new
facility over the going concern assessment period.
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 pages 153 and 154 in
the annual financial statements for the year ended 29 February 2024.
In its assessment, the Board has considered the potential impact of the
current economic conditions and geopolitical environment as described above.
Whilst there is resilience against such pressures, 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, commencing in December 2024, and
debtor days increasing by 10 at that same point in time. The directors
consider that the level of stress-testing is appropriate to reflect the
potential collective impact of all the macroeconomic and geopolitical matters
described and considered above.
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.
Dividends are forecast to continue to be paid in line with the Group's
dividend policy to distribute 40% of the post-tax pre-exceptional earnings to
shareholders.
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 2026, being
the going concern assessment period. Accordingly, the directors conclude it to
be appropriate that the interim condensed consolidated 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 29 February 2024.
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 2024 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 29 February 2024.
2. Segmental information
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.
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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
Revenue by product £'000 £'000 £'000
Software 74,719 67,088 130,365
Hardware 12,464 24,112 41,389
Services internal 16,619 15,473 31,517
Services external 1,670 2,026 3,750
Total revenue from contracts with customers 105,472 108,699 207,021
Software
The Group's software revenue comprises the sale of various types of software
licences from a range of software vendors.
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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue by geographical regions
United Kingdom 102,178 105,296 199,912
Europe 1,928 2,111 4,326
Rest of world 1,366 1,292 2,783
105,472 108,699 207,021
Period ended 31 August 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
3(b) Gross invoiced income by type £'000 £'000 £'000
Software 1,187,279 1,027,305 1,721,993
Hardware 12,464 24,112 41,389
Services internal 16,619 15,473 31,517
Services external 13,887 14,751 28,103
1,230,249 1,081,641 1,823,002
Gross invoiced income 1,230,249 1,081,641 1,823,002
Adjustment to gross invoiced income for income recognised as agent (1,124,777) (972,942) (1,615,981)
Revenue 105,472 108,699 207,021
Gross invoiced income reflects gross income billed to customers adjusted for
deferred and accrued revenue items amounting to a net increase of £1.0
million (2023: £15.7 million increase; 29 February 2024: £8.5 million
increase). 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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Bank interest received 5,979 2,859 5,111
Finance income 5,979 2,859 5,111
Interest expense on financial liabilities (113) (219) (330)
Interest expense on lease liability (45) (25) (63)
Finance costs expensed (158) (244) (393)
Net finance income 5,821 2,615 4,718
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 2024 is 26.6%, compared to 23.9% for the period to 31 August 2023. 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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Current income tax charge 10,972 8,646 15,807
Deferred tax charge/(credit) 87 (690) (1,062)
Total tax charge 11,059 7,956 14,745
Period ended 31 August Period ended 31 August 2023 Year ended 29 February 2024
2024 Unaudited Audited
Unaudited
Amounts recognised directly in equity £'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 charged or
credited to equity:
Deferred tax: share-based payments (charge)/credit (222) 381 407
Current tax: share-based payments credit - - 491
(222) 381 898
6. Intangible assets
Customer relationships
Goodwill Brand Software Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 March 2023, 31 August 2023 and 29 February 2024 37,493 8,798 3,653 - 49,944
Additions - - - 1,642 1,642
At 31 August 2024 37,493 8,798 3,653 1,642 51,586
Amortisation
At 1 March 2023 - 4,765 3,653 - 8,418
Charge for the period - 440 - - 440
At 31 August 2023 - 5,205 3,653 - 8,858
Charge for the period - 440 - - 440
At 29 February - 5,645 3,653 - 9,298
Charge for the period - 440 - - 440
At 31 August 2024 - 6,085 3,653 - 9,738
Net book value
At 31 August 2023 37,493 3,593 - - 41,086
At 29 February 2024 37,493 3,153 - - 40,646
At 31 August 2024 37,493 2,713 - 1,642 41,848
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 2024 As at 31 August 2023 As at 29 February 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Financial assets at amortised cost:
Trade receivables 8 194,709 165,293 212,432
Other receivables 8 13,854 12,015 7,415
208,563 177,308 219,847
Financial liabilities As at 31 August 2024 As at 31 August 2023 As at 29 February 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Financial liabilities at amortised cost:
Trade and other payables - current, excluding Payroll tax and other statutory 10 246,843 218,970 259,661
tax liabilities
Lease liabilities 1,857 1,358 1,737
248,700 220,328 261,398
8. Trade and other receivables
As at 31 August 2024 As at 31 August 2023 As at 29 February 2024
Unaudited Unaudited Audited
Financial assets £'000 £'000 £'000
Gross trade receivables 196,881 166,835 214,922
Less: loss allowance (2,172) (1,542) (2,490)
Net trade receivables 194,709 165,293 212,432
Other receivables 13,854 12,015 7,415
208,563 177,308 219,847
Non-financial assets
Prepayments 3,193 2,840 1,968
3,193 2,840 1,968
Trade and other receivables 211,756 180,148 221,815
9. Cash and cash equivalents
As at 31 August 2024 As at 31 August 2023 As at 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Cash at bank and in hand 71,507 51,663 88,836
71,507 51,663 88,836
10. Trade and other payables
As at 31 August 2024 As at 31 August 2023 As at 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Trade and other payables 190,137 172,447 168,777
Accrued expenses 56,706 46,523 90,884
Payroll tax and other statutory liabilities 3,749 3,939 18,256
250,592 222,909 277,917
11. Cash generated from operations
Period ended 31 August 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
Note £'000 £'000 £'000
Profit before taxation 41,506 33,344 61,596
Adjustments for:
Depreciation and amortisation 1,286 1,145 2,379
Non-cash employee benefits expense - share based payments 15 2,489 2,900 5,708
Finance (Income)/costs - net (5,821) (2,615) (4,718)
Share of profit of associate (72) (120) (166)
Decrease/(increase) in contract assets 2,220 (5,924) (3,364)
Decrease/(increase) in trade and other receivables 10,059 5,772 (35,895)
Decrease/(increase) in inventories 43 - (2)
(Decrease)/increase in trade and other payables (27,324) (8,808) 46,200
Decrease in contract liabilities (2,377) (8,277) (4,405)
Cash generated from operations 22,009 17,417 67,333
12. Dividends
Period ended 31 August 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
Declared and paid during the period £'000 £'000 £'000
Interim dividend - - 6,466
Final dividend 14,438 12,214 12,214
Special dividend 20,935 17,961 17,961
Total dividends attributable to ordinary shareholders 35,373 30,175 36,641
Dividends not recognised at 31 August 2024
Since the end of the half year the directors have recommended the payment of
an interim dividend of 3.1 pence per fully paid ordinary share (2023: 2.7
pence). The aggregate amount of the proposed dividend expected to be paid on
22 November 2024 out of retained earnings at 31 August 2024, but not
recognised as a liability at the end of the half year, is £7.5 million.
13. 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'. Group
companies made purchases from the associate of £2.3 million during the six
months ended 31 August 2024, with a trade payable of £0.3 million at 31
August 2024.
14. Share-based payments
For the six months ended 31 August 2024, 1,427,638 share options were granted
to eligible employees under the PISP, SAYE and DBP schemes (2023: 1,578,955
share options were granted).
Period ended 31 August 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Share-based payment employee expenses 2,489 2,900 5,708
2,489 2,900 5,708
15. 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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
pence pence pence
Basic earnings per share 12.67 10.60 19.55
Diluted earnings per share 12.19 10.17 18.85
Headline earnings per share 12.67 10.60 19.55
Diluted headline earnings per share 12.19 10.17 18.85
15(a) Weighted average number of shares used as the denominator
Period ended 31 August 2024 Period ended 31 August Year ended 29 February 2024
Unaudited 2023 Audited
Unaudited
Number Number Number
Weighted average number of ordinary shares used as the denominator in 240,222,961 239,482,333 239,693,670
calculating both basic EPS and HEPS
Adjustments for calculation of both diluted EPS and diluted HEPS:
- share options((1)) 9,515,378 10,105,688 8,813,260
Weighted average number of ordinary shares and potential ordinary shares used 249,738,339 249,588,021 248,506,930
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.
15(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 2024 Period ended 31 August 2023 Year ended 29 February 2024
Unaudited Unaudited Audited
£'000 £'000 £'000
Profits attributable to owners of the company 30,447 25,388 46,851
Adjusted for:
- Loss on disposal of property, plant and equipment - - -
- Tax effect thereon - - -
Headline profits attributable to owners of the company 30,447 25,388 46,851
16. Events after the reporting period
There were no events after the period that require disclosure.
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