REG - Bytes Technology Grp - Preliminary Results
23/05/2024 07:00
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RNS Number : 5555P Bytes Technology Group PLC 23 May 2024
23 May 2024
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Audited preliminary results for the year ended 29 February 2024
Strong strategic progress; extending track record of double-digit growth
Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the UK's leading
software, security, and cloud services specialists, today announces its
financial results for the year ended 29 February 2024 (2023/24).
Sam Mudd, Chief Executive Officer, said:
"I am very pleased to report another set of positive results for BTG, with a
12.2% increase in adjusted operating profit, driven by contributions from all
areas of our business. Despite the challenging economic climate over the past
year, our customers have continued to invest in their IT needs. Our gross
invoiced income has grown by 26.7%, and our gross profit has risen by 12.5%,
as we have expanded our client base in both the public and corporate sectors
and increased our share of wallet among existing customers.
"The Group has made strategic investments in personnel, internal systems, and
new vendor accreditations to drive future growth and assist our customers in
navigating the complexities of secure IT environments. Our strong relationship
with Microsoft enables us to capitalise on exciting opportunities such as
Copilot, Azure Virtual Solutions, and Business Apps. With continued demand for
cloud adoption, backup, storage, and security solutions, these will be our key
focus areas in 2024/25.
"Moving forward, through our passionate, talented, and experienced staff, we
are well-positioned to continue providing high-quality licensing advice,
technical support, and service delivery to meet our customers' needs. This
will remain our defining USP."
Financial performance
£'million Year ended 29 February 2024 Year ended 28 February 2023 % change year on year
Gross invoiced income (GII)(1) £1,823.0m £1,439.3m 26.7%
Revenue(2) £207.0m £184.4m 12.3%
Gross profit (GP) £145.8m £129.6m 12.5%
Gross margin % (GP/Revenue) 70.4% 70.3%
GP/GII % 8.0% 9.0%
Operating profit £56.7m £50.9m 11.4%
Adjusted operating profit (AOP)(3) £63.3m £56.4m 12.2%
( )
AOP/GP % 43.4% 43.5%
Profit after tax £46.9m £40.4m 16.1%
Cash £88.8m £73.0m 21.6%
Cash conversion (current period)(4) 104.3% 84.3%
Earnings per share (pence) 19.55 16.88 15.8%
Final dividend per share (pence) 6.0 5.1 17.6%
Special dividend per share (pence) 8.7 7.5 16.0%
Financial highlights
- GII increased 26.7% to £1,823.0 million (2022/23: £1,439.3 million).
The exceptional level of growth was underpinned by strategically important
contract wins in the public sector (most notably with the NHS and HMRC) and by
continued demand from corporate customers.
- Revenue increased 12.3% to £207.0 million (2022/23: £184.4
million).
- Growth in GP of 12.5% to £145.8 million (2022/23: £129.6 million)
supported by higher GP per customer of £24,400 (2022/23: £21,800).
- Operating profit increased by 11.4% to £56.7 million (2022/23: £50.9
million).
- AOP increased by 12.2% to £63.3 million (2022/23: £56.4 million);
AOP as a percentage of GP has remained in line with the previous year at 43.4%
as we continue to invest in the business.
- Growth in profit after tax of 16.1% to £46.9 million (2022/23: £40.4
million), with high levels of interest income offsetting the impact of the
rise in the corporation tax rate from April 2023.
- Earnings per share increased 15.8% to 19.55 pence (2022/23: 16.88
pence).
- Full-year cash conversion of 104.3% reflects strong cash collection
from customers and in line with our annual target of 100%, an increase over
the 84.3% achieved in 2022/23 and resulting in closing cash of £88.8 million
(2022/23: £73.0 million).
Final and special dividend
- The Board proposes a final dividend of 6.0 pence per share and a
special dividend of 8.7 pence per share.
- The final dividend represents a 17.6% increase over last year's
payment, reflecting the strong growth in adjusted profit after tax, and takes
the full-year dividend to 8.7 pence per share, an increase of 16.0%.
- The special dividend has been increased by 16.0%, therefore matching
the increase in the full year dividend.
Operational highlights
- Customers that traded with BTG last year contributed 97% of our GP
this year (2022/23: 96%), at a renewal rate of 109%.
- BTG committed to allocate Copilot licenses across 63% of internal
staff (100% of sales and marketing teams) following the successful trials held
in H2 2023/24.
- Increased headcount in the year by 13.7% to 1,057 (2022/23: 930) in
order to meet high levels of customer demand; particular focus on bolstering
sales and service delivery teams, including net new 72 sales heads.
- Continued expansion of our physical footprint with the opening of a
London office in March 2023.
- Bytes Software Services awards in 2023 included Mimecast VAR Customer
Excellence Partner of the Year, Forcepoint Partner Excellence Award, Rubrik
Top Growth Partner of the Year, Checkpoint Cloud Partner of the Year, CyberArk
Commercial Partner of the Year, and Tenable Growth Partner of the Year.
- Phoenix Software awards in 2023 included Microsoft Global Modern
Endpoint Management Partner of the Year, VMware Winner of the Industry Award,
Veeam Public Sector Partner of the Year, Druva International Partner of the
Year, Sophos Public Sector Partner of the Year (EMEA North), and Adobe Best
Retention Program Award.
- Both Bytes Software Services and Phoenix Software named among the UK's
top 50 Best Workplaces 2024 in the Large Company category. This is in addition
to both being listed by Great Places in the Tech, Women and Wellbeing
categories for 2023.
Current trading and outlook
In 2023/24, we performed strongly, continuing our trend of double-digit growth
across all key financial metrics. Whilst we operate in highly competitive
markets amidst challenging macroeconomic conditions, by nurturing our customer
relationships, extending our strong vendor partnerships, and leveraging the
technical and commercial skills of our teams, we remain confident in our
ability to succeed and make further progress in 2024/25.
Analyst and investor presentation
A presentation for sell-side analysts and investors will be held today at
9:30am (BST) via a live video webcast that can be accessed using the link:
https://stream.brrmedia.co.uk/broadcast/66321bc93d21e42c1c32c267
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstream.brrmedia.co.uk%2Fbroadcast%2F66321bc93d21e42c1c32c267&data=05%7C02%7Cpaul-emms%40phoenixs.co.uk%7C4c65f5b802e94d5d043f08dc74f7686e%7C2ec57e94f52a4588b969f463bf4ddcfc%7C0%7C0%7C638513853512003367%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C4000%7C%7C%7C&sdata=zBSdXLtj0GTYCqTFWLaPjLwpiN8EcloznsfXgqer5EM%3D&reserved=0)
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 Listing Rules of the UK Listing Authority, the Group
undertakes no obligation to publicly revise any forward-looking statements in
this announcement following any change in its expectations or to reflect
events or circumstances after the date of this announcement.
About Bytes Technology Group plc
BTG is one of the UK's leading providers of IT software offerings and
solutions, with a focus on cloud, 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) 'Adjusted operating profit' is a non-IFRS alternative performance measure
that excludes from operating profit the effects of significant items of
expenditure that do not reflect our underlying operations. Amortisation of
acquired intangible assets and share-based payment charges are both excluded
on this basis. The reconciliation of adjusted operating profit to operating
profit is set out in the Chief Financial Officer's review below.
(4) 'Cash conversion' is a non-IFRS alternative performance measure that
divides cash generated from operations less capital expenditure (together,
'free cash flow') by adjusted operating profit.
_______________________________________________________________________________
Chief Executive Officer's review
A strong performance delivering on our strategy
2023/24 was another year of strong performance with the Group growing adjusted
operating profit (AOP) by 12.2% and gross profit (GP) by 12.5%, driven by a
26.7% increase in gross invoiced income (GII). Our revenue, stated after the
netting adjustment for software and external services sales, under IFRS 15,
was up 12.3%.
Despite the ongoing economic uncertainty, we have continued to achieve
double-digit growth year on year, underpinned by our diverse range of product
offerings, including software, IT services, and hardware solutions from
leading vendors and software publishers and reflecting the robust nature of IT
spending across the UK and Ireland.
The scale of the increase in GII is in part due to our success in securing
large public sector contracts, illustrating our credibility and strength in
bidding for significant government software opportunities under the Crown
Commercial Services framework agreement. 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 profitability of these contracts over
time to secure additional opportunities within those accounts. Additionally,
our GII has grown well across our corporate sector customers, increasing by
17.6%, reflecting our continued success in this area.
Our growth in 2023/24 continued to be driven by customers' demand for
resilient and efficient IT environments around security, cloud adoption,
digital transformation, hybrid data centers, and storage. These are areas
where we will continue to invest in pre-sales and specialist technical skills
to expand our opportunities with existing and new customers. Examples of our
services delivery capabilities include our Security Operation Centre (SOC),
Governance, Risk and Compliance (GRC), and Software Asset Management (SAM)
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 many other key vendor
accreditations.
Customer investments increasingly take the form of annuity contracts,
providing confidence in our future growth prospects and the potential for
up-selling and cross-selling opportunities with existing clients. Most
recently this is seen in the strong customer response to Microsoft's AI
products, as we have commenced sales of Copilot and associated in-house
services to support customer readiness and adoption. We continue to expand our
internal skills through AI-dedicated teams in preparation for this to gain
increasing momentum in 2024/25 and beyond. Alongside this, other vendors also
have a pipeline of AI-supported software solutions that we look forward to
rolling out to our customers.
We are proud of the energy, enthusiasm and professionalism demonstrated by our
people, now with over 1,000 staff who do a tremendous job supporting our
customers and providing outstanding service levels. We continue to focus on
targeted recruitment and training and attracting talent, in front-end sales,
delivery teams and across all supporting areas, to help with our ambitious
growth plans. A number of recently announced appointments demonstrate our
desire to grow the careers of our staff internally, such as Phoenix Software's
Managing Director appointment of Clare Metcalfe, and on attracting external
talent, such as Bytes Software Services new Chief Commercial Officer, Hayley
Mooney.
As a management team, we are extremely pleased with the way our people
continue to embrace our collaborative, team-based culture. Our flexible
working regime continues to deliver positive results for our business, while
also meeting our people's aspirations for a healthy work/life balance. In June
2023, we launched our third Share Save Plan, which has again been well
received by our employees, with over 50% participating in one or more of these
plans.
To support the growth in sales and people, we continue to invest in, and
evolve, our internal systems both to improve user experiences and to drive
efficiencies. Notwithstanding this investment, our AOP as a percentage of GP
has remained in line with the previous year at just over 43% and meeting our
sustainable target of more than 40%.
We have continued to deepen our relationships with key partners and are
especially pleased to have been recognised by leading industry vendors.
Phoenix has been named 2023 Microsoft Modern Endpoint Management Global
Partner of the Year, along with receiving awards from VMware, Sophos and
Adobe, while Bytes received awards from Mimecast, Forcepoint and Rubrik, to
name just a few, reflecting the status and high esteem that the Group has with
global technology leaders, and is testament to the expertise of our staff and
the customer success stories that we deliver.
We 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% 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 proposed a final
dividend of 6.0 pence per share and an additional special dividend of 8.7
pence per share that, subject to shareholder approval, will both be paid on 2
August 2024 to shareholders on the register at 19 July 2024.
My appointment as CEO was confirmed in May 2024 following what had been a
challenging couple of months for the Group. Throughout the period since Neil
Murphy's resignation, I have been hugely impressed by the commitment and
professionalism of all of our staff as they remained focused on delivering our
strategic priorities as we have entered 2024/25. I am excited to have the
opportunity to lead BTG on the next stage of its journey and I wish to extend
my gratitude to all my colleagues 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
fosters an aligned culture across the organisation. During the period, we
further progressed our ESG initiatives in the following ways.
Increasing our carbon reporting
In 2023/24, two major milestones were achieved: our calculation and baselining
of Scope 3 emissions and the submission of our carbon reduction targets to the
Science Based Targets initiative (SBTi). For the first time, we have
calculated all our Scope 1 and 2 and relevant Scope 3 emissions, which has
given us a broad view of our key sources of emissions. In July 2023, we made a
Group commitment to submit our targets to the SBTi for validation against the
Paris Agreement's aim for less than a 1.5-degree global temperature increase.
These were submitted in December 2023, and we expect to have our targets
validated during 2024. 2023/24 also saw enhanced disclosures through CDP,
which was scored for the first time and is in line with our industry.
We continue to monitor the progress of the IFRS S1 and S2 standards being
adopted by the UK Government and will review our Annual Report and Accounts
following adoption. 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. Within our businesses, we are supporting
the evolution to greener transport to reduce business travel and commuting
emissions. The Group has successfully deployed an electric vehicle scheme
during the period.
Making positive impacts on our society
Employee support and wellbeing continue as key focus areas for the Group,
particularly in light of the continuing cost-of-living crisis, with wellbeing
days an important part in driving a healthier and happier workforce. In
addition to this, employees have been engaged in, and managers trained in, the
impact of menopause and in neurodiversity as part of wider awareness
programmes.
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.
In 2023/24, there has been an expansion of the apprenticeship scheme into more
areas of the business. Staff are also engaged with through various channels
and improvements are made based on their ideas and initiatives.
During 2023/24, we supported our communities through donations, fundraising
events and volunteer days, such as with the Wildlife Aid Foundation, the
Rainbow Trust and St Leonard's Hospice. Charity sport days have continued
over the summer months, engaging with vendors to widen the impact. In addition
to fundraising and volunteering, due to an IT refresh, Bytes was also able to
donate 140 laptops to employee-nominated non-profit organisations and
charities across the UK.
Board composition and committee memberships
The below changes to the composition of the Board and committee memberships
were made in 2023/24, a number of these changes followed the resignation of
Neil Murphy. The appointments of Sam Mudd as CEO and Ross Paterson and Anna
Vikström Persson followed a selection process led by the Chair and with
support from a leading external search firm. The appointments bring a wealth
of experience that complement and enhance the existing expertise within the
Board.
Changes to the Boad and committee memberships made or announced during
2023/24:
- 12 July 2023: David Maw retired as Non-Executive Director.
- 12 July 2023: Sam Mudd appointed as an Executive Director at the
Annual General Meeting while continuing in her role as Managing Director (MD)
of Phoenix Software Limited, a wholly-owned subsidiary of the Group.
- 12 July 2023: Erika Schraner assumed the role of Designated
Non-Executive (DNED) for employee engagement, replacing David Maw.
- 31 October 2023: Alison Vincent stepped down from the Board as an
Independent Non-Executive Director.
- 1 November 2023: Erika Schraner appointed Chair of the Remuneration
Committee.
- 1 February 2024: Shruthi Chindalur appointed as an Independent
Non-Executive Director and member of the Audit, Nomination and Remuneration
Committees.
- 21 February 2024: Neil Murphy resigned as Chief Executive Director
(CEO) and Executive Director.
- 21 February 2024: Sam Mudd appointed as Interim CEO:
Further changes to the composition of the Board and committee memberships were
made or announced following the period end:
- 25 March 2024: Mike Phillips resigned as an Independent Non-Executive
Director.
- 25 March 2024: Erika Schraner appointed as Senior Independent Director
and Interim Chair of the Audit Committee.
- 25 March 2024: Shruthi Chindalur assumed the role of DNED for employee
engagement.
- 10 May 2024: Sam Mudd appointed as CEO.
- Effective 1 June 2024:
o Ross Paterson appointed as an Independent Non-Executive Director, Chair of
the Audit Committee, and member of the Nomination and Remuneration Committees.
o Anna Vikström Persson appointed as an Independent Non-Executive Director
and member of the Audit, Nomination and Remuneration Committees.
o ESG Committee of the Board established, members will be Anna Vikström
Persson (Chair), Patrick De Smedt, Erika Schraner, Ross Paterson and
Shruthi Chindalur.
Chief Financial Officer's review
Year ended 29 February 2024 Year ended 28 February 2023 Change
Income statement £'m £'m %
Gross invoiced income (GII) 1,823.0 1,439.3 26.7%
GII split by product:
Software 1,722.0 1,346.1 27.9%
Hardware 41.4 38.3 8.1%
Services internal(1) 31.5 28.5 10.5%
Services external(2) 28.1 26.4 6.4%
Netting adjustment (1,616.0) (1,254.9) 28.8%
Revenue 207.0 184.4 12.3%
Revenue split by product:
Software 130.4 114.1 14.3%
Hardware 41.4 38.3 8.1%
Services internal(1) 31.5 28.5 10.5%
Services external(2) 3.7 3.5 5.7%
Gross profit (GP) 145.8 129.6 12.5%
GP/GII % 8.0% 9.0%
Gross margin % 70.4% 70.3%
Administrative expenses 89.1 78.7 13.2%
Administrative expenses split:
Employee costs 71.2 63.3 12.5%
Other administrative expenses 17.9 15.4 16.2%
Operating profit 56.7 50.9 11.4%
Add back:
Share-based payments 5.7 4.2 35.7%
Amortisation of acquired intangible assets 0.9 1.3 (30.8)%
Adjusted operating profit (AOP) 63.3 56.4 12.2%
Interest income 5.1 -
Finance costs (0.4) (0.5)
Share of profit of associate(3) 0.2 -
Profit before tax 61.6 50.4 22.2%
Income tax expense (14.7) (10.0) 47.0%
Effective tax rate 23.9% 19.9%
Profit after tax 46.9 40.4 16.1%
(1) Provision of services to customers using the Group's own internal
resources
(2) Provision of services to customers using third-party contractors
(3) Cloud Bridge Technologies 25.1% share of profits since April 2023
Overview of 2023/24 results
2023/24 has seen continued double-digit growth across all our key performance
measures. Customers have continued to engage with us to support their move
into the cloud, or to extend their presence in it, with demand for more
sophisticated and resilient security, support and managed service solutions.
This has resulted in operating profit increasing by 11.4% to £56.7 million
(2022/23: £50.9 million) and AOP growing by 12.2% year on year from £56.4
million to £63.3 million. The adjusted operating profit excludes the impact
of amortisation of acquired intangible assets and share-based payment charges,
which do not reflect the underlying day-to-day performance of the Group.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some small adjustments
for deferred and accrued items (mainly relating to managed service contracts
where the income is recognised over time). We believe that GII is the most
useful measure to evaluate our sales performance, volume of transactions and
rate of growth. GII has a direct influence on our movements in working
capital, reflects our risks and demonstrates the performance of our sales
teams. Therefore, it is the income measure that is most recognisable among our
staff, and we believe most relevant to our customers, suppliers, investors and
shareholders for them to understand our business.
GII has increased by 26.7% year on year, with growth spread across all the
business's income streams, but most significantly for software, which remains
the core focus, contributing 94% of the total GII for the year (2022/23: 94%).
The Group's already substantial presence in the public sector has been
bolstered by several very large strategic wins relating to government
Microsoft Enterprise Agreements. The Group bids 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 process.
This 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 £280.9 million, up 32.8%, to £1,137.5 million (2022/23:
£856.6 million). Our corporate GII increased by £102.7 million to £685.5
million (2022/23: £582.7 million), representing a very pleasing rise of
17.6%.
This means that our overall GII mix has moved slightly compared to last year,
with 62% in public sector (2022/23: 60%) against corporate of 38% (2022/23:
40%).
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.
Our judgements around this area are set out in notes 1.4 and 1.10 of the
full-year financial statements for 2023/24 but in summary, software and
external services revenue is treated on an agency basis while hardware and
internal services revenue is treated as principal.
It should be noted that GII, gross profit, operating profit, and profit before
and after taxes are not affected by these judgements, and neither are the
consolidated statements of financial position, cash flows and changes in
equity.
With the significant increase in software GII, as noted above, and a squeeze
on software margin as noted below, its treatment on a net, or agency, basis,
means that the 12.3% increase in revenue in the year is therefore lower than
the rise in GII.
Gross profit (GP)
Gross profit increased by 12.5% to £145.8 million (2022/23: £129.6 million).
This growth is less than that for GII given the high level of new or renewed
GII derived from the public sector and the highly competitive nature of the
tendering process, governed under the Crown Commercial Services framework
agreements. This has meant that large software contracts, most notably with
Microsoft, have been won or renewed at reduced margins. This tends to be
particularly prevalent in the first year of new agreements with public sector
entities and, as a result, we have seen a reduction on our GP/GII% in the year
to 8.0% (2022/23: 9.0%). That said, if the impact of the two largest new
contracts is removed from the calculation, the percentage rises to 8.9%,
virtually in line with last year and demonstrating the continued strong
performance of the business in maintaining its margins.
Deals such as these are consistent with the Group's strategy of winning new
customers and then expanding share of wallet. Our objective is to ensure we
build our profitability within each contract over its term, typically 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 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 2023/24 with 97% of our GP coming from
customers that we also traded with last year (2022/23: 96%), at a renewal rate
of 109% (which measures the GP from existing customers this period compared to
total GP in the prior period). This demonstrates our ability to increase our
share of wallet with average GP per customer growing from £21,800 in 2022/23
to £24,400 in 2023/24.
Administrative expenses
This includes employee costs and other administrative expenses as set out
below.
Employee costs
Our success in growing GII and GP continues to be as a direct result of the
investments we have made over the years in our front-line sales teams, vendor
and technology specialists, service delivery staff and technical support
personnel, backed up by our marketing, operations, and finance teams. It has
been, and will remain, a carefully managed aspect of our business.
In addition to continuing to hire in line with growth 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. This is at the very heart of our
low employee churn rate, the growth in gross profit per customer and our high
customer retention rate.
During the year we have seen total staff numbers rise above 1,000 for the
first time, to 1,057 on our February 2024 payroll, up by 13.7% from the
year-end position of 930 on 28 February 2023. Employee costs included in
administrative expenses rose by 12.5% to £71.2 million (2022/23: £63.3
million), in line with our GP growth and reflecting the balanced and
proportional way in which staff investments are made. Indeed, after excluding
share-based payments of £5.7 million (2022/23: £4.2 million), the rise was
lower at 10.8%.
Other administrative expenses
Other administrative expenses increased by 16.2% to £17.9 million (2022/23:
£15.4 million). This increase included additional spend on internal systems,
professional fees, staff welfare and travel costs. This reflects the costs of
running, and investing in, a growing organisation and in operating a listed
Group, including evolving our governance structure, controls, and processes
with the support of our professional advisors.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the effects of:
- Share based payment charges because, while new employee share schemes
are being launched, the charge to the income statement will increase each
year. Accordingly, the charge for the current year has risen to £5.7 million,
compared to £4.2 million last year.
- Amortisation of acquired intangibles because this cost only appears as
a consolidation item and does not arise from ordinary operating activities.
We believe that adjusted operating profit is a meaningful measure that the
Board can use to effectively evaluate our profitability, performance, and
ongoing quality of earnings. Adjusted operating profit in 2023/24 increased to
£63.3 million (2022/23: £56.4 million), representing growth of 12.2%. Our
operating profit increased from £50.9 million to £56.7 million, equating to
an increase of 11.4%.
Adjusted operating profit as a percentage of GP is one of the Group's key
alternative performance indicators, being a measure of the Group's operational
effectiveness in running day-to-day operations. We aim to sustain it in excess
of 40% and have achieved this, with a ratio of 43.4% (2022/23: 43.5%).
Interest income and finance costs
This year has seen significant interest being earned from money market
deposits, totalling £5.1 million (2022/23: nil).
Our finance costs largely comprise arrangement and commitment fees associated
to our revolving credit facility (RCF), noting that to date the Group has not
drawn down any amount. This balance also includes a small amount of finance
lease interest on our right-of-use assets, including the introduction of a
staff electric vehicle (EV) scheme.
Share of profit in associate
Following the acquisition of a 25.1% interest in Cloud Bridge Technologies in
April 2023, in accordance with IAS 28 Investments in Associates we have
accounted for the Group's share of its profits since the date of our
investment, £0.2 million for the 11-month period.
Profit before tax
The combined impact of increased operating profits and high levels of interest
received has seen our profit before tax increasing by an impressive 22.2% to
£61.6 million (2022/23: £50.4 million).
Income tax expense
The £4.7 million (47.0%) rise in our income tax expense to £14.7 million
(2022/23: £10.0 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.
Nevertheless, our effective rate of tax at 23.9% is lower than the tax charge
would be at the standard rate, primarily because of deductions available in
relation to the share options exercised by staff during the year. The
reconciliation is set out in note 8 to the financial statements.
Profit after tax
Profit after tax increased by 16.1% to £46.9 million (2022/23: £40.4
million), underlining our growth in operating profits and with the impact of
higher taxes more than offset by the increase in interest income.
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 15.8% from 16.88 pence to 19.55 pence, while
adjusted earnings per share have risen 15.7% to 21.78 pence (2022/23: 18.83
pence). The adjusted figure removes the effects of share-based payment charges
and amortisation of intangible assets.
Balance sheet and cash flow
As at
29 February 28 February
2024 2023
Balance sheet £'m £'m
Investment in associate 3.2 -
Property plant and equipment 8.5 8.4
Intangible assets 40.6 41.5
Other non-current assets 4.9 1.2
Non-current assets 57.2 51.1
Trade and other receivables 221.8 185.9
Cash 88.8 73.0
Other current assets 11.8 10.7
Current assets 322.4 269.6
Trade and other payables 277.9 231.7
Lease liabilities 0.4 0.1
Other current liabilities 19.6 23.9
Current liabilities 297.9 255.7
Lease liabilities 1.3 0.9
Other non-current liabilities 2.1 2.6
Non-current liabilities 3.4 3.5
Net assets 78.3 61.5
Share capital 2.4 2.4
Share premium 633.7 633.6
Share-based payment reserve 11.0 7.2
Merger reserve (644.4) (644.4)
Retained earnings 75.6 62.7
Total equity 78.3 61.5
Closing net assets stood at £78.3 million (2022/23: £61.5 million) including
the Group's £3.2 million interest (25.1%) in Cloud Bridge Technologies (which
includes our £0.2 million share of profits since it was acquired in April
2023).
Net current assets closed at £24.5 million (2022/23: £13.9 million). This
includes growth in the trade and other receivables of 19.3%, and similar
growth in trade and other payables of 19.9%, both reflecting the increase in
our GII.
Our debtor days at the end of the year stood at 34, down from 37 at 28
February 2023, and our average debtor days for the year was also reduced to 37
(2022/23: 39). While we have increased our closing loss allowance provision to
£2.5 million (2022/23: £1.5 million), this is a prudent position given the
£35.0 million increase in our gross trade receivables and, in fact, we have
come through the year with only £0.3 million in bad debt write-offs against
total GII of £1.8 billion.
This strong performance in respect of collecting customer receivables has
contributed to the positive cash conversion figures described below.
The Group has paid its suppliers on schedule through the year, with its
average creditor days remaining in line with prior year at 47 and standing at
44 at the end of the year (2022/2023: 42).
The consolidated cash flow is set out below along with the key flows which
that affected it:
Year ended 29 February 2024 Year ended 28 February 2023
Cash flow £'m £'m
Cash generated from operations 67.3 48.9
Payments for fixed assets (1.3) (1.3)
Free cash flow 66.0 47.6
Net interest received/(paid) 4.7 (0.5)
Taxes paid (15.1) (10.3)
Lease payments (0.2) (0.2)
Dividends (36.6) (30.7)
Investment in associate (3.0) 0.0
Net increase in cash 15.8 5.9
Cash at the beginning of the year 73.0 67.1
Cash at the end of the year 88.8 73.0
AOP 63.3 56.4
Cash conversion (annual) 104.3% 84.3%
109.9% 112.4%
Cash conversion (since IPO)
Cash at the end of the period was £88.8 million (2022/23: £73.0 million),
which is after the payment of dividends totalling £36.6 million during the
year - being the final and special dividends for 2022/23 and the interim
dividend for 2023/24 - and after making the £3.0 million investment in Cloud
Bridge.
Cash flow from operations after payments for fixed assets (free cash flow)
generated a positive cash flow of £66.0 million (2022/23: 47.6 million).
Consequently, the Group's cash conversion ratio for the year (free cash flow
divided by AOP) was 104.3% (2022/23: 84.3%). Our cumulative cash conversion
since we first reported as a PLC in 2020/21 stands at 109.9% over the four
years, which is ahead of our sustainable cash conversion target of 100% and
reflects the Group's longer-term performance against this measure.
If required, the Group has access to a committed revolving credit facility
(RCF) of £30 million with HSBC. The facility commenced on 17 May 2023,
replacing the Group's previous facility for the same amount and runs for three
years, until 17 May 2026, with an optional one year extension to 17 May 2027.
To date, the Group has not utilised the facility.
Proposed dividends
As stated above, the Group's dividend policy is to distribute 40% of post-tax
pre-exceptional earnings to shareholders. Accordingly, the Board is pleased to
propose a gross final dividend of 6.0 pence per share. The aggregate amount of
the proposed dividend expected to be paid out of retained earnings at 29
February 2024, but not recognised as a liability at the end of the financial
year, is £14.4 million. In light of the company's continued strong
performance and cash generation, the Board also considers it appropriate to
propose a cash return to ordinary shareholders with a special dividend of 8.7
pence per share, equating to £20.9 million. If approved by shareholders, the
final and special dividend will be payable on Friday, 2 August 2024 to all
ordinary shareholders who are registered as such at the close of business on
the record date of Friday, 19 July 2024.
The salient dates applicable to the dividend are as follows:
Dividend announcement date Thursday, 23 May 2024
Currency conversion determined and announced together with the South African Monday, 15 July 2024
(SA) tax treatment on SENS by 11.00
AGM at which dividend resolutions will be proposed Thursday, 11 July 2024
Last day to trade cum dividend (SA register) Tuesday, 16 July 2024
Commence trading ex-dividend (SA register) Wednesday, 17 July 2024
Last day to trade cum dividend (UK register) Wednesday, 17 July 2024
Commence trading ex-dividend (UK register) Thursday, 18 July 2024
Record date Friday, 19 July 2024
Payment date Friday, 2 August 2024
Additional information required by the Johannesburg Stock Exchange:
1. The GBP:ZAR currency conversion will be determined and published on
SENS on Monday, 15 July 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 Thursday, 23 May 2024, being the declaration announcement date of
the dividend, the company had a total of 240,361,243 shares in issue (with no
treasury shares).
5. No transfers of shareholdings to and from South Africa will be
permitted between Monday, 15 July 2024 and Friday, 19 July 2024 (both dates
inclusive). No dematerialisation or rematerialisation orders will be permitted
between Wednesday, 17 July 2024 and Friday, 19 July 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.
The unsettled geopolitical and macroeconomic environment persisted this year,
affecting business and people around the world. Russia's war in Ukraine
continued unabated, contributing to higher energy prices and inflation. As
tensions rose across the Middle East after the 7 October attack on Israel,
strikes on commercial ships in the Red Sea forced companies to pay higher
insurance rates or a higher cost to reroute goods around southern Africa.
Meanwhile, interest rates remained high.
This all served as a strong reminder of the importance of having a robust,
agile approach to managing risk. 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. The changes we made in 2022/23, by
including risk management as a standing agenda item at each of the subsidiary
board meetings, have solidified the Group's bottom-up approach to risk.
Through our ongoing risk monitoring process, we assess current and emerging
risks. The evolving geopolitical and macroeconomic challenges this year
increased the potential for economic disruption, especially as it affects our
customers, which is one of our principal risks. While we remain vigilant, our
business has performed strongly through various external crises in recent
years, demonstrating its resilience.
Since our last Annual Report, we have added two new principal risks,
reclassified an emerging risk as a principal risk and added one new emerging
risk. We now have 14 rather than 11 principal risks, taking into account the
following changes.
New principal risks:
· The Climate change and sustainability risk has risen from being
an emerging risk to a principal risk called Sustainability/ESG. The physical
threats from climate change will remain as emerging, but the elevated
principal risk is about keeping up with regulatory requirement changes and
ahead of expectations from investors, employees, customers and other
stakeholders.
· We have added a new principal risk called Supply chain
management. The risk is based on the time and effort needed to manage the
supply chain given increasing focus on compliance, audits, sustainability and
reporting.
· We have added another new principal risk called Regulatory and
compliance, which relates to the inherent risks from evolving regulatory and
compliance landscapes.
New emerging risk:
· In October 2023 we identified a third emerging risk from AI and
the impact this might have on our customers and their workforce due to the
potential to change the internal IT and working landscape and to present risks
from moral, legal and ethical standpoints.
Existing principal risks with updated focus:
· Our Economic disruption and Inflation risks have been amended.
Economic disruption now focuses on economic impacts affecting our customers,
while Inflation now focuses on the internal effect on our workforce.
· The Increasing debtor risk has expanded and been renamed Working
capital. It now includes the financial risk of an increased aged debt profile,
as well as creditors and the risk of vendors changing their payment terms.
· We have expanded our definition of Competition to include the
evolving competitor landscape, such as through AI and marketplaces.
· The Relevance and emerging technology risk now incorporates the
cost of staying current and includes the cost of additional resources as well
as upgrading the technologies to use similar technologies.
· We have expanded the Business continuity failure risk to include
risk to and from people - like insider threats - and kept the risks from
processes and technology.
· Under the Attract and retain staff while keeping our culture
risk, we have amended skills shortage from a widespread IT shortage to a
shortage in emerging areas, such as AI, where expertise is in high demand.
Existing emerging risks:
· As noted above, the physical risk from climate change remains
unchanged as an emerging risk, as does our second emerging risk from 2022/23
around keeping pace with social change.
Financial 1 Economic disruption Risk owner CEO
The risk How we manage it
This risk includes the impact of the crises in Palestine and the Red Sea and We have so far continued to perform well during high inflation, the conflict
the continuing conflict in Ukraine. It encompasses the uncertainties caused by in Ukraine and leaving the EU, as well as during the current cost-of-living
global economic pressures and geopolitical risk within the UK. crisis, disruption to shipping through the Red Sea and the Israel-Palestine
conflict.
These real-life experiences of high inflation, rising cost of living,
Covid-19, exchange rate fluctuations and 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. Increased costs from shipping diversions away from the Red Sea
could have time and cost implications for imported goods.
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
The risk How we manage it
BTG faces pressure on profit margins from myriad 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
The risk How we manage it
We receive incentive income from our vendor partners and their distributors. We maintain a diverse portfolio of vendor products and services. Although we
This partially offsets our costs of sales but could be significantly reduced receive major sources of funding from specific vendor programmes, if one
or eliminated if the commercial models are changed significantly. source declines, we can offset it by gaining new certifications in, and
selling, other technologies where new funding is available. Where vendors have
changed - such as Broadcom purchasing VMware - we have seen AWS and Dell
increasingly embrace the reseller community. So, overall, for BTG the severity
of this risk is unchanged.
We closely monitor incentive income and make sure staff are aligned to meet
vendor partners' goals so that we don't lose out on these incentives. Close
and regular communication with all our major vendor partners and distributors
means we can manage this risk appropriately. In some areas we have seen a
positive change in vendors' commercial terms, where we have been able to adapt
practices.
The materiality of this risk has not been realised yet, but it remains a risk.
The impact
These incentives are very valuable and contribute to our operational profits.
Significant changes to the commercial models could put pressure on our
profitability.
4 Inflation Risk owner CFO
The risk How we manage it
Inflation in the UK, as measured by the Consumer Price Index (CPI), was 10.1% Staff costs make up most of our overheads, so our attention has been focused
in March 2023 and more than halved to 3.2% by March 2024. This rate is above on our staff and their ability to cope with the rising cost of living.
the Bank of England's target of 2%, although expectations suggest it could be
2% by the second half of 2024.
At the start of 2023/24, varying levels of wage increases were rolled out for
our employees, with a greater percentage increase for lower-paid staff. This
was to help our employees maintain their standard of living and be able to
keep up with essentials such as rent and mortgage payments, and energy and
food bills.
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 staff and customers.
5 Working capital Risk owner CFO
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 targeted 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
In 2023/24 we have seen debtor days stabilise as inflation has reduced, but quickly resolved.
the number of days is yet to return to base level.
The impact
This could adversely affect our businesses' profitability and/or cashflow.
Strategic 6 Vendor concentration Risk owner CEO
The risk How we manage it
Over reliance on any one technology or supplier could pose a potential risk, We work with our vendors as partners - it is a relationship of mutual
should that technology be superseded 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.
Hardware is not a core element of our business but is a steady sector, so we
monitor supply closely. We also monitor the geopolitical situation
continuously and work closely with suppliers to stay fully informed, so that
we can respond quickly should the landscape change. With a diverse portfolio
of suppliers and vendors, we are able to offer alternatives to customers if
there is a particular vendor with a supply issue. Given this risk is largely
driven by geopolitical and macroeconomic factors, we maintain a watching brief
so that we can react swiftly if we need to.
The impact
Relying too heavily on any one vendor could have an adverse effect on our
financial performance, should that relationship break down.
Geopolitically, global shortages of computer hardware, components and chips
could occur, which might limit our and our customers' ability to purchase
hardware for internal use. This could lead to delays in customers purchasing
software that is linked to, or dependent on, the hardware being available.
Reduced access to computer chips could also slow down vendor innovation,
leading to delays in creating new technology to resell to customers.
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.
This risk is also heightened by changes to shipping routes, if certain
channels are made unsafe.
7 Competition Risk owner CEO
The risk How we manage it
Competition in the UK IT market, or the commoditisation of IT products, may We closely watch commercial and technological developments in our markets.
result in BTG being unable to win or maintain market share.
The threat of disintermediation by vendors has always been present. We
Mergers and acquisitions have consolidated our distribution network and minimise this threat by continuing to increase the added value we bring to
absorbed specialist services companies. This has caused overlap with our own customers directly. This reduces clients' desire to deal directly with
offerings. vendors.
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 AWS Marketplace and can sell to our vendors through its
Frameworks, particularly in the public sector, are a procurement route of platform, which gives discounts to the customer versus buying directly.
choice for some customers. We risk narrowing our route to customers if we are
not part of these frameworks.
Artificial intelligence/machine learning has been identified as a new emerging
risk, and so will be explored and monitored for risks and opportunities to our
AI risks becoming a partial competitor, if it becomes able to provide accurate 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
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
The risk How we manage it
Breaches in the security of electronic and other confidential information that We use intelligence-driven analysis, including research by our internal
BTG collects, processes, stores and transmits may give rise to significant digital forensics team, to protect ourselves.
liabilities and reputational damage.
This work provides insights into vulnerable areas and the effects of any
breaches, which allow us to strengthen our security controls.
We have established controls that separate customer systems and mitigate
cross-breaches. Our cyberthreat-level system also lets us tailor our approach
and controls in line with any intelligence we receive. Our two subsidiaries
share insights and examples of good practice on security controls with one
another - and the security operations centre located at Phoenix's offices
provides the whole business with 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 CFO
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 locations sites and solutions to
limit the impact of service outage to customers. Where possible, we use active
resilience solutions - designed to withstand or prevent loss of services in an
unplanned event - rather than just disaster-recovery solutions and facilities,
which restore normal operations after an incident.
Employees are encouraged to work from home or take time off when sick, to
avoid 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.
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
The risk How we manage it
The success of BTG's business and growth strategy depends on our ability to We continually strive to be the best company to work for in our sector.
attract, recruit and retain a talented employee base. Being able to offer
competitive remuneration is an important part of this.
One of the ways we manage this risk is by growing our own talent pools. We've
used this approach successfully in our graduate intakes for sales, for
Three factors are affecting this: example. BTG also runs an extensive apprenticeship programme to create a new
security skill set. We also review the time that management has to coach new
- Inflation, which is still influencing salary expectations and wage staff.
growth
- Skills shortage in emerging, high-demand areas, such as artificial
intelligence and machine learning Maintaining our culture is important to retaining current staff. We maintain
our small-company feel through regular communications, clubs, charity events
- With remote or hybrid working becoming the norm, potential employees and social events. We aim to absorb growth while keeping our culture.
in traditionally lower-paid geographical regions being able to work remotely
in higher-paying areas like London.
Maintaining our BTG culture also affects how we attract and retain staff,
which growth can change.
The impact
Excessive wage inflation could either drive up costs or mean we are unable to
attract or retain the talent pool we need to continue to deliver our planned
growth.
12 Supply chain management Risk owner CEO
The risk How we manage it
Failure to understand suppliers may lead to regulatory, reputational and Supplier set-up forms include questions to ask suppliers to disclose
financial risks, if they expose our business to practices that we would not information relating to compliance and adherence to our Supplier Code of
tolerate in our own operations. The time and effort to monitor and audit Conduct. Any unethical, illegal or corrupt behaviour that comes to light is
suppliers is considered a risk. escalated and appropriate actions is taken.
Phoenix has appointed a Procurement Manager and BSS has established a
cross-disciplinary group to work on managing suppliers.
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
Managing supply chains is important to the sustainability of the business from
a legal, financial, reputational, ethical and environmental viewpoint.
There is a risk to our business if we engage with suppliers that:
- Provide unethical working conditions and pay
- Are involved in financial mismanagement and unethical behaviour
- Cause environmental damage
- Operate in sanctioned regions.
Escalating conflicts could also affect our supply chain - for example,
rerouting shipping around South Africa adds journey time and increases carbon
emissions.
Regulatory 13 Sustainability/ESG Risk owner CEO
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
and employees means we need to stay at the forefront of reporting and Audit Committee.
disclosure, especially given that requirements and standards are continually
updated.
The 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.
Our Sustainability Steering Committee enables decision makers from across
Group and our two operating companies to work towards a common goal and report
on challenges.
Disclosures are made through several channels, including CDP. We submitted our
carbon reduction targets to the SBTi in December 2023, 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
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 company'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
sign-offs 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 effect multiple
areas of the business.
The impact
Operational teams and process 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 company 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 for the year ended 29
February 2024. 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 £88.8 million of cash and cash equivalents available at 29
February 2024. The Group also has access to a committed revolving credit
facility that covers the going concern period to 31 August 2025 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 28 February 2023, 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 31 August 2025.
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 Services Authority's
Disclosure and Transparency Rule 4 (DTR 4)
Each director of the company confirms that (solely for the purpose of DTR 4)
to the best of his/her knowledge:
· The financial information in this document, prepared in accordance
with the applicable UK law and applicable accounting standards, gives a true
and fair view of the assets, liabilities, financial position and result of the
Group taken as a whole.
· The Chief Executive Officer's and Chief Financial Officer's reviews
include a fair review of the development and performance of the business and
the position of the Group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board
Sam Mudd
Andrew Holden
Chief Executive Officer Chief Financial Officer
23 May 2024
Consolidated statement of profit or loss
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Revenue 3 207,021 184,421
Cost of sales (61,243) (54,848)
Gross profit 145,778 129,573
Administrative expenses 4 (87,839) (77,753)
Impairment on trade receivables 17 (1,227) (937)
Operating profit 56,712 50,883
Finance income 7 5,111 -
Finance costs 7 (393) (491)
Share of profit of associate 12 166 -
Profit before taxation 61,596 50,392
Income tax expense 8 (14,745) (9,971)
Profit after taxation 46,851 40,421
Profit for the period attributable to owners of the parent company 46,851 40,421
Pence Pence
Basic earnings per ordinary share 28 19.55 16.88
Diluted earnings per ordinary share 28 18.85 16.28
The consolidated statement of profit or loss has been prepared on the basis
that all operations are continuing operations.
There are no items to be recognised in other comprehensive income and hence,
the Group has not presented a statement of other comprehensive income.
Consolidated statement of financial position
As at As at
29 February 28 February
2024 2023
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 9 8,478 8,380
Right-of-use assets 10 1,411 783
Intangible assets 11 40,646 41,526
Investment in associate 12 3,193 -
Contract assets 13 2,689 397
Deferred tax asset 8 834 -
Total non-current assets 57,251 51,086
Current assets
Inventories 15 60 58
Contract assets 13 11,756 10,684
Trade and other receivables 17 221,815 185,920
Cash and cash equivalents 18 88,836 73,019
Total current assets 322,467 269,681
Total assets 379,718 320,767
Liabilities
Non-current liabilities
Lease liabilities 10 (1,314) (917)
Contract liabilities 14 (2,137) (1,976)
Deferred tax liabilities 8 - (635)
Total non-current liabilities (3,451) (3,528)
Current liabilities
Trade and other payables 19 (277,917) (231,717)
Contract liabilities 14 (19,348) (23,914)
Current tax liabilities (243) (36)
Lease liabilities 10 (423) (75)
Total current liabilities (297,931) (255,742)
Total liabilities (301,382) (259,270)
Net assets 78,336 61,497
Equity
Share capital 20 2,404 2,395
Share premium 20 633,650 633,636
Share-based payment reserve 11,050 7,235
Merger reserve 21 (644,375) (644,375)
Retained earnings 75,607 62,606
Total equity 78,336 61,497
The consolidated financial statements were authorised for issue by the Board
on 22 May 2024.
Consolidated statement of changes in equity
Attributable to owners of the company
Share capital Share premium Share-based payment reserve Merger reserve Retained earnings Total equity
Note £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 March 2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income for the year - - - - 40,421 40,421
Dividends paid 26(b) - - - - (30,654) (30,654)
Share-based payment transactions 27 - - 4,188 - - 4,188
Tax adjustments 8 - - (25) - - (25)
Balance at 28 February 2023 2,395 633,636 7,235 (644,375) 62,606 61,497
Total comprehensive income for the year - - - - 46,851 46,851
Dividends paid 26(b) - - - - (36,641) (36,641)
Shares issued during the year 20 9 14 - - - 23
Transfer to retained earnings 27 - - (2,791) - 2,791 -
Share-based payment transactions 27 - - 5,708 - - 5,708
Tax adjustments 8 - - 898 - - 898
Balance at 29 February 2024 2,404 633,650 11,050 (644,375) 75,607 78,336
Consolidated statement of cash flows
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Cash flows from operating activities
Cash generated from operations 22 67,333 48,889
Interest received 7 5,111 -
Interest paid 7 (330) (443)
Income taxes paid (15,109) (10,295)
Net cash inflow from operating activities 57,005 38,151
Cash flows from investing activities
Payments for property, plant and equipment 9 (1,334) (1,363)
Investment in associate (3,027) -
Net cash outflow from investing activities (4,361) (1,363)
Cash flows from financing activities
Proceeds from issues of shares 23 -
Principal elements of lease payments 10 (209) (233)
Dividends paid to shareholders 24(b) (36,641) (30,654)
Net cash outflow from financing activities (36,827) (30,887)
Net increase in cash and cash equivalents 15,817 5,901
Cash and cash equivalents at the beginning of the financial year 73,019 67,118
Cash and cash equivalents at end of year 18 88,836 73,019
Notes to the consolidated financial statements
1 Accounting policies
1.1 General information
Bytes Technology Group plc, together with its subsidiaries ('the Group' or
'the Bytes business') 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 Group's consolidated financial statements have been prepared in accordance
with UK-adopted International Accounting Standards (IAS) in conformity with
the requirements of the Companies Act 2006.
The Group's material accounting policies and presentation considerations on
both the current and comparative periods are detailed below.
The financial information contained in this preliminary announcement does not
constitute the Group's statutory accounts for the years ended 29 February 2024
or 28 February 2023. The statutory accounts for the year ended 29 February
2024
will be filed with the Registrar of Companies in due course. The auditors
report on these accounts was not qualified or
modified and did not contain any statement under Sections 498(2) or (3) of the
Companies Act 2006. A separate
announcement will be made in accordance with Disclosure and Transparency Rules
(DTR) 6.3 when the annual report and audited financial statements for the year
ended 29 February 2024 are made available on the Company's website,
which is expected to be in June 2024.
In adopting the going concern basis for preparing the financial statements,
the directors have considered the business activities and the Group's
principal risks and uncertainties in the context of the current operating
environment. This includes the current geopolitical environment, the current
challenging economic conditions, and reviews of future liquidity headroom
against the Group's revolving credit facilities, during the period under
assessment. The approach and conclusion are set out fully in note 1.3.
The consolidated financial statements have been prepared on a historical cost
basis, as modified to include derivative financial assets and liabilities at
fair value through the consolidated statement of profit or loss.
1.3 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 in the Group's risk
report within the strategic report, in addition to ever-present risks such as
the Group's exposure to credit risk as described in note 17, and liquidity
risk, currency risk and foreign exchange risk as described in note 23.
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 31 August 2025, 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 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
The Group is now reporting its fourth year of strong growth since it listed in
December 2020. In the current year of reporting, the Group has achieved
double-digit growth in gross invoiced income (GII), revenue, gross profit (GP)
and operating profit, and finished the year with £88.8 million of cash
compared to the prior year £73.0 million.
During the year, customers have continued to move their software products and
data off-site and into the cloud, requiring the Group's advice and ongoing
support around this, as well as needing flexibility and added security, with
hybrid working continuing to be significant for many customers.
On top of these existing opportunities, we are seeing growing requirements for
artificial intelligence (AI) functionality within IT applications and a demand
for guidance and support from our customers. While we also recognise this as
an emerging risk, due to the potential of this technology to change the IT and
working landscape and the associated risks from security, moral, legal and
ethical standpoints, we primarily consider AI and machine learning an
opportunity for our business, as we expand sales into areas such as
Microsoft's Copilot and support our customers to capitalise on this emerging
technology.
Resilience continues to be built into the Group's operating model from its
wide customer base, high levels of repeat business, strong vendor
relationships, increased demand driven by heightened IT security risks, and
the back-to-back nature of most of its sales. This is explained further below.
· Wide ranging customer base - The Group's income includes a large
volume of non-discretionary spend from UK corporates because IT is vital to
run their day-to-day operations and to establish competitive advantage in an
increasingly digital age. Public sector organisations have similarly sought
efficiencies, resilience, and security within their IT infrastructures. This
is evident from the 26.7% increase in GII during the year, and our mix of
private and public customers means that a downturn in one area can be
compensated by upturns in others. This year, though, both sectors have
performed strongly, with public sector GII growing by 32.8% and corporate GII
by 17.6%.
Sales risk is further mitigated by the fact that none of the Group's wide
range of customers contributes more than 1% of GP. Indeed, during the year
only two customers generated GP in excess of £1 million out of a total Group
GP of £145.8 million. While we have some significant contributions to our GII
by individual customers, most notably the NHS, these are primarily long-term
(three-year) contracts within the public sector, which makes our income even
more secure and provides the opportunity to develop and monetise those
accounts further. Even then, the largest customer has provided only 8% of our
total GII of £1.8 billion during the year.
· High levels of repeat business - Due to the nature of licensing
schemes and service contracts, a high proportion of business is repeatable in
nature, with subscriptions needing to be renewed for the customer to continue
to enjoy the benefit of the product or service. Indeed, excluding sales of
hardware and services, the remaining dominant balance of our GII - some £1.7
billion (94%) of software - falls into this bracket. The largest software
contracts, Microsoft enterprise agreements (EAs), run for three years and it
is rare to lose a contract mid-term, which mitigates the risk of income
reducing rapidly. The Group has a high success rate in securing renewals of
existing EA agreements and winning new ones.
Increasingly, customers transact their cloud software requirements under
usage-based cloud solution provider (CSP) contracts, which provide flexibility
but also make the running of many of their key business functions dependent on
maintaining these agreements and reliant on the Group's support to manage
them.
The high level of customer retention and growth is illustrated by the renewal
rate for the year of 109%, a measure of the rate of growth in GP from existing
customers, who also contributed 97% of total GP in the year. The Group will
continue to focus on increasing its customer base and spend per customer
during the going concern period.
· Microsoft relationship strength - With 68% of the Group's GII and 50%
of GP generated from sales of Microsoft products and associated service
solutions, this continues to be a very important partnership for both sides.
These contributions from Microsoft remain closely in line with previous years
in percentage terms; in absolute terms, as our largest vendor, we have now
seen their contribution to GII and GP exceed £1.2 billion and £70 million
respectively.
As with the customer side, the licensing of a large proportion of EA software
over three-year terms reduces the risk of income falling away quickly. Also,
with the notable move towards more agile 'pay-as-you-go' CSP contracts around
cloud-based applications, this makes those agreements even more 'sticky', by
increasing the dependency of the customer on the cloud infrastructure and
products which Microsoft provides.
Further, the Microsoft partnership has created the opportunity for the Group
to develop a host of skill sets, so it is best placed to advise and support
the customers in whatever direction they choose to fulfil their licensing
requirements from a programmatic, purchasing and consumption perspective. To
this end, the Group has attained high levels of Microsoft expert status,
specialisations and solution partner designations in numerous Microsoft
technology areas. In turn, Microsoft rewards partners who have these awards
with additional levels of funding. The Board is engaged directly with
Microsoft executives in developing the partnership further and Microsoft
business is currently growing at double-digit rates.
Within the Microsoft program offerings, and also those of other vendors,
including dedicated security software providers, the Group has seen an
increased demand for security products and functionality to protect customer
IT systems. This has arisen from the increased risk of cyber threats and
attacks and has generated additional requirements for the Group's support in
this area.
Most recently we have seen Microsoft develop and launch its AI product,
Copilot. The Group enrolled in its early access programme during the year in
preparation to support customers to improve productivity using Copilot within
their Microsoft 365 applications, and we have developed associated services to
support customer readiness and adoption. We will continue to carefully expand
our internal skills in preparation for this to gain increasing momentum in
2024/25 and beyond and to complement the existing Microsoft solutions we sell.
While vendor concentration, and over-reliance on any one supplier, is
identified as one of our principal risks, the very close daily workings
between the two sides, the mutually beneficial growth in business, and the
increase in accreditations and awards, makes the Group a key partner to
Microsoft, as they are to us. We therefore believe the risk of cessation of
the Microsoft relationship to be remote.
· Back-to-back sales model - The Group's business is substantially
derived from the sale of software that it transacts on a 'back-to-back' basis,
meaning all orders placed with vendors follow the receipt of a customer order,
and the intangible nature of software products means that the Group is not
exposed to inventory risk. Hardware sales are also made on a back-to-back
basis, and delivered direct from suppliers to customers, so the Group is not
required to invest in, or hold, stock.
As a result of these factors described above, the directors believe that the
Group operates in a resilient industry, which will enable it to continue its
profitable growth trajectory - but it remains very aware of the risks that
exist in the wider economy.
Over the past year we have seen the continued risks around energy, wage and
commodities inflation; supply problems and product shortages caused by the
ongoing conflicts in Ukraine and the Middle East; and climate change. These
risks align to those identified in our principal risks statement, notably
economic disruption, inflation, and attraction and retention of staff. The
Board monitors these macroeconomic and geopolitical risks on an ongoing basis.
These risks are considered further below.
Macroeconomic risks
· Energy cost inflation - Our businesses are not naturally heavy
consumers of energy, and hence this element of our overall cost base is very
small, at less than 0.5% of the total Group administrative expenses. Even a
substantial percentage rise would not have a significant impact on our
operating profit. Indeed, we are now starting to see a downward trend
following many months with high prices.
· 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. So,
while there has been a reduction in our gross profit/gross invoiced income
(GP/GII%) in the period, this is almost entirely attributable to two
exceptionally large new public sector contracts which were secured at reduced
margins, for strategic reasons, in order to monetise those accounts over the
longer contract terms. Excluding those deals, we have seen only a minimal
reduction in our GP/GII% compared to the prior period and this remains one of
the biggest focus areas in our business.
· Wage inflation - The business has been facing pressure from wage
inflation over the past two to three 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 adjusted
operating profit/gross profit (AOP/GP), we have achieved 43.4%, which is in
line with last year, demonstrating the control over rising 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 substantial rise in UK and global interest rates
since the pandemic has had a negative financial impact on many organisations
and households. The Group, however, has no debt and so currently no exposure,
nor has it ever needed to call on its revolving credit facility (RCF). We have
taken advantage of the recent higher interest rates to generate a significant
£5.1 million of interest income in the reporting period, due to the timing
difference we see in our cash flow model between customer receipts and
supplier payments, and by placing 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.
· Inflation and rising interest rates 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.
· Inflation and rising interest rates impacting on customer payments -
Across the year we have seen a reduction in our average debtor days from 39 to
37 and in our closing debtor days from 37 to 34 compared to prior year, and
with minimal evidence that customers ultimately do not pay. Indeed, we have
suffered only a small level of bad debt during the year: £0.3 million against
GII of £1.8 billion (see note 17). While we have provided for a higher loss
allowance against trade receivables at the year end, this is due to the
increased volumes of business, and still only represents 1% of the closing
balances due.
As in previous years, the majority of our GII (62%), 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.
· As noted above, increasing energy prices are not having a noticeable
impact on our profitability.
· In terms of supply chain, we are not significantly or materially
dependent on the movement of goods, so physical trade obstacles are not likely
to affect us directly, with hardware only making up 2% of our GII during the
year. 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
assessment period considering:
· The small number of UK locations it operates from
· A customer base substantially located within the UK
· A supply chain that is not reliant on international trade and does
not source products and services from parts of the world that may be affected
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 affected 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.
Additional risk considerations in relation to resignation of Group CEO
The Group's former CEO, Neil Murphy, resigned on 21 February 2024, when it
transpired he had engaged in unauthorised and undisclosed trading in the
company's shares between January 2021 to November 2023, which the company was
notified of and also announced to the market on 23 February 2024 and then
again on 13 March 2024 when further undisclosed trades were identified.
In the subsequent investigation conducted by the Group regarding these
breaches of market regulations, we have considered whether this has, or may in
the future, create reputational damage, which could in turn affect the Group's
relationships with key stakeholders and ultimately affect the Group's future
financial performance, including its profits and cash flows. We have
considered potential adverse impacts in the context of the going concern
assessment, notably whether we believe the maximum extent of possible risks
would be catered for within our stress tests and downside models. We have
taken into account the effect, if any, on our major stakeholders, being our
customers, suppliers, staff, and other external parties such as our bank,
HSBC.
In summary, our customers and vendors deal with our two operating companies,
because that is where their contractual arrangements sit, and not at Group
level. Their relationships are with the managing directors, leadership teams
and staff at the two operational entities, many established over years or
decades. In the case of customers, they deal ostensibly with one operation or
the other and, as noted in the operating model section above, resilience comes
from our wide customer base and from having no reliance on any one customer.
Certain vendors deal with both operations but not with the Group per se. For
some of the largest customer and vendor accounts there may also be
relationships at Group Board level, as would be expected, most notably with
Microsoft. These are long-standing, deep and close relationships and, from our
observations and direct dialogue with key parties, we have seen no impact on
our operational performance to date. For our staff too, its business as usual
and we have not seen any change to staff attrition rates or ability to attract
new staff. Our bank has not raised any concerns or questions and the
availability of our RCF is unaffected.
As time passes, we believe the possibility of impacts materialising will
diminish even further. Therefore, based on the above considerations, any
potential impacts from this matter have not been specifically factored into
the modelling scenarios described below as we believe the sensitivities
modelled under our most stressed downside (30% reductions in GII and GP) would
be sufficient to cater for any losses, should they arise.
Liquidity and financing position
At 29 February 2024, the Group held instantly accessible cash and cash
equivalents of £88.8 million.
The balance sheet shows net current assets of £24.5 million at year end; this
amount is after the Group paid final and special dividends for the prior year
totalling £30.2 million and an interim dividend for the current year of £6.5
million. Post year end the Group has remained cash positive and this is
expected to remain the case with continued profitable operations in the future
and customer receipts collected ahead of making the associated supplier
payments.
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.
Approach to cash flow forecasts and downside testing
The going concern analysis reflects the actual trading experience through the
financial year to date, Board-approved budgets to 28 February 2025 and
detailed financial forecasts for the period up to 31 August 2025, being the
going concern assessment period. The Group has taken a measured approach to
its forecasting and has balanced the expected trading conditions with
available opportunities.
In its assessment of going concern, the Board has considered the potential
impact of the current economic conditions and geopolitical environment as
described above. If any of these factors leads to a reduction in spending by
the Group's customers, there may be an adverse effect on the Group's future
GII, GP, operating profit, and debtor collection periods. Under such
downsides, the Board has factored in the extent to which they might be offset
by reductions in headcount, recruitment freezes and savings in pay costs
(including commissions and bonuses). As part of the stressed scenario, where
only partial mitigation of downsides is possible, the Board confirmed that the
RCF would not need to be used during the going concern period up to 31 August
2025.
Details of downside testing
The Group assessed the going concern by comparing a base case scenario to two
downside scenarios and, in each of the downside cases, taking into
consideration two levels of mitigation: full and partial. These scenarios are
set out below.
· Base case was forecast using the Board-approved budget for the year
ending 28 February 2025 and extended across the first six months of the
following year to 31 August 2025.
· Downside case 1, Severe but plausible, modelled GII reducing by 10%
year on year, GP reducing by 15% year on year and debtor collection periods
extending by five days, in each case effective from June 2024.
· Downside case 2, Stressed, modelled both GII and GP reducing by 30%
year on year and debtor collection periods extending by ten days, again in
each case effective from June 2024.
· Partial mitigation measures modelled immediate 'self-mitigating'
reduction of commission in line with falling GP, freezing recruitment of new
heads and not replacing natural leavers from September 2024, freezing future
pay from March 2025 (as current year rises are already committed) and freezing
rises in general overheads from March 2025.
· Full mitigation measures modelled additional headcount reductions
from March 2025, in line with falling GP.
The pay and headcount mitigations applied in the downside scenarios are within
the Group's control and, depending on how severe the impacts of the modelled
downside scenarios are, the Group could activate further levels of mitigation.
For example:
· Those relating to headcount freezes or reductions could be
implemented even more quickly than indicated above to respond to downward
trends as, considering the sudden and significant falls in profitability and
cash collections modelled under both downsides, we would not wait for a full
three months before taking any action.
· We would also be able to take more action to lower our operating cost
base, given the flexibility of our business model.
· A natural reduction in the level of shareholder dividends would follow,
in line with the modelled reductions in profit after tax.
Therefore, the Board believes that all mitigations have been applied prudently
and are within the Group's control.
Under all scenarios assessed, the Group would remain cash positive throughout
the whole of the going concern period, have no requirement to call on the RCF
and remain 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.
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.
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 31 August 2025, being
the going concern assessment period. Accordingly, the directors conclude it to
be appropriate that the consolidated financial statements be prepared on a
going concern basis.
1.4 Critical accounting estimates and judgements
The preparation of the 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.
This note provides an overview of the areas that involved significant
judgement or complexity. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances. Detailed information about each of these estimates and
judgements is included in other notes, together with information about the
basis of calculation for each affected line item in the consolidated financial
statements.
(i) Key accounting judgements
The areas involving key accounting judgements are:
· Revenue recognition - Principal versus agent, see note 1.10.
Under IFRS 15, Revenue from Contracts with Customers, when recognising
revenue, the Group is required to assess whether its role in satisfying its
various performance obligations is to provide the goods or services itself (in
which case it is considered to be acting as principal) or arrange for a third
party to provide the goods or services (in which case it is considered to be
acting as agent). Where it is considered to be acting as principal, the Group
recognises revenue at the gross amount of consideration to which it expects to
be entitled. Where it is considered to be acting as agent, the Group
recognises revenue at the amount of any fee or commission to which it expects
to be entitled or the net amount of consideration that it retains after paying
the other party.
To determine the nature of its obligation, the standard primarily requires
that an entity shall:
(a) Identify the specified goods or services to be provided to the customer
(b) Assess whether it controls each specified good or service before that good
or service is transferred to the customer by considering if it:
a. is primarily responsible for fulfilling the promise to provide the
specified good or service
b. has inventory risk before the specified good or service has been
transferred to a customer
c. has discretion in establishing the price for the specified good or
service.
Judgement is therefore required as to whether the Group is a principal or
agent against each specified good or service, noting that a balanced weighting
of the above indicators may be required when making the assessment.
The specific judgements made for each revenue category are discussed in the
accounting policy for revenue, note 1.10, as disclosed below.
(ii) Significant accounting estimates and uncertainties
There are no major sources of estimation uncertainty at the end of the
reporting period that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year.
(iii) Other accounting estimates and uncertainties
The other areas involving accounting estimates are included below. The effect
of climate change has been considered in determining any critical judgements
or adjustments required in the preparation of the Group's financial
statements. During the current year, and within the next financial year, the
impact, if any, is not expected to create any significant risks which result
in a material misstatement to the financial statements occurring. However, the
effects of climate change over the longer term are more uncertain and may be
more significant.
· Property, plant and equipment (see notes 1.20 and 9) and leases (see
notes 1.14 and 10).
The Group's assets under these categories primarily comprise freehold land and
buildings and leasehold buildings with much smaller net book values reported
for computer equipment, furniture and fittings. IAS 16 Property, Plant and
Equipment requires an item of property, plant and equipment (PPE) to be
recognised if it is probable that future economic benefits associated with the
item will flow to the entity and its cost can be measured reliably.
Consideration has been made as to whether climate-related matters may affect
the value of any items of PPE, their economic life or residual value. As noted
in the Task Force on Climate-related Financial Disclosures (TCFD) statement
with the strategic report, none of the Group's items of PPE, the properties
and the assets included within them, are deemed to be at risk or prone to
damage from acute or chronic weather events which could arise as part of
climate change. Also, none of the items of PPE is deemed susceptible to being
phased out, replaced or made redundant under any climate-related legislative
changes.
Hence it is judged that there is no material risk from climate change to the
carrying values of any items of PPE on the balance sheet at 29 February 2024.
· Estimation of recoverable amount of goodwill (see notes 1.15 and 11).
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 1.15. The recoverable
amounts of cash generating units (CGUs) have been determined based on
value-in-use calculations which require the use of assumptions. The
calculations use cash flow projections based on forecasts approved by
management covering a five-year period. The growth rates used in the forecasts
are based on historical growth rates achieved by the Group. Cash flows beyond
the five-year period are extrapolated using the estimated growth rates
disclosed in note 11. The forecast cash flows are discounted, at the rates
disclosed in note 11, to determine the CGUs value-in-use. The sensitivity of
changes in the estimated growth rates and the discount rate are disclosed in
note 11.
· Impairment of intangible assets (see notes 1.15, 1.21 and 11).
The Group's assets under this category comprise goodwill, customer
relationships and brands, arising on acquisition of subsidiaries. Customer
relationships and brands are recognised at fair value after deduction of
accumulated amortisation over their useful lives. IAS 36 Impairment of Assets
requires an entity to assess, at the end of each reporting period, whether
there are any impairment indicators for an entity's assets. Impairment
indicators include significant changes in the technological, market, economic
or legal environment in which the entity operates.
Consideration has been made as to whether climate-related matters may affect
any of these conditions which in turn may affect the economic performance of
an asset or CGU, or its long-term growth rates. For example, customer buying
behaviours, requirement to make significant investments in new technologies,
or an increase in costs generally charged by suppliers. Further, climate
change indirectly resulting in an increase in market interest rates is likely
to affect the discount rate used in calculating an asset's or CGU's value in
use. This, in turn, could decrease the asset's or CGU's recoverable amount by
reducing the present value of the future cash flows and result in a lower
value in use.
However, as noted in the TCFD statement with the strategic report, the Group
continually monitors the regulatory and legal environment and takes external
advice as required. It expects the impact from changing customer behaviours to
be small given the Group's primary business is the supply of critical cloud,
security and software products and IT services. Further, the Group does not
rely on overseas operations, or require colleagues to work on-site at all
times. Nor does it need to have physical products transported to maintain the
economic performance of its CGUs.
Hence it is judged that there is no material risk from climate change to the
carrying values of any intangible assets on the balance sheet at 29 February
2024.
· Provisions (see note 1.24)
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a
provision to be recognised when an entity has a present obligation (legal or
constructive) because of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation, and a reliable estimate can be made of the obligation. If any of
the conditions for recognition are not met, no provision is recognised, and an
entity may instead have a contingent liability. Contingent liabilities are not
recognised, but explanatory disclosures are required, unless the possibility
of an outflow in settlement is remote. In the case of an onerous contract, the
provision reflects the lower of the costs of fulfilling the contract and any
compensation or penalties from a failure to fulfil it.
Consideration has been made as to whether climate-related matters may result
in the recognition of new liabilities or, where the criteria for recognition
are not met, new contingent liabilities may have to be disclosed. Further
consideration has been made as to whether climate change, and any resulting
associated legislation, may require past judgements to be reconsidered.
The Group has judged that there is no material risk from climate change which
requires new provisions to be made or existing provisions to be reconsidered
at 29 February 2024.
The Group will continue to review and assess potential climate change impacts
when making judgements in relation to its accounting for assets and
liabilities or for its future earnings and cash flows. However, for the
financial statements for the year ended 29 February 2024, the Group believes
there is no material impact or risk of misstatement.
1.5 New standards, interpretations and amendments adopted by the Group
(a) New and amended standards adopted by the Group
The Group has applied the following standard or amendments for the first time
in the annual reporting period commencing 1 March 2023:
· Definition of Accounting Estimates - Amendments to IAS 8
· Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
· Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12
· International Tax Reform - Pillar Two Model Rules - Amendments to IAS
12
The amendments listed above did not have any impact on the amounts recognised
in current or prior periods and are not expected to affect future periods.
(b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that
are not mandatory for 29 February 2024 reporting periods and have not been
adopted early by the Group. These standards are not expected to have a
material impact on the Group in the current or future reporting periods and on
foreseeable future transactions.
1.6 Principles of consolidation
1.6.1 Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group
controls an entity where the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have been changed where necessary
to ensure consistency with the policies adopted by the Group.
1.6.2 Associate
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies. The Group's investment in its associate is accounted for
using the equity method.
Under the equity method, the investment in an associate is initially
recognised at cost. The carrying amount of the investment is adjusted to
recognise changes in the Group's share of net assets of the associate since
the acquisition date. The statement of profit or loss reflects the Group's
share of profit of the associate. Where there is objective evidence that the
investment in associate is impaired, the amount of the impairment is
recognised within 'Share of profit of associate' in the statement of profit or
loss.
1.7 Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker who views the Group's
operations on a combined level, given they sell similar products and services,
and substantially purchase from the same suppliers and under common customer
frameworks. The Group has therefore determined that it has only one reportable
segment under IFRS 8, which is that of 'IT solutions provider'.
1.8 Finance income and costs
Finance income comprises interest income on funds invested. Interest income is
recognised as it accrues in profit or loss, using the effective interest
method.
Finance costs comprises interest expense on borrowings and the unwinding of
the discount on lease liabilities, that are recognised in profit or loss as it
accrues using the effective interest method.
1.9 Foreign currency translation
(i) Functional and presentation currency
Items included in the consolidated financial statements of each of the Group's
entities are measured using the currency of the primary economic environment
in which the entity operates ('the functional currency').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions, and from
the translation of monetary assets and liabilities denominated in foreign
currencies at year-end exchange rates, are generally recognised in profit or
loss. They are deferred in equity if they relate to qualifying cash flow
hedges and qualifying net investment hedges or are attributable to part of the
net investment in a foreign operation.
All foreign exchange gains and losses are presented in the statement of profit
or loss on a net basis, within 'other gains/(losses)'.
1.10 Revenue recognition
Revenue recognition principles across all revenue streams
The Group recognises revenue on completion of its performance obligations at
the fixed transaction prices specified in the underlying contracts or orders.
There are no variable price elements arising from discounts, targets, loyalty
points or returns. Where the contract or order includes more than one
performance obligation, the transaction price is allocated to each obligation
based on their stand-alone selling prices. These are separately listed as
individual items within the contract or order.
In the case of sales of third-party products and services, the Group's
performance obligations are satisfied by fulfilling its contractual
requirements with both the customer and the supplier (which may be direct with
the product vendor), ensuring that orders are processed within any contractual
timescales stipulated. In the case of sales of the Group's own in-house
products and internal services, this includes the Group fulfilling its
contractual responsibilities with the customer.
That primary areas of judgement for revenue recognition as principal versus
agent are set out above under our key accounting judgements policy and
described further below for each revenue category.
Software
The Group acts as an advisor, analysing customer requirements and designing an
appropriate mix of software products under different licensing programs. This
may include a combination of cloud and on-premise products, typically used to
enhance users' productivity, strengthen IT security or assist in
collaboration. The way in which the Group satisfies its performance
obligations depends on the licensing program selected.
Direct software sales - the Group's performance obligation is to facilitate
software sales between vendors and customers, but the Group is not party to
those sales contracts. Supply and activation of the software licences,
invoicing and payment all take place directly between the vendor and the
customer. The transaction price for the customer is set by the vendor with no
involvement from the Group. Therefore, the Group does not control the licences
prior to their delivery to the customer and hence acts as agent. The Group is
compensated by the vendor with a fee based on fixed rates set by the vendor
applied to the customer transaction price and determined according to the
quantity and type of products sold. Revenue is recognised as the fee received
from the vendor on a point in time basis when the vendor's invoicing to the
customer takes place.
Indirect software sales - the Group's performance obligation is to fulfil
customers' requirements through the procurement of appropriate on-premise
software products, or cloud-based software, from relevant vendors. Operating
as a reseller, the Group invoices, and receives payment from, the customer
itself. Whilst the transaction price is set by the Group at the amount
specified in its contract with the customer, the software licensing agreement
is between the vendor and the customer. The vendor is responsible for issuing
the licences and activation keys, for the software's functionality, and for
fulfilling the promise to provide the licences to the customer. Therefore, the
Group acts as agent and revenue is recognised as the amount retained after
paying the software vendor. As a reseller, the Group recognises indirect
software sales revenue on a point-in-time basis once it has satisfied its
performance obligations. This takes two main forms as follows:
In the case of cloud-based software sales, the Group arranges for third-party
vendors to provide customers with access to software in the cloud. As the
sales value varies according to monthly usage, revenue is recognised once the
amount is confirmed by the vendor and the Group has analysed the data and
advised the customer. This is because the responsibilities of the Group to
undertake such activities mean that these performance obligations are
satisfied at each point usage occurs and the Group has a right to receive
payment.
In the case of licence sales (non cloud-based software) arising from
fixed-price subscriptions where the customer makes an up-front payment, the
Group recognises revenue when the contract execution or order is fulfilled by
the Group because its performance obligation is fully satisfied at that point.
Typically, these take the form of annual instalments where the Group is
required to undertake various contract review activities at each anniversary
date.
Hardware - resale of hardware products
The Group's activities under this revenue stream comprise the sale of hardware
items such as servers, laptops and devices. For hardware sales, the Group acts
as principal, as it assumes primary responsibility for fulfilling the promise
to provide the goods and for their acceptability, is exposed to inventory risk
during the delivery period and has discretion in establishing the selling
price.
Revenue is recognised at the gross amount receivable from the customer for the
hardware provided and on a point-in-time basis when delivered to the customer.
Services internal - provision of services to customers using the Group's own
internal resources
The Group's activities under this revenue stream comprise the provision of
consulting services using its own internal resources. The services provided
include, but are not limited to, helpdesk support, cloud migration,
implementation of security solutions, infrastructure, and software asset
management services. The services may be one-off projects where completion is
determined on delivery of contractually agreed tasks, or they may constitute
an ongoing set of deliverables over a contract term which may be multi-year.
When selling internally provided services, the Group acts as principal as
there are no other parties involved in the process. Revenue is recognised at
the gross amount receivable from the customer for the services provided. The
Group recognises revenue from internally provided consulting services on an
over-time basis. This is because the customer benefits from the Group's
activities as the Group performs them. For service projects extending over
more than one month the Group applies an inputs basis by reference to the
hours expended to the measurement date, and the day rates specified in the
contract. For managed services and support contracts the revenue is recognised
evenly over the contract term.
Services external - provision of services to customers using third-party
contractors
The Group's activities under this revenue stream comprise the sale of a
variety of IT services which are provided by third-party contractors. These
may be similar to the internally provided consulting services, where the Group
does not have the internal capacity at the time required by the customer or
may be services around different IT technologies and solutions where the Group
does not have the relevant skills in-house.
Whilst the transaction price is set by the Group at the amount specified in
its contract with the customer, when selling externally provided services, the
Group acts as agent because responsibility for delivering the service relies
on the performance of the third-party contractor. If the customer is not
satisfied with their performance, the third party will assume responsibility
for making good the service and obtaining customer sign-off. The Group will
not pay the third party until customer sign-off has been received. Revenue is
recognised at the amount retained after paying the service provider for the
services delivered to the customer on a point-in-time basis. The Group does
not control the services prior to their delivery and its performance
obligations are satisfied at the point the service has been delivered by the
third party and confirmed with the customer.
1.11 Contract costs, assets and liabilities
Contract costs
Incremental costs of obtaining a contract
The Group recognises the incremental costs of obtaining a contract when those
costs are incurred. For revenue recognised on a point-in-time basis, this is
consistent with the transfer of the goods or services to which those costs
relate. For revenue recognised on an over-time basis, the Group applies the
practical expedient available in IFRS 15 and recognises the costs as an
expense when incurred because the amortisation period of the asset that would
otherwise be recognised is less than one year.
Costs to fulfil a contract
The Group recognises the costs of fulfilling a contract when those costs are
incurred. This is because the nature of those costs does not generate or
enhance the Group's resources in a way that enables it to satisfy its
performance obligations in the future and those costs do not otherwise qualify
for recognition as an asset.
Contract assets
The Group recognises a contract asset for accrued revenue. Accrued revenue is
revenue recognised from performance obligations satisfied in the period that
has not yet been invoiced to the customer.
Contract assets also include costs to fulfil services contracts (deferred
costs) when the Group is invoiced by suppliers before the related performance
obligations of the contract are satisfied by the third party. Deferred costs
are measured at the purchase price of the associated services received.
Deferred costs are released from the consolidated statement of financial
position in line with the recognition of revenue on the specific transaction.
Contract liabilities
The Group recognises a contract liability for deferred revenue when the
customer is invoiced before the related performance obligations of the
contract are satisfied. A contract liability is also recognised for payments
received in advance from customers. Contract liabilities are recognised as
revenue when the Group performs its obligations under the contract to which
they relate.
1.12 Rebates
Rebates from suppliers are accounted for in the period in which they are
earned and are based on commercial agreements with suppliers. Rebates earned
are mainly determined by the type and quantity of products within each sale
but may also be volume-purchase related. They are generally short term in
nature, with rebates earned but not yet received typically relating to the
preceding month's or quarter's trading. Rebate income is recognised in cost of
sales in the consolidated statement of profit or loss and rebates earned but
not yet received are included within trade and other receivables in the
consolidated statement of financial position.
1.13 Income tax
The income tax expense or credit for the period is the tax payable on the
current period's taxable income, based on the applicable income tax rate for
each jurisdiction, adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated based on the tax laws enacted or
substantively enacted at the end of the reporting period in the countries
where the company and its subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions, where appropriate, based on amounts expected to be
paid to the tax authorities.
Deferred income tax is provided for in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted for if it
arises from initial recognition of an asset or liability in a transaction
other than a business combination that, at the time of the transaction,
affects neither accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially
enacted by the end of the reporting period and are expected to apply when the
related deferred income tax asset is realised, or the deferred income tax
liability is settled.
Deferred tax assets are recognised only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary
differences between the carrying amount and tax bases of investments in
foreign operations where the Group is able to control the timing of the
reversal of the temporary differences and it is probable that the differences
will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset where there is a legally
enforceable right to offset current tax assets and liabilities and where the
deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent
that it relates to items recognised in other comprehensive income or directly
in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
1.14 Leases
Lessee
The Group leases a property and various motor vehicles. Lease agreements are
typically made for fixed periods but may have extension options included.
Lease terms are negotiated on an individual basis and contain different terms
and conditions. The lease agreements do not impose any covenants, but leased
assets may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a corresponding liability at
the date at which the leased asset is available for use by the Group. Each
lease payment is allocated between the liability and finance cost. The finance
cost is charged to profit or loss over the lease period to produce a constant
periodic rate of interest on the remaining balance of the liability for each
period. The right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. The Group is
depreciating the right-of-use assets over the lease term on a straight-line
basis.
Assets and liabilities arising from a lease are initially measured at the net
present value of the minimum lease payments. The net present value of the
minimum lease payments is calculated as follows:
· Fixed payments, less any lease incentives receivable
· Variable lease payments that are based on an index or a rate
· Amounts expected to be payable by the lessee under residual value
guarantees
· The exercise price of a purchase option if the lessee is reasonably
certain to exercise that option
· Payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the
lease; where this rate cannot be determined, the Group's incremental borrowing
rate is used.
Right-of-use assets are measured at cost comprising the following:
· The net present value of the minimum lease payments
· Any lease payments made at, or before, the commencement date less any
lease incentives received
· Any initial direct costs.
Payments associated with short-term leases and leases of low-value assets are
recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT equipment and small items of office furniture.
Depreciation
Depreciation is recognised in profit or loss for each category of assets on a
straight-line basis over the lease term.
The estimated useful lives for the current and comparative periods are as
follows:
· Buildings, 8 years
· Motor vehicles, 2 to 3 years.
The depreciation methods, useful lives and residual values are reassessed
annually and adjusted if appropriate. Gains and losses arising on the disposal
of leased assets are included as capital items in profit or loss.
1.15 Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful life are not
subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount might not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of assets (cash
generating units). Non-financial assets other than goodwill that suffered an
impairment are reviewed for possible reversal of the impairment at the end of
each reporting period.
1.16 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial institutions
repayable without penalty on notice of not more than 24 hours. Cash
equivalents are highly liquid investments that mature in no more than three
months from the date of acquisition and that are readily convertible to known
amounts of cash with insignificant risk of change in value.
For purposes of the consolidated statement of cash flows, cash and cash
equivalents consist of cash and short-term deposits as defined above.
1.17 Trade receivables
Trade receivables are amounts due from customers for merchandise sold or
services rendered in the ordinary course of business. Trade receivables are
recognised initially at the amount of consideration that is unconditional,
i.e. fair value and subsequently measured at amortised cost using the
effective interest method, less loss allowance. Prepayments and other
receivables are stated at their nominal values.
1.18 Inventories
Inventories are measured at the lower of cost and net realisable value
considering market conditions and technological changes. Cost is determined on
the first-in first-out and weighted average cost methods. Work and contracts
in progress and finished goods include direct costs and an appropriate portion
of attributable overhead expenditure based on normal production capacity. Net
realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
1.19 Financial instruments
Financial instruments comprise investments in equity, loans receivable, trade
and other receivables (excluding prepayments), investments, cash and cash
equivalents, restricted cash, non-current loans, current loans, bank
overdrafts, derivatives and trade and other payables.
Recognition
Financial assets and liabilities are recognised in the Group's statement of
financial position when the Group becomes a party to the contractual
provisions of the instruments. Financial assets are recognised on the date the
Group commits to purchase the instruments (trade date accounting).
Financial assets are classified as current if expected to be realised or
settled within 12 months from the reporting date; if not, they are classified
as non-current. Financial liabilities are classified as non-current if the
Group has an unconditional right to defer payment for more than 12 months from
the reporting date.
Classification
The Group classifies financial assets on initial recognition as measured at
amortised cost, fair value through other comprehensive income (FVOCI), or fair
value through profit or loss (FVTPL) based on the Group's business model for
managing the financial asset and the cash flow characteristics of the
financial asset.
Financial assets are classified as follows:
· Financial assets to be measured subsequently at fair value (either
through other comprehensive income (OCI) or through profit or loss)
· Financial assets to be measured at amortised cost.
Financial assets are not reclassified unless the Group changes its business
model. In rare circumstances where the Group does change its business model,
reclassifications are done prospectively from the date that the Group changes
its business model.
Financial liabilities are classified and measured at amortised cost except for
those derivative liabilities and contingent considerations that are measured
at FVTPL.
Measurement on initial recognition
All financial assets and financial liabilities are initially measured at fair
value, including transaction costs, except for those classified as FVTPL which
are initially measured at fair value excluding transaction costs. Transaction
costs directly attributable to the acquisition of financial assets or
financial liabilities at FVTPL are recognised immediately in profit or loss.
Subsequent measurement: financial assets
Subsequent to initial recognition, financial assets are measured as described
below:
· FVTPL - these financial assets are subsequently measured at fair
value and changes therein (including any interest or dividend income) are
recognised in profit or loss
· Amortised cost - these financial assets are subsequently measured at
amortised cost using the effective interest method, less impairment losses.
Interest income, foreign exchange gains and losses and impairments are
recognised in profit or loss. Any gain or loss on derecognition is recognised
in profit or loss
· Equity instruments at FVOCI - these financial assets are subsequently
measured at fair value. Dividends are recognised in profit or loss when the
right to receive payment is established. Other net gains and losses are
recognised in OCI. On derecognition, gains and losses accumulated in OCI are
not reclassified to profit or loss.
Subsequent measurement: financial liabilities
All financial liabilities, excluding derivative liabilities and contingent
consideration, are subsequently measured at amortised cost using the effective
interest method. Derivative liabilities are subsequently measured at fair
value with changes therein recognised in profit or loss.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from
the assets have expired or have been transferred and the Group has transferred
substantially all risks and rewards of ownership. Financial liabilities are
derecognised when the obligations specified in the contracts are discharged,
cancelled or expire. On derecognition of a financial asset or liability, any
difference between the carrying amount extinguished and the consideration paid
is recognised in profit or loss.
Offsetting financial instruments
Offsetting of financial assets and liabilities is applied when there is a
legally enforceable right to offset the recognised amounts and there is an
intention to settle on a net basis or realise the asset and settle the
liability simultaneously. The net amount is reported in the statement of
financial position.
Impairment
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade
receivables.
To measure the expected credit losses, trade receivables have been grouped
based on credit risk characteristics and the days past due.
The expected credit loss (ECL) rates are based on the payment profiles of
sales over a 12-month period before 29 February 2024, 28 February 2023 and 1
March 2022 respectively and the corresponding historical credit losses
experienced within this period. The historical loss rates are reviewed and
adjusted to reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the receivables.
Trade receivables are written off where there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery
include, among others, the failure of a debtor to engage in a repayment plan
with the Group, and a failure to make contractual payments for a period of
greater than 120 days past due.
Impairment losses on trade receivables are presented as net impairment losses
within operating profit. Subsequent recoveries of amounts previously written
off are credited against the same line item.
Derivatives
Derivatives are initially recognised at fair value on the date that a
derivative contract is entered into as either a financial asset or financial
liability if they are considered material. Derivatives are subsequently
remeasured to their fair value at the end of each reporting period, with the
change in fair value being recognised in profit or loss.
1.20 Property, plant and equipment
Owned assets
Property, plant and equipment is measured at cost less accumulated
depreciation and impairment losses. When components of an item of property,
plant and equipment have different useful lives, those components are
accounted for as separate items of property, plant and equipment.
Cost includes expenditure that is directly attributable to the acquisition of
the asset. Purchased software that is integral to the functionality of the
related equipment is capitalised as part of that equipment.
Subsequent costs
The Group recognises in the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when the cost is
incurred, if it is probable that future economic benefits embodied within the
item will flow to the Group and the cost of such item can be measured
reliably. The carrying amount of the replaced item of property, plant and
equipment is derecognised. All other costs are recognised in profit or loss as
an expense when incurred.
Depreciation
Depreciation is recognised in profit or loss for each category of assets on a
straight-line basis over their expected useful lives up to their respective
estimated residual values. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as
follows:
· Buildings, 20 to 50 years
· Leasehold improvements (included in land and buildings), shorter of
lease period or useful life of asset
· Plant and machinery, 3 to 20 years
· Motor vehicles, 4 to 8 years
· Furniture and equipment, 5 to 20 years
· IT equipment and software, 2 to 8 years.
The depreciation methods, useful lives and residual values are reassessed
annually and adjusted if appropriate. Gains and losses arising on the disposal
of property, plant and equipment are included as capital items in profit or
loss.
1.21 Intangible assets
Goodwill
Goodwill is measured as described in note 1.15. Goodwill on acquisitions of
subsidiaries is included in intangible assets. Goodwill is not amortised, but
it is tested for impairment annually, or more frequently if events or changes
in circumstances indicate that it might be impaired and is carried at cost
less accumulated impairment losses. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash generating units for the purpose of impairment
testing. The allocation is made to those cash generating units or groups of
cash generating units that are expected to benefit from the business
combination in which the goodwill arose. The units or groups of units are
identified at the lowest level at which goodwill is monitored for internal
management purposes.
Brands and customer relationships
Brands and customer relationships acquired in a business combination are
recognised at fair value at the acquisition date. They have a finite useful
life and are subsequently carried at cost less accumulated amortisation and
impairment losses.
The useful lives for the brands and customer relationships are as follows:
· Customer relationships, 10 years
· Brands, 5 years.
Software
Costs associated with maintaining software programs are recognised as an
expense as incurred. Development costs that are directly attributable to the
design and testing of identifiable and unique software products controlled by
the Group are recognised as intangible assets where the following criteria are
met:
· It is technically feasible to complete the software so that it will
be available for use
· Management intends to complete the software and use or sell it
· There is an ability to use or sell the software
· It can be demonstrated how the software will generate probable future
economic benefits
· Adequate technical, financial and other resources to complete the
development and to use or sell the software are available
· The expenditure attributable to the software during its development
can be reliably measured.
The useful lives for software is 2 to 8 years.
Research and development
Research expenditure and development expenditure that do not meet the criteria
above are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent
period.
1.22 Trade and other payables
Trade payables, sundry creditors and accrued expenses are obligations to pay
for goods or services that have been acquired in the ordinary course of
business from suppliers. They are accounted for in accordance with the
accounting policy for financial liabilities as included above. Amounts
received from customers in advance, prior to confirming the goods or services
required, are recorded as other payables. Upon delivery of the goods and
services, these amounts are recognised in revenue. Other payables are stated
at their nominal values.
1.23 Borrowings
Borrowings are initially recognised at fair value, net of transaction costs
incurred. Borrowings are subsequently measured at amortised cost. Any
difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the borrowings using
the effective-interest method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of the loan to the extent that
it is probable that some or all of the facility will be drawn down. In this
case, the fee is deferred until the drawdown occurs. To the extent that there
is no evidence that it is probable that some or all of the facility will be
drawn down, the fee is capitalised as a prepayment for liquidity services and
amortised over the period of the facility to which it relates.
1.24 Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation because of past events, for which it is probable that an outflow of
economic benefits will be required to settle the obligation, and where a
reliable estimate can be made of the amount of the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax discount
rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
1.25 Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and accumulating sick leave, that are expected to be settled wholly
within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees' services up to the end
of the reporting period and are measured at the amounts expected to be paid
when the liabilities are settled. The liabilities are presented as current
employee benefit obligations in the balance sheet.
Post-employment obligations
The Group operates various defined contribution plans for its employees. Once
the contributions have been paid, the Group has no further payment
obligations. The contributions are recognised as employee benefit expense when
they are due. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in the future payments is available.
Termination benefits
Termination benefits are payable when employment is terminated by the Group
before the normal retirement date, or when an employee accepts voluntary
redundancy in exchange for these benefits. The Group recognises termination
benefits at the earlier of the following dates: (a) when the Group can no
longer withdraw the offer of those benefits; and (b) when the Group recognises
costs for a restructuring that is within the scope of IAS 37 and involves the
payment of termination benefits. In the case of an offer made to encourage
voluntary redundancy, the termination benefits are measured based on the
number of employees expected to accept the offer. Benefits falling due more
than 12 months after the end of the reporting period are discounted to present
value.
Share-based payments
Equity settled share-based payment incentive scheme
Share-based compensation benefits are provided to particular employees of the
Group through the Bytes Technology Group plc share option plans. Information
relating to all schemes is provided in note 27.
Employee options
The fair values of options granted under the Bytes Technology Group plc share
option plans are recognised as an employee benefit expense, with a
corresponding increase in equity. The total amount to be expensed is
determined by reference to the fair value of the options granted. The
share-based payment reserve comprises the fair value of share awards granted
which are not yet exercised. The amount will be reversed to retained earnings
as and when the related awards vest and are exercised by employees.
The total expense is recognised over the vesting period, which is the period
over which all the specified vesting conditions are to be satisfied. At the
end of each period, the Group revises its estimates of the number of options
issued that are expected to vest based on the service conditions. It
recognises the impact of the revision to original estimates, if any, in profit
or loss, with a corresponding adjustment to equity.
1.26 Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction
from equity, net of any tax effects.
1.27 Dividends
Dividends paid on ordinary shares are classified as equity and are recognised
as distributions in equity.
1.28 Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
· The profit attributable to owners of the company, excluding any costs
of servicing equity other than ordinary shares
· By the weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares issued
during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to consider:
· The after-income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares
· The weighted average number of additional ordinary shares that would
have been outstanding, assuming the conversion of all dilutive potential
ordinary shares.
1.29 Rounding of amounts
All amounts disclosed in the consolidated financial statements and notes have
been rounded off to the nearest thousand, unless otherwise stated.
2 Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer, who is
considered to be the chief operating decision maker for the purposes of
resource allocation and assessment of performance, is based wholly on the
overall activities of the Group. The Group has therefore determined that it
has only one reportable segment under IFRS 8, which is that of 'IT solutions
provider'. The Group's revenue, results, assets and liabilities for this one
reportable segment can be determined by reference to the consolidated
statement of profit or loss and the consolidated statement of financial
position. An analysis of revenues by product lines and geographical regions,
which form one reportable segment, is set out in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure which excludes
the effects of intangible assets amortisation and share-based payment charges.
Adjusted operating profit reconciles to operating profit as follows:
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Adjusted operating profit 63,300 56,377
Share-based payment charges 27 (5,708) (4,188)
Amortisation of acquired intangible assets 4 (880) (1,306)
Operating profit 56,712 50,883
3 Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with customers
The Group derives revenue from the transfer of goods and services in the
following major product lines and geographical regions:
Year ended 29 February 2024 Year ended 28 February 2023
Revenue by product £'000 £'000
Software 130,365 114,108
Hardware 41,389 38,355
Services internal 31,517 28,454
Services external 3,750 3,504
Total revenue from contracts with customers 207,021 184,421
Software
The Group's software revenue comprises the sale of various types of software
licences (including both cloud-based and non-cloud-based licences),
subscriptions and software assurance products.
Hardware
The Group's hardware revenue comprises the sale of items such as servers,
laptops and other devices.
Services internal
The Group's internal services revenue comprises internally provided consulting
services through its own internal resources.
Services external
The Group's external services revenue comprises the sale of externally
provided training and consulting services through third-party contractors.
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Revenue by geographical regions
United Kingdom 199,912 177,882
Europe 4,326 4,358
Rest of world 2,783 2,181
207,021 184,421
3(b) Gross invoiced income by type
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Software 1,721,993 1,346,110
Hardware 41,389 38,355
Services internal 31,517 28,454
Services external 28,103 26,395
1,823,002 1,439,314
Gross invoiced income 1,823,002 1,439,314
Adjustment to gross invoiced income for income recognised as agent (1,615,981) (1,254,893)
Revenue 207,021 184,421
Gross invoiced income reflects gross income billed to customers adjusted for
deferred and accrued revenue items amounting to £8.5 million (2023: £5.5
million). 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 Material profit or loss items
The Group has identified several items included within administrative expenses
which are material due to the significance of their nature and/or amount.
These are listed separately here to provide a better understanding of the
financial performance of the Group:
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Depreciation of property, plant and equipment 9 1,236 1,029
Depreciation of right-of-use assets 10 263 145
Loss on disposal of property, plant and equipment - 3
Amortisation of acquired intangible assets 11 880 1,306
System support and maintenance 3,872 2,991
Share-based payment expenses 27 5,708 4,188
Expenses relating to short-term leases 10 250 25
Foreign exchange losses / (gains) 137 (32)
5 Employees
Year ended 29 February 2024 Year ended 28 February 2023
Employee benefit expense: £'000 £'000
Employee remuneration (including directors' remuneration(1)) 49,791 40,725
Commissions and bonuses 21,623 22,299
Social security costs 9,479 8,158
Pension costs 1,794 1,413
Share-based payments expense 27 5,708 4,188
88,395 76,783
Classified as follows:
Cost of sales 17,211 13,527
Administrative expenses 71,184 63,256
88,395 76,783
(1 ) Directors' remuneration is included in the directors' remuneration
report.
Year ended 29 February 2024 Year ended 28 February 2023
The average monthly number of employees during the year was: Number Number
Sales - account management 335 285
Sales - support and specialists 228 199
Service delivery 263 204
Administration 202 173
1,028 861
The employee benefit expenses in relation to the service delivery employees
are included within cost of sales.
6 Auditors' remuneration
During the year, the Group obtained the following services from the company's
auditors and its associates:
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Fees payable to the company's auditors and its associates for the audit of the 268 281
parent company and consolidated financial statements
Fees payable to the company's auditors and its associates for other services:
Audit of the financial statements of the company's subsidiaries 398 372
Other fees 420 14
Non-audit services(1) 101 95
1,187 762
(1) Non-audit services in the current and prior year relate to the auditors'
review of our interim report issued in October 2023 (28 February 2023: October
2022).
7 Finance income and costs
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Finance income
Bank interest received(1) 5,111 -
Finance income 5,111 -
Finance costs
Interest expense on financial liabilities measured at amortised cost (330) (443)
Interest expense on lease liability (63) (48)
Finance costs (393) (491)
(1) Interest received on cash deposited on money market
8 Income tax expense
The major components of the Group's income tax expense for all
periods are:
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Current income tax charge in the year 15,892 10,483
Adjustment in respect of current income tax of previous years (85) 66
Total current income tax charge 15,807 10,549
Current year (1,109) (402)
Adjustments in respect of prior year 70 (75)
Effect of changes in tax rates (23) (101)
Deferred tax credit (1,062) (578)
Total tax charge 14,745 9,971
Reconciliation of total tax charge
The tax assessed for the year differs from the standard rate of
corporation tax in the UK applied to profit before tax:
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Profit before income tax 61,596 50,392
Income tax charge at the standard rate of corporation tax in the UK of 24.49% 15,085 9,574
(2023: 19%)(1)
Effects of:
Non-deductible expenses (261) 507
Adjustment to previous periods (15) (9)
Effect of changes in tax rate (23) (101)
Effect of share of profit of associate (41) -
Income tax charge reported in profit or loss 14,745 9,971
(1) Prorated rate for change in tax rate from 19% to 25% on 1 April 2023
Amounts recognised directly in equity
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Aggregate current and deferred tax arising in the reporting period and not
recognised in net profit or loss or other comprehensive income but directly
credited/(charged) to equity:
Deferred tax: share-based payments 407 (24)
Current tax: share-based payments 491 -
898 (24)
As at 29 February 2024 As at 28 February 2023
Deferred tax asset / (liabilities) £'000 £'000
The balance comprises temporary differences attributable to:
Intangible assets (788) (1,008)
Property, plant and equipment (1,059) (884)
Employee benefits 1 3
Provisions 73 65
Share-based payments 2,607 1,189
834 (635)
As at 29 February 2024 As at 28 February 2023
Deferred tax asset/ (liabilities) £'000 £'000
At 1 March (635) (1,189)
Credited to profit or loss 1,062 578
Credit/(Charge) to equity 407 (24)
Carrying amount at end of year 834 (635)
The deferred tax asset and deferred tax liabilities carrying amounts at the
end of the year are set off as they arise in the same jurisdiction and as such
there is a legally enforceable right to offset.
9 Property, plant and equipment
Freehold land and buildings Furniture, fittings and equipment
Computer equipment Computer software Motor vehicles
Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 March 2022 8,921 3,875 1,305 746 101 14,948
Additions 484 590 8 271 10 1,363
Disposals - (126) - - (7) (133)
At 28 February 2023 9,405 4,339 1,313 1,017 104 16,178
Additions 373 692 11 249 9 1,334
Disposals - (25) - - (27) (52)
At 29 February 2024 9,778 5,006 1,324 1,266 86 17,460
Depreciation
At 1 March 2022 2,143 3,083 989 626 58 6,899
On disposals - (122) - - (8) (130)
Charge for the year 373 508 54 72 22 1,029
At 28 February 2023 2,516 3,469 1,043 698 72 7,798
On disposals - (25) - - (27) (52)
Charge for the year 421 584 51 163 17 1,236
At 29 February 2024 2,937 4,028 1,094 861 62 8,982
Net book value
At 28 February 2023 6,889 870 270 319 32 8,380
At 29 February 2024 6,841 978 230 405 24 8,478
10 Leases
(i) Amounts recognised in the balance sheet
Motor vehicles
Buildings Total
Right-of-use assets £'000 £'000 £'000
Cost
At 1 March 2022 and 28 February 2023 1,377 245 1,622
Additions - 891 891
Disposals - (245) (245)
At 29 February 2024 1,377 891 2,268
Depreciation
At 1 March 2022 449 245 694
Charge for the year 145 - 145
At 28 February 2023 594 245 839
Disposals - (245) (245)
Charge for the period 144 119 263
At 29 February 2024 738 119 857
Net book value
At 1 March 2022 928 - 928
At 28 February 2023 783 - 783
At 29 February 2024 639 772 1,411
As at 29 February 2024 As at 28 February 2023 As at 1 March 2022
Lease liabilities £'000 £'000 £'000
Current 423 75 185
Non-current 1,314 917 992
1,737 992 1,177
There were additions of £0.9 million to the right-of-use assets in the
financial year ended 29 February 2024 (financial year ended 28 February 2023:
£Nil).
(ii) Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts relating to
leases:
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Depreciation charge of right-of-use assets 263 145
Interest expense (included in finance cost) 63 48
Expense relating to short-term leases (included in administrative expenses) 250 25
(iii) Changes in liabilities arising from financing activities
As at 1 March 2023 Additions Cash flows Interest As at 29 February 2024
£'000 £'000 £'000 £'000 £'000
Lease liabilities 992 891 (209) 63 1,737
Total liabilities from financing activities 992 891 (209) 63 1,737
As at 1 March 2022 Additions Cash flows Interest As at 28 February 2023
£'000 £'000 £'000 £'000 £'000
Lease liabilities 1,177 - (233) 48 992
Total liabilities from financing activities 1,177 - (233) 48 992
11 Intangible assets
Customer relationships
Goodwill Brand Total
£'000 £'000 £'000 £'000
Cost
At 1 March 2022, 28 February 2023 and 29 February 2024 37,493 8,798 3,653 49,944
Amortisation
At 1 March 2022 - 3,887 3,225 7,112
Charge for the year - 878 428 1,306
At 28 February 2023 - 4,765 3,653 8,418
Charge for the year - 880 - 880
At 29 February 2024 - 5,645 3,653 9,298
Net book value
At 28 February 2023 37,493 4,033 - 41,526
At 29 February 2024 37,493 3,153 - 40,646
Determination of recoverable amount
The carrying value of indefinite useful life intangible assets and goodwill
are tested annually for impairment. For each CGU and for all periods
presented, the Group has assessed that the value in use represents the
recoverable amount. The future expected cash flows used in the value-in-use
models are based on management forecasts, over a five-year period, and
thereafter a reasonable rate of growth is applied based on current market
conditions. The recoverable amount of Bytes Software Services and Phoenix
Software is £737.3 million and £306.8 million respectively. For the
purpose of impairment assessments of goodwill, the goodwill balance is
allocated to the operating units which represent the lowest level within the
Group at which the goodwill is monitored for internal management purposes.
A summary of the goodwill per CGU, as well as assumptions applied for
impairment assessment purposes, is presented below:
Long-term growth rate Discount rate Goodwill carrying amount
29 February 2024 % % £'000
Bytes Software Services 2 9.15 14,775
Phoenix Software 2 9.15 22,718
37,493
Long-term growth rate Discount rate Goodwill carrying amount
28 February 2023 % % £'000
Bytes Software Services 2 9.10 14,775
Phoenix Software 2 9.10 22,718
37,493
Growth rates
The Group used what it considers to be a conservative growth rate of 2% which
was applied beyond the approved budget periods. The growth rate was consistent
with publicly available information relating to long-term average growth rates
for the market in which the respective CGU operated.
Discount rates
Discount rates used reflect both time value of money and other specific risks
relating to the relevant CGU. Pre-tax discount rates have been applied.
Sensitivities
The impacts of variations in the calculation of value-in-use of assumed growth
rate and pre-tax discount rates applied to the estimated future cash flows of
the CGUs have been estimated as follows:
Bytes Software Services Phoenix Software
29 February 2024 £'000 £'000
Headroom 688,344 273,935
1% increase in the pre-tax discount rate applied to the estimated future cash (97,592) (38,628)
flows
1% decrease in the pre-tax discount rate applied to the estimated future cash 129,792 51,351
flows
0.5% increase in the terminal growth rate 46,379 18,323
0.5% decrease in the terminal growth rate (40,316) (15,928)
Bytes Software Services Phoenix Software
28 February 2023 £'000 £'000
Headroom 675,427 229,245
1% increase in the pre-tax discount rate applied to the estimated future cash (94,815) (32,956)
flows
1% decrease in the pre-tax discount rate applied to the estimated future cash 126,339 43,885
flows
0.5% increase in the terminal growth rate 45,179 15,660
0.5% decrease in the terminal growth rate (39,234) (13,599)
None of the above sensitivities, taken either in isolation or aggregated,
indicates a potential impairment. The directors consider that there is no
reasonable possible change in the assumptions used in the sensitivities that
would result in an impairment of goodwill.
12 Investment in an associate
With effect from 18 April 2023 the Group acquired 25.1% interest in Cloud
Bridge Technologies Limited for £3.0 million, settled in cash. The Group's
interest in Cloud Bridge Technologies Limited is accounted for using the
equity method.
As at 29 February 2024
£'000
Current assets 8,302
Non-current assets 123
Current liabilities (6,078)
Non-current liabilities (11)
Equity 2,336
Group's share in equity - 25.1% 586
Goodwill 2,607
Group's carrying amount of the investment 3,193
Acquisition to 29 February 2024
£'000
Revenue 13,857
Cost of sales (11,789)
Administrative expenses (1,171)
Finance costs (6)
Profit before tax 885
Income tax expense (222)
Profit for the period 663
Group's share of profit for the period 166
The associate requires the Group's consent to distribute its profits. The
Group does not foresee giving such consent at the reporting date.
The associate had no contingent liabilities or capital commitments as at 29
February 2024.
13 Contract assets
As at 29 February 2024 As at 28 February 2023
£'000 £'000
Contract assets 14,445 11,081
As at 29 February 2024 As at 28 February 2023
Contract assets is further broken down as: £'000 £'000
Short-term contract assets 11,756 10,684
Long-term contract assets 2,689 397
14,445 11,081
Contract assets include £2.4 million (2023: £3.8 million) of deferred costs
relating to internal services contracts, and the recognition of accrued
revenue of £12.0 million (2023: £7.3 million) for certain large software
orders where performance obligations were satisfied in the period but not yet
invoiced to the customer at the period end.
14 Contract liabilities
As at 29 February 2024 As at 28 February2023
£'000 £'000
Contract liabilities 21,485 25,890
As at 29 February 2024 As at 28 February 2023
Contract liabilities is further broken down as: £'000 £'000
Short-term contract liabilities 19,348 23,914
Long-term contract liabilities 2,137 1,976
21,485 25,890
During the year, the Group recognised £23.9 million (2023: £14.5 million) of
revenue that was included in the contract liability balance at the beginning
of the period. This liability arises where revenue has been deferred when
the customer is invoiced before the related performance obligations of the
contract are satisfied, and the deferral of certain large payments received in
advance from customers.
15 Inventories
As at 29 February 2024 As at 28 February 2023
£'000 £'000
Inventories 60 58
60 58
Inventories include asset management subscription licences purchased in
advance for a specific customer that as yet haven't been consumed.
Inventories recognised as an expense in cost of sales during the year amounted
to £nil (28 February 2023: £38,000).
16 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
· Accounting policies
· Information about determining the fair value of the instruments,
including judgements and estimation uncertainty involved.
The Group holds the following financial instruments:
As at 29 February 2024 As at 28 February 2023
Financial assets Note £'000 £'000
Financial assets at amortised cost:
Trade receivables 17 212,432 178,386
Other receivables 17 7,415 5,896
219,847 184,282
As at 29 February 2024 As at 28 February 2023
Financial liabilities Note £'000 £'000
Financial liabilities at amortised cost:
Trade and other payables - current, excluding payroll tax and other statutory 19 259,661 217,253
tax liabilities
Lease liabilities 10 1,737 992
261,398 218,245
The Group's exposure to various risks associated with the financial
instruments is discussed in note 23. The maximum exposure to credit risk at
the end of the reporting period is the carrying amount of each class of
financial assets mentioned above.
17 Trade and other receivables
As at 29 February 2024 As at 28 February 2023
£'000 £'000
Financial assets
Gross trade receivables 214,922 179,928
Less: impairment allowance (2,490) (1,542)
Net trade receivables 212,432 178,386
Other receivables 7,415 5,896
219,847 184,282
Non-financial assets
Prepayments 1,968 1,638
1,968 1,638
Trade and other receivables 221,815 185,920
(i) Classification of trade receivables
Trade receivables are amounts due from customers for goods sold or services
performed in the ordinary course of business. They are generally due for
settlement within 30 days and are therefore all classified as current. Trade
receivables are recognised initially at the amount of consideration that is
unconditional, unless they contain significant financing components, in which
case they are recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so it
measures them subsequently at amortised cost using the effective interest
method. Details about the Group's impairment policies are provided in note
1.19.
(ii) Fair values of trade receivables
Due to the short-term nature of the current receivables, their carrying amount
is considered to be the same as their fair value.
(iii) Credit risk
Ageing and impairment analysis (excluding finance lease assets)
Current Past due 0 to 30 days Past due 31 to 60 days Past due 61 to 120 days Past due 121 to 365 days
Total
29 February 2024 £'000 £'000 £'000 £'000 £'000 £'000
Expected loss rate 0.07% 0.41% 4.16% 7.62% 80.02%
Gross carrying amount - trade receivables 180,289 23,688 4,994 3,744 2,207 214,922
Loss allowance 134 97 208 285 1,766 2,490
Current Past due 0 to 30 days Past due 31 to 60 days Past due 61 to 120 days Past due 121 to 365 days
Total
28 February 2023 £'000 £'000 £'000 £'000 £'000 £'000
Expected loss rate 0.09% 0.55% 6.39% 16.34% 92.68%
Gross carrying amount - trade receivables 145,832 25,343 6,760 1,310 683 179,928
Loss allowance 124 139 432 214 633 1,542
The closing loss allowances for trade receivables reconcile to the opening
loss allowances as follows:
As at 29 February 2024 As at 28 February 2023
Trade receivables £'000 £'000
Opening loss allowance at 1 March 1,542 750
Increase in loss allowance recognised in profit or loss during the period 1,227 937
Receivables written off during the year as uncollectable (279) (145)
Closing loss allowance 2,490 1,542
Trade receivables are written off where there is no reasonable expectation of
recovery. Indicators that there is no reasonable expectation of recovery
include, among others, the failure of a debtor to engage in a repayment plan
with the Group, and a failure to make contractual payments for a period of
greater than 120 days past due.
Impairment losses on trade receivables are presented as net impairment losses
within operating profit. Subsequent recoveries of amounts previously written
off are credited against the same line item.
(iv) Other receivables
Other receivables include accrued rebate income.
18 Cash and cash equivalents
As at 29 February 2024 As at 28 February 2023
£'000 £'000
Cash at bank and in hand 88,836 73,019
88,836 73,019
19 Trade and other payables
As at 29 February 2024 As at 28 February 2023
£'000 £'000
Trade and other payables 168,777 138,307
Accrued expenses 90,884 78,946
Payroll tax and other statutory liabilities 18,256 14,464
277,917 231,717
Trade payables are unsecured and are usually paid within 45 days of
recognition. Accrued expenses includes accruals for purchase invoices not
received and other accrued costs such as bonuses and commissions payable at
year end and costs in relation to the investigation around undisclosed share
dealings.
The carrying amounts of trade and other payables are considered to be the same
as their fair values, due to their short-term nature.
20 Share capital and share premium
Number of shares Nominal value Share premium Total
Allotted, called up and fully paid £'000 £'000 £'000
At 1 March 2022 and 28 February 2023(1) 239,482,333 2,395 633,636 636,031
Shares issued during the year 874,565 9 14 23
At 29 February 2024(2, 3) 240,356,898 2,404 633,650 636,054
(1) Shares issued during the prior year
During the prior year no new ordinary shares were issued by the company.
(2) Ordinary
shares
Ordinary shares have a nominal value of £0.01. All ordinary shares in issue
rank pari passu and carry the same voting rights and entitlement to receive
dividends and other distributions declared or paid by the Group. The company
does not have a limited amount of authorised share capital.
(3) Share options
Information related to the company's share option schemes, including options
issued during the financial year and options outstanding at the end of the
reporting period is set out in note 27.
21 Merger reserve
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Balance at 1 March 2022, 28 February 2023 and 29 February 2024 (644,375) (644,375)
(644,375) (644,375)
The merger reserve of £644.4 million arose in December 2019, on the date that
the Group demerged from its previous parent company. This is an accounting
reserve in equity representing the difference between the total nominal value
of the issued share capital acquired in Bytes Technology Limited of £1.10 and
the total consideration given of £644.4 million.
22 Cash generated from operations
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Profit before taxation 61,596 50,392
Adjustments for:
Depreciation and amortisation 4 2,379 2,480
Loss on disposal of property, plant and equipment 4 - 3
Non-cash employee benefits expense - share-based payments 4 5,708 4,188
Share of profit of associate (166) -
Finance income 7 (5,111)
Finance costs 7 393 491
Increase in contract assets (3,364) (4,365)
Increase in trade and other receivables (35,895) (28,310)
(Increase)/decrease in inventories (2) 38
Increase in trade and other payables 46,200 14,105
(Decrease)/increase in contract liabilities (4,405) 9,867
Cash generated from operations 67,333 48,889
23 Financial risk management
This note explains the Group's exposure to financial risks and how these risks
could affect the Group's future financial performance. Current year
consolidated profit or loss and statement of financial position information
has been included where relevant to add further context.
Management monitors the liquidity and cash flow risk of the Group carefully.
Cash flow is monitored by management on a regular basis and any working
capital requirement is funded by cash resources or access to the revolving
credit facility.
The main financial risks arising from the Group's activities are credit,
liquidity and currency risks. The Group's policy in respect of credit risk is
to require appropriate credit checks on potential customers before sales are
made. The Group's approach to credit risk is disclosed in note 17.
The Group's policy in respect of liquidity risk is to maintain readily
accessible bank deposit accounts to ensure that the company has sufficient
funds for its operations. The cash deposits are held in a mixture of
short-term deposits and current accounts which earn interest at a floating
rate.
The Group's policy in respect of currency risk, which primarily exists as a
result of foreign currency purchases, is to either sell in the currency of
purchase, maintain sufficient cash reserves in the appropriate foreign
currencies which can be used to meet foreign currency liabilities, or take out
forward currency contracts to cover the exposure.
23(a) Derivatives
Derivatives are only used for economic hedging purposes and not speculative
investments.
The Group has taken out forward currency contracts during the periods
presented but has not recognised either a forward currency asset or liability
at each period end as the fair value of the foreign currency forwards is
considered to be immaterial to the consolidated financial statements due to
the low volume and short-term nature of the contracts. Similarly, the
amounts recognised in profit or loss in relation to derivatives were
considered immaterial to disclose separately.
23(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the reporting
period, was as follows:
As at 29 February 2024 As at 28 February 2023
USD EUR NOK USD EUR NOK
£'000 £'000 £'000 £'000 £'000 £'000
Trade receivables 10,247 2,661 - 13,529 1,900 -
Cash and cash equivalents 176 1,647 - 250 214 -
Trade payables (16,640) (4,253) (580) (15,286) (1,981) (221)
(6,217) 55 (580) (1,507) 133 (221)
The following table demonstrates the profit before tax sensitivity to a
possible change in the currency exchange rates with GBP, all other variables
held constant.
As at 29 February 2024 As at 28 February 2023
GBP:USD GBP:EUR GBP:NOK GBP:USD GBP:EUR GBP:NOK
£'000 £'000 £'000 £'000 £'000 £'000
5% increase in rate 296 (3) 28 72 (6) 11
5% decrease in rate (327) 3 (31) (79) 7 (12)
The aggregate net foreign exchange gains/losses recognised in profit or loss
were:
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Total net foreign exchange losses/(gains) in profit or loss 137 (32)
23(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient cash to meet
obligations when due. The Group generates positive cash flows from operating
activities and these fund short-term working capital requirements. The Group
aims to maintain significant cash reserves and none of its cash reserves is
subject to restrictions. Access to cash is not restricted and all cash
balances could be drawn on immediately if required. Management monitors the
levels of cash deposits carefully and is comfortable that for normal operating
requirements, no further external borrowings are currently required.
At 29 February 2024, the Group had cash and cash equivalents of £88.8
million, see note 18. Management monitors rolling forecasts of the Group's
liquidity position (which comprises its cash and cash equivalents) on the
basis of expected cash flows generated from the Group's operations. These
forecasts are generally carried out at a local level in the operating
companies of the Group in accordance with practice and limits set by the Group
and take into account certain down-case scenarios.
(2) Revolving Credit Facility
On 17 May 2023 the Group entered into a new three-year committed Revolving
Credit Facility (RCF) for £30 million including an optional one-year
extension to 17 May 2027, and a non-committed £20 million accordion to
increase the availability of funding should it be required for future
activity. The new facility replaced the previous RCF which was entered into in
December 2020 and was set to expire in December 2023 but was cancelled,
without penalty, on 17 May 2023, on commencement of the new RCF. The new
facility has incurred an arrangement fee of £0.1 million, being 0.4% of the
new funds available. The Group has so far not drawn down any amount on either
the previous or new facility and to the extent that there is no evidence that
it is probable that some or all of the facility will be drawn down, the fees
are capitalised as a prepayment and amortised over the initial three-year
period of the facility. The facility also incurs a commitment fee and
utilisation fee, both of which are payable quarterly in arrears. Under the
terms of both the previous and new facilities, the Group is required to comply
with the following financial covenants:
· Interest cover: EBITDA (earnings before interest, tax, depreciation
and amortisation) to net finance charges for the past 12 months shall be
greater than 4.0 times
· Leverage: net debt to EBITDA for the past 12 months must not exceed
2.5 times.
The Group has complied with these covenants throughout the reporting period.
As at 29 February 2024, the Group had net finance income and has therefore
complied with the interest cover covenant. The EBITDA to net finance charges
in the prior year was approximately 109 times. The Group has been in a net
cash position as at 29 February 2024 and 28 February 2023 and has therefore
complied with the Net debt to EBITDA covenant.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual maturity for its
financial liabilities based on undiscounted contractual payments:
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Total contractual cash flows Carrying amount
29 February 2024 Note £'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables 19 259,660 - - - 259,660 259,660
Lease liabilities 10 495 495 869 - 1,859 1,737
260,155 495 869 - 261,519 261,397
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Total contractual cash flows Carrying amount
28 February 2023 Note £'000 £'000 £'000 £'000 £'000 £'000
Trade and other payables 19 217,253 - - - 217,253 217,253
Lease liabilities 10 116 463 545 - 1,124 992
217,369 463 545 - 218,377 218,245
24 Capital management
24(a) Risk management
For the purpose of the Group's capital management, capital includes issued
capital, ordinary shares, share premium and all other equity reserves
attributable to the equity holders of the parent. The primary objective of
the Group's capital management is to maximise shareholder value.
The Group manages its capital structure and makes adjustments in light of
changes in economic conditions and the requirements of shareholders. To
maintain or adjust the capital structure, the Group may adjust the dividend
payment to shareholders, return capital to shareholders or issue new shares.
To ensure an appropriate return for shareholders' capital invested in the
Group, management thoroughly evaluates all material revenue streams,
relationships with key vendors and potential acquisitions and approves them by
the Board, where applicable. The Group's dividend policy is based on the
profitability of the business and underlying growth in earnings of the Group,
as well as its capital requirements and cash flows. The Group's dividend
policy is to distribute 40% of the Group's post-tax pre-exceptional earnings
to shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider returning excess
cash to shareholders over time.
24(b) Dividends
2024 2023
Pence per share Pence per share
Ordinary shares £'000 £'000
Interim dividend paid 2.70 6,466 2.40 5,748
Special dividend paid 7.50 17,961 6.20 14,848
Final dividend paid 5.10 12,214 4.20 10,058
Total dividends attributable to ordinary shareholders 15.30 36,641 12.80 30,654
Dividends per share is calculated by dividing the dividend paid by the number
of ordinary shares in issue. Dividends are paid out of available distributable
reserves of the company.
The Board has proposed a final ordinary dividend of 6.0 pence and a special
dividend of 8.7 pence per share for the year ended 29 February 2024 to be paid
to shareholders on the register as at 19 July 2024. The aggregate of the
proposed dividends expected to be paid on 2 August 2024 is £35.3 million. The
proposed dividends per ordinary shares are subject to approval at the Annual
General Meeting and are not recognised as a liability in the consolidated
financial statements.
25 Capital commitments
At 29 February 2024, the Group had £Nil capital commitments (28 February
2023: £Nil).
26 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. Apart from those disclosed elsewhere in the consolidated
financial statements, material transactions
for the year are set out below:
26(a) Transactions with key management personnel
Key management personnel are defined as the directors (both executive and
non-executive) of Bytes Technology Group plc, Bytes Software Services Limited
and Phoenix Software Limited. Details of the compensation paid to the
directors of Bytes Technology Group plc as well as their shareholdings in the
Group are disclosed in the remuneration report.
Compensation of key management personnel of the Group
The remuneration of key management personnel, which consists of persons who
have been deemed to be discharging managerial responsibilities, is set out
below in aggregate for each of the categories specified in IAS 24 Related
Party Disclosures.
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Short-term employee benefits 3,653 4,158
Post-employment pension benefits 97 92
Total compensation paid to key management 3,750 4,250
The amounts disclosed in the table are the amounts recognised as an expense
during the reporting period related to key management personnel including
executive directors.
Key management personnel received a total of 170,360 share option awards
(2023: 565,782) at a weighted average exercise price of £0.04 (2023: £1.33).
Share-based payment charges include £1,257,326 (2023: £1,006,423) in respect
of key management personnel, refer to note 27 for details on the Group's
share-based payment incentive schemes.
26(b) Subsidiaries and associates
Interests in subsidiaries are set out in note 29 and the investment in
associate is set out in note 12.
26(c) Outstanding balances arising from sales/purchases of services
Group companies made purchases from the associate of £3.1 million during the
year with a trade payable balance of £0.5 million at year end.
27 Share-based payments
The Group accounts for its share option awards as equity-settled share-based
payments. The fair value of the awards granted is recognised as an expense
over the vesting period. The amount recognised in the share-based payment
reserve will be reversed to retained earnings as and when the related awards
vest and are exercised by employees. As noted in the prior year Annual Report
one-third of the annual bonus for the financial year ended 29 February 2024
awarded to each of the Company's executive directors is deferred in shares for
two years. This deferral has resulted in the granting of the awards under the
Deferred Bonus Plan during the year.
Performance Incentive Share Plan
Options granted under the Performance Incentive Share Plan (PISP) are for
shares in Bytes Technology Group plc. The exercise price of the options is a
nominal amount of £0.01. Performance conditions attached to the awards
granted in the current year are employee specific, in addition to which,
options will only vest if certain employment conditions are met. The fair
value of the share options is estimated at the grant date using a Monte Carlo
option pricing model for the element with market conditions and Black Scholes
option-pricing model for non-market conditions. The normal vesting date shall
be no earlier than the third anniversary of the grant date and not later than
the day before the tenth anniversary of the grant date. There is no cash
settlement of the options available under the scheme. During the year the
Group granted 1,195,700 (2023: 552,480) options. For the year ended 29
February 2024, 298,561 (2023: 30,589) options were forfeited, 819,416 options
were exercised (2023: nil) and no options expired.
Company Share Option Plan
Options granted under the Company Share Option Plan (CSOP) are for shares in
Bytes Technology Group plc. The exercise price of the options granted in the
current year was determined by the average of the last three dealing days
prior to the date of grant. There are no performance conditions attached to
the awards, but options will only vest if certain employment conditions are
met. The fair value at grant date is estimated at the grant date using a Black
Scholes option-pricing model. The normal vesting date shall be no earlier than
the third anniversary of the grant date and not later than the day before the
tenth anniversary of the grant date. There is no cash settlement of the
options available under the scheme. During the year the Group granted no
(2023: 2,904,100) options. For the year ended 29 February 2024, 176,600 (2023:
127,400) options were forfeited, and no options were exercised or expired.
Save as You Earn Scheme
Share options were granted to eligible employees under the Save As You Earn
Scheme (SAYE) during the year. Under the SAYE scheme, employees enter a
three-year savings contract in which they save a fixed amount each month in
return for their SAYE options. At the end of the three-year period, employees
can either exercise their options in exchange for shares in Bytes Technology
Group plc or have their savings returned to them in full. The exercise price
of the options represents a 20% discount to the exercise price of the CSOP
awards. The fair value at grant date is estimated using a Black Scholes
option-pricing model. There is no cash settlement of the options. During the
year the Group granted 337,890 (2023: 722,863) options. For the year ended 29
February 2024, 213,832 (2023: 523,974) options were forfeited, 3,625 (2023:
nil) options were exercised and no options expired.
Deferred Bonus Plan
Options granted under the Deferred Bonus Plan (DBP) are for shares in Bytes
Technology Group plc. The exercise price of the options is a nominal amount of
£0.01. There are no performance conditions attached to the awards, but
options will only vest if certain employment conditions are met. The fair
value at grant date is estimated at the grant date using a Black Scholes
option-pricing model. The normal vesting date shall be no earlier than the
second anniversary of the grant date. During the year the Group granted 45,365
(2023: 35,842) options. For the year ended 29 February 2024, 50,526 (2023:
nil) options were forfeited and no options were exercised or expired.
Share-based payment employee expenses
Year ended 29 February 2024 Year ended 28 February 2023
£'000 £'000
Equity settled share-based payment expenses 5,708 4,188
There were no cancellations or modifications to the awards in 2024 or 2023.
Movements during the year
The following table illustrates the number and weighted average exercise
prices (WAEP) of, and movements in, share options during the year:
29 February 2024 29 February 2024 28 February 2023 28 February 2023
Number WAEP Number WAEP
Outstanding at 1 March 8,760,684 £3.59 5,227,362 £3.43
Granted during the year 1,666,660 £0.80 4,215,285 £3.84
Forfeited during the year (874,565) £2.28 (681,963) £3.98
Exercised during the year (874,565)(1) £0.03 - -
Outstanding at 29 February 8,813,260 £3.52 8,760,684 £3.59
Exercisable at 29 February 609,272 £0.01 - -
(1) The weighted average share price at date of exercise was £5.85.
The weighted average expected remaining contractual life for the share options
outstanding at 29 February 2024 was 2.2 years (2023: 2.9 years).
The weighted average fair value of options granted during the year was £4.21
(2023: £1.63).
The range of exercise prices for options outstanding at the end of the year
was £0.01 to £5.00 (2023: £0.01 to £5.00).
The tables below list the inputs to the models used for the awards granted
under the below plans for the years ended 29 February 2024 and 28 February
2023:
29 February 2024 29 February 2024 29 February 2024
PISP SAYE DBP
Assumptions
Weighted average fair value at measurement date £4.86 £1.79 £5.15
Expected dividend yield 1.53% 1.53% 0.00%
Expected volatility 31% 30% 30%
Risk-free interest rate 4.29% 4.79% 4.44%
Expected life of options 3 years 3 years 2 years
Weighted average share price £5.16 £5.11 £5.16
Model used Black-Scholes and Monte Carlo Black-Scholes Black-Scholes
28 February 2023 28 February 2023 28 February 2023 28 February 2023
PISP CSOP SAYE DBP
Assumptions
Weighted average fair value at measurement date £4.06 £1.20 £1.38 £4.52
Expected dividend yield 1.52% 1.52% 1.54% 0.00%
Expected volatility 37% 34% 37% 35%
Risk-free interest rate 1.59% 1.72% 1.59% 1.53%
Expected life of options 3 years 5 years 3 years 2 years
Weighted average share price £4.53 £4.53 £4.48 £4.53
Model used Black-Scholes and Monte Carlo Black-Scholes Black-Scholes Black-Scholes
The expected life of the options is based on current expectations and is not
necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumption that the historical volatility of the
company and publicly quoted companies in a similar sector to the company over
a period similar to the life of the options is indicative of future trends,
which may not necessarily be the actual outcome.
28 Earnings per share
The Group calculates earnings per share (EPS) on several different bases in
accordance with IFRS and prevailing South Africa requirements.
Year ended 29 February 2024 Year ended 28 February 2023
pence pence
Basic earnings per share 19.55 16.88
Diluted earnings per share 18.85 16.28
Headline earnings per share 19.55 16.88
Diluted headline earnings per share 18.85 16.28
Adjusted earnings per share(1) 21.78 18.83
Diluted adjusted earnings per share(1) 21.01 18.16
28(a) Weighted average number of shares used as the denominator
Year ended 29 February 2024 Year ended 28 February 2023
Number Number
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share and headline earnings per share
239,693,670 239,482,333
Adjustments for calculation of diluted earnings per share and diluted headline
earnings per share:
- share options(1) 8,813,260 8,760,684
Weighted average number of ordinary shares and potential ordinary shares used
as the denominator in calculating diluted earnings per share and diluted
headline earnings per share
248,506,930 248,243,017
(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. Details relating to the share options are disclosed in
note 27.
28(b) Headline earnings per share
The Group is required to calculate headline earnings per share (HEPS) in
accordance with the JSE Listing Requirements. The table below reconciles the
profits attributable to ordinary shareholders to headline earnings and
summarises the calculation of basic and diluted HEPS:
Year ended 29 February 2024 Year ended 28 February 2023
Note pence pence
Profit for the period attributable to owners of the company 46,851 40,421
Adjusted for:
Loss on disposal of property, plant and equipment 4 - 3
Tax effect thereon - (1)
Headline profits attributable to owners of the company 46,851 40,423
28(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative performance measure
which is consistent with the way that financial performance is measured by
senior management of the Group. It is calculated by dividing the adjusted
operating profit attributable to ordinary shareholders by the total number of
ordinary shares in issue at the end of the year. Adjusted operating profit is
calculated to reflect the underlying long-term performance of the Group by
excluding the impact of the following items:
· Share-based payment charges
· Acquired intangible assets amortisation.
The table below reconciles the profit for the financial year to adjusted
earnings and summarises the calculation of adjusted EPS:
Year ended 29 February 2024 Year ended 28 February 2023
Note £'000 £'000
Profits attributable to owners of the company 46,851 40,421
Adjusted for:
- Amortisation of acquired intangible assets 4 880 1,306
- Deferred tax effect on above (220) (301)
- Share-based payment charges 27 5,708 4,188
- Deferred tax effect on above (1,011) (522)
Adjusted profits attributable to owners of the company 52,208 45,092
29 Subsidiaries
The Group's subsidiaries included in the consolidated financial statements are
set out below. The country of incorporation is also their principal place of
business.
Country of incorporation Ownership interest
Name of entity Principal activities
Bytes Technology Holdco Limited(1) UK 100% Holding company
Bytes Technology Limited UK 100% Holding company
Bytes Software Services Limited UK 100% Providing cloud-based licensing and infrastructure and security sales within
both the corporate and public sectors
Phoenix Software limited UK 100% Providing cloud-based licensing and infrastructure and security sales within
both the corporate and public sectors
Blenheim Group Limited(2) UK 100% Dormant for all periods
License Dashboard Limited(2) UK 100% Dormant for all periods
Bytes Security Partnerships Limited(2) UK 100% Dormant for all periods
Bytes Technology Group Holdings Limited(2) UK 100% Dormant for all periods
Bytes Technology Training Limited(2) UK 100% Dormant for all periods
Elastabytes Limited UK 50% Deregistered. Dormant in prior periods
(1) Bytes Technology Holdco Limited is held directly by the company. All
other subsidiary undertakings are held indirectly by the company.
(2) Taken advantage of the audit exemption set out within section 479A of
the Companies Act 2006 for the year ended 29 February 2024.
The registered address of all of the Group subsidiaries included above is
Bytes House, Randalls Way, Leatherhead, Surrey, KT22 7TW.
30 Events after the reporting period
On 9 May 2024 a settlement agreement was reached between the Company and Neil
Murphy, it's former CEO, following his resignation on 21 February 2024 in
accordance with the terms of his service contract and the directors'
remuneration policy. Full details can be found in the directors' remuneration
report.
Corporate Information
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of financial
information differs from legislation in other jurisdictions.
Directors at the date of this report
PJM De Smedt
SJ Mudd
AJ Holden
E Schraner
S Chindalur
Group Company Secretary
WK Groenewald
Company registration number
12935776
Bytes LEI
213800LA4DZLFBAC9O33
Registered office
Bytes House
Randalls Way
Leatherhead
Surrey
KT22 7TW
Corporate brokers and financial advisers
Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
JSE sponsor
Investec Bank Limited
100 Grayston Drive
Sandton
Johannesburg
2196
South Africa
Auditor
Ernst & Young LLP
1 More London Place
London
SE1 2AF
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