TIDMBYIT
RNS Number : 1688R
Bytes Technology Group PLC
25 October 2023
25 October 2023
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Results for the six months ended 31 August 2023
Strong first half extending our track record of double-digit
growth
BTG (LSE: BYIT, JSE: BYI), one of the UK and Ireland's leading
software, security, AI, and cloud services specialists, today
announces its half year results for the 6 months ended 31 August
2023 ('H1 FY24').
Neil Murphy, Chief Executive Officer, said:
"I am delighted that we have delivered another strong financial
performance over the first half of the year. Our success in the
period was driven by the combination of our skilled workforce and
strong vendor relationships, which have once again enabled us to
support our customers and grow our business. We are pleased that
our customer and staff satisfaction levels continue to be amongst
the best in our industry.
"While the economic backdrop remains mixed, we have continued to
see strong demand from our corporate and public sector customers
for security, cloud adoption, digital transformation, hybrid
datacentres and remote working solutions. This has allowed us to
invest in our business, growing our headcount to more than 1,000
for the first time while equipping our people with the skills to
advise customers on the latest software, services, and hardware
offerings.
"A shift to Artificial Intelligence (AI) products will be one of
the defining trends in the IT Services sector in the coming years,
and we are well-placed to capitalise on that opportunity. We stand
to benefit from our long-standing relationship with Microsoft,
whose Copilot product we are already trialling and will be
available more widely in the near future. We are also looking
forward to working with our other vendor partners that are
developing AI software tools.
"Looking ahead, we have made a good start to the second half of
the year and are well-placed for the remainder of the financial
year."
Financial performance
GBP'million H1 FY24 (six H1 FY23 (six % change
months ended months ended year-on-year
31 August 2023) 31 August 2022)
Gross invoiced income ('GII')
(1) GBP1,081.6m GBP786.2m 37.6%
Revenue(2) GBP108.7m GBP93.5m 16.3%
Gross profit ('GP') GBP75.3m GBP65.5m
Gross margin % (GP/Revenue) 69.3% 70.1%
GP/GII % 7.0% 8.3% 15.0%
Operating profit GBP30.6m GBP27.3m 12.1%
Adjusted operating profit GBP33.9m GBP29.8m 13.8%
('AOP')(3)
45.0% 45.5%
AOP/GP %
GBP51.7m GBP35.8m 44.4%
Cash
Cash conversion(4) 48.7% (2.8)%
Cash conversion (rolling
12 months)(4) 107.2% 65.3%
Earnings per share (pence) 10.60 9.06 17.0%
Adjusted earnings per share(5)
(pence) 11.71 10.11 15.8%
Interim dividend per share
(pence) 2.7 2.4 12.5%
----------------- ----------------- --------------
Financial highlights
International Financial Reporting Standard measures (IFRS):
- Revenue increased 16.3% to GBP108.7 million (H1 FY23: GBP93.5 million).
- GP growth of 15.0% to GBP75.3 million (H1 FY23: GBP65.5
million) was driven by higher GII and increased GP per customer of
GBP16,300 (H1 FY23: GBP14,800).
- Gross margin was broadly stable at 69.3% (H1 FY23: 70.1%).
- Operating profit increased by 12.1% to GBP30.6 million (H1 FY23: GBP27.3 million).
Alternative performance measures (non-IFRS):
- GII increased by 37.6% to GBP1,081.6 million (H1 FY23:
GBP786.2 million), exceeding GBP1 billion in H1 for the first time.
The exceptional level of growth was underpinned by some large,
strategically important, contract wins in the public sector (most
notably with the NHS and HMRC) and by continued demand from
corporate customers.
- The reduction in GP/GII% to 7.0% (H1 FY23: 8.3%) reflects the
impact of these large contracts transacting at a reduced margin in
the initial year of the agreements.
- AOP increased by 13.8% to GBP33.9 million (H1 FY23: GBP29.8
million); AOP as a percentage of GP has remained in line with the
previous year at 45.0% as we continue to invest in the
business.
- Adjusted earnings per share increased 15.8% to 11.71 pence (H1 FY23: 10.11 pence).
- Half year cash conversion of 48.7% (H1 FY23: (2.8%)) is in
line with our expectations, reflecting the seasonal timing of cash
flows and weighting to the second half of the financial year. Our
rolling cash conversion for the year ended 31 August 2023 stood at
107.2%, meeting our sustainable annual target of 100%.
Interim dividend
- Interim dividend of 2.7 pence per share, a 12.5% increase on
last year's interim dividend (H1 FY23: 2.4p).
Operational highlights
- Strong levels of demand for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions
have underpinned the Group's continued growth in H1 FY24.
- 98% of GP came from customers that traded with BTG last year
(H1 FY23: 97%), at a renewal rate of 113%.
- Increased headcount by 10% since the FY23 year end to service
high levels of customer demand, with over 1,000 staff at the half
year.
- The Group enrolled in Microsoft's early access programme for
Copilot, an AI assistant feature for Microsoft 365 applications, to
improve productivity internally and in preparation to support our
customers.
- Both Bytes Software Services and Phoenix Software named among
the UK's Best Workplaces in Tech in Great Place to Work's Large and
Super Large Category.
- Phoenix Software named Microsoft's Global Modern Endpoint Management Partner of the Year 2023.
- In April 2023, the Group acquired a 25.1% interest in Amazon
Web Services (AWS) partner, Cloud Bridge Technologies, to bolster
our multi-cloud strategy in the years to come.
Current trading and outlook
We reported another strong performance in H1 FY24, extending our
track record of delivering robust double-digit growth across our
key financial metrics.
The business has started the second half of the year well,
continuing the momentum delivered in H1 FY24. Whilst we remain
mindful of the challenging macroeconomic environment and
geopolitical uncertainty in Ukraine and the Middle East, we are
confident in our ability to capitalise on the growth opportunities
we see ahead. The Group's proven strategy of acquiring new
customers and then growing our share of wallet, building on our
strong vendor relationships and the technical and commercial skills
of our people, ensures we are well placed to continue our progress
over the remainder of FY24.
Analyst and investor presentation
A presentation for analysts and investors will be held today via
webcast at 9:30am (BST). Please find below access details for the
webcast:
Webcast link:
https://stream.brrmedia.co.uk/broadcast/651d406c8fb8fe0aea8cc7f6
A recording of the webcast will be available after the event at
www.bytesplc.com .
The announcement and presentation will be available at
www.bytesplc.com from 7.00am and 9.00am (BST), respectively.
Enquiries
Bytes Technology Group plc Tel: +44 (0)1372 418 500
Neil Murphy, Chief Executive Officer
Andrew Holden, Chief Financial Officer
Headland Consultancy Ltd Tel: +44 (0)20 3805 4822
Stephen Malthouse
Henry Wallers
Jack Gault
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from forward-looking statements.
Any forward-looking statements in this announcement reflect the
Group's view with respect to future events as at the date of this
announcement. Save as required by law or by the Listing Rules of
the UK Listing Authority, the Group undertakes no obligation to
publicly revise any forward-looking statements in this announcement
following any change in its expectations or to reflect events or
circumstances after the date of this announcement.
About Bytes Technology Group plc
BTG is one of the UK's leading providers of IT software
offerings and solutions, with a focus on cloud and security
products. The Group enables effective and cost-efficient technology
sourcing, adoption, and management across software services,
including in the areas of security, cloud and AI solutions. It aims
to deliver the latest technology to a diverse range of customers
across corporate and public sectors and has a long track record of
delivering strong financial performance.
The Group has a primary listing on the Main Market of the London
Stock Exchange and a secondary listing on the Johannesburg Stock
Exchange.
(1) ' Gross invoiced income' ('GII') is a non-International
Financial Reporting Standard (IFRS) alternative performance measure
that reflects gross income billed to customers adjusted for
deferred and accrued revenue items. The effect of these adjustments
for the year ended 28 February 2023 is included on p146 of the
annual report and accounts for that period. GII has a direct
influence on our movements in working capital, reflects our risks
and shows the performance of our sales teams.
(2) 'Revenue' is reported in accordance with IFRS 15, Revenue
from Contracts with Customers. Under this standard the Group is
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis
(the gross profit achieved on the contract and not the gross income
billed to the customer). Our key financial metrics of gross
invoiced income, gross profit, adjusted operating profit and cash
conversion are unaffected by this judgement.
(3) 'Adjusted operating profit' is a non-IFRS alternative
performance measure that excludes from operating profit the effects
of significant items of expenditure which are non-recurring events
or do not reflect our underlying operations. Amortisation of
acquired intangible assets and share-based payment charges are both
excluded. The reconciliation of adjusted operating profit to
operating profit is set out in the Chief Financial Officer's review
below.
(4) 'Cash conversion' is a non-IFRS alternative performance
measure that divides cash generated from operations less capital
expenditure (together, 'free cash flow') by adjusted operating
profit. It is calculated over both the current reporting period and
over a rolling 12 months, the latter taking the previous 12 months
free cash flow divided by the previous 12 months adjusted operating
profit, in over to reflect any seasonal variations during the full
year up to the reporting date.
(5) 'Adjusted earnings per share' is a non-IFRS alternative
performance measure that the Group calculates by dividing the
profit after tax attributable to owners of the company, adjusted
for the effects of significant items of expenditure which are
non-recurring events or do not reflect our underlying operations
('Adjusted earnings'), by the weighted average number of ordinary
shares in issue during the year. Amortisation of acquired
intangible assets and share-based payment charges are excluded in
arriving at Adjusted earnings. The calculation is set out in note
16 of the interim condensed consolidated financial statements.
_________________________________________________________________________________________
Chief Executive Officer's Review
A strong half year performance delivering on our strategy.
We are delighted with the strong performance in H1 FY24, which
saw the Group deliver growth in adjusted operating profit ('AOP')
of 13.8% and gross profit ('GP') of 15.0%, driven by a 37.6%
increase in gross invoiced income ('GII').
We have maintained our track record of strong double-digit
year-on-year growth despite the ongoing uncertainty caused by the
challenging macroeconomic conditions. Our business continues to
benefit from the wide-ranging product offering that we have
developed, with a substantial suite of software, IT services and
hardware solutions from the world's leading vendors and software
publishers.
The exceptionally strong growth in GII primarily reflects the
success of the business in winning large public sector Microsoft
contracts, demonstrating our strength and credibility when bidding
for substantial government software opportunities under the Crown
Commercial Services framework agreements. The Group's success in
winning these new contracts resulted in our public sector GII
increasing by 44.4%. Due to the competitive tendering process
involved, these sales are typically won at reduced initial margins.
H owever, over the course of the contracts, typically 3 to 5 years,
we have a strategy and track record of growing the profitability of
those contracts and opening up other software, hardware, or
services opportunities within those accounts. Additionally, we have
seen continued success in the corporate sectors, growing GII by
25.7% across these customers.
The growth above is reflected in our 39.1% increase in software
GII, supported by a 15.7% rise in our internal services GII and
hardware growth of 15.3%. The double-digit growth across both our
key sectors and our three primary products and services areas
reflects the continued demand from our customers to invest in
resilient and efficient IT applications and services.
Our customers' ongoing appetite for security, cloud adoption,
digital transformation, hybrid datacentres and remote working
solutions underpinned the strong growth reported in H1 FY24. These
investments increasingly take the form of contracts of an annuity
type and therefore we remain confident in the Group's growth
prospects going forward. This reinforces the potential for future
up-selling and cross-selling opportunities with existing clients.
The double-digit growth in GII and GP reflects the buoyant and
robust nature of IT spend across the UK and Ireland.
We continue to expand our IT services capability, underpinned by
the renewal of our Microsoft Azure Expert status for the provision
of managed services, along with many other key vendor
accreditations, augmented with our own IP in the form of Quantum
and Licence Dashboard. Our broad suite of services enables us to
expand our relevance to new and existing clients who need support
and assurance as they seek to strengthen their IT resilience and
security.
We expect to see a strong customer response to Microsoft's AI
products, including Copilot. We are preparing for this to gain
increasing momentum into 2024 and beyond, and to open up associated
services opportunities to support customer readiness and adoption.
Our broad roster of vendors also have a strong pipeline of
AI-supported software solutions that we look forward to rolling out
to our customers.
We remain proud of the energy, enthusiasm and professionalism
demonstrated by our people. Our current and future growth is being
supported by increasing headcount, training, and development in all
areas from front-end sales and delivery teams and across all
supporting areas. As a management team, we are extremely pleased
with the way our people continue to embrace our collaborative,
team-based culture. Our flexible working regime continues to
deliver positive results for our business, while also meeting our
people's aspirations for a healthy work/life balance. In June 2023,
we launched our third Share Save Plan, which has again been well
received by our workforce, with over 50% of employees participating
in one or more of these plans.
To support the growth in sales and people, we continue to invest
in, and evolve, our internal systems both to improve user
experiences and to drive efficiencies. Notwithstanding this
investment, our AOP as a percentage of GP has remained in line with
the previous year at 45%, and therefore achieving our target to
exceed 40%.
Our relationships with key partners continue to go from strength
to strength and we are especially pleased to have been recognised
by leading industry vendors. Following Phoenix Software being
awarded the Microsoft Partner of the Year for the UK for 2021 and
Bytes Software Services being named Microsoft Partner of the Year
for Operational Excellence in 2022, Phoenix has followed this up by
being named 2023 Microsoft Modern Endpoint Management Global
Partner of the Year and Sophos Public Sector Partner of the Year.
These awards reflect the status and high esteem that the Group has
with global technology leaders and is testament to the expertise of
our staff and the customer success stories that we deliver.
We remain committed to executing our strategy in a responsible
manner, with sustainability rooted in everything we do. Our
sustainability framework aims to deliver positive impacts for our
stakeholders across key themes which we have identified as most
relevant for the environment in which we operate. Within each theme
- financial sustainability, corporate responsibility, stakeholder
engagement and good governance - we set ourselves focus areas that
drive our activities. Through our staff-led working groups, we
allocate time and resources to various environmental initiatives,
and to corporate social responsibility activities. We remain
committed to supporting diversity throughout our business and are
proud of the balance represented across our people. We continue our
efforts to align with broader diversity targets to reflect the
society in which we, and our stakeholders, operate. Further details
in respect of our sustainability initiatives are set out below.
Our dividend policy is to distribute 40% of the Group's post-tax
pre-exceptional earnings to shareholders by way of normal
dividends. Accordingly, we are pleased to confirm that the Board
has declared an interim dividend of 2.7 pence per share which will
be paid on 1 December 2023 to shareholders on the register at 15
November 2023.
I wish to extend my gratitude to all my colleagues for their
hard work and dedication to the business during FY24 to date.
Finally, I would like to thank our clients for their support and
entrusting their business with us; together, our staff and
customers are our lifeblood and will always be our top
priority.
Continued focus on Environment, Social and Governance (ESG)
Our approach to responsible business and ESG is aimed at helping
to build a sustainable future and create long-term value for the
Group and its stakeholders. Our strategy is underpinned by our
purpose and values, which fosters an aligned culture across the
organisation. During the period, we further progressed our ESG
initiatives in the following ways.
Increasing our carbon reporting
In H1 FY24 we have disclosed our reported emissions for FY23 and
future targets to Carbon Disclosure Project (CDP). This is the
first year in which our disclosure will be independently scored by
CDP, with the results expected in our Q4 FY24. In July 2023, we
made a Group commitment to submit our targets to the Science Based
Targets initiative (SBTi) for validation against the Paris
Agreement's aim for less than a 1.5 degree global temperature
increase. We expect to have our targets validated during 2024.
As part of our ongoing reporting, our Taskforce for
Climate-Related Financial Disclosures (TCFD) will be incorporated
into the S1 and S2 requirements under IFRS, once endorsed by the
UK. We will monitor progress towards this and report in our annual
report and accounts following adoption.
Within our businesses, we are supporting the transition to
greener transport to reduce business travel and commuting
emissions. The Group has successfully deployed an Electric Vehicle
company car scheme during the period.
Positively impacting our society
Employee support and wellbeing remain key focus areas for the
Group, particularly in light of the continuing cost-of-living
crisis, with wellbeing days an important part in driving a
healthier and happier workforce. In addition to this, employees
have been engaged in, and managers trained in, the impact of
menopause and in neurodiversity as part of a wider 'Breaking
Taboos' programme.
Our strong culture remains a driving force behind our successful
growth. We continue to support this through staff events and the
development of our people with continued learning and training
opportunities and social groups for more remote workers to connect.
Staff are also listened to through various channels and
improvements are made based on their ideas and initiatives.
During H1, we supported our communities through donations,
fundraising events, and volunteer days, such as with the London
Wetland Centre. Charity sport days have continued over the summer
months, engaging with vendors to widen the impact.
Changes in directorate since the year end
Sam Mudd was appointed as an Executive Director at the Annual
General Meeting held on 12 July 2023. Sam continues in her role as
the Managing Director of Phoenix Software Limited, a wholly owned
subsidiary of the Group, following her appointment to the
Board.
Also, after 23 years with the Group, David Maw stepped down as a
non-executive director at the 2023 AGM. Following David's
retirement, Dr. Erika Schraner assumed the role of Designated
Non-Executive for employee engagement, building on the constructive
work carried out by David in this role.
H aving served on the Board since 6 November 2020, Dr. Alison
Vincent has indicated that she wishes to retire from her role as
independent non-executive director at the conclusion of her
three-year term, with effect from 1 November 2023. A process to
recruit an additional independent non-executive director with
relevant experience is underway and a further announcement will be
made in due course and, as previously announced, Dr Erika Schraner
will be Chair of the Remuneration Committee with effect from 1
November 2023.
Chief Financial Officer's review
H1 FY24 H1 FY23 Change
Income statement GBP'm GBP'm %
-------------------------------------- ------------ ------------
Gross invoiced income (GII) 1,081.6 786.2 37.6%
-------------------------------------- ------------ ------------
GII split by product:
Software 1,027.3 738.4 39.1%
Hardware 24.1 20.9 15.3%
Services internal(1) 15.5 13.4 15.7%
Services external(2) 14.7 13.5 8.9%
-------------------------------------- ------------ ------------
Netting adjustment (972.9) (692.7) 40.5%
Revenue 108.7 93.5 16.3%
-------------------------------------- ------------ ------------
Revenue split by product:
Software 67.1 57.8 16.1%
Hardware 24.1 20.9 15.3%
Services internal(1) 15.5 13.4 15.7%
Services external(2) 2.0 1.4 42.9%
-------------------------------------- ------------ ------------
Gross profit (GP) 75.3 65.5 15.0%
-------------------------------------- ------------ ------------
GP / GII % 7.0% 8.3%
Gross margin % 69.3% 70.1%
Administrative expenses 44.7 38.2 17.0%
-------------------------------------- ------------ ------------
Administrative expenses split:
Employee costs 35.7 29.7 20.2%
Other administrative expenses 9.0 8.5 5.9%
Operating profit 30.6 27.3 12.1%
-------------------------------------- ------------ ------------
Add back:
Share-based payments 2.9 1.7 70.6%
Amortisation of acquired intangible
assets 0.4 0.8 -50.0%
Adjusted operating profit (AOP) 33.9 29.8 13.8%
-------------------------------------- ------------ ------------
Interest receivable 2.9 0.0
Finance costs (0.3) (0.3)
Share of profit of associate(3) 0.1 0.0
Profit before tax 33.3 27.0 23.3%
-------------------------------------- ------------ ------------
Income tax expense (7.9) (5.3) 49.1%
Profit after tax 25.4 21.7 17.1%
-------------------------------------- ------------ ------------
(1) Provision of services to customers using the Group's own
internal resources
(2) Provision of services to customers using third party
contractors
(3) Cloud Bridge Technologies 25.1% share of profits since April
2023
Overview of H1 FY24 results
H1 FY24 has seen continued double-digit growth across all our
key performance measures. With hybrid working widespread across our
whole customer base, and heightened requirements around
cybersecurity, customers have continued to engage with us to
support their move into the cloud, or extending their presence in
it, with more sophisticated and resilient security, support, and
managed service solutions. This has resulted in operating profit
increasing by 12.1% to GBP30.6 million (H1 FY23: GBP27.3 million)
and AOP growing by a slightly higher 13.8% year on year from
GBP29.8 million to GBP33.9 million. The adjusted operating profit
excludes the impact of a mortisation of acquired intangible assets
and share-based payment charges which do not reflect the underlying
day-to-day performance of the Group.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some
small adjustments for deferred and accrued items (mainly relating
to managed service contracts where the income is recognised over
time). We believe that GII is the most useful measure to evaluate
our sales performance, volume of transactions and rate of growth.
GII has a direct influence on our movements in working capital,
reflects our risks and demonstrates the performance of our sales
teams. Therefore, it is the income measure which is most
recognisable amongst our staff, and we believe most relevant to our
customers, suppliers, investors, and shareholders for them to
understand our business.
GII has increased by 37.6% year on year, with growth spread
across all the business's income streams, but most significant for
software which remains the core focus, contributing 95% of the
total GII for the six months (H1 FY23: 94%). The Group's already
substantial presence in the public sector, has been bolstered by a
number of key strategic and substantial wins relating to government
Microsoft Enterprise Agreements where the Group bids under highly
competitive tenders, either for single contracts or for several
public body contracts in aggregate, the latter enabling the Group
to gain multiple new clients from a single bid process.
This continual high level of government investment in IT
technologies, and the Group's success in winning new contracts, has
resulted in our public sector GII increasing by GBP221.9 million,
up 44.4%, to GBP721.7 million (H1 FY23: GBP499.8 million). Our
corporate GII increased by GBP73.5 million to GBP359.9 million (H1
FY23: GBP286.4 million), representing a very pleasing rise of
25.7%.
This means that our overall GII mix has moved slightly compared
to last year with 67% in public sector (H1 FY23: 64%) against
corporate of 33% (H1 FY23: 36%)
Revenue
Revenue is reported in accordance with IFRS 15 Revenue from
Contracts with Customers. Under this reporting standard, we are
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis,
that is, the gross profit achieved on the contract and not the
gross income billed to the customer.
Our judgements around this area are set out in notes 1.4 and
1.11 of the full year financial statements for the year ended 28
February 2023. In summary, software and external services revenue
is treated on an agency basis whilst hardware and internal services
revenue is treated as principal.
It should be noted that GII, gross profit, operating profit, and
profit before and after taxes are not affected by these judgements,
neither are the consolidated statements of financial position,
cashflows and changes in equity.
With the significant increase in software GII, as noted above,
and its treatment on a net, or agency, basis, the 16.3% increase in
revenue in the six months is lower than the rise in GII.
Gross profit (GP) and gross profit/GII (GP/GII%)
Gross profit increased by 15.0% to GBP75.3 million (H1 FY23:
GBP65.5 million).
This growth is less than that for GII due to the high level of
new or renewed GII derived from the public sector and the highly
competitive nature of the tendering process, governed under the
Crown Commercial Services framework agreements. This has meant that
large software contracts, most notably with Microsoft, have been
won or renewed at reduced margins. This tends to be particularly
prevalent in the first year of new agreements with public sector
entities, and as a result we have seen a reduction on our GP/GII%
in the first 6 months to 7.0% (H1 FY23: 8.3%). That said, if the
impact of the two largest new contracts is removed from the
calculation, the percentage reverts to 8.3%, therefore equivalent
to last year and demonstrating the overall strong performance of
the business in maintaining its margins.
Deals such as these are consistent with the Group's strategy of
winning new customers and then expanding share of wallet. Our
objective is to ensure we build our profitability within each
contract over its term, typically 3 to 5 years, by adding
additional higher margin products into the original agreement as
the customers' requirements grow and become more advanced. This is
further enhanced by focusing on selling our wide range of solutions
offerings and higher margin security products, whilst maximising
our vendor incentives through achievement of technical
certifications. We track these customers individually to ensure
that the strategy delivers value for the business, and our other
stakeholders over the duration of the contracts.
Our long standing relationships with our customers and high
levels of repeat business is again demonstrated in H1 FY24 with 98%
of our GP coming from customers that we also traded with last year
(H1 FY23: 97%), at a renewal rate of 113% (which measures the GP
from existing customers this period compared to total GP in the
prior period), which also demonstrates our ability to increase our
share of wallet with our customers.
Administrative expenses
This includes employee costs and other administrative expenses
as set out below.
Employee costs
Our success in growing GII and GP continues to be as a direct
result of the investments we have made over the years in our
front-line sales teams, vendor and technology specialists, service
delivery staff and technical support personnel, backed up by our
marketing, operations, and finance teams. It has been, and will
remain, a carefully managed aspect of our business.
In addition to continuing to hire in line with growth, our
commitment to develop, promote and expand from within the existing
employee base, giving our people careers rather than just
employment, is at the heart of our progress as a business. This has
contributed to long tenure from our employees which in turn
supports the long relationships we have established with our
customers, vendors, and partners. This is at the very heart of our
low employee churn rate, the growth in gross profit per customer
and our high customer retention rate.
During the period we have seen total staff numbers rise above
1,000 for the first time, to 1,026 on our August 2023 payroll, up
by 10% from the year-end position of 930 on 28 February 2023.
Employee costs included in administrative expenses rose by 20.2% to
GBP35.7 million (H1 FY23: GBP29.7 million) but excluding
share-based payments of GBP2.9 million (H1 FY23: GBP1.7 million),
the rise was lower at 17.1%.
Other administrative expenses
Other administrative expenses increased by 5.9% to GBP9.0
million (H1 FY23: GBP8.5 million). This increase included
additional spend on internal systems, professional fees, staff
welfare and travel costs. This reflects the costs of running, and
investing in, a growing organisation and in operating a listed
Group, including evolving our governance structure, controls, and
processes with the support of our professional advisors.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the
effects of:
- Share based payment charges as, whilst new employee share
schemes are being launched, the charge to the income statement will
increase each year. Accordingly, the charge for the current year
has risen to GBP2.9 million, compared to GBP1.7 million last
year.
- Amortisation of acquired intangibles as this cost only appears
as a consolidation item and does not arise from ordinary operating
activities.
We believe that adjusted operating profit is a meaningful
measure which the Board can use to effectively evaluate our
profitability, performance, and ongoing quality of earnings.
Adjusted operating profit in H1 FY24 increased to GBP33.9 million
(H1 FY23: GBP29.8 million), representing growth of 13.8%. Our
operating profit increased from GBP27.3 million to GBP30.6 million
equating to an increase of 12.1%.
Adjusted operating profit as a percentage of GP is one of the
Group's key alternative performance indicators, being a measure of
the Group's operational effectiveness in running day-to-day
operations. We set a target of no less than 40% and we have again
achieved this, with a ratio of 45.0% (H1 FY23: 45.5%).
Interest receivable and finance costs
This period has seen significant interest being earned from
money market deposits, totalling GBP2.9 million in the 6 months (H1
FY23: nil), as interest rates have risen steeply. This has resulted
in our profit before tax growing by 23.3% to GBP33.3 million (H1
FY23: GBP27.0 million).
Our finance costs largely comprise arrangement and commitment
fees associated to our revolving credit facility (RCF), noting that
to date the Group has not drawn down any amount. This balance also
includes a small amount of finance lease interest on our
right-of-use assets, increasing slightly in the current period due
to the introduction of a staff electric vehicle (EV) scheme.
Share of profit in associate
Following the acquisition of a 25.1% interest in Cloud Bridge
Technologies in April 2023, in accordance with IAS 28 Investments
in Associates, we have accounted for the Group's share of its
profits since the date of our investment, GBP0.1 million for the
5-month period.
Income tax expense
The 49.1% rise in our income tax expense to GBP7.9 million (H1
FY23: GBP5.3 million) reflects the growth in profits and the
increase in the UK corporate tax rate from 19% to 25% effective
from 1 April 2023.
Profit after tax increased by 17.1% to GBP25.4 million (H1 FY23:
GBP21.7 million), underlining our growth in operating profits and
with the impact of higher tax rates largely offset by the increase
in interest income.
Balance sheet and cashflow
Closing net assets stood at GBP60.0 million (31 August 22:
GBP46.1 million) including the Group's GBP3.1 million interest
(25.1%) in Cloud Bridge Technologies, acquired in April 2023.
Closing net current assets were GBP5.2 million (31 August 22:
(GBP1.6) million).
Cash at the end of the period was GBP51.7 million (31 August 22:
GBP35.8 million) which is after the payment of dividends totalling
GBP30.2 million during the 6 months, being the final and special
dividends for FY23.
Cash flow from operations after payments for fixed assets (free
cash flow) was strong during the reporting period, generating a
positive net inflow of GBP16.5 million (H1 FY23: (GBP0.8) million).
Consequently, t he Group's cash conversion ratio for the period
(free cash flow divided by AOP) was 48.7% (H1 FY23: (2.8)%).
The difference to the prior half year illustrates the
sensitivity of this ratio to even small delays in payments from
customers, particularly when measured over a fixed period rather
than on a rolling 12 month basis. This makes it susceptible to
short-term, but potentially high value, timing of customer
receipts.
Our rolling cash conversion for the year ended 31 August 2023
stood at 107.2%, (year ended 31 August 2022: 65.3%) and the Group
has now delivered a cumulative cash conversion ratio above 100%
since 1 March 2017 which is in line with our sustainable annual
cash conversion target.
Over our half year fixed periods, we expect H1 cash conversion
to be lower than H2 due to the timing of receipts and payments in
relation to some our largest Microsoft software enterprise
agreements. For our public sector customers in particular, many of
the agreement anniversaries fall on 1 April, aligned to the public
sector year end. With these orders needing to be placed at least 30
days ahead of anniversary we often see the customers pay us prior
to the end of our financial year (in H2), whilst the corresponding
payments to Microsoft do not fall due until the first quarter of
the following year (in H1)..
If required, the group has access to a committed revolving
credit facility (RCF) of GBP30 million with HSBC. The facility
commenced on 17 May 2023, replacing the Group's previous facility
for the same amount and runs for three years, until 17 May 2026. To
date, the Group has not utilised the facility.
Interim dividend
As stated above, the Group's dividend policy is to distribute
40% of post-tax pre-exceptional earnings to shareholders.
Accordingly, the Board is pleased to declare a gross interim
dividend of 2.7 pence per share. The aggregate amount of the
interim dividend expected to be paid out of retained earnings at 31
August 2023, but not recognised as a liability at the end of the
half year, is GBP6.5 million.
The salient dates applicable to the dividend are as follows:
Dividend announcement date Wednesday, 25 October
2023
Currency conversion determined and announced Monday, 13 November 2023
together with the South African (SA) tax
treatment on SENS by 11.00
--------------------------
Last day to trade cum dividend (SA register) Tuesday, 14 November 2023
--------------------------
Commence trading ex-dividend (SA register) Wednesday, 15 November
2023
--------------------------
Last day to trade cum dividend (UK register) Wednesday, 15 November
2023
--------------------------
Commence trading ex-dividend (UK register) Thursday, 16 November
2023
--------------------------
Record date Friday, 17 November 2023
--------------------------
Payment date Friday, 1 December 2023
--------------------------
Additional information required by the Johannesburg Stock
Exchange:
The GBP:ZAR currency conversion will be determined and published
on SENS on Monday, 13 November 2023
1. A dividend withholding tax of 20% will be applicable to all
shareholders on the South African register unless a shareholder
qualifies for exemption not to pay such dividend withholding
tax.
2. The dividend payment will be made from a foreign source (UK).
3. At 25 October 2023, being the declaration announcement date
of the dividend, the Company had a total of 239,482,333 shares in
issue (with no treasury shares).
4. No transfers of shareholdings to and from South Africa will
be permitted between Tuesday, 14 November 2023 and Friday, 17
November 2023 (both dates inclusive). No dematerialisation or
rematerialisation orders will be permitted between Wednesday, 15
November 2023 and Friday, 17 November 2023 (both dates
inclusive).
Principal risks
The Group Board has overall responsibility for risk. This
includes establishing and maintaining our risk management framework
and internal control systems and setting our risk appetite. In
doing this it receives support from our Audit Committee, our
internal audit partner, and our executive management teams.
However, through their skills and diligence, everyone in the Group
plays a part in protecting our business from risk and making the
most of our opportunities.
We have identified principal risks and uncertainties that could
have a significant impact on the Group's operations, which we
assign to four categories: financial, strategic, process and
systems, and operational. BTG's management review each principal
risk looking at its level of severity, where it overlaps with other
risks, the speed at which it is changing, and its relevance to the
Group. We consider the principal risks both individually and
collectively, so that we can appreciate the interplay between them
and understand the entire risk landscape.
We continue to closely monitor new and emerging risks, including
the ongoing global risk of climate change and sustainability. We
also determined that social change may represent a future risk.
Changes to people's needs and perspectives, as happened when
priorities shifted during the pandemic, and more generally with
younger generations, may affect our ability to attract and retain
talent. Like many risks, these could provide opportunities as well
as downsides. For example, inflation might encourage customers to
spend more on automation with us or, on the other hand, to cut
investment in IT. We have mitigating plans to cover these different
outcomes, such as broadening our portfolio of vendors and the
solutions we can offer.
The invasion of Ukraine continues to affect the global economy,
contributing to higher energy prices and inflation over the past
year. We recognise the impact of this increased cost of living on
our employees' welfare. These conditions are expected to continue
into the next financial year, and we have maintained this as a
principal risk.
Cybersecurity continues to be a risk, heightened by the current
geopolitical uncertainties in the Ukraine and Middle East. Our
chief information security officer function and technology
solutions reduce our risk, but the residual is covered by cyber
insurance. This insurance has been renewed, at a greater cost than
in the previous year, due to the increased threat level.
Although we performed strongly and managed risks well in the
FY23 and continuing into H1 FY24, we have made some amendments to
our principal and emerging risks to account for changes in the
market, society and with our vendors.
These changes comprise:
New principal risks:
-- 'Climate change and sustainability' moved from an emerging risk to a principal risk re-named 'Sustainability / ESG'. Whilst the physical threats from climate change will remain as emerging, the elevated principal risk relates to regulatory requirement changes as well as keeping ahead of expectations from investors, employees, customers, and other stakeholders.
-- New principal risk in 'Supply chain management'. Risk is
based on the time and effort to manage the supply chain with
increasing focus on compliance, audits, sustainability, and
reporting.
New emerging risk:
-- New emerging risk added for the 'Impacts of AI and Machine
Learning' due to the potential of this technology to change the IT
and working landscape and the associated risks from moral, legal,
and ethical standpoints.
Existing principal risks with updated focus:
-- 'Economic disruption' risk expanded to focus on economic
impacts affecting our customers, in addition to the existing risk
to ourselves.
-- 'Inflation' risk expanded to focus on the internal impact to
our workforce, in addition to the existing risk to the
business.
-- 'Increasing debtor risk' re-defined as 'Working Capital'
risk, to include risk of vendors changing their payment terms, in
addition to the existing risk of an increased age debt profile.
-- 'Competition' risk definition expanded to include the
evolution of the competitor landscape, such as through AI and
direct purchasing platforms and marketplaces.
-- 'Relevance and emerging technologies' risk expanded to
include the need to use new technologies internally to remain agile
and productive, in addition to the existing need to offer cutting
edge products and relevant services to our customers.
-- 'Business continuity failure' risk expanded to include risk
to and from people, such as insider threats, in addition to the
existing risk of failure to our internal systems or IT
infrastructure.
-- 'Attract and retain staff whilst keeping our culture' risk
amended to replace the general existing "skills shortage in the IT
sector" with a more specific skills shortage in emerging areas,
such as AI, where expertise is in high demand.
Full details of the updated principal risks and uncertainties
that the Board believes could have a significant effect on the
Group's financial performance are:
FINANCIAL 1 ECONOMIC DISRUPTION Risk owner CEO
The risk How we manage it
This includes the impact of We have so far continued to perform
the crisis in Ukraine, the uncertainties well during the conflict in Ukraine,
caused by global economic pressures and under the current effects
and geopolitical risk within of inflation, the cost-of-living
the UK post-Brexit. crisis and leaving the EU.
Despite the economic shocks of
the past year and continued pressure
from the Ukraine conflict, we
have not seen an adverse impact
on our business.
These real-life experiences have
shown us to be resilient through
tough economic conditions. The
diversity of our client base has
also helped to maintain and increase
business in this period. We are
not complacent, however - economic
disruption remains a risk and
we keep operations under constant
review.
Our continued focus on software
asset management means that we
continue to advise customers in
the most cost-effective ways to
fulfil their software needs. Changes
to economic conditions mean many
organisations will look to IT
to drive growth and/or efficiency.
Externally, we have seen in increase
in customers looking to avoid
increased staff costs through
outsourcing their IT via Managed
Services. This may create an opportunity
to accelerate our service offerings
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Major economic disruption -
including the risk of continuing
high inflation (see below) and
potentially higher taxes - could
see reduced demand for software
licensing, hardware, and IT
services, which could be compounded
by government controls. Lower
demand could also arise from
reduced customer budgets, cautious
spending patterns or clients
'making do' with existing IT.
Economic disruption could also
affect the major financial markets,
including currencies, interest
rates and the cost of borrowing.
Economic deterioration like
this could have an impact on
our business performance and
profitability.
High inflation could create
an environment in which customers
redirect their spending from
new IT projects to more pressing
needs.
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2 MARGIN PRESSURE Risk owner MDs of subsidiary
businesses
---------------------------------------------------------------- -----------------------------------------------------------------
The risk Profit margins are affected by
BTG faces pressure on profit many factors at customer and micro
margins from myriad directions, levels. We can control some of
including increased competition, the factors that influence our
changes in vendors' commercial margins; however, some factors,
behaviour, certain offerings such as economic and political
being commoditised and changes ones, are beyond our control.
in customer mix or preferences.
In the past year we have sought
to increase margins where possible;
cost increases from vendors have
grown our margins organically.
Our diverse portfolio of offerings,
with a mix of vendors as well
as a mix of software and services,
has enabled us to absorb any changes
- and we continue to innovate
to find new ways to deliver more
value for our clients. Services
delivered internally are consistently
measured against competition to
ensure we remain competitive and
maximise margins.
We aim to agree acceptable profit
margins with
customers upfront. Keeping the
correct level of certification
by vendor, early deal registration
and rebate management are three
methods deployed to ensure we
are procuring at the lowest cost
and maximising incentives earned.
This risk area is reviewed monthly.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
These changes could have an
impact on our business performance
and profitability.
---------------------------------------------------------------- -----------------------------------------------------------------
3 CHANGES TO VORS' COMMERCIAL Risk owner CEO
MODEL
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
BTG receives incentive income We maintain a diverse portfolio
from our vendor partners and of vendor products and services.
their distributors. This partially Although we receive major sources
offsets our costs of sales but of funding from specific vendor
could be significantly reduced programmes, if one source declines,
or eliminated if the commercial we can offset it by gaining new
models are changed significantly. certifications in, and selling,
other technologies where new funding
is available.
We closely monitor incentive income
and make sure staff are aligned
to meet vendor partner goals so
that we don't lose out on these
incentives. Close and regular
communication with all our major
vendor partners and distributors
means we can manage this risk
appropriately. In some areas we
have seen a positive change from
vendor commercials, where we have
been able to adapt practices.
The materiality of this risk has
not yet been realised, but it
remains a risk.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
These incentives are very valuable
and contribute to our operational
profits. Significant changes
to the commercial models could
put pressure on our profitability.
---------------------------------------------------------------- -----------------------------------------------------------------
4 INFLATION (internal impacts) Risk owner CFO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Inflation in the UK, as measured Staff costs constitute the majority
by the Consumer Price Index of our overheads, therefore our
(CPI), is currently 6.7% in attention is focused on our staff
the year to August 2023, which and their ability to cope with
is driven by three main drivers: the rising cost of living.
Electricity/gas, transport costs
and food/non-alcoholic beverages At the start of FY 2023/24 wage
increases, of varying levels,
with a greater percentage to lower
paid staff were rolled out across
the employee base. This is to
assist our employees in maintaining
their standard of living and being
able to keep up with the essentials
such as rent / mortgage payments,
energy bills, food bills.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Wage inflation, increased fuel
and energy costs have a direct
impact on our underlying cost
base.
If our competitors increase
wages to a higher level, then
we potentially have a risk in
retaining and attracting staff
---------------------------------------------------------------- -----------------------------------------------------------------
5 WORKING CAPITAL Risk owner CFO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
As customers face the challenges Our credit collections teams are
of inflation and rising interest focused on collecting customer
rates in the current economic debts on term and maintaining
environment, there is a greater our debtor days at targeted levels.
risk of an increasing aged debt Debt collection is reported and
profile, with customers slower analysed continually and escalated
to pay and the possibility of to senior management as required.
bad debts.
A large part of a successful outcome
Vendors changing payment terms, is maintaining strong, open relationships
could also have a significant with our customers, understanding
impact their issues, and ensuring our
billing systems deliver accurate,
clear, and timely invoicing so
that queries can be quickly resolved.
We have similarly strong relationships
with vendors and suppliers such
that, if necessary, we are able
to negotiate payment terms. This
is facilitated by ensuring that
invoices are paid on time so there
is less likelihood of terms being
tightened.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
This could adversely affect
the businesses profitability
and/or cashflow
---------------------------------------------------------------- -----------------------------------------------------------------
STRATEGIC 6 VOR CONCENTRATION Risk owner CEO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Over reliance on any one technology We work with our vendors as partners
or supplier could pose a potential - it is a relationship of mutual
risk, should that technology dependency since we are their
be superseded, be exposed to route to the end customer. We
economic down cycles, or the maintain excellent relationships
vendor fails to innovate ahead with all our vendors, and have
of customer demands. a particularly good relationship
with Microsoft, which relies on
us as a key partner in the UK.
Our growth plans, which involve
developing business with all our
vendors, will naturally reduce
the risk of relying too heavily
on any single one.
Hardware is not a core element
of our business, but is a growing
sector, so we will be monitoring
supply closely. However, we monitor
the geopolitical situation, continuously
and work closely with suppliers
and industry bodies to identify
any potential supply chain disruptions
and impacts. This enables us to
remain fully informed, so that
we can respond quickly should
the landscape change, to ensure
that we have diverse supply routes.
With a diverse portfolio of suppliers
and vendors we are able to offer
alternatives to customers if there
is a particular vendor with a
supply issue.
As this risk is largely driven
by geopolitical and macroeconomic
factors, we maintain a watching
brief so that we can react swiftly
if required.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Too heavy a reliance on any
one vendor could have an adverse
effect on our financial performance,
should that relationship break
down.
Geopolitically, global shortages
of computer hardware, components
and chips could occur, which
might limit our, and our customers',
ability to purchase hardware
for internal use. This could
lead to delays in customers
purchasing software, which is
linked to, or dependent on,
the hardware being available.
Reduced access to computer chips
could also slow down vendor
innovation, leading to delays
in the creation of new technology
to resell to customers.
---------------------------------------------------------------- -----------------------------------------------------------------
7 COMPETITION Risk owner CEO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Competition in the UK IT market, We closely watch commercial and
or the commoditisation of IT technological developments in
products, may result in BTG our markets.
being unable to win or maintain
market share. The threat of disintermediation
by vendors has always been present.
Mergers and acquisitions have We minimise this threat by continuing
consolidated our distribution to increase the added value we
network and absorbed specialist bring to customers directly. This
services companies. This has reduces clients' desire to deal
caused overlap with our own directly with vendors.
offerings.
Equally, vendors cannot engage
The vendor landscape continues with millions of organisations
to evolve through, globally without the sort of well-established
* Increased use of AI network of intermediaries that
we have.
* Potential move to direct vendor resale to end We currently work with AWS Marketplace
customers (disintermediation) and can sell our other vendors'
products through their platform,
which gives discounts to the customer
* platforms, like marketplaces, with direct sales to versus buying directly.
customers could also be viewed as disintermediation
Artificial Intelligence / Machine
Learning have been identified
as a new emerging risk, and so
will be monitored and explored
for risks and opportunities to
the business.
Currently, there's no sign of
commoditisation of any kind that
would be a serious threat to the
business model in the short or
medium term.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
This would have a material adverse
impact on our business and profitability.
A huge change would need a big
shift in business operations,
including a strategic overhaul
of the products, solutions,
and services that we offer to
the market.
Further consolidation could
lead to less competition between
vendors and cause prices to
value-added resellers, like
us, to rise and service levels
to fall. Direct resale to customers
could also increase.
This could erode reseller margins,
given the purchase cost is less
for the distributor than the
reseller. This could reduce
our market, margin, and profits.
---------------------------------------------------------------- -----------------------------------------------------------------
8 RELEVANCE AND EMERGING TECHNOLOGY Risk owner CEO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
As the technology and security We stay relevant to our customers
markets evolve rapidly and become by:
more complex, the risk exists * Continuing to offer them expert advice and innovative
that we might not keep pace solutions.
and so fail to be considered
for new opportunities by our
customers. * Specialising in high-demand areas
* Holding superior levels of certification
* Maintaining our good reputation and helping clients
find the right solutions in a complex, often
confusing IT marketplace.
We defend our position by keeping
abreast of new technologies and
the innovators who develop them.
We do this, for example, by running
a cyber accelerator programme
for new and emerging solution
providers, joining industry forums,
and sitting on new technology
committees. We have expanded the
number and range of our subject
matter experts, who stay ahead
of developments in their areas
and communicate this internally
and externally.
By identifying and developing
bonds with emerging companies,
we maintain good relationships
with them as they grow and give
our customers access to their
technologies. This is core to
our business, so the risk from
this is relatively low.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
As customers have wide choice
and endless opportunities to
research options, if we do not
offer cutting-edge products
and relevant services, we could
lose sales and customers, which
would affect our profitability.
---------------------------------------------------------------- -----------------------------------------------------------------
PROCESSES 9 CYBERTHREATS - DIRECT AND Risk owner Chief Information
AND SYSTEMS INDIRECT Security Officer
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Breaches in the security of We use intelligence-driven analysis,
electronic and other confidential including research by our internal
information that BTG collects, digital forensics team, to protect
processes, stores and transmits ourselves.
may give rise to significant
liabilities and reputational This work provides insights into
damage. vulnerable areas and the effects
of any breaches, which allow us
to strengthen our security controls.
We have established controls that
separate customer systems and
mitigate cross-breaches. Our cyberthreat-level
system also lets us tailor our
approach and controls in line
with any intelligence we receive.
Our two subsidiaries share insights
and examples of good practice
on security controls with one
another and the security operations
centre located at Phoenix Software's
offices provide the whole business
with up-to-date threat analysis.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
If a hacker accessed our IT
systems, they could infiltrate
one or more of our customer
areas. This could provide indirect
access, or the intelligence
required to compromise or access
a customer environment.
This would increase the chance
of first- and third-party risk
liability, with the possible
effects of regulatory breaches,
loss of confidence in our business,
reputational damage, and potential
financial penalties.
---------------------------------------------------------------- -----------------------------------------------------------------
OPERATIONAL 10 BUSINESS CONTINUITY FAILURE Risk owner CFO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk Our Chief Technology Officer and
Any failure or disruption of Head of IT effectively manage
BTG's people, processes and and oversee our IT infrastructure,
IT infrastructure to a degree network, systems, and business
that may negatively affect our applications. All Operational
ability deliver to our customers, teams are focussed on the latest
reputational damage and losing vendor products and educate sales
market share. teams appropriately. Regular IT
audits have identified areas of
improvements and ongoing reviews
make sure we have a high level
of compliance and uptime. This
means our systems are highly effective
and fit for purpose.
For business continuity, we use
different locations, sites, and
solutions to limit the impact
of service outage to customers.
Where possible, we use active
resilience solutions - designed
to withstand or prevent loss of
services in an unplanned event
- rather than just disaster-recovery
solutions and facilities, which
restore normal operations after
an incident.
Employees are encouraged to work
from home or take time off when
sick, to avoid spreading diseases
within the workplace. There are
also processes to ensure that
there isn't a single point of
failure and resiliency is built
into the employees' skillsets.
Increased Automation means a heavier
reliance on technology. Reduce
human error, but increase reliance
on other vendors potentially
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Systems and IT infrastructure
are key to our operational effectiveness.
Failures or significant downtime
could hinder our ability to
serve customers, sell solutions
or invoice.
Major outages in systems that
provide customer services could
limit clients' ability to extract
crucial information from their
systems or manage their software.
People are a huge part of our
operational success and processes
rely on people as much as technology
to be able to deliver effectively
to our customers. Insider threats,
either intentional or otherwise,
could cause issues to our ability
to deliver and damage our reputation.
Sickness and absence of employee,
if in significant number, such
as a communicable disease through
a particular team, could make
effective delivery difficult.
---------------------------------------------------------------- -----------------------------------------------------------------
11 ATTRACT AND RETAIN STAFF Risk owner CEO
WHILE KEEPING OUR CULTURE
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
The success of BTG's business We continually strive to be the
and growth strategy depends best company to work for in our
on our ability to attract, recruit, sector.
and retain a talented employee
base. Being able to offer competitive One of the ways we manage this
remuneration is an important risk is by growing our own talent
part of this. pools. We've used this approach
successfully in our graduate intakes
Three factors are affecting for sales, for example. BTG also
this: runs an extensive apprenticeship
* Inflation is still impacting salary expectations and programme to create a new security
wage growth. skill set.
Review Management bandwidth to
* Skills shortage in emerging, high demand areas, such enable coaching time for new staff.
as AI/ML.
Maintaining our culture is important
to retain current staff. That
* With remote or hybrid working becoming the norm, small company feel is maintained
potential employees in traditionally lower-paid through regular communications,
geographical regions are able to work remotely in clubs, charity events and social
higher-paying areas like London. events. We aim to absorb growth
rate whilst keeping our culture.
Maintaining BTG culture also
affects the attraction and retention
of 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 SUSTAINABILITY / ESG Risk owner CEO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
The growth in the importance Our Board manages and monitors
of sustainability / ESG with this risk closely, with oversight
our customers, investors, and from the Audit Committee. The
employees, means we need to Group appointed a Sustainability
stay at the forefront of reporting Manager in March 2023, to drive
and disclosures, whilst the the reporting and initiatives,
requirements and standards are whilst also working with an appointed
continually updated. third party to provide guidance
and assurance on reported data.
The Sustainability Steerco enables
decision makers from across Group
and the individual Operating Companies
to drive towards a common goal
and report on challenges.
Disclosures are made through several
avenues and the feedback from
these is used to develop changes
in the business. Therefore, as
the disclosure methodologies stay
up to date, so should the business,
where possible and relevant.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Falling behind our peers or
expectations may lead to challenges
in:
1. Legal - Maintaining adherence
with global standards.
2. Maintaining customers -
as they drive to reduce emissions.
3. Investor relations - meeting
criteria for ESG funds
4. Attracting and maintaining
Employees - as younger generations
seek to work for more purpose
driven businesses
---------------------------------------------------------------- -----------------------------------------------------------------
13 SUPPLY CHAIN MANAGEMENT Risk owner CEO
---------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Failure to understand suppliers Supplier set up forms include
may lead to regulatory, reputational, questions to ask suppliers to
and financial risks if they disclose information relating
expose our business to practices to compliance and adherence to
that we would not tolerate in our Supplier Code of Conduct
our own operations. The time
and effort to monitor and audit Any unethical, illegal, or corrupt
suppliers is considered a risk behaviour that comes to light
is escalated and appropriate actions
is taken.
Phoenix Software has appointed
a Procurement Manager and Bytes
Software Services has established
a cross-disciplinary group to
work on managing suppliers.
---------------------------------------------------------------- -----------------------------------------------------------------
The impact
Management of supply chains
is important to the sustainability
of the business from a legal,
financial, reputational, ethical,
and environmental viewpoint.
* Unethical working conditions & pay.
* Financial mismanagement and unethical behaviour
* Environmentally damaging
* Operations in sanctioned regions
---------------------------------------------------------------- -----------------------------------------------------------------
Going concern disclosure
The Group performed a full going concern assessment for the 6
months ended 31 August 2023 undertaking the review and process set
out in note 1.2. As outlined in the Chief Financial Officer's
review above, trading during the period demonstrated the Group's
strong performance and our resilient operating model. The Group has
a healthy liquidity position with GBP51.7 million of cash and cash
equivalents available at 31 August 2023. The Group also has access
to a committed revolving credit facility that covers the going
concern period to 28 February 2025 and which remains undrawn.
The directors have reviewed trading and liquidity forecasts for
the Group, as well as continuing to monitor the effects of
macro-economic, geopolitical and climate related risks on the
business. The directors have also considered a number of key
dependencies which are set out in the Group's principal risks
report, and including BTG's exposure to inflation pressures, credit
risk, liquidity risk, currency risk and foreign exchange risk. The
Group continues to model its base case, severe but plausible and
stressed scenarios, including mitigations, consistently with those
disclosed in the annual financial statements for the year ended 28
February 2023, with the key assumptions summarised within the
interim condensed financial statements below. Under all scenarios
assessed, the Group would remain cash positive throughout the whole
of the going concern period without needing to utilise the
revolving credit facility.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 28 February 2025. Accordingly, the
directors conclude it to be appropriate that the interim condensed
consolidated financial statements be prepared on a going concern
basis.
Responsibility statement pursuant to the Financial Services
Authority's Disclosure and Transparency Rule 4 (DTR 4)
Each director of the company confirms that (solely for the
purpose of DTR 4) to the best of his/her knowledge:
-- The financial information in this document, prepared in
accordance with the applicable UK law and applicable accounting
standards, gives a true and fair view of the assets, liabilities,
financial position, and result of the Group taken as a whole.
-- The Chief Executive Officer's and Chief Financial Officer's
reviews include a fair review of the development and performance of
the business and the position of the Group taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Neil Murphy Andrew Holden
Chief Executive Officer Chief Financial Officer
25 October 2023
Interim condensed consolidated statement of profit or loss
For the six months ended 31 August
Six months ended Year
ended
31 August 31 August 28 February
2023 2022 2023
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Revenue 3 108,699 93,533 184,421
Cost of sales (33,365) (28,045) (54,848)
---------- ---------- ------------
Gross profit 75,334 65,488 129,573
Administrative expenses (44,725) (37,000) (77,753)
Increase in loss allowance
on trade receivables - (1,193) (937)
---------- ---------- ------------
Operating profit 30,609 27,295 50,883
Finance income 4 2,859 - -
Finance costs 4 (244) (255) (491)
Share of profit of associate 6 120 - -
---------- ---------- ------------
Profit before taxation 33,344 27,040 50,392
Income tax expense 5 (7,956) (5,333) (9,971)
---------- ---------- ------------
Profit after taxation 25,388 21,707 40,421
---------- ---------- ------------
Profit for the period attributable to owners
of the parent company 25,388 21,707 40,421
---------- ---------- ------------
Pence Pence Pence
Basic earnings per ordinary
share 16 10.60 9.06 16.88
Diluted earnings per ordinary
share 16 10.17 8.74 16.28
The consolidated statement of profit or loss has been prepared
on the basis that all operations are continuing operations.
There are no items to be recognised in other comprehensive
income and hence, the Group has not presented a statement of other
comprehensive income.
Interim condensed consolidated statement of financial
position
As at As at As at
31 August 31 August 28 February
2023 2022 2023
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 8,654 8,128 8,380
Right-of-use assets 1,134 856 783
Intangible assets 41,086 42,027 41,526
Investment in associate 6 3,147 - -
Contract assets 3,020 109 397
Deferred tax assets 436 - -
----------- ----------- -------------
Total non-current assets 57,477 51,120 51,086
----------- ----------- -------------
Current assets
Inventories 58 45 58
Contract assets 13,985 4,206 10,684
Trade and other receivables 8 180,148 176,674 185,920
Cash and cash equivalents 9 51,663 35,756 73,019
----------- ----------- -------------
Total current assets 245,854 216,681 269,681
----------- ----------- -------------
Total assets 303,331 267,801 320,767
----------- ----------- -------------
Liabilities
Non-current liabilities
Lease liabilities (1,170) (897) (917)
Contract liabilities (1,567) (1,769) (1,976)
Deferred tax liabilities - (787) (635)
----------- ----------- -------------
Total non-current liabilities (2,737) (3,453) (3,528)
----------- ----------- -------------
Current liabilities
Trade and other payables 10 (222,909) (199,585) (231,717)
Contract liabilities (16,046) (18,265) (23,914)
Current tax liabilities (1,460) (239) (36)
Lease liabilities (188) (188) (75)
----------- ----------- -------------
Total current liabilities (240,603) (218,277) (255,742)
----------- ----------- -------------
Total liabilities (243,340) (221,730) (259,270)
----------- ----------- -------------
Net assets 59,991 46,071 61,497
----------- ----------- -------------
Equity
Share capital 2,395 2,395 2,395
Share premium 633,636 633,636 633,636
Other reserves 10,516 4,775 7,235
Merger reserve (644,375) (644,375) (644,375)
Retained earnings 57,819 49,640 62,606
----------- ----------- -------------
Total equity 59,991 46,071 61,497
----------- ----------- -------------
Interim condensed consolidated statement of changes in equity
(unaudited)
Attributable to owners of the company
Share Share Other Merger Retained Total
capital premium reserves reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 March
2023 2,395 633,636 7,235 (644,375) 62,606 61,497
Total comprehensive income
for the period - - - - - 25,388 25,388
Dividends paid 13(b) - - - - - (30,175) (30,175)
Share-based payment transactions
15 - - - 2,900 - - 2,900
Deferred tax - - - 381 - - 381
--------- -------- --------- ---------- --------- ---------
Balance at 31 August 2023 2,395 633,636 10,516 (644,375) 57,819 59,991
--------- -------- --------- ---------- --------- ---------
Balance at 1 March 2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income
for the period - - - - - 21,707 21,707
Dividends paid 13(b) - - - - - (24,906) (24,906)
Share-based payment
transactions 15 - - - 1,702 - - 1,702
Deferred tax - - - 1 - - 1
--------- -------- --------- ---------- --------- ---------
Balance at 31 August
2022 2,395 633,636 4,775 (644,375) 49,640 46,071
--------- -------- --------- ---------- --------- ---------
Balance at 1 March
2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income
for the period - - - - - 40,421 40,421
Dividends paid 13(b) - - - - - (30,654) (30,654)
Share-based payment
transactions 15 - - - 4,188 - - 4,188
Deferred tax - - - (25) - - (25)
--------- -------- --------- ---------- --------- ---------
Balance at 28 February
2023 2,395 633,636 7,235 (644,375) 62,606 61,497
--------- -------- --------- ---------- --------- ---------
Interim condensed consolidated statement of cash flows
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Cash generated from/(utilised by)
operations 11 17,417 (238) 48,889
Interest received 2,859 - -
Interest paid (196) (229) (443)
Income taxes paid (7,222) (5,276) (10,295)
---------- ---------- -------------
Net cash inflow/(outflow) from operating
activities 12,858 (5,743) 38,151
Cash flows from investing activities
Payments for property, plant and
equipment (885) (595) (1,363)
Investment in associate (3,027) - -
---------- ---------- -------------
Net cash outflow from investing
activities (3,912) (595) (1,363)
Cash flows from financing activities
Principal elements of lease payments (127) (118) (233)
Dividends paid to shareholders 13(b) (30,175) (24,906) (30,654)
---------- ---------- -------------
Net cash outflow from financing
activities (30,302) (25,024) (30,887)
Net (decrease)/increase in cash
and cash equivalents (21,356) (31,362) 5,901
Cash and cash equivalents at the beginning
of the financial year 73,019 67,118 67,118
---------- ---------- -------------
Cash and cash equivalents at end
of year 9 51,663 35,756 73,019
---------- ---------- -------------
Notes to the interim condensed consolidated financial
statements
1. Accounting policies
1.1 General information
The interim condensed consolidated financial statements of Bytes
Technology Group plc, together with its subsidiaries ("the Group"
or "the Bytes business") for the six months ended 31 August 2023
were authorised for issue in accordance with a resolution of the
directors on 24 October 2023.
The Company is a public limited company, incorporated and
domiciled in the UK. Its registered address is Bytes House,
Randalls Way, Leatherhead, Surrey, KT22 7TW.
The Group is one of the UK's leading providers of IT software
offerings and solutions, with a focus on cloud and security
products. The Group enables effective and cost-efficient technology
sourcing, adoption and management across software services,
including in the areas of security and cloud. The Group aims to
deliver the latest technology to a diverse and embedded
non-consumer customer base and has a long track record of
delivering strong financial performance. The Group has a primary
listing on the Main Market of the London Stock Exchange (LSE) and a
secondary listing on the Johannesburg Stock Exchange (JSE).
1.2 Basis of preparation
The annual consolidated financial statements of the Group will
be prepared in accordance with UK-adopted International Accounting
Standards ("UK-adopted IFRSs").
The interim condensed consolidated financial statements for the
six months ended 31 August 2023 have been prepared in accordance
with UK-adopted International Accounting Standard ("IAS") 34
Interim Financial Reporting.
The interim condensed consolidated financial statements have
been reviewed, but not audited, by Ernst & Young LLP and were
approved by the Board of Directors on 24 October 2023. The
financial information contained in this report does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The interim condensed consolidated financial
statements should be read in conjunction with the annual
consolidated financial statements for the year ended 28 February
2023, which were prepared in accordance with UK-International
Accounting Standards in conformity with the requirements of the
Companies Act 2006. The annual financial statements for the year
ended 28 February 2023 were approved by the Board of Directors on
22 May 2023 and have been delivered to the registrar. The auditor's
report on those financial statements was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
The Group's interim condensed consolidated financial statements
comprise the interim condensed consolidated statement of profit or
loss, interim condensed consolidated statement of financial
position, interim condensed consolidated statement of changes in
equity and interim condensed consolidated statement of cash flows
and a summary of significant accounting policies and the notes
thereto.
All amounts disclosed in the Group's interim condensed
consolidated financial statements and notes have been rounded off
to the nearest thousand, unless otherwise stated.
Going concern
The Group has performed a full going concern assessment for the
6-month period ended 28 February 2023. As outlined in the Chief
Financial Officer's review above, trading during the period
demonstrated the Group's continued strong performance and resilient
operating model with double digit growth in gross invoiced income,
gross profit, and operating profit against the prior year.
The Group has a healthy liquidity position at 31 August 2023
with GBP51.7 million of cash and cash equivalents available, and
net current assets of GBP5.2 million, after having paid final and
special dividends in relation to the year ended 28 February 2023
totalling GBP30.2 million during the period. The Group has also
seen an increase in its cash conversion during the six months,
compared to the equivalent prior period, and targets a sustainable
cash conversion ratio of 100% on a rolling 12-month basis. The
Group has access to a GBP30 million committed revolving credit
facility (RCF) that covers all its reasonably expected cash
requirements up until the end of the going concern review period
and extends further beyond that date to May 2026. The facility has
never been used and we do not forecast its use over the going
concern assessment period.
In continuing to adopt a going concern basis for preparing the
interim condensed financial statements for the period ended 31
August 2023, the directors have reviewed trading and cash forecasts
prepared for the Group up to 28 February 2025. This included
considering the availability of liquidity headroom on the revolving
credit facility, and a number of uncertainties which are set out in
the Group's principal risks above, as well as the Group's exposure
to credit risk, liquidity risk, currency risk and foreign exchange
risk as described in note 12 of the interim condensed financial
statements and considered further below.
The Directors have also considered impacts on future trading and
liquidity in the context of the current operational performance and
the macro-economic and geopolitical environments.
Operational performance and operating model
The Group is now in its fourth year of trading since it listed
in December 2020, following the previous three years of strong
growth. In the current period of reporting the Group has again
achieved double-digit growth in gross invoiced income, revenue,
gross profit, and operating profit.
Resilience is built into the Group's operating model from its
wide customer base, high levels of repeat business, strong vendor
relationships, and increased demand driven by heightened IT
security risks, migrations into the cloud, and hybrid working. The
key elements of the model are explained in further detail on pages
132-133 in the annual financial statements for the year ended 28
February 2023 to which we are already seeing emerging requirements
for AI functionality within IT applications. This will further
bolster our resilience and create new opportunities in the coming
months and years.
As a result, the directors believe that the Group continues to
operate in a resilient industry, which will enable it to continue
its profitable growth trajectory but are also very aware of the
risks which exist in the wider economy. Over the past 18 months,
other risks have become more prominent around energy, wage, and
commodities inflation; supply problems caused by the conflict in
Ukraine; product shortages; and climate change. These risks align
to those identified in our principal risks statement, notably
economic disruption, inflation, and attraction and retention of
staff. The Board monitor these macroeconomic and geopolitical risks
on an ongoing basis. They are considered further below.
Macroeconomic risks
-- Energy cost inflation - Our businesses are not naturally
heavy consumers of energy, and hence this element of our overall
cost base is a very small part of the total group administrative
expenses. Even a substantial percentage rise would not have a
significant impact on our operating profit.
-- Cost of sale inflation and competition leading to margin
pressure - Whilst pricing from our suppliers may be at risk of
increasing, as they too face the same macroeconomic pressures as
ourselves, our commercial model is based on passing on supplier
price increases to our customers. We also see pressure from our
customers, notably in the public sector space where new business
must often be won under highly competitive tendering processes.
Hence, whilst there has been a reduction in our gross profit/gross
invoiced income (GP/GII%) in the period, this is almost entirely
attributable to two exceptionally large new public sector contracts
which were secured at reduced margins, for strategic reasons, in
order to monetize those accounts over the longer contract terms.
Excluding those deals, we have maintained our GP/GII% compared to
the prior period and this remains one of the biggest focus areas in
our business.
-- Wage inflation - the business has been facing pressure from
wage inflation over the past two years. Where strategically
required we have increased salaries to retain key staff in the
light of approaches from competitors, especially where staff have
specialist or technical skills. We monitor our staff attrition rate
and have maintained a level below 15% which is consistent with last
year. We do not believe there has been any significant outflow of
staff due to being uncompetitive with salaries. We have a strong,
collaborative, and supportive culture and offer our staff
employment in a business which is robust and which they are proud
of, and this is a key part of our attraction and retention
strategy.
Moreover, when we look at our key operational efficiency ratio
of adjusted operating profit/gross profit (AOP/GP) we have achieved
45% which is in line with last year, hence demonstrating the
control over rising staff costs in response to the growth of the
business. Whilst we have already aligned staff salaries to market
rates, further expected rises have been factored into the financial
forecasts in line with those awarded in the past year.
-- Interest rates - interest rates rising rapidly in the UK and
internationally have had a negative financial impact on many
organisations and households. The Group however does not have any
debt, and hence currently no exposure, nor has it ever needed to
call upon its revolving credit facility. We have taken advantage of
the recent higher interest rates to generate a significant GBP2.9
million of interest income in the 6-month period, due to the timing
difference we see in our cashflow model between customer receipts
and supplier payments, and by placing cash on the money markets
through our monthly cash cycle.
-- Foreign currency rate changes - fluctuations in the value of
the pound can have both positive and negative impacts but we have
the ability to self-hedge as we make both sales and purchases in
the primary currencies of USD and Euro. Risk is further diminished
as our foreign currency transactions are only a small part of our
business.
-- Inflation and rising interest rates impacting on customer
spending - whilst customers may consider reducing spending on IT
goods and services, if it is seen as non-essential, we have seen
increased spending by our customers as IT may in fact be a means to
efficiency and savings elsewhere. As our customers undergo IT
transformation, trending to the cloud, automation, and managed
service and with growing cybersecurity concerns also heightening
the requirements for IT security, we are seeing no let-up in
demand, as illustrated by our reported trading performance. This is
supported by our very robust operating model, with business spread
over many customers in repeat subscription programs and service
contracts, and high renewal rates.
-- Inflation and rising interest rates impacting on customer
payments - across the period we have seen a small reduction in our
debtor days compared to prior year and with no evidence that
customers ultimately do not pay. As in previous years, the majority
of our GII came from the public sector, traditionally very safe and
with low credit risk, whilst our corporate customer base includes a
wide range of blue-chip organisations and with no material reliance
on any single customer.
Geopolitical risks
The current geopolitical environment, most notably the conflict
in Ukraine, has created potential supply problems, product
shortages and general price rises particularly in relation to fuel,
gas, and electricity.
-- As noted above, increasing energy prices are not having a
noticeable impact on our profitability.
-- In terms of supply chain, we are not significantly or
materially dependent on the movement of goods and hence physical
trade obstacles are not likely to affect us directly with hardware
only making up 2% of our gross invoiced income during the period.
Nevertheless, we have ensured that we have a number of suppliers
with substitute, or alternative, technologies which we can rely on
if one supplier cannot meet our requirements or time scales; this
indicates that we have managed the supply chain well.
-- Software sales though continue to be the dominant element of
our overall gross invoiced income and hence is not inherently
affected by cross-border issues.
Climate change risks
The Group does not believe that the effects of climate change
will have a material impact on its operations and performance over
the going concern review period considering:
-- The small number of UK locations it operates from.
-- A customer base substantially located within the UK.
-- A supply chain which is not reliant on international trade
and does not source products and services from parts of the world
which may be impacted more severely by climate change.
-- It sells predominantly electronic software licences and so
has no manufacturing or storage requirements.
-- Its workforce can work seamlessly from home should any of
their normal work locations be impacted by a climatic event,
although in the UK these tend to be thankfully infrequent and not
extreme.
Climate risks are considered fully in the Task Force on
Climate-related Financial Disclosures (TCFD) included in the Annual
Report for the year ended 28 February 2023.
Going concern assessment
The Group continues to forecast cashflows under a base case
scenario modelled on continued growth, and then two downside
scenarios, severe but plausible and stressed, both of which include
certain appropriate mitigations. This approach to stress testing is
consistent with the disclosure on page 135 in the annual financial
statements for the year ended 28 February 2023.
In its assessment, the Board has considered the potential impact
of the current economic conditions and geopolitical environment as
described above, most notably general inflation, wage inflation,
the conflict in Ukraine and, climate change. Whilst there is
resilience against such pressures, as noted above, if any of these
factors leads to a reduction in spending by the Group's customers,
there may be an adverse effect on the Group's future gross invoiced
income, gross profit, operating profit, and debtor collection
periods.
In the most stressed scenario, we have forecast both gross
invoiced income and gross profit falling by 30% year on year, and
by 39% compared to the base case, commencing in December 2023, and
debtor days increasing by 10 at that same point in time. The
directors consider that such deteriorations remain appropriate to
reflect the potential collective impact of all the macro-economic
and geopolitical matters considered above, albeit highly
unlikely.
Under such downsides the Board have factored in the extent to
which they might be partially offset by freezes in recruitment, pay
rises and general costs (including a natural reduction in
commissions and bonuses if gross profit falls) and with further
mitigation measures including reductions in headcount (through
natural attrition by not replacing leavers). These mitigations are
within the control of the Group to implement quickly in response to
any downward trends should they be necessary.
Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period, with no
requirement to call upon the revolving credit facility and
remaining compliant with the facility covenants.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 28 February 2025. Accordingly, the
directors conclude it to be appropriate that the interim condensed
financial statements be prepared on a going concern basis.
1.3 Critical accounting estimates and judgements
The preparation of the interim condensed consolidated financial
statements requires the use of accounting estimates which, by
definition, will seldom equal the actual results. Management also
needs to exercise judgement in applying the Group's accounting
policies.
The accounting estimates and judgements adopted for these
interim condensed consolidated financial statements are consistent
with those of the previous financial year as disclosed in the
Group's annual report and accounts for the year ended 28 February
2023.
1.4 New standards, interpretations and amendments adopted by the
Group
There were no new standards, interpretations and amendments
adopted by the Group during the period to 31 August 2023 that have
a material impact on the interim condensed consolidated financial
statements of the Group.
1.5 Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are the same as
those set out in the Group's annual consolidated financial
statements for the year ended 28 February 2023, except for the new
accounting policy in note 1.6 below.
1.6 Investment in associates
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies. The Group's
investment in its associate is accounted for using the equity
method.
Under the equity method, the investment in an associate is
initially recognised at cost. The carrying amount of the investment
is adjusted to recognise changes in the Group's share of net assets
of the associate since the acquisition date. The statement of
profit or loss reflects the Group's share of profit of the
associate. Where there is objective evidence that the investment in
associate is impaired, the amount of the impairment is recognised
within 'Share of profit of associate' in the statement of profit or
loss.
1.7 Finance income and costs
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs comprises interest expense on borrowings and the
unwinding of the discount on lease liabilities, that are recognised
in profit or loss as it accrues using the effective interest
method.
2. Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer,
who is considered to be the chief operating decision maker for the
purposes of resource allocation and assessment of performance, is
based wholly on the overall activities of the Group. The Group has
therefore determined that it has only one reportable segment under
IFRS 8, which is that of 'IT solutions provider'. The Group's
revenue, results, assets and liabilities for this one reportable
segment can be determined by reference to the interim condensed
consolidated statement of profit or loss and the interim condensed
consolidated statement of financial position. An analysis of
revenues by product lines and geographical regions, which form one
reportable segment, is set out in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure
which excludes the effects of amortisation of acquired intangible
assets and share-based payment charges.
Adjusted operating profit reconciles to operating profit as
follows:
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2022 2023
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Adjusted operating profit 33,949 29,802 56,377
Share-based payment charges 15 (2,900) (1,702) (4,188)
Amortisation of acquired intangible
assets (440) (805) (1,306)
------------- ------------- -------------
Operating profit 30,609 27,295 50,883
------------- ------------- -------------
3. Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with
customers:
The Group derives revenue from the transfer of goods and
services in the following major product lines and geographical
regions:
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2022 2023
Unaudited Unaudited Audited
Revenue by product GBP'000 GBP'000 GBP'000
Software 67,088 57,884 114,108
Hardware 24,112 20,865 38,355
Services internal 15,473 13,350 28,454
Services external 2,026 1,434 3,504
------------- ------------- -------------
Total revenue from contracts
with customers 108,699 93,533 184,421
------------- ------------- -------------
Software
The Group's software revenue comprises the sale of various types
of software licences (including both cloud-based and
non-cloud-based licences), subscriptions and software assurance
products.
Hardware
The Group's hardware revenue comprises the sale of items such as
servers, laptops and other devices.
Services internal
The Group's internal services revenue comprises internally
provided consulting services through its own internal
resources.
Services external
The Group's external services revenue comprises the sale of
externally provided training and consulting services through
third-party contractors.
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Revenue by geographical Unaudited Unaudited GBP'000
regions GBP'000 GBP'000
United Kingdom 105,296 90,042 177,882
Europe 2,111 2,425 4,358
Rest of world 1,292 1,066 2,181
----------- ----------- -------------
108,699 93,533 184,421
----------- ----------- -------------
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
3(b) Gross invoiced income by GBP'000 GBP'000 GBP'000
type
Software 1,027,305 738,448 1,346,110
Hardware 24,112 20,865 38,355
Services internal 15,473 13,350 28,454
Services external 14,751 13,538 26,395
----------- ----------- -------------
1,081,641 786,201 1,439,314
----------- ----------- -------------
Gross invoiced income 1,081,641 786,201 1,439,314
Adjustment to gross invoiced income
for income recognised as agent (972,942) (692,668) (1,254,893)
----------- ----------- -------------
Revenue 108,699 93,533 184,421
----------- ----------- -------------
Gross invoiced income reflects gross income billed to customers
adjusted for deferred and accrued revenue items. The Group reports
gross invoiced income as an alternative financial KPI as management
believes this measure allows further understanding of business
performance and position particularly in respect of working capital
and cash flow.
4. Finance income and costs
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Bank interest received 2,859 - -
----------- ----------- -------------
Finance income 2,859 - -
Interest expense on financial liabilities (219) (229) (443)
Interest expense on lease liability (25) (26) (48)
----------- ----------- -------------
Finance costs expensed (244) (255) (491)
----------- ----------- -------------
Net finance income / (costs) 2,615 (255) (491)
----------- ----------- -------------
5. Income tax expense
Income tax expense is recognised based on management's estimate
of the weighted average effective annual income tax rate expected
for the full financial year. The estimated average annual rate used
for the period to 31 August 2023 is 23.9%, compared to 19.7% for
the period to 31 August 2022. The tax rate is higher in the current
period, due primarily to the increase in the UK corporate tax rate
from 19% to 25% effective from 1 April 2023.
The major components of the Group's income tax expense for all
periods are:
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
Current tax expense GBP'000 GBP'000 GBP'000
Current income tax charge in the
year 8,723 5,734 10,483
Adjustment in respect of current
income tax of previous years (77) - 66
Total current income tax charge 8,646 5,734 10,549
Deferred tax credit
Current year deferred tax credits (690) (401) (402)
Adjustments in respect of prior year - - (75)
Effect of change in tax rates - - (101)
----------- ----------- -------------
Total deferred tax credit (690) (401) (578)
----------- ----------- -------------
Total tax charge 7,956 5,333 9,971
----------- ----------- -------------
Amounts recognised directly in equity
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Aggregate deferred tax arising in
the reporting period and not recognised
in net profit or loss or other comprehensive
income but directly credited to equity:
Deferred tax: share-based payments 381 1 (24)
----------- ----------- -------------
381 1 (24)
----------- ----------- -------------
6. Investment in associate
With effect from 18 April 2023 the Group acquired 25.1% interest
in Cloud Bridge Technologies Limited for GBP3.0 million, settled in
cash. The Group's interest in Cloud Bridge Technologies Limited is
accounted for using the equity method.
7. Financial assets and financial liabilities
This note provides information about the Group's financial
instruments, including:
-- an overview of all financial instruments held by the Group;
-- specific information about each type of financial instrument; and
-- information about determining the fair value of the
instruments, including judgements and estimation uncertainty
involved.
The Group holds the following financial instruments:
Financial assets As at 31 As at 31 As at 28
August 2023 August 2022 February
Unaudited Unaudited 2023
Audited
Note GBP'000 GBP'000 GBP'000
Financial assets at amortised
cost:
Trade receivables 8 165,293 166,598 178,386
Other receivables 8 12,015 7,753 5,896
------------- ------------- ----------
177,308 174,351 184,282
------------- ------------- ----------
Financial liabilities As at 31 As at 31 As at 28
August 2023 August 2022 February
Unaudited Unaudited 2023
Audited
Note GBP'000 GBP'000 GBP'000
Financial liabilities at amortised
cost:
Trade and other payables - current,
excluding Payroll tax and other
statutory tax liabilities 10 218,970 196,109 217,253
Lease liabilities 1,358 1,085 992
------------- ------------- ----------
220,328 197,194 218,245
------------- ------------- ----------
8. Trade and other receivables
As at 31 As at As at 28
August 2023 31 August February
Unaudited 2022 2023
Unaudited Audited
Financial assets GBP'000 GBP'000 GBP'000
Gross trade receivables 166,835 168,541 179,928
Less: loss allowance (1,542) (1,943) (1,542)
------------- ----------- ----------
Net trade receivables 165,293 166,598 178,386
Other receivables 12,015 7,753 5,896
------------- ----------- ----------
177,308 174,351 184,282
Non-financial assets
Prepayments 2,840 2,323 1,638
------------- ----------- ----------
2,840 2,323 1,638
------------- ----------- ----------
Trade and other receivables 180,148 176,674 185,920
------------- ----------- ----------
9. Cash and cash equivalents
As at As at As at 28
31 August 31 August February
2023 2022 2023
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Cash at bank and in hand 51,663 35,756 73,019
----------- ----------- ----------
51,663 35,756 73,019
----------- ----------- ----------
10. Trade and other payables
As at As at 31 As at 28
31 August August 2022 February
2023 Unaudited 2023
Unaudited Audited
GBP'000 GBP'000 GBP'000
Trade and other payables 172,447 139,597 138,307
Accrued expenses 46,523 56,512 78,946
Payroll tax and other statutory liabilities 3,939 3,476 14,464
----------- ------------- ----------
222,909 199,585 231,717
----------- ------------- ----------
11. Cash generated from operations
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2022 2023
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Profit before taxation 33,344 27,040 50,392
Adjustments for:
Depreciation and amortisation 1,145 1,394 2,480
Loss on disposal of property, plant
and equipment - - 3
Non-cash employee benefits expense
- share based payments 15 2,900 1,702 4,188
Finance (Income)/costs
- net (2,615) 255 491
Share of profit of associate (120) - -
(Increase)/decrease in contract
assets (5,924) 2,401 (4,365)
Decrease/(increase) in trade and
other receivables 5,772 (19,065) (28,310)
Decrease in inventories - 51 38
(Decrease)/increase in trade and
other payables (8,808) (18,027) 14,105
(Decrease)/increase in contract
liabilities (8,277) 4,011 9,867
Cash generated from/(utilised
by) operations 17,417 (238) 48,889
------------- ------------- -------------
12. Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current period consolidated profit or loss and
statement of financial position information has been included where
relevant to add further context.
Management monitors the liquidity and cash flow risk of the
Group carefully. Cash flow is monitored by management on a regular
basis and any working capital requirement is funded by cash
resources or access to the revolving credit facility.
The main financial risks arising from the Group's activities are
credit, liquidity and currency risks. The Group's policy in respect
of credit risk is to require appropriate credit checks on potential
customers before sales are made. The Group's approach to credit
risk is disclosed in note 24 in its annual consolidated financial
statements for the year ended 28 February 2023.
12(a) Derivatives
Derivatives are only used for economic hedging purposes and not
speculative investments.
The Group has taken out forward currency contracts during the
periods presented but has not recognised either a forward currency
asset or liability at each period end as the fair value of the
foreign currency forwards is considered to be immaterial to the
consolidated financial statements due to the low volume and
short-term nature of the contracts. Similarly, the amounts
recognised in profit or loss in relation to derivatives were
considered immaterial to disclose separately.
12(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the
reporting period, was as follows:
As at 31 August 2023 As at 31 August As at 28 February
Unaudited 2022 2023
Unaudited Audited
USD EUR NOK USD EUR NOK USD EUR NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 10,462 3,858 - 9,646 3,958 - 13,529 1,900 -
Cash and cash
equivalents 3,799 3,892 - 4,898 1,734 606 250 214 -
Trade payables (20,651) (2,132) (611) (12,207) (2,015) (30) (15,286) (1,981) (221)
--------- -------- -------- --------- -------- -------- --------- -------- --------
(6,390) 5,618 (611) 2,337 3,677 576 (1,507) 133 (221)
--------- -------- -------- --------- -------- -------- --------- -------- --------
The aggregate net foreign exchange gains/losses recognised in
profit or loss were:
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Total net foreign exchange (losses)/gains
in profit or loss (186) 15 32
----------- ----------- -------------
(186) 15 32
----------- ----------- -------------
12(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient
cash to meet obligations when due. The Group generates positive
cash flows from operating activities and these fund short-term
working capital requirements. The Group aims to maintain
significant cash reserves and none of its cash reserves are subject
to restrictions. Access to cash is not restricted and all cash
balances could be drawn upon immediately if required. Management
carefully monitors the levels of cash held and is comfortable that
for normal operating requirements, no further external borrowings
are currently required.
As at 31 August 2023, the Group had cash and cash equivalents of
GBP51.7 million (2023: GBP73.0 million), see note 8. Management
monitors rolling forecasts of the Group's liquidity position (which
comprises its cash and cash equivalents) on the basis of expected
cash flows generated from the Group's operations. These forecasts
are generally carried out at a local level in the operating
companies of the Group in accordance with practice and limits set
by the Group and take into account certain down case scenarios.
(2) Revolving Credit Facility
On 17 May 2023 the Group entered into a new three-year committed
Revolving Credit Facility (RCF) for GBP30 million, including an
optional one-year extension to 17 May 2027, and a non-committed
GBP20 million accordion to increase the availability of funding
should it be required for future activity. The new facility
replaced the previous RCF which was entered into in December 2020.
The new facility has incurred an arrangement fee of GBP0.1 million,
being 0.4% of the new funds available. The Group has so far not
drawn down any amount on this facility and to the extent that there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee has been capitalised as a prepayment
and amortised over the period of the facility. The facility also
incurs a commitment fee and a utilisation fee, both of which are
payable quarterly in arrears. Under the terms of the facility, the
Group is required to comply with the following financial
covenants:
-- Interest cover: EBITDA (earnings before interest, tax,
depreciation and amortisation) to net finance charges for the last
12 months shall be greater than 4.0 times;
-- Leverage: Net debt to EBITDA for the last 12 months must not exceed 2.5 times.
The Group has complied with these covenants throughout the
reporting period.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual
maturity for its financial liabilities based on undiscounted
contractual payments:
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
31 August 2023 - Unaudited Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables(1) 10 218,970 - - - 218,970 218,970
Lease liabilities 247 363 864 - 1,474 1,358
--------- ---------- ---------- ---------- ------------- -----------
219,217 363 864 - 220,444 220,328
--------- ---------- ---------- ---------- ------------- -----------
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
31 August 2022 - Unaudited GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables(1) 10 196,109 - - - 196,109 196,109
Lease liabilities 231 116 694 198 1,239 1,085
--------- ---------- ---------- ---------- ------------- -----------
196,340 116 694 198 197,348 197,194
--------- ---------- ---------- ---------- ------------- -----------
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
28 February 2023 - Audited Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables(1) 10 217,253 - - - 217,253 217,253
Lease liabilities 116 463 545 - 1,124 992
--------- ---------- ---------- ---------- ------------- -----------
217,369 463 545 - 218,377 218,245
--------- ---------- ---------- ---------- ------------- -----------
(1) excludes payroll tax and other statutory liabilities
13. Capital management
13(a) Risk management
For the purpose of the Group's capital management, capital
includes issued capital, ordinary shares, share premium and all
other equity reserves attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to maximise shareholder value.
The Group manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of
shareholders. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. In order to ensure an
appropriate return for shareholders' capital invested in the Group,
management thoroughly evaluates all material revenue streams,
relationship with key vendors and potential acquisitions and
approves them by the Board, where applicable. The Group's dividend
policy is based on the profitability of the business and underlying
growth in earnings of the Group, as well as its capital
requirements and cash flows. The Group's dividend policy is to
distribute 40% of the Group's post-tax pre-exceptional earnings to
shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider
returning excess cash to shareholders over time.
13(b) Dividends
Period Period Year ended
ended 31 ended 31 28 February
August August 2023
2023 2022 Audited
Unaudited Unaudited
Declared and paid during the period GBP'000 GBP'000 GBP'000
Interim dividend - - 5,748
Final dividend 12,214 10,058 14,848
Special dividend 17,961 14,848 10,058
----------- ----------- -------------
Total dividends attributable to ordinary
shareholders 30,175 24,906 30,654
----------- ----------- -------------
Dividends not recognised at 31 August 2023
Since the end of the half year the directors have recommended
the payment of an interim dividend of 2.7 pence per fully paid
ordinary share (2022: 2.4 pence). The aggregate amount of the
proposed dividend expected to be paid on 1 December 2023 out of
retained earnings at 31 August 2023, but not recognised as a
liability at the end of the half year, is GBP6.5 million.
14. Related party transactions
In the ordinary course of business, the Group carries out
transactions with related parties, as defined by IAS 24 'Related
Party Disclosures'. There have been no related party transactions
that materially affect the current period. Related party
transactions materially affecting the prior periods reported relate
to the final and interim dividends paid to the Group's former
parent group, disclosed in note 12(b).
15. Share-based payments
For the six months ended 31 August 2023, 1,578,955 share options
were granted to eligible employees.
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2022 2023
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Share-based payment employee
expenses 2,900 1,702 4,188
------------- ------------- -------------
2,900 1,702 4,188
------------- ------------- -------------
16. Earnings per share
The Group calculates earnings per share (EPS) on several
different bases in accordance with IFRS and prevailing South Africa
requirements. The Group is required to calculate headline earnings
per share (HEPS) in accordance with the JSE Listing
Requirements.
Period Period Year ended
ended 31 ended 31 28 February
August August 2022 2023
2023 Unaudited Audited
Unaudited
pence pence pence
Basic earnings per share 10.60 9.06 16.88
Diluted earnings per share 10.17 8.74 16.28
Headline earnings per share 10.60 9.06 16.88
Diluted headline earnings per share 10.17 8.74 16.28
Adjusted earnings per share 11.71 10.11 18.83
Diluted adjusted earnings per share 11.23 9.75 18.16
16(a) Weighted average number of shares used as the
denominator
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2023
Unaudited 2022 Audited
Unaudited
Number Number Number
Weighted average number of ordinary
shares used as the denominator in calculating
both basic EPS and HEPS 239,482,333 239,482,333 239,482,333
Adjustments for calculation of both
diluted EPS and diluted HEPS:
- share options(1) 10,105,688 8,866,180 8,760,684
------------- ------------ -------------
Weighted average number of ordinary
shares and potential ordinary shares
used as the denominator in calculating
both diluted EPS and diluted HEPS 249,588,021 248,348,513 248,243,017
(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.
16(b) Headline earnings per share
The table below reconciles the profits attributable to owners of
the company to headline profits attributable to owners of the
company:
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2023
Unaudited 2022 Audited
Unaudited
GBP'000 GBP'000 GBP'000
Profits attributable to owners of
the company 25,388 21,707 40,421
Adjusted for:
* Loss on disposal of property, plant and equipment - - 3
* Tax effect thereon - - (1)
------------- ----------- -------------
Headline profits attributable to
owners of the company 25,388 21,707 40,423
------------- ----------- -------------
16(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative
performance measure which is consistent with the way that financial
performance is measured by senior management of the Group. It is
calculated by dividing the adjusted operating profit attributable
to ordinary shareholders by the total number of ordinary shares in
issue at the end of the year. Adjusted operating profit is
calculated to reflect the underlying long-term performance of the
Group by excluding the impact of the following items:
-- Share-based payment charges
-- Amortisation of acquired intangible assets
The table below reconciles the profit for the financial year to
adjusted earnings and summarises the calculation of adjusted
EPS:
Period Period Year ended
ended 31 ended 31 28 February
August 2023 August 2023
Unaudited 2022 Audited
Unaudited
GBP'000 GBP'000 GBP'000
Profits attributable to owners of the
company 25,388 21,707 40,421
Adjusted for:
* Amortisation of acquired intangible assets 440 805 1,306
* Deferred tax effect on amortisation (110) - (301)
* Share-based payment charges 2,900 1,702 4,188
* Deferred tax effect on share-based payment charges (580) - (522)
Total adjusted earnings attributable
to owners of the company 28,038 24,214 45,092
------------- ----------- -------------
(1) The prior year has not been restated to include the deferred
tax effect on the adjusting items as the impact was considered to
be immaterial. Had the prior year been restated the adjusted
profits attributable to owners of the company would have been
GBP23.8 million.
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END
IR DZLFLXBLFFBX
(END) Dow Jones Newswires
October 25, 2023 02:00 ET (06:00 GMT)
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