TIDMBYIT
RNS Number : 8065Z
Bytes Technology Group PLC
26 May 2021
26 May 2021
Bytes Technology Group plc
('Bytes', 'the Group')
Preliminary results
Record results driven by expanding customer base across both
public and private sectors
Bytes Technology Group plc, one of the UK's leading software,
security, and cloud services specialists, today announces financial
results for the 12 months ended 28 February 2021 ("FY21").
Neil Murphy, Chief Executive Officer, said:
"This has been a landmark year for Bytes. At the start of the
pandemic and throughout the remainder of the year, our colleagues
maintained a high level of service to our customers, helping them
to adapt to new working patterns. Our team of salespeople also
worked hard to secure a raft of new contracts from customers across
the private and public sectors. I would like to thank them for
their efforts, which have resulted in a record-breaking year for
us.
"During the period, we achieved a successful IPO which provides
the Group with a strong platform to take advantage of the
tremendous opportunities we see in the market. Our first set of
results as a listed business show we are taking great strides in
delivering on our long-term strategy for growth. Bytes' recent
inclusion in the FTSE 250 is further recognition of the progress
we've made since listing, and we look forward to raising our
profile with investors further.
"Looking ahead, we remain confident that Bytes is
well-positioned to enhance its market share and capitalise on the
exciting market opportunities ahead."
Financial performance
GBP'million FY21 (12 months FY20 (12 months % change
ended 28 Feb ended 29 Feb year-on-year
2021) 2020)
Gross invoiced income(1) GBP958.1m GBP722.2m 33%
Revenue(2) GBP393.6m GBP373.1m 5%
Gross profit GBP89.6m GBP79.2m 13%
Adjusted operating
profit(3) GBP37.5m GBP31.7m 18%
Adjusted operating
profit/ gross profit 42% 40%
Cash conversion(4) 131% 126%
Adjusted earnings
per share (5) (pence) 13.07 11.20 17%
---------------- ---------------- --------------
(1) 'Gross invoiced income' ("GII") is a non-IFRS alternative
performance measure that reflects gross income billed to customers
adjusted for deferred and accrued revenue items.
(2) 'Revenue' is reported in accordance with International
Financial Reporting Standard (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 i.e., the gross profit
achieved on the contract and not the gross income billed to the
customer.
(3) 'Adjusted operating profit' is a non-IFRS alternative
performance measure that excludes from operating profit the effects
of significant items of income and expenditure, such as IPO costs,
which are because of an isolated, non-recurring event. Intangible
assets amortisation and the effects of share-based payment charges
are also excluded. The reconciliation of adjusted operating profit
to operating profit is set out in the Chief Financial Officer
review below.
(4) 'Cash conversion rate' is a non-IFRS alternative performance
measure that the Group defines as cash generated from operations,
excluding IPO costs and less capital expenditure (together, 'free
cash flow') divided by adjusted operating profit.
(5) 'Adjusted earnings per share' is a non-IFRS alternative
performance measure that the Group calculates by dividing the
adjusted operating profit after tax attributable to ordinary
shareholders by the total number of ordinary shares in issue at the
end of the year. The calculation is set out in note 29 of the
financial statements.
Group highlights
- Strong performance, with gross invoiced income increasing 33%
to GBP958.1 million (FY20: GBP722.2 million).
- Revenue growing by 5% to GBP393.6 million (FY20: GBP373.1 million)
- Gross profit growth of 13% to GBP89.6 million (FY20: GBP79.2 million)
- Record adjusted operating profit of GBP37.5 million (FY20:
GBP31.7 million), representing growth of 18%.
- Expanded the customer base by 4% to 5,147 (FY20: 4,930), while
increasing average gross profit per customer to GBP17,400 (FY20:
GBP16,100).
- Cash conversion remained strong, resulting in a net cash
position at 28 February 2021 of GBP20.7 million (FY20: GBP47.4
million) despite GBP48.6 million of pre-IPO dividends paid and
GBP16.7 million of deferred consideration payments to acquire the B
ordinary shares held by management in Bytes Technology Limited and
Blenheim Group Limited
- Increased headcount by 13% to 685 (FY20: 608), demonstrating
our continued investment in our staff to take advantage of strong
growth opportunities in the coming years.
Current trading and outlook
Two months into the new financial year the Group has performed
well, with gross profit in line with the Board's expectations and
showing growth on the already strong prior year comparables,
especially in public sector. We attribute this strong performance
to high levels of customer satisfaction, effective sales execution
and to a market which has seen IT spending remain robust through
the pandemic. We continue to invest in our sales and technical
capabilities and expect to see some increase in other overheads as
lockdown eases and in-person customer interaction picks back
up.
While the economic backdrop remains uncertain as the pandemic
continues, we remain confident in delivering our growth strategy
and capitalising on the market opportunity.
Our dividend policy is to distribute between 40% and 50% of the
Group's profit after tax before any exceptional items to
shareholders, as disclosed in the IPO prospectus. The first
dividend is intended to be declared as an interim dividend for the
year ending 28 February 2022, and then on an ongoing basis.
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
conference call and webcast:
Conference call details:
United Kingdom (local): +44 (0)330 336 9127
Confirmation Code: 1881583
Webcast link:
https://webcasting.brrmedia.co.uk/broadcast/609ac70b576c9638976d6449
A replay of the webcast will be available after the event at:
https://www.bytesplc.com/
Enquiries
Bytes Technology Group plc Tel: +44 (0)1372 418 500
Neil Murphy, Chief Executive Officer
Headland Consultancy (financial PR Tel: +44 (0) 20 3805 4822
advisor to Bytes)
Stephen Malthouse
Lucy Legh
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 any 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:
Bytes 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. It 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 and a secondary listing on the Johannesburg Stock
Exchange.
Chief Executive Officer's Review
The last 12 months have been an extraordinary year for our
business and our people, as we delivered high double-digit adjusted
operating profit growth and listed successfully on the London Stock
Exchange - all despite the societal, economic, and logistical
challenges of Covid-19.
Our performance exceeded all expectations
Our performance this year was ahead of expectations as we
delivered adjusted operating profit growth of 18%. Our cash
conversion also remained strong at 131%, giving us GBP20.7 million
in net cash at the period end.
Both our operating companies, Phoenix Software (Phoenix) and
Bytes Software Services (BSS), contributed to this strong
performance. Phoenix's particularly strong results reflected their
success in partnering with the many public sector customers who
digitalised their operations and moved to the cloud during
lockdown. BSS had an extremely strong first half although corporate
sales slowed a little towards the end of the year.
2020/21 was a year of great change for everyone at Bytes. We
demerged from Altron, our long-time parent and conducted a
successful IPO in a condensed time period in the most unusual of
circumstances, due to Covid-19; then, three months after listing,
we entered the FTSE 250 in March 2021, on the back of strong demand
for our equity. And we are now setting out our stall as an
independent organisation, with our own purpose, values, governance,
and strategic goals.
That we achieved such great financial results in the middle of
this rapid metamorphosis - and a pandemic - says a lot about the
hard work, resilience, and can-do attitude of our fantastic people.
Despite working remotely most of the year, often while balancing
family care commitments, they excelled themselves in delivering
outstanding service to our customers, many of whom were themselves
going through great change as they digitalised their organisations
and networked their own home-based employees. I would like to thank
every member of the team for their amazing contribution and
congratulate them on these great results.
A simple strategy focused on growing customer numbers and their
business
The results also demonstrate the strength of our strategy, which
- like the way we do business - is simple and straightforward. Our
main strategic goals are to attract new customers and increase our
business with existing ones: we delivered on both.
The confidence to make such a pledge follows a raft of great
wins. Our new customer contracts included three with central
government departments and one with a top 10 FTSE company, along
with many other projects with new clients. We were equally
successful in growing business with existing customers. For the
third consecutive year, more than 90% of our gross profit came from
organisations we had worked with previously.
How we build trust-based customer relationships and meet
changing needs
Our customers keep coming back - and recommending us to their
peers - because we have proven ourselves over many years. They know
that we're not interested in a short-term hard sell. Our customers
trust us to provide the expert advice, and the right products and
services, to transform their IT and organisation, efficiently and
cost-effectively. They are also familiar with the passion,
diligence, and good humour that our people bring to work. Many of
our customers have had the same account manager for more than a
decade and such long relationships breed trust and help explain why
we have extremely high levels of customer satisfaction and a net
promoter score that, at 63, is above the industry average.
Customers also repeatedly turn to us because we can now meet
more of their IT needs, having broadened our offering beyond our
traditional strengths in software to include additional IT services
and hardware. We have diversified to reflect underlying market
trends. We believe, for example, that demand for our services
offering, such as software asset management, will rise as the
growing complexity of technology prompts more customers to ask for
expert help in managing their IT licensing arrangements. Such
factors reinforce our conviction that we can grow our business
significantly with our existing customers.
Raising our profile thanks to our vendors
During the year, we continued to strengthen our partnerships
with the 100-plus external vendors whose products we sell and
support. We were extremely pleased to win further accreditations
and awards from many of our vendor partners, including that of
Microsoft Azure Expert Managed Service Provider - the company's
highest accreditation. Such industry recognition further heightens
our reputation with our vendors and customers and is a terrific
validation of the expertise and quality of our people.
Keeping employees focused and engaged, even at home
Bytes is a people business. We may sell technology, but it is
our can-do attitude and expertise that makes us so easy to do
business with and builds our strong customer relationships. To keep
our people motivated and engaged, we do all we can to engage,
develop and reward them. Internal promotion and ongoing training
and development are key to this approach, as seen this year when we
made Jack Watson, a 2006 Bytes graduate trainee, our new BSS
MD.
In normal times, Bytes' offices are dynamic and collaborative
places. With the pandemic meaning our people needed to work from
home, we took steps to keep everyone happy and motivated. From
transferring our varied social activities, parties, and awards
events online to ensuring staff had ergonomic and comfortable
home-office furniture, we did all we could to keep our unique
culture thriving - and our eyes on the ball. All these measures
paid off when, to our delight, staff engagement scores rose during
the pandemic, with Phoenix joining BSS in receiving the top rating
of three stars in a Best Companies employee engagement survey in
November 2020.
Deepening our impact as a responsible business
Our two operating companies have remarkably similar cultures and
ethics. So much so that I often describe Bytes as 'One company, two
brands, one culture'. While BSS and Phoenix will continue to
operate largely independently, this year we aligned them behind one
set of values (which are very similar to their previous individual
ones) and a common purpose. Our strong values, with their emphasis
on integrity, collaboration, kindness, and fun, underpin our
heritage as a responsible business. We have always aimed to
contribute to the wider world - from supporting local hospices and
schools to installing electric car charging points at our sites. We
accelerated our efforts this year with the drafting and publication
of our new corporate social responsibility policy, which was
initiated and written by our staff and modelled on the United
Nations Sustainable Development Goals. The policy sets out some new
social and environmental commitments, such as pledges to donate 1%
of our net profits to charity each year and a carbon offsetting
programme in partnership with the World Land Trust. We aim to
publish our first carbon reduction policy in the second half of the
year ending 28 February 2022.
We believe passionately in equality of opportunity and in
2020/21 took further steps to ensure that everyone at Bytes has the
same chance to succeed. These included a new board and senior
management diversity policy with its commitments including having
at least 33% women directors and encouraging colleagues with
different ethnic, gender and experiential backgrounds to take on
additional responsibilities and roles. We also signed up to the
Race at Work Charter, which involves tackling barriers faced by
people from ethnic minorities.
External trends and internal strengths set the scene for further
growth
The coming year holds inherent social and economic uncertainty
for all industries. However, having proven our resilience during
this most challenging of years, I am confident that Bytes will
deliver another strong performance whatever we encounter in
2021/22. Underlying IT market trends play to our strengths; our
strong reputation with customers and vendors continues to grow; our
rapid rise into the FTSE 250 is raising our profile, and our
debt-free balance sheet gives us the freedom to keep investing in
the business. And most importantly of all, I know that the family
feel that makes Bytes such a great place to work, and so easy to do
business with, will continue to set us apart from our peers and
help us achieve our ambitious goals.
Chief Financial Officer's review
FY21 FY20 Change
Income Statement GBP'm GBP'm %
------------------------------------------ ------------ ------------
Gross Invoiced Income (GII) 958.1 722.2 32.7%
------------------------------------------ ------------ ------------
GII split by product:
Software 899.2 665.2 35.2%
Hardware 24.1 29.6 (18.6%)
Services 34.8 27.4 27.0%
------------------------------------------ ------------ ------------
Netting adjustment (564.5) (349.1) 61.7%
Revenue 393.6 373.1 5.5%
------------------------------------------ ------------ ------------
Revenue split by product:
Software 343.1 326.4 5.1%
Hardware 24.1 29.6 (18.6%)
Services 26.4 17.1 54.4%
------------------------------------------ ------------ ------------
Gross Profit 89.6 79.2 13.1%
------------------------------------------ ------------ ------------
Gross Profit / GII % 9.4% 11.0%
Administrative expenses 52.1 47.5 9.7%
------------------------------------------ ------------ ------------
Adjusted Operating Profit 37.5 31.7 18.3%
------------------------------------------ ------------ ------------
Adjusted Operating Profit / Gross Profit 42% 40%
less share-based payments (1.0) (0.3)
less intangible amortisation (1.6) (1.6)
less IPO Costs (8.1) 0.0
Operating Profit 26.8 29.8 (10.1%)
------------------------------------------ ------------ ------------
Profit before Tax 26.7 29.9 (10.7%)
------------------------------------------ ------------ ------------
Tax (6.7) (5.8)
Effective tax rate 25% 19%
Profit after Tax 20.0 24.1 (17.0%)
------------------------------------------ ------------ ------------
Overview of FY21 results
Our financial year, which ended on 28 February 2021, coincided
almost exactly with the first 12 months of the Covid-19 pandemic.
As the UK entered lockdown in March 2020, before we reported the
results of the first month of our financial year, we activated our
business continuity remote working plan.
Our first priority was the safety of our people, as we moved
overnight to secure home working, with minimal business
interruption. Our earlier preparations for this scenario meant the
transition was virtually seamless.
Our second priority was delivering a heightened level of
customer service. We rapidly implemented virtual working solutions,
support services and ongoing managed services for many customers,
while continuing to supply essential software licensing renewals
and updates.
The pandemic accelerated the digital transition of many
customers to cloud-based (hosted) licensing programmes. This
enabled them to adopt and use software in a flexible and agile way
and to only pay for what they used. The latter was a critical
benefit for those customers experiencing a downturn in business
profitability who, in some cases, needed to furlough staff and
reduce their IT costs.
Our agility in maintaining our own operations and productivity,
while continuing to deliver the highest quality software licensing
advice and IT solutions, meant we achieved record results in the
most demanding of times. Adjusted operating profit, our key
financial measure, increased by 18% in the year ended 28 February
2021, rising to GBP37.5 million (2019/20 GBP31.7 million), as
further detailed below.
Gross invoiced income, revenue, and gross profit
Gross invoiced income (GII)
GII reflects gross income billed to our customers, adjusted for
deferred and accrued revenue items mainly relating to managed
service contracts. We believe that GII provides readers with a more
meaningful measure than revenue to evaluate our sales performance,
volume of transactions and rate of growth.
Our GII increased by 32.7% to GBP958.1 million (2019/20 GBP722.2
million) with 94% (FY20: 92%) generated from the sales of software
(a combination of on-premises and cloud licensing). There was a
small reduction (GBP5.5 million) in the level of hardware GII (as
customers moved away from on-premises infrastructure), although
this was offset by a 27% rise (GBP7.4 million) in services sales as
we diversified and built our services solutions offerings, in
response to increased demand from our customers.
Revenue
Revenue is reported in accordance with International Financial
Reporting Standard ('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 i.e., the
gross profit achieved on the contract and not the gross income
billed to the customer.
The netting adjustment has been made on a consistent basis in
both the current and prior periods and provides an important
measure of the products and solutions required by customers and the
direction of change as it primarily includes sales of cloud
licensing and critical security products.
The netting adjustment increased in FY21 and now represents
58.9% of GII (FY20: 48.3%), resulting in revenue growth of 5.5% to
GBP393.6 million (FY20: GBP373.1 million), versus the 32.7%
increase in GII. This demonstrates the high rate of growth in our
cloud and security-based licensing sales. Our investment in
recruiting and developing our people, and in securing technical
certifications, means we can provide high levels of customer
advice, service, and support in these areas. This is reflected in
our gross profit performance.
Gross profit
Gross profit has increased by 13.1% to GBP89.6 million (FY20:
GBP79.2 million). Our growth in corporate sector customers' gross
profit was mid-single digit compared to strong double-digit growth
in public sector customers. As a result, in FY21 corporate gross
profit made up 63% of total gross profit and public sector 37%,
compared to FY20's 69% and 31%, respectively.
This reduction in the relative contribution of the corporate
sector is linked to Covid-19: during the pandemic certain corporate
sectors have reduced investment in non-essential and non-required
areas of spend, including IT, as they experienced lower levels of
business and furloughed staff and/or froze recruitment. However,
the fact that our corporate business continued to grow during this
challenging time illustrates the strength of our relationships with
our private sector customers.
Public sector spend, on the other hand, escalated from the start
of the year. We secured significant large new contracts in local
and central government and from the NHS, as we provided solutions
to support and sustain these essential public services. That
momentum continued through the year and shows no sign of reducing
as we enter the new financial period.
Our strong presence in both the corporate and public sectors
makes us resilient to different levels of demand, where one area's
performance can compensate for or complement the other's.
Gross profit/GII% (GP/GII%)
GP/GII% has reduced slightly from 11.0% to 9.4% which reflects
the change in the mix of business between corporate and public
sector. In the p u blic sector, the Gross Margin (GM)% may be
restricted under governing bodies' framework agreements or subject
to higher levels of competition in the customer tenders required
under public sector purchasing requirements. However, this is
generally counterbalanced as public sector business tends to be
lower risk from a collections perspective. GP% measured against
revenue is not considered to be such a relevant measure due to the
netting impact described above.
Administrative expenses, adjusted operating profit and operating
profit
Staff costs
Our outstanding people are at the heart of our success; during
the year we continued to invest in them. This continued our 'invest
to grow' theme of previous years, which combines internal
development and promotions and external recruitment.
Our success in growing GII and gross profit was a direct result
of the investments we have made in our people in recent years. Our
continued growth has enabled us to invest even further. During the
year we increased our headcount from 608 to 685, with a particular
focus on recruiting solution specialists and technical delivery
experts. We also reinforced our account management teams so they
can continue to provide outstanding advice and support to our
customers.
As a result, our staff costs (excluding share-based payment)
increased by 9.9% from GBP47.6 million to GBP52.3 million. Within
this amount GBP7.9 million was classified as cost of sales (FY20
GBP7.0 million) reflecting the increased focus on service
delivery.
Staff bonuses and commissions remain a large proportion of
overall staff costs at 30% of this total, up GBP1 million on prior
year and reflecting our growth in gross profit.
Other costs
Our other operating costs increased year on year by 11.6% from
GBP6.9 million to GBP7.7 million. While there was a significant
reduction in travel costs, down more than GBP1 million on the prior
year, we took the opportunity to strengthen our internal systems
and infrastructure. There were some additional costs incurred in
the final two months of the year due to our operating as a listed
company and there will be a full year impact in the new financial
year.
Our administrative expenses also include a GBP0.3 million
increase in the loss allowance for trade receivables, rising from
GBP0.4 million to GBP0.7 million. We had just one very small bad
debt but, considering the increase in trade receivables, and the
ongoing uncertainties of the impact of Covid-19, believe it's
appropriate to carry a slightly higher allowance at year end. Our
closing allowance includes full cover for all trade receivables 120
days or more past their due date.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the
effects of significant items of expenditure which are non-recurring
events or do not reflect our underlying operations. IPO costs,
acquired intangible amortisation and share-based payment charges
are all excluded. We believe that adjusted operating profit
provides readers with a more meaningful measure to evaluate our
profitability, performance, and ongoing quality of earnings.
Adjusted operating profit increased to GBP37.5 million (FY20:
GBP31.7 million), representing growth of 18%. Operating profit
reduced from GBP29.8 million to GBP26.8 million.
Corporation tax charge
The effective rate of Corporation tax charged for the year is
25% of profit before tax. This is higher than the standard rate of
tax of 19% due primarily to the GBP8.1 million of IPO costs not
being allowable as a tax deduction. If the impact of these costs is
removed, the effective rate of tax reverts to the expected 19%
which is in line with the prior year.
Financial and customer KPIs
The KPIs by which we measure our performance are set out
below:
Change
KPIs FY21 FY20 %
--------------------------------------------- ------------ ------------ -------
Adjusted operating profit/gross profit 42% 40%
--------------------------------------------- ------------ ------------
Cash conversion rate 131% 126%
--------------------------------------------- ------------ ------------
Customers 5,147 4,930 4%
--------------------------------------------- ------------ ------------ -------
Average gross profit per customer (GBP'000) 17.4 16.1 8%
--------------------------------------------- ------------ ------------ -------
Renewal rate 107% 115%
--------------------------------------------- ------------ ------------
Basic earnings per share (pence) 8.52 10.39 (18%)
--------------------------------------------- ------------ ------------ -------
Adjusted earnings per share (pence) 13.07 11.20 17%
--------------------------------------------- ------------ ------------ -------
Adjusted operating profit divided by gross profit is a key
measure of the operational effectiveness of our Group in running
our day-to-day operations. We have again achieved the target we set
of 40%.
Cash conversion rate is defined as cash generated from
operations less capital expenditure (together, 'free cash flow')
divided by adjusted operating profit. It is a key measure of the
efficiency with which underlying operating profit is converted into
cash. We set ourselves a cash conversion target of 100% but with
increased adjusted operating profit, debtor days running on average
15 lower than creditor days and good collections around the period
end, our cash conversion level was well above this target, at
131%.
Number of customers is an operating metric that we calculate as
the number of unique entities transacting greater than GBP100 in
gross profit during the relevant financial period. Growth of the
customer base is one of our key objectives, with the number
increasing by 4% to over 5,100 for the year.
Average gross profit per customer is the third key customer
measure. In conjunction with increased gross profit, high renewal
rates and increased customer numbers, this measure has increased by
9% to GBP17,400 per customer (FY20 GBP16,100)
Renewal rate is the second key customer metric, defined as gross
profit from existing customers divided by total gross profit in the
previous financial period. This indicates our effectiveness in
increasing our share of business with existing customers. With a
target of at least 100%, we achieved 107% in this financial year.
While lower than the prior year, this is still a very good renewal
rate and, along with new customer wins, underlies the overall 13%
rise in gross profit
Basic earnings per share and Adjusted earnings per share
Statutory basic earnings per share reduced year on year
primarily due to the impact of IPO costs on reducing our post-tax
profit.
Adjusted earnings per share removes the impact of non-underlying
items and is therefore a more meaningful measure to compare to
prior years and so reflect our underlying performance, shown as a
17% increase.
Balance sheet and Cash
As at
------------------------------------
28 February 29 February
2021 2020
Summary balance sheet GBP'm GBP'm
------------------------------- ------------ ----------------------
Property plant and equipment 8.3 8.5
Intangible assets 44.4 46.1
Other non-current assets 1.7 2.4
Non-current assets 54.4 57.0
------------ ----------------------
Trade and other receivables 106.7 77.1
Cash 20.7 47.4
Other current assets 7.8 5.7
Current assets 135.2 130.2
------------ ----------------------
Trade and other payables 157.1 133.2
Lease liabilities 0.2 0.3
Other current liabilities 10.3 13.4
Current Liabilities 167.6 146.9
------------ ----------------------
Lease liabilities 1.2 1.3
Other non-current liabilities 4.0 2.9
Non-current liabilities 5.2 4.2
------------ ----------------------
Net assets 16.8 36.1
------------------------------- ------------ ----------------------
Share capital 2.4 2.3
Share premium 633.7 625.4
Other reserves 0.3 1.2
Merger reserve (644.4) (644.4)
Retained earnings 24.8 51.6
Total equity 16.8 36.1
------------------------------- ------------ ----------------------
We finished the year with GBP20.7 million of cash, ahead of
expectations, and with no debt and excellent cash conversion.
Even after significant pre-IPO dividend payments to Altron and
the cash settlement of management share schemes, our cash position
also remained positive throughout the past 12 months and no
external funding was required.
The consolidated cashflow is set out below along which the key
flows which have affected it
FY21 FY20
Cashflow GBP'm GBP'm
----------------------------------- ------- -------
Cash generated from operations 49.6 41.7
Payments for fixed assets (0.6) (1.8)
Free cash flow 49.0 39.9
Net Interest (paid)/received (0.1) 0.2
Taxes paid (10.2) (4.8)
IPO Costs (8.1) 0.0
Proceeds from issues of shares 8.3 0.0
Deferred consideration payments (16.7) 0.0
Lease payments (0.3) (0.2)
Dividends (48.6) (13.8)
Net (decrease)/increase in cash (26.7) 21.3
Cash at the beginning of the year 47.4 26.1
Cash at the end of the year 20.7 47.4
----------------------------------- ------- -------
Cash Conversion 131% 126%
----------------------------------- ------- -------
Deferred consideration payments relate to o ne off purchases of
management 'B' shares in Bytes Technology Limited & Blenheim
Group Limited.
Dividend policy
The Group's intended dividend policy is to distribute between
40% and 50% of post-tax pre-exceptional earnings to shareholders,
as disclosed in the IPO prospectus. The first dividend is intended
to be declared as an interim dividend for the year ending 28
February 2022, and then on an ongoing basis. For FY21, the post-tax
pre-exceptional earnings were GBP31 million which would have meant
a full year dividend of between GBP12 million and GBP15 million of
which approximately one-third would be paid as an interim dividend
and two-thirds being proposed as a final dividend.
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 and Group
risk team, although, 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.
Our approach to risk is based on enterprise risk management
(ERM), a process of identifying and addressing potential barriers
to us achieving our strategic objectives. ERM techniques help us to
understand the risks that we face, and the effects that they could
have on our business, customers, and people, and on our
responsibilities to shareholders.
Our ERM framework operates from functional management up through
our operating company boards to Group level. This allows us to
identify risks as close as possible to their source. The framework
supports the Bytes Board in identifying risks directly, in owning
risks that are outside the risk tolerance pf the operating
companies, and in collating a set of high-impact, or principal,
risks relevant to our whole Group.
We draw on a mass of different sources to identify risks. This
includes risk assessments, technical feeds, market information,
competitor analysis, financial and operational reviews, and threat
intelligence information about potential cyber threats. We use
tools relevant to the risk area we are evaluating, for example, we
use ISO 27001, the information security management standard, for
cyber risk, and ISO 9001, the quality management standard, for
procedural risk.
Our ERM operates five elements to identify risks and intervene
during their build up. That is:
1. Identify risk and assign an owner
2. Assess our vulnerability, evaluate the impact, and put in
place policies and controls to mitigate
3. Use internal teams to check that the controls and mitigations
are operating effectively and identify opportunities for
improvement
4. Use external audit to support in evaluating risks and
corresponding controls via multiple sources including customers and
suppliers
5. Monitor risks and controls internally on an on-going basis to
ensure they are up to date, and identify changes which need to be
responded to
We have identified ten principal risks and uncertainties that
could have a significant impact on Group operations and are
assigned to four categories: financial, strategic, process and
systems, and operational. The Group risk team reviews each
principal risk looking at its level of severity, where it overlaps
with other risks, the speed at which it is changing, and its
relevance to the Group. We consider the principal risks both
individually and collectively, so that we can appreciate the
interplay between them and understand the entire risk
landscape.
The current ten principal risks are:
Financial 1. Economic disruption Risk Owner:
CFO
The Risk: How we manage it:
This includes the geopolitical We have a varied range of
risk within the UK post Brexit, customers across different
and the uncertainties caused sectors and all tiers of
by Covid-19. government. We conduct analysis
to ensure we are not over-exposed
to any market sector, supplier,
vendor, or product line.
We assess this risk further
in our viability statement.
While specific customer sectors
have been hard hit, our Board's
direction on maintaining
a diverse customer base allows
us to monitor this risk and
manage it at tolerable levels.
As often occurs with risk,
the pandemic has also proven
to be an opportunity, in
that we have been able to
help organisations to update
their technology and meet
the urgent need of enabling
staff to work from home.
------------------------------------- -----------------------------------
The Impact:
Major economic disruption
could result in reduced demand
for software licensing, hardware,
and services, which could
be compounded by government
controls. Such lower demand
could arise from reduced customer
budgets, cautious spending
patterns, or clients 'making
do' with existing IT. Major
economic disruption could
also affect the major financial
markets, including currencies,
interest rates and the cost
of borrowing.
------------------------------------- -----------------------------------
2. Major supplier revenue Risk Owner:
changes CEO
------------------------------------------ ------------------------------------------------------------------------
The Risk: How we manage it:
Commercial changes to vendor We maintain a diverse portfolio
licensing programmes and to of vendor products and services.
partner rebates and funding Although we do receive major
which currently contribute sources of funding from specific
an important revenue stream. vendors, if one source declines,
we can offset it by gaining
new certifications in, and
selling, other technologies
where new funding is available.
------------------------------------------ ------------------------------------------------------------------------
The Impact:
If major vendors change their
commercial arrangements, it
could squeeze our profit margins
and adversely affect our profitability.
------------------------------------------ ----------------------------------- -----------------------------------
Strategic 3. Supply chain risk Risk Owner:
CEO
The Risk: How we manage it:
Overreliance on key vendors/suppliers
(principally Microsoft). We work with our vendors as partners
- it is a relationship of mutual
Suppliers of technology or services dependency since we are their route
being unable to innovate or supply to the end customer. We maintain
products due to global trade barriers. excellent relationships with all
our vendors, and have a particularly
good relationship with Microsoft,
who 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.
With regards the geopolitical situation,
we monitor it 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. 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 impact on our
financial performance, should that
relationship break down.
With regards the geopolitical situation,
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.
-------------------------------------------- ---------------------------------------------
Strategic 4. Competition and disintermediation Risk Owner:
CFO
The Risk: How we manage it:
Mergers and acquisitions have consolidated Our diverse market portfolio means
the distribution network and absorbed that we are not dependent on one
specialist services companies causing distribution partner. We also protect
overlap with our own offerings. A ourselves against this risk by identifying
move to direct vendor resale to end relevant and emerging product sets
customers (disintermediation) could that vendors do not have, or that
squeeze the market opportunity even come from competing supply chains.
more.
We differentiate ourselves with customers
by providing excellent tailored service
and building strong, long-standing
relationships with them. We achieve
this by investing in well-trained
staff, with high levels of certification,
and by behaving in an ethical, can-do
manner that builds trust.
-------------------------------------------- --------------------------------------------
The Impact:
Further consolidation could lead
to less competition between vendors
and cause prices to value added resellers,
like Bytes, to rise and service levels
to fall. Direct resale to customers
could also increase. This could erode
reseller margins, as the purchase
cost is less for the distributor
than the reseller, and reduce our
market, margin, and profits.
As consolidating vendors have greater
global reach and wider portfolios,
the reseller may also become less
relevant, which might further affect
future revenues and margins.
-------------------------------------------- --------------------------------------------
5. Relevance and emerging technology Risk Owner:
CEO
------------------------------------------ -------------------------------------------
The Risk: How we manage it:
As the technology and security markets We stay relevant to our customers
evolve rapidly and become more complex, by continuing to offer them expert
the risk exists that we might not advice and innovative solutions;
keep pace and so fail to be considered specialising in high-demand areas;
for new opportunities. 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. 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.
------------------------------------------ -------------------------------------------
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 6. Digital Transformation Risk Owner:
and CEO
systems
The Risk: How we manage it:
Failure to transform our internal To make sure we keep our business
IT and business processes, so that processes and systems in the best
we cannot keep pace with, nor support, shape, we draw on insights from our
our customers effectively. customers, the market, and all levels
of our business. Transformation working
groups - including members of our
Group technical, IT and security
teams - work in partnership with
our operating companies to identify
strategies and solutions. Transformation
work is then run, managed, and monitored
by our local IT development, security,
and operations teams.
------------------------------------------- ------------------------------------------
The Impact:
If we could not support or interact
with our customers in the way they
wanted, it could damage our relationships
with them, affect sales and damage
our profitability.
------------------------------------------- ------------------------------------------
Operational 7. Cyber Threats (direct) Risk Owner:
CEO
The Risk: How we manage it:
Attacks - ranging from imposters We protect Bytes using intelligence-driven
posing as Bytes in emails to a direct analysis, including research by our
threat to our IT infrastructure - internal digital forensics team.
leading to data breach. This provides insights into vulnerable
areas and the impacts of any breaches,
allowing us to strengthen group and
operating company security controls.
We use a cyber threat level system
to adapt our efforts and controls
based on intelligence received.
------------------------------------------------ --------------------------------------------
The Impact:
Such attacks could affect the confidentiality,
integrity, or availability of the
data that we hold. This could lead
to regulatory breaches, liability
claims, loss of confidence in our
business, reputational damage, and
potential financial penalties.
------------------------------------------------ --------------------------------------------
Operational 8. Cyber Threats (indirect) Risk Owner:
CEO
The Risk: How we manage it:
Supply chain attacks that are targeted We use intelligence-driven analysis,
to gain access to customer systems including research by our internal
or information. digital forensics team, to protect
Bytes. This provides insights into
vulnerable areas and the impacts
of any breaches, allowing us to strengthen
group and operating company security
controls.
We establish controls that separate
customers' systems and mitigate cross-breaches.
Our cyber threat level system also
allows us to tailor our approach
and controls in line with intelligence.
---------------------------------------------- -------------------------------------------------
The Impact:
If an attacker accessed our IT systems,
this could allow them to 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
both first and third-party risk liability,
with the possible impacts of regulatory
breaches, loss of confidence in our
business, reputational damage, and
potential financial penalties.
---------------------------------------------- -------------------------------------------------
9. Technology failure Risk Owner:
CEO
---------------------------------------------- -------------------------------------------------
The Risk: How we manage it:
Failure of Bytes' critical services By using different locations, sites,
or solutions. and solutions, we can limit the impact
of service outage to customers. Where
possible, we use active resilience
solutions - which are 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.
---------------------------------------------- -------------------------------------------------
The Impact:
Significant downtime in our internal
systems would hinder our ability
to serve customers and sell solutions.
Major outages in systems that provide
customer services could limit clients'
ability to extract crucial information
from their systems or manage their
software.
---------------------------------------------- -------------------------------------------------
10. Legal and regulatory compliance Risk Owner:
Group Company Secretary
--------------------------------------------- ---------------------------------------
The Risk: How we manage it:
Unintentional non-compliance with We track and manage contractual and
data protection laws and regulations, data protection risks with specialist
both in the UK and outside. internal team members, seeking expert
external advice as required. We have
open dialogue with customers and
suppliers so that we understand and
address their concerns and meet their
requirements.
--------------------------------------------- ---------------------------------------
The Impact:
Complex legal and regulatory landscapes
can lead to misunderstanding, causing
potential regulatory breaches, intervention
by regulators, loss of confidence
from customers or competitive disadvantage.
--------------------------------------------- ---------------------------------------
Our operating landscape is also affected by key events outside
of our control, and most notably recently the Covid-19 pandemic and
the aftermath from Brexit. While we do not categorise them as
direct risks, they have been an important consideration in
establishing our current principal risks and uncertainties and
extend across all of them.
Responsibility statement pursuant to FSA'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, give a true and fair view of the assets, liabilities,
financial position, and result of the Group taken as a whole;
and
-- the Chief Executive's review and Chief Financial Officer's
review 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 Keith Richardson
Chief Executive Officer Chief Financial Officer
25 May 2021
Consolidated statement of profit or loss
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Revenue 3 393,569 373,103
Cost of sales (303,995) (293,886)
------------ ------------
Gross profit 89,574 79,217
4,
Administrative expenses 5 (62,397) (49,373)
Increase in loss allowance
on trade receivables 15 (333) -
------------ ------------
Operating profit 26,844 29,844
Finance income 12 158
Finance costs (193) (82)
------------ ------------
Finance income/(costs)
- net 8 (181) 76
------------ ------------
Profit before taxation 26,663 29,920
Income tax expense 9 (6,730) (5,762)
------------ ------------
Profit after taxation 19,933 24,158
------------ ------------
Profit for the period
attributable to owners
of the parent company 19,933 24,158
====== ======
pence pence
Basic earnings per
ordinary share 29(a) 8.52 10.39
Diluted earnings per
ordinary share 29(b) 8.47 10.39
====== ======
The consolidated statement of profit or loss has been prepared
on the basis that all operations are continuing operations.
There are no items to be recognised in other comprehensive
income and hence, the Group has not presented a statement of other
comprehensive income.
Consolidated statement of financial position
As at As at
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 10 8,275 8,521
Right-of-use assets 11 1,097 1,332
Intangible assets 12 44,443 46,053
Contract assets 3(d) 214 1,056
Deferred tax assets 18 357 -
------------ ------------
Total non-current assets 54,386 56,962
------------ ------------
Current assets
Inventories 13 591 688
Contract assets 3(d) 7,179 5,085
Trade and other receivables 15 106,664 77,094
Cash and cash equivalents 16 20,734 47,357
------------ ------------
Total current assets 135,168 130,224
------------ ------------
Total assets 189,554 187,186
====== ======
Liabilities
Non-current liabilities
Lease liabilities 11 (1,176) (1,295)
Contract liabilities 3(d) (2,324) (1,001)
Deferred tax liabilities 18 (1,738) (1,895)
------------ ------------
Total non-current liabilities (5,238) (4,191)
------------ ------------
Current liabilities
Trade and other payables 17 (157,121) (133,187)
Contract liabilities 3(d) (10,038) (10,205)
Current tax liabilities (207) (3,191)
Lease liabilities 11 (202) (307)
------------ ------------
Total current liabilities (167,568) (146,890)
------------ ------------
Total liabilities (172,806) (151,081)
------------ ------------
Net assets 16,748 36,105
====== ======
Equity
Share capital 19 2,395 2,325
Share premium 19 633,636 625,373
Other reserves 20 317 1,170
Merger reserve 21 (644,375) (644,375)
Retained earnings 22 24,775 51,612
------------ ------------
Total equity 16,748 36,105
====== ======
The consolidated financial statements were authorised for issue
by the Board of directors on 25 May 2021.
Consolidated statement of changes in equity
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
2019 1.3 2,325 625,373 899 (644,375) 41,254 25,476
Total comprehensive
income for the
year - - - - 24,158 24,158
Dividends paid 25(b) - - - - (13,800) (13,800)
Share-based payment
transactions 28 - - 271 - - 271
------------ ------------ ------------ ------------ ------------ ------------
Balance at 29
February
2020 2,325 625,373 1,170 (644,375) 51,612 36,105
Total comprehensive
income for the
year - - - - 19,933 19,933
Dividends paid 25(b) - - - - (48,600) (48,600)
Shares issued
during
the year 19 70 8,263 - - - 8,333
Deferred tax 18 - - 15 - - 15
Transfer to
retained
earnings 20 - - (1,830) - 1,830 -
Share-based payment
transactions 28 - - 962 - - 962
------------ ------------ ------------ ------------ ------------ ------------
Balance at 28
February
2021 2,395 633,636 317 (644,375) 24,775 16,748
====== ====== ====== ====== ====== ======
Consolidated statement of cash flows
Year ended Year ended
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 23 41,546 41,699
Interest received 8 12 158
Interest paid 8 (122) (2)
Income taxes paid (10,213) (4,784)
------------ ------------
Net cash inflow from operating activities 31,223 37,071
------------ ------------
Cash flows from investing activities
Payments for property, plant and equipment 10 (607) (1,745)
Deferred consideration payments 17 (16,677) -
------------ ------------
Net cash outflow from investing activities (17,284) (1,745)
------------ ------------
Cash flows from financing activities
Proceeds from issues of shares 19 8,333 -
Principal elements of lease payments 11 (295) (207)
Dividends paid to shareholders 25(b) (48,600) (13,800)
------------ ------------
Net cash outflow from financing activities (40,562) (14,007)
------------ ------------
Net (decrease)/increase in cash and
cash equivalents (26,623) 21,319
Cash and cash equivalents at the beginning
of the financial year 47,357 26,038
------------ ------------
Cash and cash equivalents at end of
year 16 20,734 47,357
====== ======
Notes to the financial statements
1. Accounting policies
1.1 General information
Bytes Technology Group plc, together with its subsidiaries ("the
Group" or "the Bytes business") is one of the UK's leading
providers of IT software offerings and solutions, with a focus on
cloud and security products. The Group enables effective and
cost-efficient technology sourcing, adoption and management across
software services, including in the areas of security and cloud.
The Group aims to deliver the latest technology to a diverse and
embedded non-consumer customer base and has a long track record of
delivering strong financial performance. The Group has a primary
listing on the Main Market of the London Stock Exchange (LSE) and a
secondary listing on the Johannesburg Stock Exchange (JSE).
1.2 Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards (IFRS) adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
This is the first set of consolidated financial statements for
the Group following its demerger from the Altron group and listing
on the LSE and JSE. The Group's accounting and presentation
considerations on both the current and comparative periods are
detailed below.
The financial information contained in this preliminary
announcement does not constitute the Group's statutory accounts for
the years ended 28 February 2021 or 28 February 2020. The statutory
accounts for the year ended 28 February 2021 will be filed with the
Registrar of Companies in due course. The auditors report on these
accounts was not qualified or modified and did not contain any
statement under Sections 498(2) or (3) of the Companies Act 2006. A
separate announcement will be made in accordance with Disclosure
and Transparency Rules (DTR) 6.3 when the annual report and audited
financial statements for the year ended 28 February 2021 are made
available on the Company's website, which is expected to be in June
2021.
In adopting the going concern basis for preparing the financial
statements, the Directors have considered the business activities
and the Group's principal risks and uncertainties in the context of
the current operating environment. This includes possible ongoing
impacts of the global Covid-19 pandemic on the Group and reviews of
future liquidity headroom on existing facilities and against the
facility financial covenants during the period under assessment.
The approach and conclusion are set out fully in note 1.5.
The consolidated financial statements have been prepared on a
historical cost basis, as modified to include derivative financial
assets and liabilities at fair value through the consolidated
statement of profit or loss.
1.3 Demerger and re-organisation transactions
Background
On 2 April 2020, Allied Electronics Corporation Limited
("Altron" and together with its subsidiaries "Altron group") a
South African, JSE listed technology company announced its
intention to de-merge the Bytes business and pursue a potential LSE
listing with a secondary JSE listing. The parties entered into a
share purchase agreement ("Demerger SPA") on 2 November 2020 with
the separation and initial public offering ("IPO") taking place on
17 December 2020 (the "Date of the Demerger" and the "Admission
date"). The separation was implemented by way of a demerger of the
Bytes business to two newly incorporated companies, Bytes
Technology Group plc and Bytes Technology Holdco Limited. Bytes
Technology Group plc is the ultimate parent company of the newly
demerged group with Bytes Technology Holdco Limited, a wholly owned
subsidiary held directly by Bytes Technology Group plc. Both
companies are incorporated in England and Wales under the UK
Companies Act 2006.
Bytes Technology Limited was previously the parent company of
the Bytes business with the two main operating subsidiaries being
Bytes Software Services Limited (BSS) and Phoenix Software Limited
(Phoenix Software). BSS is a direct subsidiary of Bytes Technology
Limited and Phoenix Software held indirectly through an
intermediate holding company, Blenheim Group Limited. As a result
of the demerger of the Bytes business, both Bytes Technology Group
plc and Bytes Technology Holdco Limited became holding companies of
the Bytes business, through a combination of issuing new Bytes
Technology Group plc shares and cash consideration paid to Altron,
the Altron shareholders and to management in exchange for shares
held by them in Bytes Technology Limited and Blenheim Group
Limited.
The Demerger Transactions - new shares issued
Bytes Technology Group plc issued a total of 232,480,611 new
ordinary shares at an issue price of GBP2.70 per share with an
aggregate value of GBP627.7 million:
- 123,514,420 ordinary shares with an aggregate value of
GBP333.5 million were issued for cash to new institutional and
individual investors (including the non-executive directors)
introduced by the group's brokers, Numis Securities. This cash was
paid to Altron and Altron shareholders. For the purposes of the
Demerger Transactions, the group has accounted for the cash
proceeds received from issuing these shares and the cash paid to
Altron and Altron shareholders on a net basis, since both
transactions took place simultaneously, were of an equal amount and
conducted between the group's brokers, the new institutional and
individual investors, Altron and Altron shareholders;
- 96,992,074 ordinary shares with an aggregate value of GBP261.9
million were issued directly to Altron shareholders; and
- 11,974,117 ordinary shares with an aggregate value of GBP32.3
million were issued to the Bytes Technology Limited management for
the Bytes Technology Limited B ordinary shares.
The Demerger Transactions - cash consideration:
The Group paid a total cash consideration of GBP16.7
million:
- A further GBP14.3 million of cash consideration was paid by
the Group to the Bytes Technology Limited management for the Bytes
Technology Limited B ordinary shares; and
- GBP2.4 million of cash consideration was paid by Bytes
Technology Limited Blenheim Group Limited management for the
Blenheim Group Limited B ordinary shares.
The investments in the Bytes Technology Limited A ordinary
shares and B ordinary shares are held in Bytes Technology Holdco
Limited and Bytes Technology Group plc, respectively. Upon
completion of the transaction, Bytes Technology Group plc, together
with its direct and indirect subsidiary undertakings, operated as a
single corporate group.
IPO costs - shares issued:
In addition to the shares issues discussed above, Bytes
Technology Group plc issued a total of 7,001,720 new ordinary
shares at an issue price of GBP2.70 per share with an aggregate
value of GBP18.9 million. The cash proceeds of GBP18.9 million were
used to pay commission costs of GBP10.6 million associated with the
issue of the shares. The remaining net share issue proceeds of
GBP8.3 million were used by the Group to pay the other IPO costs of
GBP8.1 million
Accounting considerations for the demerger
- Reorganisation of the Bytes business
The insertion of both Bytes Technology Group plc and Bytes
Technology Holdco Limited into the Group via a combination of a
share-for-share exchange and cash consideration with the original
stakeholders of the Bytes business (the "Demerger Transactions")
were determined not to be a business combination, see key
accounting judgments, note 1.6 below. Instead, this constitutes a
reorganisation of the Bytes business for which the pooling of
interests method has been applied.
A separate reserve in equity, the "merger reserve", was created,
representing the difference between the total consideration of
GBP644.4 million and the total nominal value of issued share
capital acquired in Bytes Technology Limited of GBP1.10.
- Presentation and disclosure including comparative periods
Under the pooling of interest method, the consolidated financial
statements have been prepared as if the Group had already existed
before the start of the earliest period presented. The comparative
information is, therefore, presented as if the Demerger
Transactions had occurred at 1 March 2019. The comparative
information has been derived from the audited consolidated
financial statements of entities forming the Bytes business
adjusted for the Demerger Transactions. A liability, classified as
deferred consideration, has been presented as at 1 March 2019 for
the cash consideration of GBP16.7 million paid on the Date of the
Demerger. The cash consideration has been presented within cash
flows from investing activities in the consolidated statement of
cash flows in the current year.
- Share Based Payments
Prior to the IPO, the Bytes business operated two equity settled
share-based payment incentive schemes, the Bytes Technology Limited
scheme and the Blenheim Group Limited scheme. The Bytes Technology
Limited scheme was due to vest on 1 March 2021 and the Blenheim
Group Limited scheme on 1 March 2023. Both schemes vested on the
date of the IPO.
(1) Bytes Technology Limited scheme
On 15 November 2016, Bytes Technology Limited issued B ordinary
share awards to certain members of its management at an option
price of LIR0.001 per share. The IPO and divestiture of the Bytes
business by Altron Group was deemed to be a conversion event in
terms of the rules of the scheme and the B ordinary shareholders
received cash consideration of GBP14.3m and 5% of the issued share
capital of the company (equivalent to GBP32.3 million) for the
purchase of the B ordinary shares.
The cash consideration was deemed to be less than the fair value
of the equity instruments measured at the settlement date, so no
additional expense was recognised. This was determined with the use
of a market valuation approach.
(2) Blenheim Group Limited scheme
On 10 February 2020, Blenheim Group Limited issued and allotted
B ordinary share awards to certain members of its management at
LIR0.001 per share. Upon vesting, these B ordinary shares would be
converted into A ordinary shares in Blenheim Group Limited or
Altron shares, at Altron's election. The IPO and divestiture of the
Bytes business by Altron Group was deemed to be a conversion event
in terms of the rules of the scheme and the B ordinary shareholders
received cash consideration of GBP2.4m for the purchase of the B
ordinary shares.
The cash consideration was deemed to be less than the fair value
of the equity instruments measured at the settlement date, so no
additional expense was recognised. This was determined with the use
of a market valuation approach.
1.4 Impact of Covid-19
The global pandemic triggered by the spread of the Covid-19
infection has created uncertainty and poses a higher risk to the
business, due to the potential impact it is having on the Group's
operations and its customers. The impact of Covid-19 was a
non-adjusting post balance sheet event for the year ended 29
February 2020 but has become an adjusting event for the year ended
28 February 2021. The Group has categorised the impact of the risks
as follows:
Market risk
There is a risk that an adverse impact to the world economy will
potentially impact the Group's customers and its ability to earn
revenue. The Group has a diversified customer base across both the
corporate and public sectors, which helps mitigate this risk to
some extent.
Operational risk
The Group makes significant use of technology to deliver
services to its customers throughout periods of uncertainty,
including where limitations are imposed on the ability to travel
and meet customers face to face. The Group has agility built into
its operational model to be able to operate its sales and customer
support functions remotely through the use of emails, video
conferencing and telephone advice. The Group's staff and its
customers have reacted very positively to the remote style of
working during the pandemic, with only a small degree of business
disruption being incurred in the implementation phase.
Liquidity risk
The Group monitors cash flow forecasts on a regular basis to
ensure it can continue to manage its working capital requirements.
The directors have considered liquidity risk as one of several key
dependencies when forming their going concern assessment in note
1.5. For further information on the Group's approach to mitigating
its liquidity risks, see note 24(c).
Credit risk
During the year, the Group has continued to outperform
expectations and there have been no major customer defaults. Whilst
this has been a very positive period for the Group, the directors
place a high degree of importance on the macroeconomic uncertainty
that continues to cause wider disruption to economic activity and
it is at present unknown what the longer-term impact on the
business will be. The directors have placed a greater emphasis on
the Group's exposure to credit risk, increasing the Group's
expected credit loss provision on its gross trade receivables by
GBP0.3 million and will continue to monitor this going forward, see
note 15.
Impairment risk associated with goodwill carrying values
In the Group's most recent annual impairment test performed for
the year ended 28 February 2021, the Group has used various
downside scenarios in its sensitivity analysis to factor in the
potential future impacts of Covid-19 on the future cash flows of
the business. The Group adjusted the discount rate applied to these
cash flows upwards by a further 1% to simulate a down case scenario
and adequate headroom was maintained; see note 12.
1.5 Going concern
The going concern of the group is dependent on maintaining
adequate levels of resources to continue to operate for the
foreseeable future. The directors have considered a number of key
dependencies which are set out in the group's risk management
section, specifically the group's exposure to credit risk as
described in note 15 and liquidity risk, currency risk and foreign
exchange risk as described in note 24.
The directors continue to monitor the effects of the Covid-19
pandemic on the business and will react accordingly to the
associated risks presented in note 1.4.
When assessing the going concern of the group, the directors
have reviewed the year to date financial actuals, as well as
detailed financial forecasts for the period up to 31 August
2022.
The assumptions used in the financial forecasts are based on the
group's historical performance, management's extensive experience
of the industry and reflect expectations of future market
conditions. Taking into consideration the impact of Covid-19 on the
wider economic environment, the forecasts have been assessed and
stress tested to ensure that a robust assessment of the group's
working capital and cash requirements has been performed.
Further details, including the analysis performed and conclusion
reached, are set out below.
Operational and business impact of Covid-19
Covid-19's impact on the business is described in note 1.4. In
preparing its going concern assessment, management have considered
the potential future impact of Covid-19 on the business,
considering the limited impact it has had to date. Over this period
many customers were transitioning to home working and responding to
the impact of Covid-19 on their own businesses and this contributed
to the group achieving strong double-digit growth in gross profit
in the current financial year.
Whilst both operating profit and profit before taxation were
down in the current financial year compared to 29 February 2020,
this was mainly due to the one-off costs associated with the IPO,
see note 5, as opposed to any potential impacts of Covid-19. The
underlying performance of the group, ignoring these one-off costs,
saw similar double-digit growth in both operating profit and profit
before tax. Whilst the Group reported a net current liability at 28
February 2021, this was due to the payment of significant one-off
amounts pre-IPO totalling GBP46.7 million, as noted below under
"Liquidity and financing position". Post year end the Group has
remained cash positive with closing trade receivables substantially
settled within 35 days of year end whilst most trade payable
amounts are paid over the three months to the end of May 21. This
continues to be the case as the Group generates profits and
collects customer receipts ahead of making the associated supplier
payments.
The directors believe that the group operates in a resilient
industry and that the group has demonstrated profitable growth,
despite the pandemic, since 1 March 2020. The group's customer base
incorporates a large volume of non-discretionary spend from UK
corporates as IT has become vital to establish competitive
advantage in an increasingly digital age. Public sector
organisations, a large and fast-growing area of the business, have
shown minimal negative sensitivity to Covid-19 to date as they've
sought efficiencies, resilience, and security within their IT
infrastructures. This mix of private and public customers means
that a downturn in one area can be compensated for by upturns in
others. Risk is further mitigated by the fact that the Group's
business is derived from over 5,000 customers, none of which
contribute more than 5% of total gross income or more than 1% of
total gross profit.
Due to the nature of licensing schemes and service contracts, a
high proportion of business is repeatable in nature with
subscriptions needing to be renewed for the customer to continue to
enjoy the benefit of the product or service. The most significant
software contracts, the Microsoft Enterprise Agreements (EAs), run
for 3 years and it is rare to lose a contract mid-term which
removes the risk of income disappearing over a cliff edge. The
Group has very high success rate in securing renewals of existing
agreements and winning new ones. The renewal rate for the year was
107%, a measure of the rate of growth in gross profit from existing
customers who contributed 95% of total gross profit in the year.
The group will continue to focus on increasing its customer base
and spend per customer during the going concern period.
Just over 50% of the income is generated from sales of Microsoft
(MS) products and associated service solutions. Whilst there is a
notable move towards more agile "pay as you go" contracts around
Cloud based applications, this makes agreements even more "sticky"
by increasing the dependency of the customer on the Cloud
infrastructure and products which MS provides.
Further, it has created the opportunity for the Group to develop
a host of skill sets so it is best placed to advise and support the
customers in whatever direction they choose to fulfil their
licencing requirements from a programmatic, purchasing and
consumption perspective. To this end, the Group has attained the
highest levels of MS Expert status, specialist Competencies and
Advanced Specialisations in numerous MS technology areas. In turn,
MS rewards partners who have these awards with additional levels of
funding.
The Group Board is engaged directly with MS Executives in
developing the partnership further and MS business is currently
growing at high double-digit rates.
Liquidity and financing position
At 28 February 2021, the group held instantly accessible cash
and cash equivalents of GBP20.7 million. This amount is after the
group paid during the year to that date an interim dividend of
GBP18.6 million and a pre-IPO dividend of GBP30 million to its
shareholder, Bytes Technology Group Proprietary Limited, a
subsidiary of Altron and a further GBP16.7 million paid as part of
the consideration to acquire the B ordinary shares held by
management in Bytes Technology Limited and Blenheim Group Limited.
.
On Admission the group gained access to a committed revolving
credit facility of GBP50 million with HSBC, which reduces to GBP40
million after 12 months and to GBP30 million thereafter. Hence it
extends well beyond the going concern period. To date, the group
has not been required to use the revolving credit facility.
Approach to stress testing
The going concern analysis reflects the actual trading
experience through the financial year to date, as well as detailed
financial forecasts for the period up to 31 August 2022. The group
has taken a measured approach to its forecasting and has balanced
the expected trading conditions with available opportunities.
Given the uncertainty around the impact of Covid-19, the Board
has also in its assessment of going concern considered the
potential impact of a generalised economic downturn leading to a
greater impact on the spending patterns of the group's customers
than has been experienced to date, and the extent to which this
could adversely affect the group's future revenue, gross invoiced
income, operating profit, adjusted operating profit and debtor
days, as well as the extent to which this might be offset by
savings in commissions and bonuses and discretionary areas of
spend. As part of the stressed scenario, where only partial
mitigation of downsides is possible, the Board confirmed that the
revolving credit facility would not be used during the going
concern period up to 31 August 2022 and therefore the group would
remain in compliance with the covenant limits required as part of
the facility.
Details of stress testing
The Group assessed the going concern by comparing a base case
scenario to two downside scenarios and in each of the downside
cases taking into consideration two levels of mitigation, "full"
and "partial". These scenarios are set out below:
-- Base case was forecast using the Board approved budget for
the year ending 28 February 2022 and extended across the first 6
months of the following year to 31 August 2022.
-- Downside case 1, Severe but plausible, modelled gross
invoiced income reducing by 10% year on year, gross profit reducing
by 15% year on year and debtor collection periods extending by 5
days, in each case from June 21.
-- Downside case 2, Stressed, modelled both gross invoiced
income and gross profit reducing by 30% year on year and debtor
collection periods extending by 10 days, again in each case from
June 21.
-- Partial mitigation measures modelled for the downsides were
to freeze future pay and new recruitment from March 22 and
"self-mitigating" reduction of commissions in line with falling
Gross Profit.
-- Full Mitigation a dditionally model led headcount reductions
from Mar ch 22 in line with falling G ross Profit.
The mitigations applied in the downside scenarios relate to pay
costs and headcount which are within the control of the Group to
implement quickly in response to any downward trends should they be
necessary. However, they have not been applied until 1 March 22 as
pay related cost are already substantially committed for the year
ending 28 February 2022.
Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period.
Going concern conclusion
Based on the analysis described above, the group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the group has the
financial resources to enable it to continue in operational
existence for the period up to 31 August 2022. Accordingly, the
directors conclude it to be appropriate that the consolidated
financial statements be prepared on a going concern basis.
1.6 Critical accounting estimates and judgements
The preparation of the consolidated financial statements
requires the use of accounting estimates which, by definition, will
seldom equal the actual results. Management also needs to exercise
judgement in applying the Group's accounting policies.
This note provides an overview of the areas that involved
significant judgement or complexity. Estimates and judgements are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Detailed
information about each of these estimates and judgements is
included in other notes, together with information about the basis
of calculation for each affected line item in the consolidated
financial statements.
(i) Significant accounting estimates and uncertainties
The areas involving significant accounting estimates are:
-- Estimation of recoverable amount of goodwill - The Group
tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 1.18. The
recoverable amounts of cash-generating units (CGUs) have been
determined based on value-in-use calculations which require the use
of assumptions. The calculations use cash flow projections based on
financial budgets approved by management covering a three-year
period. Cash flows beyond the three-year period are extrapolated
using the estimated growth rates disclosed in note 12. These growth
rates are based on historical growth rates achieved by the Group,
adjusted for estimated future growth expectation.
(ii) Key accounting judgements
The areas involving key accounting judgements are:
-- The Demerger Transactions - The insertion of both Bytes
Technology Group plc and Bytes Technology Holdco Limited into the
Group via a combination of a share-for-share exchange and cash
consideration with the original stakeholders of the Bytes business
has been treated as a reorganisation of the Bytes business. There
is currently no IFRS guidance on the accounting treatment for such
Group reorganisations. The Group was therefore required to consider
the specific facts and circumstances surrounding the transactions,
to determine an appropriate accounting policy. The key accounting
judgement was to determine if the Demerger Transactions were a
business combination i.e., 'a transaction or other event in which
an acquirer obtains control of one or more businesses' and apply
the acquisition accounting method in accordance with IFRS 3
'Business combinations' or not a business combination and treat
them as a Group reorganisation which is outside the scope of IFRS
3. The Group determined that the Demerger Transactions were not a
business combination on the basis that neither the company, Bytes
Technology Holdco Limited or Bytes Technology Limited could be
identified as the acquirer. On that basis, the Group accounted for
the Demerger Transactions as a Group reorganisation and
specifically chose to apply the pooling of interests method of
accounting. In order to present the Demerger Transactions as a
Group reorganisation of the existing Bytes business, the
transactions were presented as if they had occurred on 1 March 2019
and the prior period comparatives adjusted for the Demerger
Transactions. The principles of the pooling of interests method of
accounting are provided in note 1.8.2.
-- Revenue recognition - Principal versus agent, see note 1.12.
When recognising revenue, the Group is required to assess
whether its role in satisfying its various performance obligations
is to provide the goods or services itself (in which case it is
considered to be acting as principal) or arrange for a third party
to provide the goods or services (in which case it is considered to
be acting as agent). Where it is considered to be acting as
principal, the Group recognises revenue at the gross amount of
consideration to which it expects to be entitled. Where it is
considered to be acting as agent, the Group recognises revenue at
the amount of any fee or commission to which it expects to be
entitled or the net amount of consideration that it retains after
paying the other party.
For those revenue streams that involve the resale of software
licences and software assurance, there is often considerable
judgement in determining whether the Group is principal or agent.
The Group's assessment is based primarily upon whether it controls
the goods or services prior to their transfer to the customer.
However, the nature of these products and services means that a
purely control-based assessment does not always lead to a clear
conclusion. Consequently, the Group additionally considers the
other characteristics of principal set out in IFRS 15. These
include whether the Group has primary responsibility for fulfilling
the contractual promises made to the customer, whether the Group
assumes inventory risk and whether the Group has discretion in
establishing the selling price.
For direct licence sales the Group is considered to be acting as
agent. This is because the Group does not control the goods or
services prior to their delivery to the customer. The Group's role
is to facilitate the sale on behalf of the software vendor that
controls the goods or services. It is the software vendor that
contracts with and subsequently invoices the customer. The Group
does not set the prices paid by the customer and it is remunerated
in the form of a usage or sales-based commission.
For licence sales related to cloud services and licences with
critical updates the Group is considered to be acting as agent.
This is because cloud services and licences with critical updates
require the significant ongoing involvement of the software vendor.
The Group does not control the service prior to passing it to the
customer as it is provided as a future service delivered by the
vendor. Any technical and administrative services provided by the
Group are critically dependent on, and so inseparable from, the
service to be provided by the vendor. The Group's role is to
arrange for the cloud service/updates to be provided by another
party.
For licence sales without critical upgrades or cloud services
for the related perpetual licences, with or without software
assurance, the Group is considered to be acting as principal. This
is because the Group's performance obligation results in it
obtaining control of the licence key and/or right to software
assurance benefits from the software vendor and then transferring
them to the customer. With regard to software assurance, the
non-critical nature of the software updates means that the
customer's ability to derive benefit from the software is not
dependent on the continued involvement of the software vendor. This
results in the balance of control resting more with the Group than
is the case with critical updates. The Group is primarily
responsible for fulfilling the promise to provide the specified
good or service to the customer, as the Group obtains control of
the licence before it is delivered to the customer and also
typically has responsibility for acceptability of the specified
good or service. The Group has primary responsibility for
fulfilling the contractual promises to the customer, assumes
inventory risk in the event of cancellation of the sale for any
reason and has discretion in establishing the prices of the goods
and services.
1.7 Changes in accounting policy and disclosures
(a) New and amended standards adopted by the Group
The Group has applied the following standard for the first time
for the annual reporting period commencing 1 March 2020:
-- Definition of Material - Amendments to IAS 1 and IAS 8;
-- Definition of a Business - Amendments to IFRS 3;
-- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7; and
-- Revised Conceptual Framework for Financial Reporting.
The Group also elected to adopt the following amendments
early:
-- Annual Improvements to IFRS Standards 2018-2020 Cycle; and
-- [Where applicable: Covid-19-Related Rent Concessions - Amendments to IFRS].
The amendments listed above did not have any impact on the
amounts recognised in current or prior periods and are not expected
to affect future periods.
(b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 28 February 2021 reporting
periods and have not been early adopted by the Group. These
standards are not expected to have a material impact on the Group
in the current or future reporting periods and on foreseeable
future transactions.
1.8 Principles of consolidation
1.8.1 Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity where the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The acquisition method of accounting is used to account for
business combinations by the Group, see note 1.17. For Group
reorganisations, Group applies the pooling of interest method, see
note 1.8.2.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
1.8.2 Pooling of interests method for Group reorganisations
The pooling of interests method is used by the Group for Group
reorganisations, which are transactions between entities that are
ultimately controlled by the same party or parties. This method
treats the combined entities as if they had been combined
throughout the current and comparative accounting periods.
Accordingly, the consolidated financial statements have been
prepared as if the Group had already existed before the start of
the earliest period presented. The assets and liabilities of the
combining entities are stated at predecessor carrying values and no
fair value measurement is performed. No new goodwill arises in
applying the pooling of interests method. The difference between
the total consideration given and the total nominal value of the
Bytes Technology Limited issued share capital acquired, is included
in equity as a separate reserve, the "merger reserve".
Transaction costs, including professional fees, registration
fees, costs of furnishing information to shareholders, costs or
losses incurred in combining operations of the previously separate
businesses and costs incurred in relation to the Group
reorganisation transactions that are to be accounted for by using
the pooling of interests method of accounting are recognised as an
expense in the year in which they are incurred.
1.9 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The Group has therefore determined that it has only one reportable
segment under IFRS 8, which is that of 'IT solutions provider'.
1.10 Finance income and costs
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs comprises interest expense on borrowings and the
unwinding of the discount on lease liabilities, that are recognised
in profit or loss as it accrues using the effective interest
method.
1.11 Foreign currency translation
(i) Functional and presentation currency
Items included in the consolidated financial statements of each
of the Group's entities are measured using the currency of the
primary economic environment in which the entity operates ('the
functional currency').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates, are generally recognised in profit or loss. They are
deferred in equity if they relate to qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of
the net investment in a foreign operation.
All foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis, within 'other
gains/(losses)'.
1.12 Revenue recognition
The Group has applied the relevant principles of IFRS 15 Revenue
from Contracts with Customers to each of its key revenue streams as
follows:
Resale of software licences and subscriptions
As a software reseller the Group acts as an advisor, analysing
customer requirements and designing an appropriate mix of licences
and technology. The Group's resale of software licences takes place
in three principal forms:
-- Direct licence sales - Under direct licence sale arrangements
the Group is not a party to the contract between the software
vendor and the customer. Activation of the licences, invoicing and
payment all take place directly between the software vendor and the
customer.
-- Licence sales - resell of software licences and subscriptions
- The Group operates as reseller of a variety of cloud-based
licence products and security software, the functionality of which
is critically dependent on future updates provided by the software
vendor.
-- Licence sales - perpetual licences and software assurance -
The Group operates as reseller of a variety of perpetual
non-cloud-based products that are not critically dependent on
future updates provided by the software vendor. Alongside or
separately to such licences, the Group also acts as a reseller of
software assurance - a package of benefits provided by the software
vendor that includes access to future (non-critical) updates at no
extra cost.
Identifying the performance obligations
As a reseller, the Group's performance obligation is to deliver
solutions to customers through the procurement of software
licences, software assurance and provision of value-added
consulting services in connection with those licences. The services
the Group provides include the design of customer-specific
solutions, licence and software assurance procurement and
assistance with the negotiation and interpretation of software
vendor agreements. In the context of the Group's contract with the
customer, the consulting services are highly interrelated with the
software licences and software assurance. The customer's ability to
derive benefit from the licences and software assurance is
therefore dependent on those services. The customer will only enter
into these contracts if the consulting services, software licences
and software assurance are provided as a bundled solution. The
consulting services, licence products and software assurance sold
cannot be distinguished from each other in the context of the
contract and so are considered to represent a single performance
obligation.
For direct licence sales, licence sales related to cloud
services and licences with critical updates the Group acts as
agent. As such, the Group recognises revenue as the amount of
commission earned, the amount retained after paying the software
vendor for the licences and services provided or, for cloud-based
services, the usage fee received from the software vendor. The
judgements made in arriving at this conclusion are set out at note
1.6.
For licence sales related to perpetual licences, subscription
licences and software assurance the Group acts as principal. As
such, the Group recognises revenue at the gross amount receivable
from the customer for the goods and services provided. The
judgements made in arriving at this conclusion are set out at note
1.6.
Determining the transaction price
The transaction price for the reselling of software licences and
subscriptions is based upon fixed commission rates set by the
software vendor applied to customer usage.
The transaction price for non-cloud-based licence sales and
software assurance is fixed at the amount specified in the contract
and has no variable element.
Allocating the transaction price
When reselling software licences and/or software assurance,
which together represent one performance obligation, together with
other goods and services that represent additional separate
performance obligations, such as hardware, the Group allocates the
total transaction by reference to the prices it charges for those
goods and services when sold separately, i.e. their stand-alone
selling prices.
Recognising revenue
With the exception of revenue arising from cloud-based licence
sales and services, the Group recognises all licence sale revenue
on a point in time basis. This is because the Group's activities in
satisfying its performance obligations do not satisfy any of the
criteria for over time revenue recognition set out in IFRS 15. As a
reseller, the Group's performance obligations are fully satisfied
at the point the licences are delivered and control of the software
passes to the customer. Thereafter, the Group has no ongoing
performance obligations.
Revenue arising from cloud-based licence sales is recognised on
an over time basis. This is because the responsibilities of the
Group to monitor, review and undertake certain other ongoing
activities in relation to customer usage mean that its performance
obligation is not satisfied at the point the licence is delivered.
Rather, the customer receives and consumes the benefits of the
Group's post-sale activities as those post-sale activities are
performed. The Group is rewarded for its performance as the usage
occurs and revenue is recognised accordingly. Revenue is recognised
in the month the usage takes place based on an estimate of the
amount due. Any adjustment that may be required is made in the
following month when the amount receivable is confirmed by the
software vendor.
For licence sales other than those made on a direct basis, the
Group's customer offering includes multi-year deals of typically
three years in duration. The contractual arrangements for such
deals take two alternative forms - the customer may elect to make a
single up-front payment or may elect to pay through annual
instalments. For up-front payment contracts, the Group recognises
the total contract price when the contract is executed and invoiced
because its performance obligation is fully satisfied at that
point. For annual instalment contracts, the Group recognises
revenue for each instalment when it is billed. This is because, in
contrast to up-front payment contracts, the Group's performance
obligation is not fully satisfied when the contract is executed.
Under annual instalment plans the Group is required to undertake
various contract review activities at each anniversary date and at
that point the customer also has the option of moving to a
different reseller should they wish to do so. The contract term is
therefore considered to be one year as this is the period during
which the parties to the contract have present enforceable rights
and obligations.
The rendering of services typically involves the performance by
the Group of a contractually agreed task over an agreed period of
time. The services may be rendered within a single period or over
more than one period.
Externally provided training and consulting services
The Group's activities under this revenue stream comprise the
sale of training and consulting services through third-party
contractors.
Identifying the performance obligations
The Group's sale of externally provided training and consulting
services is generally distinct from other goods and services that
the Group might provide to the same customer under the same or
separate contracts. This is because the customer can benefit from
the services on their own or from other resources (as is evidenced
by the fact that the services are provided by another party).
Additionally, the services are not generally integrated with or
dependent on other services that might be provided to the
customer.
When selling externally provided training and consulting
services the Group acts as agent and so recognises revenue at the
amount retained after paying the service provider for the services
delivered to the customer, i.e. the gross margin earned.
Determining the transaction price
The transaction price for training and consulting services is
fixed at the amount specified in the contract and has no variable
element.
Allocating the transaction price
When selling training and consulting services provided through
third-party contractors together with other goods and services
under the same or linked contracts and those goods and services
represent more than one performance obligation, the Group allocates
the total transaction by reference to the prices it charges for
those goods and services when sold separately, i.e. their
stand-alone selling prices.
Recognising revenue
The Group recognises all revenue from externally provided
training and consulting services on a point in time basis. This is
because the Group's activities in satisfying its performance
obligation do not satisfy any of the criteria for over time revenue
recognition set out in IFRS 15. The Group's performance obligations
are fully satisfied at the point the contract is signed.
Thereafter, the Group has no ongoing performance obligations as
these rest with the services provider.
Internally provided consulting services
The Group's activities under this revenue stream comprise the
provision of consulting services using its own internal resources.
The services provided include helpdesk support, cloud migration,
implementation of security solutions, infrastructure and software
asset management services.
Identifying the performance obligations
The Group's sale of internally provided consulting services is
generally distinct from other goods and services that the Group
might provide to the same customer under the same or separate
contracts. This is because the customer can benefit from the
services on their own or from other resources. Additionally, the
services are not generally integrated with or dependent on other
services that might be provided to the customer. When selling
internally provided consulting services the Group acts as principal
and so recognises revenue at the gross amount receivable from the
customer for the services provided.
Determining the transaction price
The transaction price for consulting services is fixed by the
day rates specified in the contract and has no variable
element.
Allocating the transaction price
When selling internally provided consulting services together
with other goods and services under the same or linked contracts
and those goods and services represent more than one performance
obligation, the Group allocates the total transaction by reference
to the prices it charges for those goods and services when sold
separately, i.e. their stand-alone selling prices.
Recognising revenue
The Group recognises all revenue from internally provided
consulting services on an over time basis. This is because the
customer simultaneously consumes and benefits from Group's
activities as the Group performs. In measuring its performance and
the amount of revenue to be recognised, the Group applies an inputs
basis by reference to the hours expended to the measurement date
and the day rates specified in the contract.
Hardware sales
The Group's activities under this revenue stream comprise the
sale of hardware items such as servers, laptops and devices.
Identifying the performance obligations
The Group's sale of hardware, which is made in the capacity of
principal, is generally distinct from other goods and services that
the Group might provide to the same customer under the same or
separate contracts. This is because the customer can usually
benefit from the hardware either on its own or with other
resources. Occasionally, the hardware may be integrated with
software licences resold by the Group in such a way that the
customer's ability to benefit from the software and hardware
products is interdependent. In such instances, the sale of the
hardware and related licence together represent a single
performance obligation. When selling hardware, the Group acts as
principal and so recognises revenue at the gross amount receivable
from the customer for the hardware provided.
Determining the transaction price
The transaction price for sales of hardware is fixed at the
amount specified in the contract and has no variable element.
Allocating the transaction price
When selling hardware together with other goods and services
under the same or linked contracts and those goods and services
represent more than one performance obligation, the Group allocates
the total transaction by reference to the prices it charges for
those goods and services when sold separately, i.e. their
stand-alone selling prices.
Recognising revenue
The Group recognises all revenue from sales of hardware on a
point in time basis. This is because the Group's activities in
satisfying its performance obligation do not satisfy any of the
criteria for over time revenue recognition set out in IFRS 15.
Revenue is recognised on delivery when control of the hardware
passes to the customer.
Contract costs
Incremental costs of obtaining a contract
The Group recognises the incremental costs of obtaining a
contract when those costs are incurred. For revenue recognised on a
point in time basis, this is consistent with the transfer of the
goods or services to which those costs relate. For revenue
recognised on an over time basis, the Group applies the practical
expedient available in IFRS 15 and recognises the costs as an
expense when incurred because the amortisation period of the asset
that would otherwise be recognised is less than one year.
Costs to fulfil a contract
The Group recognises the costs of fulfilling a contract when
those costs are incurred. This is because the nature of those costs
does not generate or enhance the Group's resources in a way that
enables it to satisfy its performance obligations in the future and
those costs do not otherwise qualify for recognition as an
asset.
Contract assets
The Group recognises a contract asset for accrued revenue.
Accrued revenue is revenue recognised from performance obligations
satisfied in the period that has not yet been invoiced to the
customer.
Contract liabilities
The Group recognises a contract liability for deferred revenue
when the customer is invoiced, or when payment is due, before the
related performance obligations of the contract are satisfied. A
contract liability is also recognised for payments received in
advance from customers.
1.13 Rebates
Rebates from suppliers are accounted for in the period in which
they are earned and are based on commercial agreements with
suppliers. Rebates earned are mainly purchase volume related and
are generally short term in nature, with rebates earned but not yet
received typically relating to the preceding quarter's trading.
Rebate income is recognised in cost of sales in the consolidated
statement of profit or loss and rebates earned but not yet received
are included within accrued income in the consolidated statement of
financial position.
1.14 Non-underlying items
Non-underlying items are those items that, by virtue of their
nature, size or expected frequency, warrant separate additional
disclosure in the consolidated financial statements, to fully
understand the underlying performance of Group. Such items have
been included within administrative expenses but have also been
disclosed separately in note 5 in the notes to the consolidated
financial statements. Non-underlying items relate primarily to the
costs incurred as part of the demerger and separate listing of the
Group in December 2020.
1.15 Income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income, based on the
applicable income tax rate for each jurisdiction, adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated based on the tax
laws enacted or substantively enacted at the end of the reporting
period in the countries where the company and its subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions, where appropriate, based on amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that, at the
time of the transaction, affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
end of the reporting period and are expected to apply when the
related deferred income tax asset is realised, or the deferred
income tax liability is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the Group is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
1.16 Leases
Lessee
The Group leases a property and various motor vehicles. Lease
agreements are typically made for fixed periods but may have
extension options included. Lease terms are negotiated on an
individual basis and contain different terms and conditions. The
lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged
to profit or loss over the lease period to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis. The Group is depreciating the right-of-use
assets over the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured at the net present value of the minimum lease payments.
The net present value of the minimum lease payments is calculated
as follows:
-- fixed payments, less any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease; where this rate cannot be determined, the
Group's incremental borrowing rate is used.
Right-of-use assets are measured at cost comprising the
following:
-- the net present value of the minimum lease payments;
-- any lease payments made at or before the commencement date
less any lease incentives received; and
-- any initial direct costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over the lease term.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings 8 years;
-- Motor vehicles 2 to 3 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of leased assets are included as capital
items in profit or loss.
1.17 Business combinations
The acquisition method of accounting is used to account for all
business combinations, except for those between entities under
common control. The consideration transferred for the acquisition
of a subsidiary comprises the:
-- fair values of the assets transferred;
-- liabilities incurred to the former owners of the acquired business;
-- equity interests issued by the Group;
-- fair value of any asset or liability resulting from a
contingent consideration arrangement; and
-- fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquired entity, on
an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the acquired
entity's net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
-- consideration transferred;
-- amount of any non-controlling interest in the acquired entity; and
-- acquisition date fair value of any previous equity interest
in the acquired entity, over the fair value of the net identifiable
assets acquired is recorded as goodwill. If those amounts are less
than the fair value of the net identifiable assets of the business
acquired, the difference is recognised directly in profit or loss
as a bargain purchase.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the
Group's incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or as a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair
value recognised in profit or loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
1.18 Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. Other assets
are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount might not be
recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset's fair value less
costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of
assets (cash-generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
1.19 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial
institutions repayable without penalty on notice of not more than
24 hours. Cash equivalents are highly liquid investments that
mature in no more than three months from the date of acquisition
and that are readily convertible to known amounts of cash with
insignificant risk of change in value.
1.20 Trade receivables
Trade receivables are amounts due from customers for merchandise
sold or services rendered in the ordinary course of business. Trade
receivables are recognised initially at the amount of consideration
that is unconditional i.e. fair value and subsequently measured at
amortised cost using the effective interest method, less loss
allowance. Prepayments and other receivables are stated at their
nominal values.
1.21 Inventories
Inventories are measured at the lower of cost and net realisable
value considering market conditions and technological changes. Cost
is determined on the first-in first-out and weighted average cost
methods. Work and contracts in progress and finished goods include
direct costs and an appropriate portion of attributable overhead
expenditure based on normal production capacity. Net realisable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling
expenses.
1.22 Financial instruments
Financial instruments comprise investments in equity, loans
receivable, trade and other receivables (excluding prepayments),
investments, cash and cash equivalents, restricted cash,
non-current loans, current loans, bank overdrafts, derivatives and
trade and other payables.
Recognition
Financial assets and liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to
the contractual provisions of the instruments. Financial assets are
recognised on the date the Group commits to purchase the
instruments (trade date accounting).
Financial assets are classified as current if expected to be
realised or settled within 12 months from the reporting date; if
not; they are classified as non-current. Financial liabilities are
classified as non-current if the Group has an unconditional right
to defer payment for more than 12 months from the reporting
date.
Classification
The Group classifies financial assets on initial recognition as
measured at amortised cost, fair value through other comprehensive
income (FVOCI) or fair value through profit or loss (FVTPL) based
on the Group's business model for managing the financial asset and
the cash flow characteristics of the financial asset.
Financial assets are classified as follows:
-- Financial assets to be measured subsequently at fair value
(either through other comprehensive income (OCI) or through profit
or loss); and
-- Financial assets to be measured at amortised cost.
Financial assets are not reclassified unless the Group changes
its business model. In rare circumstances where the Group does
change its business model, reclassifications are done prospectively
from the date that the Group changes its business model.
Financial liabilities are classified and measured at amortised
cost except for those derivative liabilities and contingent
consideration that are measured at FVTPL.
Measurement on initial recognition
All financial assets and financial liabilities are initially
measured at fair value, including transaction costs, except for
those classified as FVTPL which are initially measured at fair
value excluding transaction costs. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognised immediately in profit or
loss.
Subsequent measurement: Financial assets
Subsequent to initial recognition, financial assets are measured
as described below:
-- FVTPL - these financial assets are subsequently measured at
fair value and changes therein (including any interest or dividend
income) are recognised in profit or loss.
-- Amortised cost - these financial assets are subsequently
measured at amortised cost using the effective interest method,
less impairment losses. Interest income, foreign exchange gains and
losses and impairments are recognised in profit or loss. Any gain
or loss on derecognition is recognised in profit or loss.
-- Equity instruments at FVOCI - these financial assets are
subsequently measured at fair value. Dividends are recognised in
profit or loss when the right to receive payment is established.
Other net gains and losses are recognised in OCI. On derecognition,
gains and losses accumulated in OCI are not reclassified to profit
or loss.
Subsequent measurement: Financial liabilities
All financial liabilities, excluding derivative liabilities and
contingent consideration, are subsequently measured at amortised
cost using the effective interest method. Derivative liabilities
are subsequently measured at fair value with changes therein
recognised in profit or loss.
Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the assets have expired or have been transferred
and the Group has transferred substantially all risks and rewards
of ownership. Financial liabilities are derecognised when the
obligations specified in the contracts are discharged, cancelled or
expire. On derecognition of a financial asset or liability, any
difference between the carrying amount extinguished and the
consideration paid is recognised in profit or loss.
Offsetting financial instruments
Offsetting of financial assets and liabilities is applied when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously. The net
amount is reported in the statement of financial position.
Impairment
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have
been grouped based on credit risk characteristics and the days past
due.
The expected credit loss (ECL) rates are based on the payment
profiles of sales over a 12-month period before 28 February 2021,
29 February 2020 and 1 March 2019 respectively and the
corresponding historical credit losses experienced within this
period. The historical loss rates are reviewed and adjusted to
reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the
receivables.
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
Derivatives
Derivatives are initially recognised at fair value on the date
that a derivative contract is entered into as either a financial
asset or financial liability if they are considered material.
Derivatives are subsequently remeasured to their fair value at the
end of each reporting period, with the change in fair value being
recognised in profit or loss.
1.23 Property, plant and equipment
Owned assets
Property, plant and equipment is measured at cost less
accumulated depreciation and impairment losses. When components of
an item of property, plant and equipment have different useful
lives, those components are accounted for as separate items of
property, plant and equipment.
Cost includes expenditure that is directly attributable to the
acquisition of the asset. Purchased software that is integral to
the functionality of the related equipment is capitalised as part
of that equipment.
Subsequent costs
The Group recognises in the carrying amount of an item of
property, plant and equipment the cost of replacing part of such an
item when the cost is incurred, if it is probable that future
economic benefits embodied within the item will flow to the Group
and the cost of such item can be measured reliably. The carrying
amount of the replaced item of property, plant and equipment is
derecognised. All other costs are recognised in profit or loss as
an expense when incurred.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over their expected useful lives
up to their respective estimated residual values. Land is not
depreciated.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings 20 to 50 years;
-- Leasehold improvements (included in land and buildings)
shorter of lease period or useful life of asset;
-- Plant and machinery 3 to 20 years;
-- Motor vehicles 4 to 8 years;
-- Furniture and equipment 5 to 20 years; and
-- IT equipment and software 2 to 8 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of property, plant and equipment are
included as capital items in profit or loss.
1.24 Intangible assets
Goodwill
Goodwill is measured as described in note 1.18. Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised, but it is tested for impairment
annually, or more frequently if events or changes in circumstances
indicate that it might be impaired and is carried at cost less
accumulated impairment losses. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose. The units or groups of units are identified at the
lowest level at which goodwill is monitored for internal management
purposes.
Brands and customer relationships
Brands and customer relationships acquired in a business
combination are recognised at fair value at the acquisition
date. They have a finite useful life and are subsequently
carried at cost less accumulated amortisation and impairment
losses.
The useful lives for the brands and customer relationships are
as follows:
-- Customer relationships 10 years; and
-- Brands 5 years.
Software
Costs associated with maintaining software programmes are
recognised as an expense as incurred. Development costs that are
directly attributable to the design and testing of identifiable and
unique software products controlled by the Group are recognised as
intangible assets where the following criteria are met:
-- it is technically feasible to complete the software so that it will be available for use;
-- management intends to complete the software and use or sell it;
-- there is an ability to use or sell the software;
-- it can be demonstrated how the software will generate probable future economic benefits;
-- adequate technical, financial and other resources to complete
the development and to use or sell the software are available;
and
-- the expenditure attributable to the software during its development can be reliably measured.
Research and development
Research expenditure and development expenditure that do not
meet the criteria above are recognised as an expense as incurred.
Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
1.25 Trade and other payables
Trade payables, sundry creditors and accrued expenses are
obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. They are accounted
for in accordance with the accounting policy for financial
liabilities as included above. Other payables are stated at their
nominal values.
1.26 Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount is recognised in
profit or loss over the period of the borrowings using the
effective interest method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be
drawn down. In this case, the fee is deferred until the draw-down
occurs. To the extent that there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised
over the period of the facility to which it relates.
1.27 Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation because of past events, for which it is
probable that an outflow of economic benefits will be required to
settle the obligation, and where a reliable estimate can be made of
the amount of the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax discount
rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the
liability.
1.28 Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and accumulating sick leave, that are
expected to be settled wholly within 12 months after the end of the
period in which the employees render the related service are
recognised in respect of employees' services up to the end of the
reporting period and are measured at the amounts expected to be
paid when the liabilities are settled. The liabilities are
presented as current employee benefit obligations in the balance
sheet.
Post-employment obligations
The Group operates various defined contribution plans for its
employees. Once the contributions have been paid, the Group has no
further payment obligations. The contributions are recognised as
employee benefit expense when they are due. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Termination benefits
Termination benefits are payable when employment is terminated
by the Group before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The
Group recognises termination benefits at the earlier of the
following dates: (a) when the Group can no longer withdraw the
offer of those benefits; and (b) when the Group recognises costs
for a restructuring that is within the scope of IAS 37 and involves
the payment of termination benefits. In the case of an offer made
to encourage voluntary redundancy, the termination benefits are
measured based on the number of employees expected to accept the
offer. Benefits falling due more than 12 months after the end of
the reporting period are discounted to present value.
Share-based payments
Equity settled share-based payment incentive scheme
Share-based compensation benefits are provided to particular
employees of the Group via the Bytes Technology Group plc
performance incentive share plan. Prior to the demerger the Bytes
business had two share schemes, the Bytes Technology Limited equity
settled share-based payment incentive scheme and the Blenheim Group
Limited equity settled share-based payment incentive scheme.
Information relating to all schemes is provided in note 28.
Employee options
The fair values of options granted under the Bytes Technology
Group plc performance incentive share plan is recognised as an
employee benefit expense, with a corresponding increase in equity.
The total amount to be expensed is determined by reference to the
fair value of the options granted.
The total expense is recognised over the vesting period, which
is the period over which all the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its
estimates of the number of options issued that are expected to vest
based on the service conditions. It recognises the impact of the
revision to original estimates, if any, in profit or loss, with a
corresponding adjustment to equity.
Employee shares
The fair values of shares issued under the Bytes Technology
Limited and the Blenheim Group Limited equity settled share-based
payment incentive schemes are recognised as employee benefit
expenses, with corresponding increases in equity. The total amount
to be expensed is determined by reference to the fair values of the
shares issued. The fair values of the shares issued are measured
using generally accepted valuation techniques.
The total expenses are recognised over the vesting period, which
is the period over which all the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its
estimates of the number of shares issued that are expected to vest
based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
1.29 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
1.30 Dividends
Dividends paid on ordinary shares are classified as equity and
are recognised as distributions in equity.
1.31 Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
-- the profit attributable to owners of the company, excluding
any costs of servicing equity other than ordinary shares;
-- by the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary
shares issued during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to consider:
-- the after-income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares; and
-- the weighted average number of additional ordinary shares
that would have been outstanding, assuming the conversion of all
dilutive potential ordinary shares.
1.32 Rounding of amounts
All amounts disclosed in the consolidated financial statements
and notes have been rounded off to the nearest thousand, unless
otherwise stated.
2. Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer,
who is considered to be the chief operating decision maker for the
purposes of resource allocation and assessment of performance, is
based wholly on the overall activities of the Group. The Group has
therefore determined that it has only one reportable segment under
IFRS 8, which is that of 'IT solutions provider'. The Group's
revenue, results, assets and liabilities for this one reportable
segment can be determined by reference to the consolidated
statement of profit or loss and the consolidated statement of
financial position. An analysis of revenues by product lines and
geographical regions, which form one reportable segment, is set out
in note 3.
2(b) Adjusted operating profit
Adjusted operating profit excludes the effects of non-underlying
items and other significant items of income and expenditure which
have an impact on the quality of earnings, such as IPO costs, which
are because of an isolated, non-recurring event. Intangible assets
amortisation and the effects of share-based payment charges have
also been excluded.
Adjusted operating profit reconciles to operating profit as
follows:
Year ended Year ended
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Adjusted operating profit 37,481 31,725
Share-based payment charges 28 (962) (271)
Amortisation of acquired
intangible assets 4 (1,610) (1,610)
IPO costs 5 (8,065) -
------------ ------------
Operating profit 26,844 29,844
------------ ------------
3. Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with
customers:
The Group derives revenue from the transfer of goods and
services in the following major product lines and geographical
regions:
Year ended Year ended
28 February 29 February
2021 2020
Revenue by product GBP'000 GBP'000
Software 343,063 326,439
Hardware 24,073 29,576
Services 26,433 17,088
------------ ------------
Total revenue from contracts
with customers 393,569 373,103
------------ ------------
Hardware
The Group's hardware revenue comprises the sale of items such as
servers, laptops and other devices.
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.
Services
The Group's services revenue comprises the sale of externally
provided training and consulting services through third-party
contractors and internally provided consulting services through its
own internal resources.
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Revenue by geographical regions:
United Kingdom 380,616 352,458
Europe 9,594 17,720
Rest of world 3,359 2,925
------------ ------------
393,569 373,103
------------ ------------
Year ended Year ended
28 February 29 February
2021 2020
3(b) Gross invoiced income GBP'000 GBP'000
by type:
Software 899,155 665,147
Hardware 24,073 29,576
Services 34,824 27,431
------------ ------------
958,052 722,154
------------ ------------
Gross invoiced income 958,052 722,154
Adjustment to gross invoiced
income for revenue recognised
as agent (564,483) (349,051)
------------ ------------
Revenue 393,569 373,103
------------ ------------
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 a better understanding of business
performance and position particularly in respect of working capital
and cash flow.
Year ended Year ended
28 February 29 February
2021 2020
3(c) Largest revenue derived GBP'000 GBP'000
from a single external customer:
Software 45,791 42,605
------------ ------------
45,791 42,605
------------ ------------
3(d) Revenue recognised in relation to contract liabilities
During the year, the Group recognised GBP10 million (2020: GBP10
million) of revenue that was included in the contract liability
balance at the beginning of the period.
4. Material profit or loss items
The Group has identified several items included within
administrative expenses which are material due to the significance
of their nature and/or amount. These are listed separately here to
provide a better understanding of the financial performance of the
Group:
Year ended Year
28 February ended
2021 29 February
2020
Note GBP'000 GBP'000
Depreciation of property,
plant and equipment 10 835 684
Depreciation of right-of-use
assets 11 235 290
Loss on disposal of property,
plant and equipment 10 18 10
Amortisation of acquired intangible
assets 12 1,610 1,610
Consulting fees 2,290 946
Operating lease charges: 11 54 78
Property 54 75
Plant, equipment and vehicles - 3
Foreign exchange losses/(gains) 11 (24)
5. Non-underlying items
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
IPO costs 8,065 -
------------ ------------
8,065 -
------------ ------------
Items included in administrative expenses that are material,
either because of size or their nature and that are non-recurring
are considered as non-underlying items. The Group incurred costs of
GBP8.1 million in respect of its IPO. These costs specifically
related to stamp duty taxes and other legal and professional costs.
In addition, commission costs of GBP10.6 million were incurred for
raising gross proceeds of GBP352.4 million on IPO. GBP333.5 million
of the proceeds were used to settle the Group's obligations under
the Demerger SPA with Altron and Altron's Shareholder, with the
remaining GBP18.9 million being used to pay the commission costs of
GBP10.6 million and the IPO costs of GBP8.1 million. The GBP10.6
million of commission costs was offset against the share premium
created on the issue of the shares, see note 19.
6. Employees
Year ended Year ended
28 February 29 February
2021 2020
Employee benefit expense: GBP'000 GBP'000
Employee remuneration (including directors'
remuneration) 29,980 26,960
Commissions and bonuses 15,982 15,023
Social security costs 5,326 4,694
Pension costs 1,038 918
Share-based payments expense 962 271
------------ ------------
53,288 47,866
------------ ------------
Classified as follows:
Cost of sales 7,875 6,981
Administrative expenses 45,413 40,885
------------ ------------
53,288 47,866
------------ ------------
The average monthly number of employees during the year was:
Year ended Year ended
28 February 29 February
2021 2020
Number Number
Sales 255 252
Technical 272 235
Administration 120 106
------------ ------------
647 593
------------ ------------
7. Auditors' remuneration
During the year, the Group obtained the following services from
the company's auditors and its associates:
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Fees payable to the company's auditors and 161 -
its associates for the audit of the parent
company and consolidated financial statements
Fees payable to company's auditors and its
associates for other services:
Audit of the financial statements of the
company's subsidiaries 264 334
Non-audit services (1) 1,243 -
------------ ------------
1,668 334
------------ ------------
(1) Non-audit services relate to pre-IPO services provided which are of a one-off nature.
8. Finance income and costs
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Finance income
Bank interest received 12 158
------------ ------------
Finance income 12 158
Finance costs
Interest expense on financial
liabilities measured at amortised
cost (122) (2)
Interest expense on lease
liability (71) (80)
------------ ------------
Finance costs expensed (193) (82)
------------ ------------
Net finance (costs)/income (181) 76
------------ ------------
9. Income tax expense
The major components of the Group's income tax expense for all
periods are:
Year ended Year ended
28 February 29 February
2021 2020
Current tax expense GBP'000 GBP'000
Current income tax charge
in the year 7,049 5,912
Adjustment in respect of
current income tax of previous
years 165 (7)
Double taxation relief (5) -
Foreign taxation 20 -
------------ ------------
Total current income tax
charge 7,229 5,905
------------ ------------
Deferred tax credit
Increase in deferred tax (342) -
assets
Decrease in deferred tax
liabilities (157) (143)
------------ ------------
Deferred tax credit (499) (143)
------------ ------------
Total tax charge 6,730 5,762
------------ ------------
Reconciliation of total tax charge
The tax assessed for the year differs from the standard rate of
corporation tax in the UK applied to profit before tax:
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Profit before income tax 26,662 29,920
------------ ------------
Profit before income tax
at the standard rate of corporation
tax in the UK of 19% for
all periods 5,066 5,685
Effects of:
Non-deductible expenses 1,637 166
Tax credit in respect of
qualifying R&D expenditure - (67)
Foreign tax credits 14 -
Adjustment to previous periods (36) (18)
Other differences 49 (4)
------------ ------------
Income tax charge reported
in profit or loss 6,730 5,762
------------ ------------
Amounts recognised directly in equity
Year ended Year ended
28 February 29 February
2021 2020
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 assets: share-based 15 -
payments
------------ ------------
15 -
------------ ------------
Changes affecting the future tax charge:
In the Spring Budget 2021, the UK Government announced that,
from 1 April 2023, the main rate of corporation tax of 25% will be
effective and will be substantively enacted once the Finance Bill
2021 has received Royal Assent. The Group has considered the impact
of the proposed change in the main rate of corporation of 25% on
both its future tax liabilities and future deferred tax position
and considers the change to be immaterial at this stage. The Group
will continue to monitor the potential impact over the period up to
1 April 2023. In the previous Spring Budget 2020, the UK Government
announced that from 1 April 2020 the corporation tax rate would
remain at 19% (rather than reduce to 17%, as previously enacted).
This new law was substantively enacted on 17 March 2020. Deferred
taxes at the consolidated balance sheet date have been measured
using currently enacted tax rates and reflected in these
consolidated financial statements, see note 18.
10. Property, plant and equipment
Freehold Furniture,
land Computer fittings Computer Motor
and buildings equipment and equipment software vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 March 2019 7,105 1,317 959 611 64 10,056
Additions 1,190 454 59 13 29 1,745
Disposals (5) (347) (45) - (10) (407)
------------ ------------ ------------ ------------ ------------ ------------
At 29 February 2020 8,290 1,424 973 624 83 11,394
Transfers 509 1,806 332 - - 2,647
Additions 81 471 27 - 28 607
Disposals - (35) (29) - (22) (86)
------------ ------------ ------------ ------------ ------------ ------------
At 28 February 2021 8,880 3,666 1,303 624 89 14,562
------------ ------------ ------------ ------------ ------------ ------------
Depreciation
At 1 March 2019 744 800 494 519 29 2,586
On disposals (2) (347) (38) - (10) (397)
Charge for the year 261 305 58 44 16 684
------------ ------------ ------------ ------------ ------------ ------------
At 29 February 2020 1,003 758 514 563 35 2,873
Transfers 440 1,893 314 - - 2,647
On disposals - (35) (19) - (14) (68)
Charge for the year 348 327 104 38 18 835
------------ ------------ ------------ ------------ ------------ ------------
At 28 February 2021 1,791 2,943 913 601 39 6,287
------------ ------------ ------------ ------------ ------------ ------------
Net book value
At 29 February 2020 7,287 666 459 61 48 8,521
====== ====== ====== ====== ====== ======
At 28 February 2021 7,089 723 390 23 50 8,275
====== ====== ====== ====== ====== ======
11. Leases
(i) Amounts recognised in the balance sheet
Motor vehicles
Buildings Total
Right-of-use assets GBP'000 GBP'000 GBP'000
Cost
At 1 March 2019 1,377 245 1,622
------------ ------------ ------------
At 29 February 2020 and 28 February
2021 1,377 245 1,622
------------ ------------ ------------
Depreciation
At 1 March 2019 - - -
Charge for the year 162 128 290
------------ ------------ ------------
At 29 February 2020 162 128 290
Charge for the period 142 93 235
------------ ------------ ------------
At 28 February 2021 304 221 525
------------ ------------ ------------
Net book value
At 1 March 2019 1,377 245 1,622
====== ====== ======
At 29 February 2020 1,215 117 1,332
====== ====== ======
At 28 February 2021 1,073 24 1,097
====== ====== ======
28 February 29 February 1 March
2021 2020 2019
Lease liabilities GBP'000 GBP'000 GBP'000
Current 202 307 307
Non-current 1,176 1,295 1,422
------------ ------------ ------------
1,378 1,602 1,729
------------ ------------ ------------
There were no additions to the right-of-use assets in the
financial year ended 28 February 2021 (financial year ended 29
February 2020: GBPNil).
(ii) Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts
relating to leases:
Year ended Year ended
28 February 29 February
2021 2020
Depreciation charge of right-of-use GBP'000 GBP'000
assets
Buildings 142 162
Motor vehicles 93 128
------------ ------------
235 290
------------ ------------
Interest expense (included in finance
cost) 71 80
Expense relating to short-term leases
(included in administrative expenses) 54 54
Expense relating to leases of low-value
assets (included in administrative expenses) - 24
(iii) Changes in liabilities arising from financing
activities
1 March Cash 28 February
2020 flows Interest 2021
GBP'000 GBP'000 GBP'000 GBP'000
Lease liabilities 1,602 (295) 71 1,378
------------ ------------ ------------ ------------
Total liabilities from financing activities 1,602 (295) 71 1,378
------------ ------------ ------------ ------------
1 March Cash 29 February
2019 flows Interest 2020
GBP'000 GBP'000 GBP'000 GBP'000
Lease liabilities 1,729 (207) 80 1,602
------------ ------------ ------------ ------------
Total liabilities from financing activities 1,729 (207) 80 1,602
------------ ------------ ------------ ------------
12. Intangible assets
Customer
Goodwill relationships Brand Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
------------ ------------ ------------ ------------
At 1 March 2019, 29 February 2020
and 28 February 2021 37,493 8,798 3,653 49,944
------------ ------------ ------------ ------------
Amortisation
At 1 March 2019 - 1,247 1,034 2,281
Charge for the year - 880 730 1,610
------------ ------------ ------------ ------------
At 29 February 2020 - 2,127 1,764 3,891
Charge for the year - 880 730 1,610
------------ ------------ ------------ ------------
At 28 February 2021 - 3,007 2,494 5,501
------------ ------------ ------------ ------------
Net book value
At 29 February 2020 37,493 6,671 1,889 46,053
====== ====== ====== ======
At 28 February 2021 37,493 5,791 1,159 44,443
====== ====== ====== ======
Determination of recoverable amount:
The carrying value of indefinite useful life intangible assets
and goodwill are tested annually for impairment. The recoverable
amount of each cash-generating unit (CGU) is the higher of the
CGU's fair value less costs of disposal and its value in use. For
each CGU and for all periods presented, the Group has assessed that
the value in use represents the recoverable amount. The future
expected cash flows used in the value in use models are based on
management forecasts, typically over a three-year period, and
thereafter a reasonable rate of growth is applied based on current
market conditions. For the purpose of impairment assessments of
goodwill, the goodwill balance is allocated to the operating units
which represent the lowest level within the Group at which the
goodwill is monitored for internal management purposes.
A summary of the goodwill per CGU as well as assumptions applied
for impairment assessment purposes is presented below:
28 February 2021
During the financial year to 28 February 2021, the Group
successfully integrated the Bytes Security Partnership into the
Bytes Software Services business. The GBP6.9 million carrying value
of goodwill previously allocated to Bytes Security Partnership has
been re-allocated to the Bytes Software Services CGU. The goodwill
per CGU as at 28 February 2021 is as follows:
Goodwill
Long-term Discount carrying
growth rate amount
rate
% % GBP'000
Bytes Software Services 2 8.44 14,775
Phoenix Software 2 8.44 22,718
------------
37,493
------------
29 February 2020
Goodwill
Long-term Discount carrying
growth rate amount
rate
% % GBP'000
Bytes Software Services 2 8.13 7,841
Bytes Security Partnership 2 8.13 6,934
Phoenix Software 2 8.13 22,718
------------
37,493
------------
Growth rates
The Group used a conservative growth rate of 2% which was
applied beyond the approved budget periods. The growth rate was
consistent with publicly available information relating to
long-term average growth rates for the market in which the
respective CGU operated. The average growth rates ranged from 2% to
5% (2020: 2% - 5%).
Discount rates
Discount rates used reflect both time value of money and other
specific risks relating to the relevant CGU. Pre-tax discount rates
have been applied.
Sensitivities
The impacts of variations in the calculation of value-in-use of
assumed growth rate and pre-tax discount rates applied to the
estimated future cash flows of the CGUs have been estimated as
follows:
28 February 2021 Bytes Software Phoenix
Services Software
GBP'000 GBP'000
Headroom 377,502 127,899
1% increase in the pre-tax discount
rate applied to the estimated future
cash flows (55,339) (21,190)
1% decrease in the pre-tax discount
rate applied to the estimated future
cash flows 75,769 29,016
0.5% increase in the terminal growth
rate from 2022 to 2026 30,790 11,715
0.5% decrease in the terminal growth
rate from 2022 to 2026 (26,351) (10,026)
29 February 2020 Bytes Software Bytes Security Phoenix
Services Partnership Software
GBP'000 GBP'000 GBP'000
Headroom 333,967 44,215 52,253
1% increase in the pre-tax discount
rate applied to the estimated future
cash flows (43,296) (7,463) (10,891)
1% decrease in the pre-tax discount
rate applied to the estimated future
cash flows 60,156 10,369 15,132
0.5% increase in the terminal growth
rate from 2021 to 2025 7,475 1,363 1,969
0.5% decrease in the terminal growth
rate from 2021 to 2025 (7,344) (1,339) (1,933)
None of the above sensitivities taken either in isolation or
aggregated, indicate a potential impairment. The directors consider
that there is no reasonable possible change in the assumptions used
in the sensitivities that would result in an impairment of
goodwill.
13. Inventories
As at As at
28 February 29 February
2021 2020
GBP'000 GBP'000
Inventories 591 688
------------ ------------
591 688
------------ ------------
Inventories include asset management subscription licences
purchased in advance for a specific customer that as yet haven't
been consumed.
Inventories recognised as an expense in cost of sales during the
year amounted to GBP97,000 (29 February 2020: GBP94,000).
14. Financial assets and financial liabilities
This note provides information about the Group's financial
instruments, including:
-- an overview of all financial instruments held by the Group;
-- specific information about each type of financial instrument;
-- accounting policies; 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 28 As at
February 29 February
2021 2020
Note GBP'000 GBP'000
Financial assets at amortised
cost:
Trade receivables 15 103,455 73,365
Other financial assets 15 1,193 1,808
------------ ------------
104,648 75,173
------------ ------------
Financial liabilities As at 28 As at
February 29 February
2021 2020
Note GBP'000 GBP'000
Financial liabilities at amortised
cost:
Trade and other payables -
current, excluding Payroll
tax and other statutory tax
liabilities 17 150,354 125,429
Lease liabilities 11 1,377 1,602
------------ ------------
151,731 127,031
------------ ------------
The Group's exposure to various risks associated with the
financial instruments is discussed in note 24. The maximum exposure
to credit risk at the end of the reporting period is the carrying
amount of each class of financial assets mentioned above.
15. Trade and other receivables
As at 28 As at 29
February February
2021 2020
Financial assets GBP'000 GBP'000
Gross trade receivables 104,179 73,767
Less: impairment allowance (724) (402)
------------ ------------
Net trade receivables 103,455 73,365
Other receivables 1,193 1,808
------------ ------------
104,648 75,173
------------ ------------
Non-financial assets
Prepayments 2,016 1,921
------------ ------------
2,016 1,921
------------ ------------
Trade and other receivables 106,664 77,094
------------ ------------
(i) Classification of trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies are
provided in note 1.22.
(ii) Fair values of trade receivables
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
(iii) Credit risk
Ageing and impairment analysis (excluding finance lease
assets)
29 February 2020 Current Past Past Past
due 0 due 31 due 121
to 30 to 120 to 365 Total
days days days
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expected loss rate 0.02% 0.28% 13.41% 95.61%
Gross carrying amount -
trade receivables 59,410 12,445 1,792 120 73,767
Loss allowance 12 35 240 115 402
28 February 2021 Current Past Past Past Past
due 0 due 31 due 61 due 121
to 30 to 60 to 120 to 365 Total
days days days days
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expected loss rate 0.05% 0.58% 6.08% 25.87% 100%
Gross carrying amount -
trade receivables 87,557 12,077 3,764 545 236 104,179
Loss allowance 48 70 229 141 236 724
Impact of Covid-19
During the financial year, the Group has revised the expected
credit loss rates for the impact of Covid-19 and altered the
payment profiles of balances associated with certain customers. To
represent the effects of this, the Group has split the past due 31
to 120 days ageing profile into two separate ageing profiles, being
past due 31 to 60 days and past due 61 to 120 days. The loss
allowances applied to both ageing profiles are based on the
historical loss rates adjusted to reflect current and
forward-looking information on macroeconomic factors affecting the
ability of the customers to settle the receivables.
The closing loss allowances for trade receivables reconcile to
the opening loss allowances as follows:
Trade receivables
As at As at
28 February 29 February
2021 2020
GBP'000 GBP'000
Opening loss allowance at 1 March 402 476
Increase in loss allowance recognised 333 -
in profit or loss during the period
Receivables written off during the year
as uncollectible (11) (74)
------------ ------------
Closing loss allowance 724 402
------------ ------------
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
16. Cash and cash equivalents
As at As at
28 February 29 February
2021 2020
GBP'000 GBP'000
Cash at bank and in hand 20,734 47,357
------------ ------------
20,734 47,357
------------ ------------
17. Trade and other payables
As at As at
28 February 29 February
2021 2020
GBP'000 GBP'000
Trade and other payables (1) 124,977 106,818
Accrued expenses 25,377 20,988
Payroll tax and other statutory liabilities 6,767 5,381
------------ ------------
157,121 133,187
------------ ------------
(1) Demerger Transactions
Included within trade and other payables as at 29 February 2020
are deferred consideration amounts totalling GBP16.7 million
relating to the Demerger Transactions. These amounts represent the
cash consideration payments made to both management teams of Bytes
Technology Limited and Blenheim Group Limited on the Date of the
Demerger. Payments of GBP14.3 million and GBP2.4 million were made
to the Bytes Technology Limited management and Blenheim Group
Limited management respectively for the Bytes Technology Group
Limited and Blenheim Group Limited B ordinary shares. The Group has
chosen to present the Demerger Transactions from 1 March 2019 and
has therefore recognised a liability in the prior periods for the
cash consideration paid on the Date of the Demerger.
Trade payables are unsecured and are usually paid within 30 days
of recognition.
The carrying amounts of trade and other payables are considered
to be the same as their fair values, due to their short-term
nature.
18. Deferred tax balances
As at As at
28 February 29 February
Deferred tax assets 2021 2020
The balance comprises temporary differences GBP'000 GBP'000
attributable to:
Employee benefits 241 -
Provisions 101 -
Share-based payments 15 -
------------ ------------
357 -
------------ ------------
As at As at
28 February 29 February
2021 2020
Deferred tax assets GBP'000 GBP'000
At 1 March - -
Credited to profit or loss 342 -
Credited to equity 15 -
------------ ------------
Carrying amount at end of year 357 -
------------ ------------
As at As at
28 February 29 February
Deferred tax liabilities 2021 2020
The balance comprises temporary differences GBP'000 GBP'000
attributable to:
Intangible assets 1,207 1,488
Property, plant and equipment 531 407
------------ ------------
1,738 1,895
------------ ------------
As at As at
28 February 29 February
2021 2020
Deferred tax liabilities GBP'000 GBP'000
At 1 March 1,895 2,038
Credited to profit or loss (157) (143)
------------ ------------
Carrying amount at end of year 1,738 1,895
------------ ------------
19. Share capital and share premium
Number Nominal Share Total
of shares value premium
Authorised, allotted, called up and GBP'000 GBP'000 GBP'000
fully paid
At 1 March 2019 and 29 February 2020
(1) 232,480,613 2,325 625,373 627,698
Shares issued during the year (2) 7,001,720 70 8,263 8,333
------------ ------------ ------------ ------------
At 28 February 2021 (3), (4) 239,482,333 2,395 633,636 636,031
------------ ------------ ------------ ------------
(1) Demerger Transactions
The comparative figures are presented as if the Demerger
Transactions had occurred on 1 March 2019. On the Date of the
Demerger, the company had 2 ordinary shares in issue and issued a
further 232,480,611 ordinary shares in the company at an issue
price of GBP2.70 per share with an aggregate value of GBP627.7
million. This amount, together with the cash payments of GBP16.7
million to management for the acquisition of the Bytes Technology
Limited and Blenheim Group Limited B ordinary shares, is the total
consideration of GBP644.4 million paid to Altron and the management
under the Demerger SPA to acquire the entire issued share capital
of Bytes Technology Limited. The issue of 232,480,611 ordinary
shares by the company at an issue price of GBP2.70 per share, gave
rise to share capital of GBP2.3 million, being the nominal value of
the shares issued and share premium of GBP625.4 million with a
contribution to the merger reserve of GBP627.7 million, see note
21. Included in the 232,480,611 ordinary shares issued on the Date
of the Demerger were 123,514,420 ordinary shares with an aggregate
value of GBP333.5 million issued for cash to new institutional and
individual investors (including the non-executive directors)
introduced by the company's brokers, Numis Securities. This cash
was paid to Altron and Altron shareholders. 96,992,074 ordinary
shares with an aggregate value of GBP261.9 million were issued
directly to Altron shareholders and 11,974,117 ordinary shares with
an aggregate value of GBP32.3 million were issued to the Bytes
Technology Limited management for the Bytes Technology Limited B
ordinary shares, giving the combined value of GBP627.7 million
shown above.
(2) Shares issued during the year
During the year the company issued 7,001,720 new ordinary shares
at an issue price of GBP2.70 per share to institutional investors
introduced by Numis Securities. This resulted in gross share
proceeds of GBP18.9 million consisting of share capital of
GBP70,000 and a share premium of GBP18.9 million which was offset
by GBP10.6 million of commission costs paid on the issue of the
shares. The remaining net share issue proceeds of GBP8.3 million
were used by the company to pay the other IPO costs of GBP8.1
million included in note 5. The GBP10.6 million of commission costs
were paid to Numis Securities for raising total gross proceeds of
GBP352.4 million for the introduction of the new institutional and
individual investors on the Date of the Demerger and during the
year.
(3) Ordinary shares
Ordinary shares have a nominal value of GBP0.01. All ordinary
shares in issue rank pari passu and carry the same voting rights
and entitlement to receive dividends and other distributions
declared or paid by the Group. The company does not have a limited
amount of authorised share capital.
(4) Share options
Information related to the Bytes Technology Group plc
performance incentive share plan, including options issued during
the financial year and options outstanding at the end of the
reporting period is set out in note 28.
20. Other reserves
The following table shows a breakdown of the balance sheet line
item 'other reserves' and the movements in these reserves during
the year. All movements relate to the Group's share-based payment
schemes; further details are provided in note 28.
The Bytes
Technology
Group plc Bytes Blenheim
performance Technology Group Limited
incentive Limited scheme Total other
Note plan scheme reserves
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 March 2019 721 178 899
Share-based payment expenses 28 - 97 174 271
------------ ------------ ------------ ------------
At 29 February 2020 - 818 352 1,170
Share-based payment expenses 28 302 129 531 962
Deferred tax 18 15 - - 15
Transfer to retained earnings
(1) 22 - (947) (883) (1,830)
------------ ------------ ------------ ------------
At 28 February 2021 317 - - 317
------------ ------------ ------------ ------------
(1) Transfer to retained earnings
On the Date of the Demerger, both the Bytes Technology Limited
scheme and the Blenheim Group Limited scheme were exercised. The
equity amounts relating to both schemes were transferred to
retained earnings on settlement.
21. Merger reserve
Year Year
ended ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Balance at 1 March 2019, 29 February
2020 and 28 February 2021 (644,375) (644,375)
------------ ------------
(644,375) (644,375)
------------ ------------
The merger reserve of GBP644.4 million effective on the Date of
the Demerger is an accounting reserve in equity representing the
difference between the total nominal value of the issued share
capital acquired in Bytes Technology Limited of GBP1.10 and the
total consideration given of GBP644.4 million. The total
consideration was satisfied by the issue of new shares in the
company for a consideration of GBP627.7 million, see note 19 and
further cash consideration of GBP16.7 million for the acquisition
of the Bytes Technology Limited and Blenheim Group Limited B
ordinary shares. GBP14.3 million of the cash consideration was
satisfied by the company to acquire the Bytes Technology Limited B
ordinary shares and GBP2.4 million was satisfied by Bytes
Technology Limited to acquire the Blenheim Group Limited B ordinary
shares.
22. Retained earnings
Year Year
ended ended
28 February 29 February
Movements in retained earnings were 2021 2020
as follows:
Note GBP'000 GBP'000
Balance at 1 March 51,612 41,254
Net profit for the period (1) 19,933 24,158
Transfer from other reserves 20 1,830 -
Dividends 25(b) (48,600) (13,800)
------------ ------------
24,775 51,612
------------ ------------
(1) Net profit for the period is stated after GBP8.1 million of IPO costs, see note 5.
23. Cash generated from operations
Year ended Year ended
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Profit before taxation 26,663 29,920
Adjustments for:
Depreciation and amortisation 4 2,680 2,584
Loss on disposal of property,
plant and equipment 4 18 10
Non-cash employee benefits
expense - share based payments 6 962 271
Finance (income)/costs
- net 8 181 (76)
(Increase)/decrease in
contract assets (1,252) 2,971
(Increase) in trade and
other receivables (29,570) (22,496)
Decrease/(increase) in
inventories 97 (594)
Increase in trade and other
payables 40,611 27,586
Increase in contract liabilities 1,156 1,523
------------ ------------
Cash generated from operations 41,546 41,699
------------ ------------
24. Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current year profit and loss information has been
included where relevant to add further context.
A significant portion of the Group's revenues are from the sale
of Microsoft software and associated services and it, therefore,
remains strongly dependent thereon. The Group intends to continue
to develop this relationship, as well as seek additional
opportunities with other suppliers, in order to mitigate the risk
and exposure going forward.
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 policy in respect of liquidity risk is to maintain
readily accessible bank deposit accounts to ensure that the company
has sufficient funds for its operations. The cash deposits are held
in a mixture of short-term deposits and current accounts which earn
interest at a floating rate.
The Group's policy in respect of currency risk, which primarily
exists as a result of foreign currency purchases, is to either sell
in the currency of purchase, maintain sufficient cash reserves in
the appropriate foreign currencies which can be used to meet
foreign currency liabilities or take out forward currency contracts
to cover the exposure.
24(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. Similarly, the amounts
recognised in profit or loss in relation to derivatives were
considered immaterial to disclose separately.
24(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the
reporting period, was as follows:
As at 28 February As at 29 February
2021 2020
USD EUR NOK USD EUR
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 11,468 605 - 8,057 397
Cash and cash
equivalents 424 717 - 4,627 283
Trade payables (11,163) (6,557) (1,294) (14,873) (6,323)
------------ ------------ ------------ ------------ ------------
729 (5,235) (1,294) (2,189) (5,643)
------------ ------------ ------------ ------------ ------------
The aggregate net foreign exchange gains/losses recognised in
profit or loss were:
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Total net foreign exchange
(losses)/gains in profit or
loss (11) 24
------------ ------------
(11) 24
------------ ------------
24(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 deposits and is comfortable
that for normal operating requirements, no further external
borrowings are currently required.
At 28 February 2021, the Group had cash and cash equivalents of
GBP20.7 million, see note 16. 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
The Group has entered into a three-year committed Revolving
Credit Facility (RCF) from the admission date of GBP50 million for
the first 12 months, reducing to GBP40m for the following 12 months
and to GBP30m thereafter. The Group incurred arrangement fees of
GBP0.4 million representing 0.75% of the initial GBP50 million
facility 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
three-year period of the facility. The facility also incurs a
commitment fee and utilisation fee and both 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. As at 28 February 2021, EBITDA to net finance
charges was approximately 208 times. Net debt to EBITDA was
approximately 0.5 times.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual
maturity for its financial liabilities based on undiscounted
contractual payments:
Within 1 to 2 to Over Total
1 year 2 years 5 years 5 years contractual Carrying
cash flows amount
28 February 2021 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 17 124,977 - - - 124,977 124,977
Lease liabilities 11 257 231 578 545 1,611 1,378
------------ ------------ ------------ ------------ ------------ ------------
125,234 231 578 545 126,588 126,355
------------ ------------ ------------ ------------ ------------ ------------
Within 1 to 2 to Over Total
1 year 2 years 5 years 5 years contractual Carrying
cash flows amount
29 February 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 17 106,818 - - - 106,818 106,818
Lease liabilities 11 324 230 690 748 1,992 1,602
------------ ------------ ------------ ------------ ------------ ------------
107,142 230 690 748 108,810 108,420
------------ ------------ ------------ ------------ ------------ ------------
25. Capital management
25(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 the shareholder value.
The Group manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of the
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 Board initially intends to target
an annual dividend of between 40% and 50 % of the Group's profit
after taxation before any exceptional items in each financial year.
Subject to any cash requirements for ongoing investment, the Board
will consider returning excess cash to shareholders over time.
25(b) Dividends
2021 2020
Ordinary shares Pence Pence
per share GBP'000 per share GBP'000
Prior year's final dividend paid - - 5.94 13,800
Interim dividend paid 8.00 18,600 - -
Dividend paid prior to Demerger 12.90 30,000 - -
------------ ------------ ------------ ------------
Total dividends attributable to ordinary
shareholders 20.90 48,600 5.94 13,800
------------ ------------ ------------ ------------
Final and interim dividends paid for the years ended 28 February
2021 and 29 February 2020 relate to the distributions of profits
prior to the Date of Demerger. Dividends per share is calculated by
dividing the dividend paid by the number of ordinary shares in
issue at the Date of Demerger. The Board of directors recommend no
further ordinary or special dividends for the year ended 28
February 2021.
26. Capital commitments
At 28 February 2021, the Group had GBPNil capital commitments
(29 February 2020: GBPNil).
27. Related party transactions
In the ordinary course of business, the Group carries out
transactions with related parties, as defined by IAS 24
'Related
Party Disclosures'. Apart from those disclosed elsewhere in the
consolidated financial statements, material transactions
for the year are set out below:
27(a) Transactions with key management personnel
Prior to the Date of the Demerger, the key management personnel
are defined as the directors of the Bytes business. Certain
directors were not paid directly by the Bytes business but received
remuneration from Altron, in respect of their
services to the larger Group which included the Bytes business.
The Group was not recharged for these services, since it was not
possible to make an accurate apportionment of their remuneration.
The total remuneration relating to these directors were included in
the aggregate of directors' remuneration disclosed in the
consolidated financial statements of the Altron group. Following
the Date of Demerger, the key management personnel are defined as
the directors (both executive and non-executive) of Bytes
Technology Group plc, Bytes Software Services Limited and Phoenix
Software Limited. Details of the compensation paid to the directors
as well as their shareholdings in the Group are disclosed in the
annual report on remuneration.
27(b) Subsidiaries
Interests in subsidiaries are set out in note 30.
27(c) Transactions with former parent group, Altron
The following transactions occurred with related parties:
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Purchase of services
Management services provided by
fellow Group company 42 50
Other transactions
Dividends paid to former parent
group (48,600) (13,800)
27(d) Outstanding balances arising from sales/purchases of
services
There were no outstanding balances at the end of each reporting
period.
28. Share-based payments
28(a) Arrangements started from the Date of Demerger and
onwards
The Group established a new equity settled share-based payment
incentive scheme, the Bytes Technology Group plc performance
incentive share plan, with effect from the Admission Date. Awards
under the Bytes Technology Group plc performance incentive share
plan have been accounted for as equity settled share-based
payments. The fair value of the awards granted is recognised as an
expense over the appropriate service and vesting period.
The Bytes Technology Group plc performance incentive share
plan
Employees of Bytes Technology Group plc and its subsidiaries are
eligible to participate in the Bytes Technology Group plc
performance incentive share plan. Awards are made at the discretion
of the Group's Remuneration Committee and may be granted in the
form of an option or conditional share award. No individual has a
contractual right to participate in the plan or to receive any
guaranteed benefits. Awards granted in the scheme are for shares in
Bytes Technology Group plc. Under the plan, participants are
granted options which only vest if certain service conditions are
met.
The number of options that will vest depends on the participants
of the scheme being employed or a 'good leaver' at the vesting
date. Once vested, the options remain exercisable for a period up
to 10 years from the date of the grant.
Options are granted under the plan for no consideration and
carry no voting rights. The Remuneration Committee may decide on or
before the date of grant that an award holder shall be entitled to
receive additional shares and/or cash payments representing the
value of any dividends that would have been paid on the vested
shares during the vesting period.
When exercisable, each option is convertible into one ordinary
share. As soon as reasonably practicable after a vested option has
been exercised, and by no later than 30 days following receipt of a
valid exercise notice, the company shall issue and allot or
transfer or procure to transfer to the award holder the number of
shares in respect of which the vested option has been
exercised.
Set out below are summaries of options granted under the
plan:
2021
Number
of options
As at commencement of the scheme 1,480,110
------------
As at 28 February 2021 1,480,110
------------
No options were exercised, forfeited or expired during the
period covered by the above table.
Share options outstanding at the end of the year have the
following vesting dates, expiry dates and exercise prices:
Grant date Vesting date Expiry date Exercise Share options
price 28 February
2021
17 December 16 December
17 December 2020 2023 2030 GBP0.01 1,480,110
------------
1,480,110
------------
Weighted average remaining
contractual life of options 2.80 years
outstanding at end of period
(i) Fair value of options granted
The assessed fair value at grant date of options granted during
the year ended 28 February 2021 was GBP3.40 per option, based on
the share price at grant date which was the Date of Admission of
the company's shares. The share price at the date of grant is
deemed to be the fair value of the option given that there are no
performance conditions, the exercise price is a nominal amount,
being GBP0.01 and option holders are entitled to dividend
equivalents.
(ii) Net settlement feature for withholding tax obligations
The Group has the right but not the obligation to withhold an
amount sufficient to settle the tax liability of an employee
associated with a share-based payment and transfer that amount in
cash to the tax authority on the employee's behalf.
28(b) Arrangements existing before the Date of Demerger
Prior to the Demerger, the Group operated two equity settled
share-based payment incentive schemes, the Bytes Technology Limited
scheme and the Blenheim Group Limited scheme. The Bytes Technology
Limited scheme was due to vest on 1 March 2021 and the Blenheim
Group Limited scheme on 1 March 2023. Both schemes vested on the
Date of the Demerger and settled as discussed in more detail
below.
(1) Bytes Technology Limited scheme
On 15 November 2016, Bytes Technology Limited issued and
allotted B ordinary shares to certain members of its management at
LIR0.001 per share. The value of the shares was to be determined by
taking the average profitability of Bytes Technology Limited in the
two years immediately preceding 28 February 2021 multiplied by a
market multiple to be determined at the vesting date. The B
ordinary shares participated in 20% of the growth above the
pre-determined hurdle. These shares carried no dividend rights.
Upon vesting of the B ordinary shares, the B ordinary shares would
be converted into Fixed Rate Preference Shares (FRPS), the FRPS
would then have been immediately converted into A ordinary shares
or Altron shares, at Altron's election. The A ordinary shares would
have ranked pari passu in all respects with the existing A ordinary
shares, including the right to receive all dividends declared, made
or paid after the vesting date. The Demerger Transactions were
deemed an event which accelerated the vesting period of the B
ordinary shares. It was not considered necessary to convert the B
ordinary shares to A ordinary shares for the scheme to be
considered equity settled, since the vesting conditions were
considered to be met on the Date of the Demerger. The B ordinary
shares were acquired by the company on the Date of the Demerger,
with the B ordinary shareholders receiving cash consideration of
GBP14.3 million and 5% of the issued
share capital of the company. The Group has chosen the approach
to present the Demerger Transactions from 1 March 2019 and
recognised a liability of GBP14.3 million in respect of its
obligation to acquire the B ordinary shares. The cash consideration
was deemed to be less than the fair value of the equity instruments
measured at the settlement date, so no additional expense was
recognised. This was determined with the use of a market valuation
approach. An expense of GBP0.1 million was immediately recognised
in profit or loss, resulting from accelerating the vesting period
of the shares.
(2) Blenheim Group Limited scheme
On 10 February 2020 Blenheim Group Limited issued and allotted B
ordinary shares to certain members of its management at LIR0.001
per share. The value of the shares was to be determined by taking
the average profitability of the Blenheim Group of companies,
including Blenheim Group Limited, Phoenix Software Limited and
License Dashboard Limited (all wholly owned subsidiaries of the
company) in the two years immediately preceding 28 February 2023
multiplied by a market multiple to be determined at the vesting
date. The B ordinary shares participated in 15% of the growth above
a pre-determined hurdle. These shares carried no dividend rights.
Upon vesting of the B ordinary shares, the B ordinary shares would
be converted into A ordinary shares in Blenheim Group Limited or
Altron shares, at Altron's election. The Demerger Transactions were
deemed an event which accelerated the vesting period of the B
ordinary shares. It was not considered necessary to convert the B
ordinary shares to A ordinary shares for the scheme to be
considered equity settled, since the vesting conditions were
considered to be met on the Date of the Demerger. The B ordinary
shares were acquired by Bytes Technology Limited on the Date of the
Demerger, with the B ordinary shareholders receiving cash
consideration of GBP2.4 million. The Group recognised a liability
of GBP2.4 million on 1 March 2019 in recognition of presenting the
Demerger Transactions from this date. The cash consideration was
deemed to be less than the fair value of the equity instruments
measured at the settlement date, so no additional expense was
recognised. This was determined with the use of a market valuation
approach. An expense of GBP0.4 million was immediately recognised
in profit or loss, resulting from accelerating the vesting period
of the shares.
None of the B ordinary shares in either Bytes Technology Limited
or Blenheim Group Limited were exercisable at the comparative
reporting date. The details of the Bytes Technology Limited and
Blenheim Group Limited B ordinary shares previously in issue were
as follows:
Bytes Technology Limited Number
of shares
------------
B ordinary shares issued in Bytes Technology Limited as
at 29 February 2020 1,000
------------
Blenheim Group Limited Number
of shares
B ordinary shares issued in Blenheim Group Limited on 10
February 2020 1,000
------------
B ordinary shares issued in Blenheim Group Limited as at
29 February 2020 1,000
------------
Fair value and assumptions of B ordinary shares awarded
(1) Bytes Technology Limited Scheme
15 November
2016
Fair value at grant date (GBP) 3.00
Share price (GBP) 65.76
Exercise price (GBP) 72.33
Expected volatility (%) 25.00
Vesting period (years) 5
Dividend yield (%) 9.3
Risk-free interest rate (%) 1.40
The fair value of the services received is measured using the
Binomial Approach Model.
The expected volatility is based on the average historic
volatility of peer group companies (based on the vesting period
remaining).
The weighted average remaining period to vesting on the B
ordinary shares at 29 February 2020 was one year.
(2) Blenheim Group Limited Scheme
10 February
2020
Fair value at grant date (GBP) 3.00
Share price (GBP) 41.40
Exercise price (GBP) 51.75
Expected volatility (%) 30.30
Vesting period (years) 3
Dividend yield (%) 9.5
Risk-free interest rate (%) 0.31
The fair value of the services received is measured using the
Binomial Approach Model.
The expected volatility is based on the average historic
volatility of peer group companies (based on the vesting period
remaining).
The weighted average remaining period to vesting on the B
ordinary shares at 29 February 2020 was three years.
Share-based payment employee expenses
Year ended Year ended
28 February 29 February
2021 2020
GBP'000 GBP'000
Equity settled share-based
payment expenses 962 271
------------ ------------
962 271
------------ ------------
29. Earnings per share
The Group calculates earnings per share (EPS) on several
different bases in accordance with IFRS and prevailing South Africa
requirements.
Share transactions such as share issues in respect of the
Demerger Transactions are reflected in the EPS denominator as if
these transactions had occurred on 1 March 2019.
29(a) Basic earnings per share
Year ended Year
28 February ended
2021 29 February
2020
Basic earnings per share pence pence
From profit for the period attributable
to owners of the company 8.52 10.39
------------ ------------
29(b) Diluted earnings per share
Year ended Year
28 February ended
2021 29 February
2020
Diluted earnings per share pence pence
From profit for the period attributable
to owners of the company 8.47 10.39
------------ ------------
29(c) Headline earnings per share
The Group is required to calculate headline earnings per share
(HEPS) in accordance with the JSE Listing Requirements. The table
below reconciles the profits attributable to ordinary shareholders
to headline earnings and summarises the calculation of basic and
diluted HEPS:
Year ended Year ended
28 February 29 February
2021 2020
Headline earnings per share Note pence pence
From profit for the period
attributable to owners of
the company 8.52 10.39
Adjusted for:
Loss on disposal of property, 4 - -
plant and equipment
------------ ------------
Total headline earnings per
share attributable to owners
of the company 8.52 10.39
------------ ------------
29(d) Diluted headline earnings per share
Year ended Year ended
28 February 29 February
2021 2020
Diluted headline earnings Note pence pence
per share
From profit for the period
attributable to owners of
the company 8.47 10.39
Adjusted for:
Loss on disposal of property, 4 - -
plant and equipment
------------ ------------
Total diluted headline earnings
per share attributable to
owners of the company 8.47 10.39
------------ ------------
29(e) Weighted average number of shares used as the
denominator
Year ended Year ended
28 February 29 February
2021 2020
Number Number
Weighted average number of
ordinary shares used as the
denominator in calculating
basic earnings per share and
headline earnings per share 233,900,138 232,480,611
Adjustments for calculation
of diluted earnings per share
and diluted headline earnings
per share:
- share options 1,480,110 -
------------ ------------
Weighted average number of
ordinary shares and potential
ordinary shares used as the
denominator in calculating
diluted earnings per share
and diluted headline earnings
per share 235,380,248 232,480,611
------------ ------------
29(f) 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:
-- Non-underlying items
-- Share-based payment charges
-- Acquired intangible assets amortisation
The table below reconciles the profit for the financial year to
adjusted earnings and summarises the calculation of adjusted
EPS:
Year ended Year ended
28 February 29 February
2021 2020
Note GBP'000 GBP'000
Profits attributable to ordinary
shareholders 19,933 24,158
Adjusted for:
* Amortisation of acquired intangible assets 4 1,610 1,610
* Non-underlying items 5 8,065 -
* Share-based payment charges 28 962 271
------------ ------------
Total adjusted earnings attributable
to owners of the company 30,570 26,039
------------ ------------
pence pence
Adjusted earnings per share 13.07 11.20
Diluted adjusted earnings
per share 12.99 11.20
29(g) Information concerning the classification of
securities
(i) Share options
Share options granted to employees under the Bytes Technology
Group plc performance incentive share plan are considered to be
potential ordinary shares. They have been included in the
determination of diluted earnings per share on the basis that all
employees are employed at the reporting date, and to the extent
that they are dilutive. The options have not been included in the
determination of basic earnings per share. Details relating to the
share options are disclosed in note 28.
30. Subsidiaries
The Group's subsidiaries included in the consolidated financial
statements are set out below. The country of incorporation is also
their principal place of business.
Name of entity Country Ownership Principal activities
of incorporation interest
Bytes Technology UK 100% Holding company
Holdco Limited
(1)
Bytes Technology UK 100% Holding company
Limited
Bytes Software UK 100% Providing cloud-based licensing
Services Limited and infrastructure and security
sales within both the corporate
and public sector sectors
Bytes Security UK 100% Providing cloud-based licensing
Partnerships Limited and infrastructure and security
sales within both the corporate
and public sector sectors
Blenheim Group UK 100% Holding company
Limited
Phoenix Software UK 100% Providing cloud-based licensing
limited and infrastructure and security
sales within both the corporate
and public sector sectors
License Dashboard UK 100% Providing cloud-based licensing
Limited and infrastructure and security
sales within both the corporate
and public sector sectors
Bytes Technology UK 100% Dormant for all periods
Group Holdings
Limited
Bytes Technology UK 100% Dormant for all periods
Training Limited
Elastabytes Limited UK 50% Dormant for all periods
(1) Bytes Technology Holdco Limited is held directly by the
company. All other subsidiary undertakings are held indirectly by
the company.
The registered address of all of the Group subsidiaries included
above is Bytes House, Randalls Way, Leatherhead, Surrey, KT22
7TW.
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END
FR EADSSAFDFEAA
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May 26, 2021 02:00 ET (06:00 GMT)
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