TIDMBYIT
RNS Number : 0993E
Bytes Technology Group PLC
26 October 2022
26 October 2022
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Results for the six months ended 31 August 2022
Strong first half extending our track record of double-digit
growth
Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the
UK's leading software, security and cloud services specialists,
today announces its half year results for the 6 months ended 31
August 2022 ('H1 FY23').
Neil Murphy, Chief Executive Officer, said:
"We have made a really positive start to the year and extended
our long track record of consistent double-digit growth both before
and since our listing in 2020. This performance reflects robust
demand from both corporate and public sectors, with our customers
showing a continued appetite to invest in their IT requirements
despite the macroeconomic environment.
A key part of our success can be traced to the high-quality
customer service that sits at the centre of our business and makes
us so competitive in our markets. For this, I would like to extend
my thanks to our people who do an outstanding job supporting our
clients.
The new ways of working brought about by the Covid pandemic have
become entrenched and we believe the conditions we are operating in
represent the new normal. Thanks to our best-in-class expertise and
partnerships with the world's leading vendors, we are well placed
to continue serving our customers' needs and are confident that the
Group is well positioned for the remainder of the financial
year".
Financial performance
GBP'million H1 FY23 (six H1 FY22 (six % change
months ended months ended year-on-year
31 August 31 August
2022) 2021)
(restated)
Gross invoiced income ('GII')
(1) GBP786.2m GBP638.2m 23.2%
Revenue(2) GBP93.5m GBP73.1m 27.9%
Gross profit ('GP') GBP65.5m GBP52.9m
Gross margin % (GP/Revenue) 70.1% 72.4%
GP/GII % 8.3% 8.3% 23.8%
Operating profit GBP27.3m GBP23.2m 17.7%
Adjusted operating profit GBP29.8m GBP25.0m 19.2%
('AOP')(3)
GBP35.8m GBP42.9m (16.6%)
Cash
Cash conversion(4) (2.8%) 107.5%
Earnings per share (pence) 9.06 7.72 17.4%
Adjusted earnings per share(5)
(pence) 10.11 8.48 19.2%
Interim dividend per share
(pence) 2.4 2.0 20%
The restatement in H1 FY22 is in respect of the Revenue and
Gross margin % as described below.
Group highlights for the six months ended 31 August 2022
- GII increased 23.2% to GBP786.2 million (H1 FY22: GBP638.2
million), with this strong growth spread across all areas of the
business - software, hardware and services - and generated from
both the corporate and public sector customers.
- Revenue increased 27.9% to GBP93.5 million (H1 FY22: GBP73.1
million - restated). Following recent guidance issued by t he IFRS
Interpretation Committee, and in line with developing clear and
consistent practice within our industry, we are now accounting for
all software revenue on an agency, or "net" basis. Previously, the
element of software revenue comprising indirect licence sales of
non-cloud licences and licences not requiring critical updates had
been recognised "gross". Hence this change in judgement has
resulted in a reduction in our statutory revenue figures. The prior
year revenue and cost of sales figures have been re-stated
accordingly and further details of this change are set out in the
Chief Financial Officer's review on page 7 and in note 1.5 of the
interim financial statements. Our key financial metrics of gross
invoiced income, gross profit, adjusted operating profit and cash
conversion are unaffected by this change.
- GP growth of 23.8% to GBP65.5 million (H1 FY22: GBP52.9
million), reflected across both public and corporate sectors and
with increased GP per customer.
- Gross margin at 70.1% (H1 FY22: 72.4%) reflects the impact of
the revenue agency adjustment noted above, whereby the majority of
our GII is accounted for on a net basis.
- GP/GII % is the margin measure which management scrutinise
most closely, and this has been maintained at a strong 8.3%
considering competitive pressures and challenging macro-economic
conditions.
- Operating profit increased 17.7% to GBP27.3 million (H1 FY22:
GBP23.2 million); noting also that H1 FY23 has a GBP0.7 million
higher share-based payment (SBP) charge compared to H1 FY22.
- AOP which management believe is a better measure of underlying
profitability increased by 19.2% to GBP29.8 million (H1 FY22:
GBP25.0 million).
- Cash at 31 August 2022 was GBP35.8 million (H1 FY22: GBP42.9m)
which is after the payment of dividends totalling GBP29.7 million
during the past 12 months of which GBP24.9 million was paid during
H1 FY23.
- Cash conversion reduction in the first half of the financial
year illustrates the sensitivity of this ratio to even small delays
in payment from customers, given that it is measured over a fixed
period rather than as a rolling average. However, the Group has not
experienced any bad debt write offs in the period and over a longer
period, we target a sustainable cash conversion ratio of 100%.
Management is confident cash conversion will return to higher
levels in H2 FY23. This is discussed further in the Chief Financial
Officer's review on page 9.
- Earnings per share increased 17.4% to 9.06 pence (H1 FY22: 7.72 pence).
- Adjusted earnings per share increased 19.2% to 10.11 pence (H1
FY22: 8.48 pence), which the Board believes is a more
representative measure than basic earnings per share as it removes
the impact of amortisation of purchased intangibles and SBP
charges.
- The Board is pleased to declare an interim dividend of 2.4
pence per share which will be paid on Friday, 2 December 2022 to
shareholders on the register as at Friday, 18 November 2022. This
is a 20% increase over last year's interim dividend, reflecting the
strong growth in AOP.
- Notable business highlights in the period include:
-- Bytes Software Services being named Microsoft Partner of the
Year for Operational Excellence in 2022 from over 3,900 partner
entries globally.
-- Winning almost 300 new customers across the Group.
-- Achieving 120% renewal rate from existing Group customers (
which measures the GP from existing customers this period compared
to total GP in the prior period).
-- The Group reaching 58% employee participation across its
Share Save plans.
Current trading and outlook
After a successful H1 FY23 with a continuation of double-digit
growth across key financial metrics, the business carries strong
momentum going into the second six months of FY23. We have already
made a good start in this second half, although we remain mindful
of the domestic and global macroeconomic pressures. Our successful
strategy of acquiring new customers and then growing our share of
wallet, building on our strong vendor relationships and the
technical and commercial skills of our people, makes us confident
that the Group is well positioned for the remainder of the
financial year.
Analyst and investor presentation
A presentation for analysts and investors will be held today via
webcast at 9:30am (BST). Please find below access details for the
webcast:
Webcast link:
https://event.on24.com/wcc/r/3984277/2BC7C63DAB56981CD98D31952C4AFD53
A recording of the webcast will be available after the event at
www.bytesplc.com .
The announcement and presentation will be available at
www.bytesplc.com from 7.00am and 9.00am (BST), respectively.
Enquiries
Bytes Technology Group plc Tel: +44 (0)1372 418 500
Neil Murphy, Chief Executive Officer
Andrew Holden, Chief Financial Officer
Headland Consultancy Ltd Tel: +44 (0)20 3805 4822
Stephen Malthouse
Henry Wallers
Jack Gault
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from forward-looking statements.
Any forward-looking statements in this announcement reflect the
Group's view with respect to future events as at the date of this
announcement. Save as required by law or by the Listing Rules of
the UK Listing Authority, the Group undertakes no obligation to
publicly revise any forward-looking statements in this announcement
following any change in its expectations or to reflect events or
circumstances after the date of this announcement.
About Bytes Technology Group plc
BTG is one of the UK's leading providers of IT software
offerings and solutions, with a focus on cloud and security
products. The Group enables effective and cost-efficient technology
sourcing, adoption, and management across software services,
including in the areas of security and the cloud. It aims to
deliver the latest technology to a diverse range of customers
across corporate and public sectors and has a long track record of
delivering strong financial performance.
The Group has a primary listing on the Main Market of the London
Stock Exchange and a secondary listing on the Johannesburg Stock
Exchange.
(1) 'Gross invoiced income' ('GII') is a non-International
Financial Reporting Standard (IFRS) alternative performance measure
that reflects gross income billed to customers adjusted for
deferred and accrued revenue items. GII has a direct influence on
our movements in working capital, reflects our risks and shows the
performance of our sales teams.
(2) 'Revenue' is reported in accordance with IFRS 15, Revenue
from Contracts with Customers. Under this standard the Group is
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis
(the gross profit achieved on the contract and not the gross income
billed to the customer).
(3) 'Adjusted operating profit' is a non-IFRS alternative
performance measure that excludes from operating profit the effects
of significant items of expenditure which are non-recurring events
or do not reflect our underlying operations. Amortisation of
acquired intangible assets and share-based payment charges are both
excluded. The reconciliation of adjusted operating profit to
operating profit is set out in the Chief Financial Officer's review
below.
(4) 'Cash conversion' is a non-IFRS alternative performance
measure that divides cash generated from operations less capital
expenditure (together, 'free cash flow') by adjusted operating
profit.
(5) 'Adjusted earnings per share' is a non-IFRS alternative
performance measure that the Group calculates by dividing the
profit after tax attributable to owners of the company, adjusted
for the effects of significant items of expenditure which are
non-recurring events or do not reflect our underlying operations
('Adjusted earnings'), by the weighted average number of ordinary
shares in issue during the period. Amortisation of acquired
intangible assets and share-based payment charges are excluded in
arriving at Adjusted earnings. The calculation is set out in note
15 of the financial statements.
_________________________________________________________________________________________
Chief Executive Officer's Review
A strong half year performance delivering on our strategy
We are delighted with the strong performance in H1 FY23, which
saw the Group deliver strong growth in adjusted operating profit
('AOP') of 19.2% and gross profit ('GP') of 23.8%, driven by a
pleasing 23.2% growth in gross invoiced income ('GII'). Our
revenue, stated after the netting adjustment for software and
external services sales, under IFRS 15, was up 27.9%.
We have maintained our track record of year-on-year growth
despite ongoing uncertainty caused by the geopolitical outlook and
macro-economic conditions, with our business benefiting from our
wide-ranging product offering, with a significant suite of
software, services and IT hardware solutions from the world's
leading vendors and software publishers.
Encouragingly, we have seen continued growth from our public
sector customers and corporate clients, both up year on year by
above 20% for GII and GP. This is also reflected in our 22.5%
growth in software GII, 36.5% in services GII, and hardware GII
growing at 34.0% during H1 FY23. The double-digit growth across all
our sectors and product sets reflects the continued demand from our
customers to invest in resilient and efficient IT services.
Our customers' appetite for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions
have underpinned our continued growth in H1 FY23. These investments
increasingly take the form of annualised contracts and,
accordingly, we remain confident in the Group's growth prospects
going forward. This reinforces our belief in the potential for
future up-selling and cross-selling opportunities into existing
clients. The double-digit growth in GII and GP, reflects the
buoyant and robust nature of IT spend across the UK and
Ireland.
We continue to expand our IT services capability, underpinned by
our Microsoft Azure Expert status, along with many other key vendor
accreditations, in the provision of managed services, augmented
with our own IP in the form of Quantum and Licence Dashboard. These
services, together with additional cybersecurity services and
consultancy, enable us to expand our relevance to clients who need
support and assurance as they seek to strengthen their IT
resilience and security.
We are investing in, and evolving, our internal systems to
provide great user experiences and improved productivity to drive
efficiencies. At the same time, with the removal of most
restrictions associated with the Covid-19 pandemic, our staff have
been able to re-engage face to face with customers, suppliers and
partners resulting in a small increase in travel and entertainment
costs. Nevertheless, our AOP as a percentage of GP has remained in
line with target at 45.5% for the half year under review (H1 FY22:
47.3%).
We remain proud of the energy, enthusiasm and professionalism
demonstrated by our people through what continues to be a
challenging time for families, organisations, and society in
general. Our future growth will be supported by both increasing
headcount and training and development in key areas. As a
management team, we are extremely pleased with the way our people
continue to embrace our collaborative, team-based culture. Our
flexible working regime continues to deliver positive results for
our business, while also meeting our people's aspirations for a
healthy work/life balance. In June 2022, we launched our second
Share Save Plan which has been well received by our workforce
following the success of the first plan a year before. An
encouraging 509 employees (58%) now participate in one, or both, of
these plans, which far exceeded our expectations.
Our partnerships with key partners go from strength to strength
and we are especially pleased to have been recognised by leading
industry vendors. Following Phoenix Software being awarded the
prestigious accolade of Microsoft Partner of the Year for the UK
for 2021, Bytes Software Services was named Microsoft Partner of
the Year for Operational Excellence in 2022 from over 3,900 partner
entries globally. This recognises us for supporting our customers
with digital and business transformation through the adoption of
Microsoft tools and automation. These awards reflect the status and
high esteem which the Group has with global technology leaders and
is testament to the expertise of our staff and the customer success
stories that we deliver.
We remain committed to executing our strategy in a responsible
manner, with sustainability rooted in everything we do. Our
framework in this space aims to deliver positive impacts for our
stakeholders across key themes which we have identified as most
relevant for the environment in which we operate. Within each theme
- financial sustainability, corporate responsibility, stakeholder
engagement and good governance - we set ourselves focus areas which
drive our activities. Through our staff led working groups, we
allocate time and resources to various environmental initiatives,
and to corporate social responsibility activities. We remain
committed to supporting diversity across our business and are proud
of the balance represented across our people. We continue our
efforts to align with broader diversity targets to reflect the
society in which we, and our stakeholders, operate. Further details
in respect of our Environment, Social and Governance ( ESG) action
plan are set out below.
Our dividend policy is to distribute 40% of the Group's post-tax
pre-exceptional earnings to shareholders. Accordingly, we are
pleased to confirm that the Board has declared an interim dividend
of 2.4 pence per share which will be paid on Friday, 2 December
2022 to shareholders on the register at Friday 18 November
2022.
I wish to extend my gratitude to all my colleagues for their
resilience and dedication to the business during H1 FY23. Finally,
I would like to thank our clients for their support and entrusting
their business with us; together, our staff and customers are our
lifeblood and will always be our top priority.
_________________________________________________________________________________________
Values driven Environment, Social and Governance (ESG)
actions
Our approach to responsible business and ESG is aimed at helping
to build a sustainable future and create long term value for BTG
and its stakeholders. Our strategy is underpinned by our purpose
and values, which fosters an aligned culture across the
organisation. During the period, we further progressed our ESG
initiatives in the following ways.
Progressing our environmental targets
We continued to focus on our Low Carbon Action Plan announced on
24 May 2022 through Scope 1 and 2 reductions and Scope 3 supply
chain engagements. As we steadily progress these initiatives, we
will be partnering with an external environmental consultant to
help drive our carbon reduction plans and ensure these are
recognised by the Science Based Targets initiative (SBTi) under its
framework for corporate net zero target setting. During the period
we completed our first Carbon Disclosure Report (CDP) submission,
with this to develop going forward. Following the publication of
our first Taskforce for Climate-Related Financial Disclosures
(TCFD) in May of this year, we have aligned its risk and
opportunity considerations into our internal processes and will
report further on our TCFD at the next year-end.
Positively impacting our society
Employee support and wellbeing remained key focus areas, even
more so during the current economic challenges and the well-known
increasing cost of living. Our strong culture remains a driving
force behind our successful growth. This is an aspect which we
continue to support through staff events and the development of our
people with continued learning and training opportunities. During
the period, we contributed further to the enhancement of our
communities through volunteer days in support of, for example, the
St. Catherine's Hospice, and donations and fundraising events, such
as our Charity Matched Funding project.
Building on our robust corporate governance
We continue to build best practice corporate governance, in line
with the requirements of a dual LSE premium listed and JSE
secondary listed company. We have further improved our internal
controls following ongoing internal audit engagement. There were no
changes to our Board and Committees composition during the period.
We are satisfied that the size, structure and current composition
of these remain appropriate in serving the best interests of the
company and our stakeholders, while maintaining focus on our Board
and senior leadership diversity targets.
Chief Financial Officer's review
H1 FY22
(restated(3)
H1 FY23 ) Change
Income statement GBP'm GBP'm %
-------------------------------------- ------------ --------------
Gross invoiced income (GII) 786.2 638.2 23.2%
-------------------------------------- ------------ --------------
GII split by product:
Software 738.4 602.9 22.5%
Hardware 20.9 15.6 34.0%
Services internal(1) 13.4 10.1 32.7%
Services external(2) 13.5 9.6 40.6%
-------------------------------------- ------------ --------------
Netting adjustment (3) (692.7) (565.1) 22.6%
Revenue (3) 93.5 73.1 27.9%
-------------------------------------- ------------ --------------
Revenue split by product:
Software 57.8 45.7 26.5%
Hardware 20.9 15.6 34.0%
Services internal(1) 13.4 10.1 32.7%
Services external(2) 1.4 1.7 (17.6%)
-------------------------------------- ------------ --------------
Gross profit (GP) 65.5 52.9 23.8%
-------------------------------------- ------------ --------------
GP / GII % 8.3% 8.3%
Gross margin % 70.1% 72.4%
Administrative expenses 38.2 29.7 28.6%
-------------------------------------- ------------ --------------
Administrative expenses split:
Employee costs 29.7 24.8 19.8%
Other administrative expenses 8.5 4.9 73.5%
Operating profit 27.3 23.2 17.7%
-------------------------------------- ------------ --------------
Add back:
Share-based payments 1.7 1.0 70.0%
Amortisation of acquired intangible
assets 0.8 0.8 0.0%
Adjusted operating profit 29.8 25.0 19.2%
-------------------------------------- ------------ --------------
Finance costs (0.3) (0.3) 0.0%
Profit before tax 27.0 22.9 17.9%
-------------------------------------- ------------ --------------
Income tax expense (5.3) (4.6) 15.2%
Effective tax rate 19.7% 19.9%
Profit after tax 21.7 18.3 18.6%
-------------------------------------- ------------ --------------
(1) Provision of services to customers using the Group's own
internal resources
(2) Provision of services to customers using third party
contractors
(3) The prior year comparative is restated as discussed in the
revenue section below
Overview of H1 FY23 results
Our first half of FY23 has seen continued double-digit growth
across all our key performance measures, reinforcing the strong
start the Group has made over the past 20 months since becoming a
listed entity. Whilst the country and the economy are emerging from
the Covid-19 restrictions imposed over the past two years, we have
seen the new ways of working with our customers and partners
continue, which has enabled us to expand and evolve our offerings
further in H1 FY23.
With hybrid working now widespread across our whole customer
base, and heightened requirements around cyber security, customers
have continued to engage with us to support their move into the
cloud, or extending their presence in it, with more sophisticated
and resilient security, support, and managed service solutions.
This has resulted in Operating profit increasing by 17.7% to
GBP27.3 million (H1 FY22: GBP23.2 million) and AOP growing by 19.2%
year on year from GBP25.0 million to GBP29.8 million. The AOP
excludes the impact of a mortisation of acquired intangible assets
and share-based payment charges which do not reflect the underlying
performance of the Group.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some
small adjustments for deferred and accrued items (the latter mainly
relating to managed service contracts where the income is
recognised over time). We believe that GII provides a more
meaningful measure than revenue to evaluate our sales performance,
volume of transactions and rate of growth. As an organisation we
continue to focus and report on GII as a key alternative
performance measure. GII has a direct influence on our movements in
working capital, reflects our risks and shows the performance of
our sales teams. Therefore, it is the income measure which we
believe is most recognisable, relevant and useful to our customers,
suppliers, investors, shareholders and staff.
GII has increased by 23.2% year-on-year, with growth spread
across all areas of the business, software, services and hardware.
Software remains the core focus, contributing a consistent 94% of
the total GII in both the current period and prior period. The
Group benefits from a substantial presence in the public sector,
with continued high levels of government investment in IT
technologies resulting in that part of our GII increasing by
GBP83.4 million, up 20%, to GBP499.8 million (H1 FY22: GBP416.4
million). Our corporate GII increased by GBP64.6 million to
GBP286.4 million (H1 FY22: GBP221.8 million), representing an even
stronger rise of 29%.
As a result, our overall GII mix has moved very slightly,
although still the significant balance lies in public sector at 64%
against corporate of 36%, (65% and 35%, respectively in H1
FY22).
Revenue
Revenue is reported in accordance with IFRS 15 Revenue from
Contracts with Customers. Under this reporting standard, we are
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis,
that is, the gross profit achieved on the contract and not the
gross income billed to the customer.
Our judgement around this area has been updated since the
publication of the full year accounts for the year ended 28
February 2022 following recent guidance issued by the IFRS
Interpretation Committee, and in line with developing clear and
consistent practise within our industry. Previously we treated most
of our indirect software sales (those comprising cloud based and
critical security licenses) on an agency basis, with the remainder
of indirect software sales treated as principal. The change in
judgement for this half year reporting period is to treat all
indirect software sales on an agency basis (including those
previously treated as principal). Full details are set out in note
1.5 of the interim financial statements. This has resulted in a
reduction in our revenue and the prior half year and full year
figures have been re-stated accordingly as follows.
- Current H1 (FY23 - 31 August 22) revenue and cost of sales
decrease by a further GBP161 million compared to the agency
adjustment under the previous basis for the current period.
- Prior H1 (FY22 - 31 August 21) revenue and cost of sales
decrease by a further GBP178 million on top of the reported agency
adjustment for that period.
- Prior full year (FY22 - 28 February 22) revenue and cost of
sales decrease by a further GBP302 million on top of the reported
agency adjustment for that year.
- Gross invoiced income, gross profit, operating profit, and
profit before and after taxes is unchanged in all periods. The
Statement of financial position, Statement of cashflows and the
Statement of changes in equity also remain unchanged .
For our other income streams, there has been no revision in the
accounting treatment, with hardware and internal services revenue
treated as principal whilst external services revenue is treated on
an agency basis.
The growth in revenue of 27.9%, reflecting this revised
judgement, is in line with the growth in both GII and Gross
Profit.
Gross profit (GP) and gross profit/GII (GP/GII%)
Gross profit increased by 23.8% to GBP65.5 million (H1 FY22:
GBP52.9 million) with impressive growth coming from across the
business.
Corporate GP grew by 22% to GBP41.3 million (H1 FY22: GBP34.0
million) with the corporate GP/GII% remaining in line with the
prior period at just over 14%. This reflects the continued
strengthening of demand from corporate clients post the pandemic
which we reported at our last year end.
In the public sector, GP grew by 28% to GBP24.2 million (H1
FY22: GBP18.9 million) with a small but significant increase in
GP/GII% to 5%. This is notable considering the level of competition
within tenders and the growing trend towards aggregated bids where
several public sector bodies may require pricing to be submitted on
a combined basis, often with many millions of GII at stake. Where
new large agreements have been won at a lower margin, management is
acutely focused on tracking these customers individually to ensure
that the strategy delivers value for the business, and our other
stakeholders by complementing them with higher margin services over
the duration of the contract. This strategy is supported by the
high growth in our services GII of 37%. Further, the public sector
remains a low credit risk area in which to conduct a significant
share of the Group's business.
Our overall GP mix remains balanced in favour of the corporate
sector due to the higher GP/GII% which is generated there,
contributing 63% versus the public sector's 37% (64% and 36%,
respectively in H1 FY22).
Our overall GP/GII% has been maintained at 8.3% year on year. It
is a key priority to now increase this measure from the current
level by focusing on selling our wide range of solutions offerings
and higher margin security products and maximising our vendor
incentives through achievement of technical certifications.
The performance for this period again demonstrates our
significant presence in both the corporate and public sectors and
provides resilience, whereby each can compensate for or complement
the other.
In H1 FY22 we reported 4,264 customers trading with us in that
6-month period whilst in this reporting period the figure has risen
to 4,438, a net gain of 174 (up 4.1%). In H1 FY23, 97% of our GP
came from customers that we also traded with last year at a renewal
rate of 120% (which measures the GP from existing customers in this
6-month period compared to total GP in the equivalent prior
period).
Administrative expenses
This includes employee costs and other administrative expenses
as set out below.
Employee costs
Our success in growing GII and GP continues to be as a direct
result of the investments we have made over the years in our
front-line sales teams, vendor and technology specialists, service
delivery staff and technical support personnel, backed up by our
marketing, operations and finance teams. It has been, and will
remain, a carefully managed aspect of our business where we strive
to invest in line with actual growth, not before.
Another successful strategy that has borne fruit is where we
look to promote and expand from within, giving our people careers
rather than just employment. This, in turn, has created long tenure
from our employees that align with the long relationships we have
with our customers, vendors, and partners. This is at the very
heart of our low employee churn rate, the growth in gross profit
per customer and our high customer retention rate.
Employee costs included in administrative expenses rose by 19.8%
to GBP29.7 million (H1 FY22: GBP24.8 million), but excluding
share-based payments, the rise was 17.6%, notably lower than the
23.8% rise in GP and reflecting the balanced and proportional way
in which vital staff investments are, and will continue to be,
made. During the reporting period we have seen total staff numbers
rise to 871, up by 98 (13%) from the year end position of 773 on 28
February 2022.
Other administrative expenses
Other administrative expenses increased by GBP3.6 million to
GBP8.5 million (H1 FY22: GBP4.9 million). This increase included
additional spend on internal systems, marketing, professional fees,
staff welfare and recruitment fees. This reflects the costs of
running, and investing in, a growing organisation and in operating
a listed Group, including evolving our governance structure,
controls and processes with the support of our professional
advisors.
Travel and entertaining expenses have not yet reverted to
pre-lockdown levels but have increased compared with those
experienced last year by GBP0.3 million. As our employees and
customers return to work, we expect these costs to further increase
gradually across the second half of the year.
We have come through the first half of the year without any bad
debt write-offs but with a higher trade receivables balance in line
with growth, and an increase in the aged profile of our trade
receivables, we have increased our impairment allowance by GBP1.19
million to GBP1.94 million at 31 August 2022 from the GBP0.75
million level on 28 February 2022. However, we are not seeing any
indication of customer non-payments and the increased allowance
represents just a very small percentage of the gross receivables
balance of GBP168.5 million.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the
effects of:
- Share based payment charges as, whilst new employee share
schemes are being launched, the charge to the income statement will
increase each year. For example, the charge for the current period
has risen to GBP1.7 million, compared to GBP1.0 million last year.
The half yearly and annual charge will not flatten out until we
have three years share schemes in circulation at any time year on
year. At that point we will not make an adjustment for these
charges in our adjusted operating profit calculation.
- Amortisation of acquired intangibles as this cost only appears
as a consolidation item and does not arise from ordinary operating
activities.
We believe that adjusted operating profit provides a more
meaningful measure to evaluate our profitability, performance, and
ongoing quality of earnings. Adjusted operating profit in H1 FY23
increased to GBP29.8 million (H1 FY22: GBP25.0 million),
representing growth of 19.2%. Our operating profit increased from
GBP23.2 million to GBP27.3 million equating to an increase of
17.7%.
Adjusted operating profit as a percentage of GP is one of the
Group's key alternative performance indicators, being a measure of
the Group's operational effectiveness in running day-to-day
operations. We set a target of no less than 40% and we have again
achieved this, with a ratio of 45.5% (H1 FY22: 47.3%).
Income tax expense
The effective rate of tax charged for the year is 19.7% of
profit before tax (H1 FY22: 19.9%). Excluding the impact of the
non-deductible share-based payments costs and amortisation of
intangibles, the underlying adjusted rate reverts to close to the
current rate of corporation tax of 19% (H1 FY22: 19%).
Cashflow
As our customers continue their digital transformation into the
cloud, our licensing models have become more subscription based,
typically with monthly billing based on customer usage rather than
fixed amounts per license or agreement. This has been most notable
within Microsoft's Cloud Solution Provider (CSP) program and can
lead to delays in payments if customers request additional analysis
around their usage. This has contributed to an increase in debtor
days from an average 32 in H1 FY22 to 38 in H1 FY23.
We have also seen a corresponding reduction in our cash
conversion ratio from 107.5% in H1 FY22 to (2.8%) for H1 FY23,
illustrating the sensitivity of this ratio to even small delays in
payment from customers, given that it is measured over a fixed
period rather than as a rolling average. A delay of a few days in
the payment of just a small number of large customer balances at
any reporting date can move cash conversion from 100% or more to 0%
or lower when considering the size of our GII of GBP786.2 million,
against the AOP of GBP29.8 million, and the Group does not delay
payments to suppliers, when due, as a means of mitigating any such
delays in customer receipts.
The first half of the year includes the two biggest supplier
payment months in May and August, aligned to the public sector year
end in March and the Microsoft year end in June, when many of our
customers' Microsoft enterprise agreements commence or renew. As
the business continues to grow its GII by 23%, the corresponding
supplier payments over this six-month period have also increased.
This sensitivity around timing of customer receipts against fixed
timing of month end payments to suppliers is evident when looking
at the Group's performance for the 5 months to July 2022 and the 7
months to September 2022 when the cash conversion was 111% and 76%
respectively.
The Group targets a sustainable cash conversion ratio of 100%
over a longer period and management is confident it will return to
higher levels in H2 FY23. Key measures which we will undertake
include better management of customer understanding around
usage-based billing, development of improved systems for CSP for
greater clarity and accuracy of invoicing, and a focus on switching
more customers to direct debit payments.
Nevertheless, our cash position remained positive throughout the
6 months, and at 31 August 2022, our balance sheet reflects a
healthy cash balance of GBP35.8 million, after paying final and
special dividends of GBP24.9 million relating to the year ended 28
February 2022.
If required, the Group does have in place an external revolving
credit facility, with GBP40 million of funds available at 31 August
2022 which will reduce to GBP30 million for a further 12 months
from December 2022. The facility was put in place at the time of
the IPO and has never been used.
Interim dividend
As stated above, the Group's dividend policy is to distribute
40% of post-tax pre-exceptional earnings to shareholders.
Accordingly, the Board is pleased to declare a gross interim
dividend of 2.4 pence per share. The aggregate amount of the
interim dividend expected to be paid out of retained earnings at 31
August 2022, but not recognised as a liability at the end of the
half year, is GBP5.7 million. The salient dates applicable to the
dividend are as follows:
Dividend announcement date Wednesday, 26 October
2022
Currency conversion determined and announced Monday, 14 November
together with the South African (SA) 2022
tax treatment on SENS
------------------------
Last day to trade cum dividend (SA register) Tuesday, 15 November
2022
------------------------
Commence trading ex-dividend (SA register) Wednesday, 16 November
2022
------------------------
Last day to trade cum dividend (UK register) Wednesday, 16 November
2022
------------------------
Commence trading ex-dividend (UK register) Thursday, 17 November
2022
------------------------
Record date Friday, 18 November
2022
------------------------
Payment date Friday, 2 December 2022
------------------------
Additional information required by the Johannesburg Stock
Exchange:
1. A dividend withholding tax of 20% will be applicable to all
shareholders on the South African register unless a shareholder
qualifies for exemption not to pay such dividend withholding
tax.
2. The dividend payment will be made from a foreign source (UK).
3. At 26 October 2022, being the declaration announcement date
of the dividend, the Company had a total of 239,482,333 shares in
issue (with no treasury shares).
4. No transfers of shareholdings to and from South Africa will
be permitted between Tuesday, 15 November 2022 and Friday, 18
November 2022 (both dates inclusive). No dematerialisation or
rematerialisation orders will be permitted between Wednesday, 16
November 2022 and Friday, 18 November 2022 (both dates
inclusive).
Principal risks
The Group Board has overall responsibility for risk. This
includes establishing and maintaining our risk management framework
and internal control systems and setting our risk appetite. In
doing this it receives support from our Audit Committee and
executive management teams. However, through their skills and
diligence, everyone in the Group plays a part in protecting our
business from risk and making the most of our opportunities.
We have identified principal risks and uncertainties that could
have a significant impact on the Group's operations, which we
assign to four categories: financial, strategic, process and
systems, and operational. BTG's management review each principal
risk looking at its level of severity, where it overlaps with other
risks, the speed at which it is changing, and its relevance to the
Group. We consider the principal risks both individually and
collectively, so that we can appreciate the interplay between them
and understand the entire risk landscape.
We are continuing to review the uncertain economic picture,
exacerbated by the crisis in Ukraine, the changing market, and the
development of our internal governance in evolving our principal
risks and uncertainties. The current principal risks and
uncertainties that the Board believes could have a significant
effect on the Group's financial performance are:
Financial 1 Economic disruption Risk owner
CEO
The risk How we manage it
This includes the impact of We have so far continued to
the crisis in Ukraine, the perform well since the start
uncertainties caused by global of the conflict in Ukraine,
economic pressures and geopolitical during the continuing tail
risk within the UK post-Brexit. of Brexit and the Covid-19
pandemic, and with increasing
pressures from rising inflation.
These real-life experiences
have shown us to be resilient
under tough economic conditions.
The diversity of our client
base has also helped to maintain
and increase business in this
period. We are not complacent,
however, and keep operations
under constant review.
We currently have no borrowings
and only small levels of foreign
currency transactions in relation
to the size of the business
as a whole and hence this
is helping to protect us from
rising interest rates and
the falling value of sterling
against the dollar.
-------------------------------------- -------------------------------------
The impact
Major economic disruption -
including the risk of continuing
high inflation (see below)
and higher taxes - could see
reduced demand for software
licensing, hardware and IT
services, which could be compounded
by government controls. Lower
demand could also arise from
reduced customer budgets, cautious
spending patterns or clients
'making do' with existing IT.
Economic disruption could also
affect the major financial
markets, including currencies,
interest rates and the cost
of borrowing. Economic deterioration
like this could have an impact
on our business performance
and profitability.
-------------------------------------- -------------------------------------
2 Margin pressure Risk owner
MDs of subsidiary businesses
-------------------------------------- -------------------------------------
The risk How we manage it
BTG faces pressure on profit Profit margins are affected
margins from myriad directions, by many factors at customer
including increased competition, and micro levels.
changes in vendors' commercial
behaviour, certain offerings We can control some of these
being commoditised and changes factors that influence our
in customer mix or preferences. margins, however some factors,
such as economic and political
ones, are beyond our control.
We aim to agree acceptable
profit margins with customers
upfront.
Keeping the correct level
of certification by vendor,
early deal registration and
rebate management are methods
deployed to ensure we are
procuring at the lowest cost.
This risk area is reviewed
monthly.
-------------------------------------- -------------------------------------
The impact
These changes could have an
impact on our business performance
and profitability.
-------------------------------------- -------------------------------------
3 Changes to vendors' commercial Risk owner
model CEO
-------------------------------------- -------------------------------------
The risk How we manage it
BTG receives incentive income We maintain a diverse portfolio
from our vendor partners and of vendor products and services.
their distributors. This partially Although we receive major
offsets our costs of sales sources of funding from specific
but could be reduced or eliminated vendor programmes, if one
if the commercial models are source declines we can offset
changed significantly. it by gaining new certifications
in, and selling, other technologies
where new funding is available.
We closely monitor incentive
income and make sure staff
are aligned to meet vendor
partner goals so that we don't
lose out on these incentives.
Close and regular communication
with all our major vendor
partners and distributors
means we can manage this risk
appropriately.
-------------------------------------- -------------------------------------
The impact
These incentives are very valuable
and contribute to our operational
profits. Significant changes
to the commercial models would
put pressure on our profitability.
-------------------------------------- -------------------------------------
4 Inflation Risk owner
CFO
-------------------------------------- -------------------------------------
The risk How we manage it
Inflation in the UK, as measured
by the Consumer Price Index The general business outlook
(CPI), is currently 10.1% in shows that the Covid-19 pandemic
the year to September 2022, and associated lockdowns created
which is driven by broad-based pent-up demand for IT in our
cost increases. markets.
Our continued focus on software
asset management means that
we continue to advise customers
in the most cost-effective
ways to fulfil their software
needs. Changes to economic
conditions mean many organisations
will look to IT to drive growth
and/or efficiency.
Staff costs constitute the
majority of our overheads,
therefore our attention is
focused on our staff and their
ability to cope with the rising
cost of living
-------------------------------------- -------------------------------------
The impact
This could create an environment
in which customers redirect
their spending from new IT
projects to more pressing needs.
Wage inflation, increased fuel
and energy costs have a direct
impact on our underlying cost
base.
-------------------------------------- -------------------------------------
Strategic 5 Security of supply Risk owner
CEO
The risk How we manage it
Overreliance on key vendors/suppliers We work with our vendors as
(principally Microsoft). partners - it is a relationship
Suppliers of technology or of mutual dependency since
services being unable to innovate we are their route to the
or supply products due to global end customer. We maintain
trade barriers. excellent relationships with
all our vendors, and have
The impact a particularly good relationship
Too heavy a reliance on any with Microsoft, which relies
one vendor could have an adverse on us as a key partner in
impact on our financial performance, the UK. Our growth plans,
should that relationship break which involve developing business
down. with all our vendors, will
Geopolitically, global shortages naturally reduce the risk
of computer hardware, components of relying too heavily on
and chips could occur, which any single one.
might limit our, and our customers', We monitor the geopolitical
ability to purchase hardware situation, continuously and
for internal use. This could work closely with suppliers
lead to delays in customers and industry bodies to identify
purchasing software, which any potential supply chain
is linked to, or dependent disruptions and impacts. This
on, the hardware being available. enables us to remain fully
Reduced access to computer informed, so that we can respond
chips could also slow down quickly should the landscape
vendor innovation, leading change, to ensure that we
to delays in the creation of have diverse supply routes.
new technology to resell to As this risk is largely driven
customers. by geopolitical and macroeconomic
factors, we maintain a watching
brief so that we can react
swiftly if required.
--------------------------------------------- -------------------------------------
6 Commoditisation Risk owner
CEO
--------------------------------------------- -------------------------------------
The risk How we manage it
Competition in the UK IT market, We closely watch commercial
or the commoditisation of IT and technological developments
products, may result in BTG in our markets.
being unable to win or maintain
market share. Currently, there's no sign
of commoditisation of any
kind that would be a serious
threat to the business model
in the short or medium term.
--------------------------------------------- -------------------------------------
The impact
This would have a material
adverse impact on our business
and profitability.
A huge change would need a
big shift in business operations,
including a strategic overhaul
of the products, solutions
and services that we offer
to the market.
--------------------------------------------- -------------------------------------
7 Disintermediation Risk owner
CEO
--------------------------------------------- -------------------------------------
The risk How we manage it
Mergers and acquisitions have The threat of disintermediation
consolidated our distribution by vendors has always been
network and absorbed specialist present. We minimise this
services companies. This has threat by continuing to increase
caused overlap with our own the added value we bring to
offerings. customers directly. This reduces
clients' desire to deal directly
A move to direct vendor resale with vendors.
to end customers - called disintermediation
- could squeeze the market Equally, vendors cannot engage
opportunity even more. with millions of organisations
globally without the sort
of well-established network
of intermediaries that we
have.
--------------------------------------------- -------------------------------------
The impact
More consolidation could lead
to less competition between
vendors and cause prices to
value-added resellers, like
us, to rise and service levels
to fall. Direct resale to customers
could also increase.
This could erode reseller margins,
given the purchase cost is
less for the distributor than
the reseller. This could reduce
our market, margin and profits.
--------------------------------------------- -------------------------------------
8 Relevance and emerging technology Risk owner
CEO
--------------------------------------------- -------------------------------------
The risk How we manage it
As the technology and security We stay relevant to our customers
markets evolve rapidly and by continuing to offer them
become more complex, the risk expert advice and innovative
exists that we might not keep solutions; specialising in
pace and so fail to be considered high-demand areas; holding
for new opportunities. 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 9 Keeping pace with digital Risk owner
and systems change CEO
The risk How we manage it
Failure to transform our internal To make sure we keep our business
IT and business processes, processes and systems in the
so that we cannot keep pace best shape, we draw on insights
with, nor support, our customers from our customers, the market
effectively. and all levels of our business.
Transformation working groups
The impact - including members of our
If we could not support or Group technical, IT and security
interact with our customers teams - work in partnership
in the way they wanted, it with our operating companies
could damage our relationships to identify strategies and
with them, affect sales and solutions. Transformation
damage our profitability. work is then run, managed
and monitored locally.
----------------------------------- -----------------------------------
Operational 10 Cyberthreats - direct and Risk owner
indirect Chief Information Security
Officer
The risk How we manage it
Breaches in the security of We use intelligence-driven
electronic and other confidential analysis, including research
information that BTG collects, by our internal digital forensics
processes, stores and transmits team, to protect ourselves.
may give rise to significant
liabilities and reputational This work provides insights
damage. into vulnerable areas and
the effects of any breaches,
which allow us to strengthen
our security controls.
We have established controls
that separate customer systems
and mitigate cross-breaches.
Our cyberthreat-level system
also lets us tailor our approach
and controls in line with
any intelligence we receive.
---------------------------------------------------------- ------------------------------------
The impact
If a hacker accessed our IT
systems, they could infiltrate
one or more of our customer
areas. This could provide indirect
access, or the intelligence
required to compromise or access
a customer environment.
This would increase the chance
of first- and third-party risk
liability, with the possible
effects of regulatory breaches,
loss of confidence in our business,
reputational damage and potential
financial penalties.
---------------------------------------------------------- ------------------------------------
11 Technology failure Risk owner
CFO
---------------------------------------------------------- ------------------------------------
The risk How we manage it
Any failure or disruption of Our Chief Technology Officer
BTG's IT infrastructure or and Head of IT effectively
business applications may negatively manage and oversee our IT
affect us. infrastructure, network, systems
and business applications.
Regular IT audits have identified
areas of improvements and
ongoing reviews make sure
we have a high level of compliance
and uptime. This means our
systems are highly effective
and fit for purpose.
For business continuity, we
use different locations, sites
and solutions to limit the
impact of service outage to
customers. Where possible,
we use active resilience solutions
- designed to withstand or
prevent loss of services in
an unplanned event - rather
than just disaster-recovery
solutions and facilities,
which restore normal operations
after an incident.
---------------------------------------------------------- ------------------------------------
The impact
Systems and IT infrastructure
are key to our operational
effectiveness. Failures or
significant downtime could
hinder our ability to serve
customers, sell solutions or
invoice.
Major outages in systems that
provide customer services could
limit clients' ability to extract
crucial information from their
systems or manage their software.
---------------------------------------------------------- ------------------------------------
12 Attract and retain staff Risk owner
CEO
---------------------------------------------------------- ------------------------------------
The risk How we manage it
The success of BTG's business We continually strive to be
and growth strategy depends the best company to work for
on our ability to attract, in our sector. One of the
recruit and retain a talented ways we manage this risk is
employee base. Being able to by growing our own talent
offer competitive remuneration pools. We've used this approach
is an important part of this. successfully in our graduate
intakes for sales, for example.
Three factors are affecting BTG also runs an extensive
this: apprenticeship programme to
* The Consumer Price Index is driving wage inflation create a new security skillset.
* There is a skills s hortage in the IT sector
* With remote or hybrid working becoming the norm,
potential employees in traditionally lower-paid
geographical regions are able to work remotely in
higher-paying areas like London.
---------------------------------------------------------- ------------------------------------
The impact
Excessive wage inflation could
either drive up costs or mean
we are unable to attract or
retain the talent pool we need
to continue to deliver our
planned growth.
---------------------------------------------------------- ------------------------------------
.
Going concern disclosure
The Interim Results for the Group for H1 FY23 have been prepared
on the Going Concern basis following the process undertaken as set
out in note 1.2. Based on the analysis set out in that note, the
Group has sufficient liquidity headroom through the forecast
period. The directors therefore have reasonable expectation that
the Group has the financial resources to enable it to continue in
operational existence for the period up to 28 February 2024.
Accordingly, the directors conclude it to be appropriate that the
consolidated financial statements be prepared on a going concern
basis.
Responsibility statement pursuant to the Financial Services
Authority's Disclosure and Transparency Rule 4 (DTR 4)
Each director of the company confirms that (solely for the
purpose of DTR 4) to the best of his/her knowledge:
-- The financial information in this document, prepared in
accordance with the applicable UK law and applicable accounting
standards, gives a true and fair view of the assets, liabilities,
financial position, and result of the Group taken as a whole.
-- The Chief Executive Officer's and Chief Financial Officer's
reviews include a fair review of the development and performance of
the business and the position of the Group taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Neil Murphy Andrew Holden
Chief Executive Officer Chief Financial Officer
26 October 2022
Interim condensed consolidated statement of profit or loss
For the six months ended 31 August
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
(restated) (restated)
Note GBP'000 GBP'000 GBP'000
Revenue 3 93,533 73,072 145,836
Cost of sales (28,045) (20,202) (38,475)
------------ ------------ ------------
Gross profit 65,488 52,870 107,361
Administrative expenses (37,000) (29,688) (65,057)
Increase in loss allowance
on trade receivables 7 (1,193) (15) (149)
------------ ------------ ------------
Operating profit 27,295 23,167 42,155
Finance income - 6 -
Finance costs (255) (303) (589)
------------ ------------ ------------
Finance costs - net (255) (297) (589)
------------ ------------ ------------
Profit before taxation 27,040 22,870 41,566
Income tax expense 4 (5,333) (4,552) (8,712)
------------ ------------ ------------
Profit after taxation 21,707 18,318 32,854
------------ ------------ ------------
Profit for the period attributable to owners
of the parent company 21,707 18,318 32,854
====== ====== ======
Pence Pence Pence
Basic earnings per ordinary
share 15 9.06 7.72 13.72
Diluted earnings per ordinary
share 15 8.74 7.54 13.42
====== ====== ======
The consolidated statement of profit or loss has been prepared
on the basis that all operations are continuing operations.
There are no items to be recognised in other comprehensive
income and hence, the Group has not presented a statement of other
comprehensive income.
Interim condensed consolidated statement of financial
position
As at As at As at
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 8,128 7,965 8,049
Right-of-use assets 856 1,002 928
Intangible assets 5 42,027 43,638 42,832
Contract assets 109 292 125
------------ ------------ ------------
Total non-current assets 51,120 52,897 51,934
------------ ------------ ------------
Current assets
Inventories 45 258 96
Contract assets 4,206 4,864 6,591
Trade and other receivables 7 176,674 101,952 157,610
Current tax asset - - 219
Cash and cash equivalents 8 35,756 42,854 67,118
------------ ------------ ------------
Total current assets 216,681 149,928 231,634
------------ ------------ ------------
Total assets 267,801 202,825 283,568
====== ====== ======
Liabilities
Non-current liabilities
Lease liabilities (897) (1,085) (992)
Contract liabilities (1,769) (2,371) (1,495)
Deferred tax liabilities (787) (1,135) (1,189)
------------ ------------ ------------
Total non-current liabilities (3,453) (4,591) (3,676)
------------ ------------ ------------
Current liabilities
Trade and other payables 9 (199,585) (150,843) (217,612)
Contract liabilities (18,265) (10,453) (14,528)
Current tax liabilities (239) (495) -
Lease liabilities (188) (184) (185)
------------ ------------ ------------
Total current liabilities (218,277) (161,975) (232,325)
------------ ------------ ------------
Total liabilities (221,730) (166,566) (236,001)
------------ ------------ ------------
Net assets 46,071 36,259 47,567
====== ====== ======
Equity
Share capital 2,395 2,395 2,395
Share premium 633,636 633,636 633,636
Other reserves 4,775 1,510 3,072
Merger reserve (644,375) (644,375) (644,375)
Retained earnings 49,640 43,093 52,839
------------ ------------ ------------
Total equity 46,071 36,259 47,567
====== ====== ======
Interim condensed consolidated statement of changes in equity
(unaudited)
Attributable to owners of the company
Share Share Other Merger Retained Total
capital premium reserves reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 March
2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive income
for the period - - - - 21,707 21,707
Dividends paid 12(b) - - - - (24,906) (24,906)
Share-based payment
transactions
14 - - 1,702 - - 1,702
Deferred tax - - 1 - - 1
------------ ------------ ------------ ------------ ------------ ------------
Balance at 31 August 2022 2,395 633,636 4,775 (644,375) 49,640 46,071
====== ====== ====== ====== ====== ======
Balance at 1 March 2021 2,395 633,636 317 (644,375) 24,775 16,748
Total comprehensive income
for the period - - - - 18,318 18,318
Dividends paid 12(b) - - - - - -
Share-based payment
transactions 14 - - 1,021 - - 1,021
Deferred tax - - 172 - - 172
------------ ------------ ------------ ------------ ------------ ------------
Balance at 31
August
2021 2,395 633,636 1,510 (644,375) 43,093 36,259
====== ====== ====== ====== ====== ======
Balance at 1 March
2021 2,395 633,636 317 (644,375) 24,775 16,748
Total comprehensive income
for the period - - - - 32,854 32,854
Dividends paid 12(b) - - - - (4,790) (4,790)
Share-based payment
transactions 14 - - 2,563 - - 2,563
Deferred tax - - 192 - - 192
------------ ------------ ------------ ------------ ------------ ------------
Balance at 28
February
2022 2,395 633,636 3,072 (644,375) 52,839 47,567
====== ====== ====== ====== ====== ======
Interim condensed consolidated statement of cash flows
Period Period Year ended
ended 31 ended 31 28 February
August August 2022
2022 2021
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Cash (utilised by)/generated from
operations 10 (238) 26,975 61,719
Interest received - 6 -
Interest paid (229) (273) (532)
Income taxes paid (5,276) (4,338) (9,138)
------------ ------------ ------------
Net cash (outflow)/inflow from
operating activities (5,743) 22,370 52,049
------------ ------------ ------------
Cash flows from investing activities
Payments for property, plant and
equipment (595) (111) (617)
------------ ------------ ------------
Net cash outflow from investing
activities (595) (111) (617)
------------ ------------ ------------
Cash flows from financing activities
Principal elements of lease payments (118) (139) (258)
Dividends paid to shareholders 12(b) (24,906) - (4,790)
------------ ------------ ------------
Net cash outflow from financing
activities (25,024) (139) (5,048)
------------ ------------ ------------
Net (decrease)/increase in cash
and cash equivalents (31,362) 22,120 46,384
Cash and cash equivalents at the beginning
of the financial year 67,118 20,734 20,734
------------ ------------ ------------
Cash and cash equivalents at end
of year 8 35,756 42,854 67,118
====== ====== ======
Notes to the interim condensed consolidated financial
statements
1. Accounting policies
1.1 General information
The interim condensed consolidated financial statements of Bytes
Technology Group plc, together with its subsidiaries ("the Group")
for the six months ended 31 August 2022 were authorised for issue
in accordance with a resolution of the directors on 25 October
2022.
The Company is a public limited company, incorporated and
domiciled in the UK. Its registered address is Bytes House,
Randalls Way, Leatherhead, Surrey, KT22 7TW.
The Group is one of the UK's leading providers of IT software
offerings and solutions, with a focus on cloud and security
products. The Group enables effective and cost-efficient technology
sourcing, adoption and management across software services,
including in the areas of security and cloud. The Group aims to
deliver the latest technology to a diverse and embedded
non-consumer customer base and has a long track record of
delivering strong financial performance. The Group has a primary
listing on the Main Market of the London Stock Exchange (LSE) and a
secondary listing on the Johannesburg Stock Exchange (JSE).
1.2 Basis of preparation
The annual consolidated financial statements of the Group will
be prepared in accordance with UK-adopted International Accounting
Standards ("UK-adopted IFRSs").
The interim condensed consolidated financial statements for the
six months ended 31 August 2022 have been prepared in accordance
with UK-adopted International Accounting Standard ("IAS") 34
Interim Financial Reporting.
The interim condensed consolidated financial statements have
been reviewed, but not audited, by Ernst & Young LLP and were
approved by the Board of Directors on 25 October 2022. The
financial information contained in this report does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The interim condensed consolidated financial
statements should be read in conjunction with the annual
consolidated financial statements for the year ended 28 February
2022, which were prepared in accordance with UK-International
Accounting Standards in conformity with the requirements of the
Companies Act 2006. The annual financial statements for the year
ended 28 February 2022 were approved by the Board of Directors on
23 May 2022 and have been delivered to the registrar. The auditor's
report on those financial statements was unqualified, did not
contain an emphasis of matter paragraph and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
The Group's interim condensed consolidated financial statements
comprise the interim condensed consolidated statement of profit or
loss, interim condensed consolidated statement of financial
position, interim condensed consolidated statement of changes in
equity and interim condensed consolidated statement of cash flows
and a summary of significant accounting policies and the notes
thereto.
All amounts disclosed in the Group's interim condensed
consolidated financial statements and notes have been rounded off
to the nearest thousand, unless otherwise stated.
Going concern
As outlined in the Chief Financial Officer's review above,
trading during the 6-month period ended 31 August 2022 (H1 FY23)
demonstrated the Group's continued strong performance and resilient
operating model with double digit growth in gross invoiced income,
gross profit and adjusted operating profit against the prior
year.
The Group has a healthy liquidity position at 31 August 2022
with GBP35.8 million of cash and cash equivalents available, after
having paid final and special dividends in relation to the year
ended 28 February 2022 totalling GBP24.9 million during the period.
Despite a reduction in cash conversion during the six months,
compared to the prior period, the Group targets a sustainable cash
conversion ratio of 100% and management is confident cash
conversion will return to higher levels in H2 FY23. The Group also
has access to a committed revolving credit facility (RCF) that
covers all its reasonably expected cash requirements up until
December 2023 with access to GBP40 million currently available,
reducing to GBP30 million in December 2022. It is reviewing its
requirements to put in place a new facility beyond that time,
however the Group has not required to drawdown on the facility to
date.
In continuing to adopt a going concern basis for preparing the
interim financial statements for the period ended 31 August 2022,
the directors have reviewed trading and cash forecasts prepared for
the Group up to 28 February 2024. This included considering the
availability of liquidity headroom on the revolving credit
facility, and a number of uncertainties which are set out in the
Group's principal risks above, as well as the Group's exposure to
credit risk, liquidity risk, currency risk and foreign exchange
risk as described in note 11 of the interim financial
statements.
The Directors have also considered impacts on future trading and
liquidity in the context of the current operating and
macro-economic environment. This includes:
-- Possible ongoing effects of the Covid-19 pandemic
The pandemic has had limited negative impact to date, and indeed
the opposite in creating additional opportunities and requirements
from our customer base. Hence the Group is now in its third
financial year of reporting strong growth since the onset of the
pandemic in March 2020. However, the directors continue to monitor
the effects of Covid-19 on the business and will react accordingly
if associated risks present themselves.
-- The current challenging economic conditions in the UK
Building on those risks identified in our principal risks
statement, notably economic disruption, inflation, and attraction
and retention of staff, we have assessed the impacts of specific
areas as follows:
o Energy cost inflation - Our businesses are not naturally heavy
consumers of energy, and hence this element of our overall cost
base is very small. Even a substantial percentage rise would not
have a significant impact on our bottom line.
o Cost of sale inflation - Pricing from our suppliers may be at
risk of increasing, in response to inflation pressures on their
side and/or for those suppliers whose underlying currency is USD.
However, our commercial model is based on passing on supplier price
increases to our customers. During H1 FY23 the maintenance of our
gross profit / gross invoiced income (GP/GII %) at 8.3% has
demonstrated this, despite a significant and consistent fall in the
value of sterling over that period and rising inflation. The
GP/GII% is one of the biggest focus areas in our business and been
maintained despite market and competitive pressures. Software sales
is the biggest component of our GP, hence it's the most susceptible
to price pressures and margin squeeze, and yet we have achieved an
increase in its GP/GII% during H1 FY23.
o Wage inflation - the business has been facing pressure of wage
inflation since the COVID restrictions were eased and the labour
market opened up again. Where strategically required we have
increased salaries to retain key staff, but there is always a line
which we will not cross. We monitor our staff attrition rate and
target 12% which we have achieved in the period, and not seen an
outflow of staff due to being uncompetitive with salaries. We have
a strong, collaborative and supportive culture and offer our staff
employment in a business which is robust and which they are proud
of, and this is a key part of our attraction and retention
strategy. Moreover, when we look at our key operational efficiency
ratio of adjusted operating profit / gross profit (AOP/GP) we have
achieved 45.5% in H1 FY23, only fractionally down on last year, but
with an increase in spend in key areas such as marketing, staff
welfare and internal systems, as well as in staff costs, in
response to the growth of the business.
o Interest rates - interest rates rising rapidly in the UK and
internationally will have a negative financial impact on many
organisations and households. The Group however does not have any
debt, nor has it ever needed to call upon the RCF facility.
Therefore, this does not currently, or in the foreseeable future,
affect our income statement or cashflow.
o Foreign currency rate changes - as already mentioned above, we
have withstood significant reductions in the value of the pound
throughout H1 FY23 and yet maintained our GP/GII% at 8.3%. Our
foreign currency transactions are only a very small part of our
business. At the end of H1 FY23 we have just GBP2.3 million net
exposure in USD and GBP3.7 million net in Euros.
o Wage and energy inflation, rising interest rates, and possible
public sector cuts impacting on customer spending - whilst
customers may consider reducing spending on IT goods and services,
if it is seen as non-essential, we may alternatively see increased
spending in these areas if they are seen to be a means to
efficiency and savings elsewhere. During the COVID pandemic we saw
many customers undergo significant IT transformation, trending to
the cloud, automation and managed service and with growing cyber
security concerns also heightening the requirements for IT
security. We are seeing a continuation in this movement and no
let-up in demand, as illustrated by our six months trading
performance. This is supported by our very robust business model
whereby our income is spread over a large number of diverse
customers, none of whom represent more than 1% of our total GP.
Further, due to the nature of licencing schemes and service
contracts, a high proportion of our 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 Group
has a high success rate in securing renewals of existing agreements
and winning new ones, and the licencing of software over multi-year
contracts reduces the risk of income falling away quickly.
o Inflation and rising interest rates impacting on customer
payments - whilst we have seen an increase in debt collection
periods, with some customers taking longer to pay, there has been
no evidence that customers ultimately do not pay, and we haven't
suffered any bad debts over the six-month period. Over 60% of our
GII came from the public sector in H1 FY23, traditionally very safe
and with low credit risk, whilst our corporate customer base
includes a wide range of blue-chip organisations and with no
material reliance on any single customer.
-- The current geopolitical environment
Most notably the conflict in Ukraine has created potential
supply problems, product shortages and general price rises
particularly in relation to fuel, gas and electricity.
o As noted above, increasing energy prices are not having a
noticeable impact on our profitability.
o In terms of supply chain, we are not significantly or
materially dependant on the movement of goods and hence physical
trade obstacles are not likely to affect us directly. Hardware only
made-up 4% of our GP in H1 FY23 and has grown which indicates that
we have managed the supply chain well. Whilst we are conscious of
the fact that lead times for hardware supply have increased, and
this has been a trend over the past two or three years, we have
ensured that we have a number of suppliers with substitute, or
alternative, technologies which we can rely on if one supplier
cannot meet our requirements or time scales.
o Software sales though continues to be the dominant element of
our overall GII and hence is not inherently affected by
cross-border issues.
In response to the above, the Group continues to forecast
cashflows under base case, severe but plausible and stressed
scenarios, including mitigations, consistent with those disclosed
in detail on page 137 in the annual financial statements for the
year ended 28 February 2022. The downsides evaluate reductions in
GII and GP and increases in debtor days. The mitigations applied in
the downside scenarios relate to the reductions in 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. In the most stressed scenario, we have forecast both GII
and GP falling by 30%, commencing in December 2022, and debtor days
increasing by 10 at that same point in time. The directors consider
that such deteriorations remain appropriate to reflect the
potential collective impact of all the macro-economic and
geopolitical matters described and considered above.
Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period, with no
requirement to call upon the revolving credit facility.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 28 February 2024. Accordingly, the
directors conclude it to be appropriate that the consolidated
financial statements be prepared on a going concern basis.
1.3 Critical accounting estimates and judgements
The preparation of the interim condensed consolidated financial
statements requires the use of accounting estimates and judgements
which, by definition, may not equate to the subsequent actual
results in the areas where estimates or judgments are required.
The accounting estimates and judgements adopted for these
interim condensed consolidated financial statements are consistent
with those of the previous financial year as disclosed in the
Group's annual report and accounts for the year ended 28 February
2022 except for a change in accounting judgement around revenue
recognition relating to certain indirect software licence
sales.
The background to the change, and the reassessment of the
judgement around it, is set out below:
Revenue recognition - Principal versus agent, see also note 1.5
below
Background
Under IFRS15, Revenue from Contracts with Customers, when
recognising revenue, the Group is required to assess whether its
role in satisfying its various performance obligations is to
provide the goods or services itself (in which case it is
considered to be acting as principal) or arrange for a third party
to provide the goods or services (in which case it is considered to
be acting as agent). Where it is considered to be acting as
principal, the Group recognises revenue at the gross amount of
consideration to which it expects to be entitled. Where it is
considered to be acting as agent, the Group recognises revenue at
the amount of any fee or commission to which it expects to be
entitled or the net amount of consideration that it retains after
paying the other party.
To determine the nature of its obligation, the standard
primarily requires that an entity shall:
(a) Identify the specified goods or services to be provided to
the customer (which, for example, could be a right to a good or
service to be provided by another party)
(b) Assess whether it controls each specified good or service
before that good or service is transferred to the customer.
In November 2021, the IFRS Interpretation Committee (the
"Committee") discussed a submission received on whether, in
applying IFRS 15, a reseller of software licences is a principal or
agent. The discussions acknowledged that assessing whether an
entity is a principal or agent has historically proven to be a
difficult assessment in some situations, and in particular in the
context of contracts that involve intangible goods or services.
Therefore, determining whether the reseller obtains control of the
software licences would require knowledge and consideration of the
terms and conditions of the contracts between the reseller and the
customer, the reseller and the software manufacturer and the
software manufacturer and the customer.
For these reasons, the Committee believed it would be
inappropriate to conclude on whether the reseller is a principal or
agent. It is generally not the Committee's role to conclude
accounting treatment in a highly specific fact pattern. In the
context of principal versus agent considerations, the Committee
acknowledged that the assessment of whether an entity is a
principal or agent might require judgement, in particular when the
specified good or service is intangible.
The Committee issued a tentative agenda decision in December
2021 concluding that the principles and requirements in IFRS 15
provide an adequate basis for a reseller to determine whether - in
the fact pattern described in the request - it is a principal or
agent for the standard software licences provided to a customer.
Subsequently, at its 20 April 2022 meeting, the Committee finalised
and approved its agenda decision. The International Accounting
Standards Board, at its May 2022 meeting, did not object to the
agenda decision.
Following the Committee's final decision, the Group re-assessed
its position around the principal versus agent judgement in respect
of indirect software licence sales by further considering the
guidance provided in IFRS15.
IFRS15 guidance
IFRS15, first and foremost, requires an entity to assess whether
it controls each specified good or service before that good or
service is transferred to the customer. Control of a good or
service refers to the ability to direct the use of and obtain
substantially all the remaining benefits from it. Control also
includes the ability to prevent other entities from directing the
use of, and obtaining the benefits from, the good or service.
In addition to these primary indicators of control, IFRS 15 also
highlights three additional indicators of control whereby:
-- The entity is primarily responsible for fulfilling the
promise to provide the specified good or service.
-- The entity has inventory risk before the specified good or
service has been transferred to a customer or after transfer of
control to the customer.
-- The entity has discretion in establishing the price for the specified good or service.
An entity is a principal if, governed by the above indicators,
it controls the specified good or service before that good or
service is transferred to a customer. An entity is an agent if the
entity's performance obligation is to arrange for the provision of
the specified good or service by another party. An entity that is
an agent does not control the specified good or service provided by
another party before that good or service is transferred to the
customer.
IFRS15 application to the Group fact pattern and re-assessment
of the Group's judgement on agent versus principal for indirect
software licence sales
In the year ended 28 February 2022, the Group recognised
approximately 65% of its revenue from indirect software licence
sales as an agent, those relating to cloud-based licences and
licences requiring critical updates. These do not meet the control
indicator criteria noted above due to the primary responsibility
for fulfilling the promise to provide these licences to the
customer resting with the software vendor and requiring the vendors
ongoing involvement.
The other approximately 35% of indirect software licence sales,
being sales of non-cloud "on-premise" licences and licences not
requiring critical upgrades, were treated on a 'gross' basis as a
principal. This was due to the judgement being made that the
primary obligation for fulfilling the promise to provide these
licences to the customer was deemed to rest with the Group as
significant ongoing involvement was not required form the software
vendor. However, other key control indicators were not satisfied,
such as:
-- Being responsible for the licences meeting customer
specifications, as the licencing agreement is between the customer
and vendor.
-- Obtaining licences before obtaining a contract with the
customer, as orders with customer and vendor are always
back-to-back.
-- Being able to direct the use of, and obtain substantially all
the remaining benefits from, the licences, as the licencing usage
rights are between the customer and vendor.
-- Being able to prevent other entities, most notably the
software vendor, from directing the use of the licence, as the
licencing usage rights are between the customer and vendor.
Hence, for the current year ending 28 February 2023, following
the Committee's final decision, and in line with developing clear
and consistent practice within our industry, the Group has
re-assessed the control indicators outlined under IFRS15 and now
considers itself to be acting as agent for the resale of all
indirect software licences (whether previously treated as agent or
principal).
This is because, for all indirect software sales, the Group does
not control the software licences prior to their transfer to the
customer. The software licensing agreement is between the customer
and the software vendor and that governs the licence usage rights
and benefits. None of those benefits are enjoyed by the Group. The
software vendor is responsible for issuing the licences, and
activation keys, and for the software's functionality, and
therefore for the licences meeting the customers specifications.
The group does not obtain legal title to the licences at any stage,
not even momentarily.
For cloud-based licences or licences requiring critical updates,
significant ongoing involvement is required from the software
vendor. Similarly, it is the software vendor who assumes
responsibility for the delivery of any software updates available
as part of the licence agreements. It is therefore the software
vendor's responsibility in all those respects for fulfilling the
promise to provide the licences to the customer.
The Group's role is to arrange for the licences and updates to
be provided by the software vendor although the vendor invoices the
Group, and the Group then invoices the customer.
Impact of accounting judgement re-assessment
As a result of making and implementing the reassessment
described above, the Group has updated this aspect of its revenue
recognition policy, as set out in note 1.6 below.
The impact of implementing the re-assessment on the Group's
revenue figures in the current period and in the prior period
comparative figures is set out in note 1.5 below.
1.4 New standards, interpretations and amendments adopted by the
Group
There were no new standards, interpretations and amendments
adopted by the Group during the period to 31 August 2022, other
than noted above, that have a material impact on the interim
condensed consolidated financial statements of the Group.
1.5 Changes in accounting policies and disclosures
The accounting policies adopted in the preparation of the
interim condensed consolidated financial statements are the same as
those set out in the Group's annual consolidated financial
statements for the year ended 28 February 2022, except for the
change set out in note 1.6 below and explained fully in note
1.3.
These changes in the Group's revenue accounting policy, to treat
all indirect software sales as agent, have resulted in the
following impacts on the current period financial statements and,
in accordance with IAS8, a retrospective restatement of the
relevant prior period reported financial statements:
-- Revenue and cost of sales decreased by the additional value
of revenue assessed as being recognised on an agency basis being
GBP161 million in H1 FY23 (H1 FY22: GBP178 million; FY22: GBP302
million).
-- Gross profit, operating profit, and profit before and after
taxes have remained unchanged in all periods. As a result, there is
no impact on basic and diluted earnings per share.
This is summarised in the following table noting that the Group
continues to report Gross Invoiced Income as an Alternative
Performance Measure.
Previous accounting Revised accounting policy
policy
Gross Gross
Indirect software invoiced Agency invoiced Agency
licence sales income adjustmentGBP'000 Revenue income adjustment Revenue
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- -------------------- ---------- ---------- ------------- ----------
Six months to 31
August 2022 786,201 (532,124) 254,077 786,201 (692,668) 93,533
---------- -------------------- ---------- ---------- ------------- ----------
Six months to 31
August 2021 638,246 (386,887) 251,359 638,246 (565,174) 73,072
---------- -------------------- ---------- ---------- ------------- ----------
Year ended 28 February
2022 1,208,124 (760,187) 447,937 1,208,124 (1,062,288) 145,836
---------- -------------------- ---------- ---------- ------------- ----------
1.6 Revenue Recognition
The Group's full revenue recognition policy is set out in its
financial statements for the year ended 28 February 2022.
For the six-month period ended 31 August 2022 the Group's
revenue recognition policy remains unchanged except that for
indirect licence sales involving resale of non-cloud (on-premise)
licences and licences not requiring critical updates, the group is
now considered to be acting as agent, rather than principal.
The judgments made in arriving at this change in accounting
policy are set out fully in note 1.3 and the impact is quantified
in note 1.5 above.
The classification between agent and principal for all other
revenue streams described in the revenue recognition policy remains
unchanged and is summarised below:
-- Direct licence sales - unchanged - the Group acts as agent.
-- Indirect licence sales involving the resale of cloud-based
licences and licences requiring critical updates - unchanged - the
Group acts as agent.
-- Externally provided services - unchanged - the Group acts as agent.
-- Internally provided services - unchanged - the Group acts as principal.
-- Hardware- unchanged - the Group acts as principal.
The judgments made in arriving at these conclusions are set out
in note 1.5 within the financial statements for the year ended 28
February 2022.
Aside from the change noted above, the other aspects of the
revenue recognition policy in respect of identifying the Group's
performance obligations, determining the transaction price,
allocating the transaction price, and recognising revenue, remain
as stated in the financial statements for the year ended 28
February 2022.
2. Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer,
who is considered to be the chief operating decision maker for the
purposes of resource allocation and assessment of performance, is
based wholly on the overall activities of the Group. The Group has
therefore determined that it has only one reportable segment under
IFRS 8, which is that of 'IT solutions provider'. The Group's
revenue, results, assets and liabilities for this one reportable
segment can be determined by reference to the interim condensed
consolidated statement of profit or loss and the interim condensed
consolidated statement of financial position. An analysis of
revenues by product lines and geographical regions, which form one
reportable segment, is set out in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure
which excludes the effects of non-underlying items, intangible
assets amortisation and share-based payment charges.
Adjusted operating profit reconciles to operating profit as
follows:
Period Period Year ended
ended 31 ended 31 28 February
August August 2022
2022 2021
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Adjusted operating profit 29,802 24,993 46,329
Share-based payment charges 14 (1,702) (1,021) (2,563)
Amortisation of acquired intangible
assets (805) (805) (1,611)
------------ ------------ ------------
Operating profit 27,295 23,167 42,155
------------ ------------ ------------
3. Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with
customers:
The Group derives revenue from the transfer of goods and
services in the following major product lines and geographical
regions:
Period ended Period ended Year ended
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
(restated) (restated)
Revenue by product(1, 2) GBP'000 GBP'000 GBP'000
Software 57,884 45,694 91,663
Hardware 20,865 15,609 28,807
Services internal 13,350 10,094 21,761
Services external 1,434 1,675 3,605
------------ ------------ ------------
Total revenue from contracts
with customers 93,533 73,072 145,836
------------ ------------ ------------
(1) In line with the revenue streams disclosed for the year
ended 28 February 2022, services revenue has been split between
internally provided services and externally provided services.
Services revenue in the prior year has consequently been
reclassified.
(2) Software revenues have been restated as noted in notes 1.3
and 1.5 above.
Software
The Group's software revenue comprises the sale of various types
of software licences (including both cloud-based and
non-cloud-based licences), subscriptions and software assurance
products.
Hardware
The Group's hardware revenue comprises the sale of items such as
servers, laptops and other devices.
Services internal
The Group's internal services revenue comprises internally
provided consulting services through its own internal
resources.
Services external
The Group's external services revenue comprises the sale of
externally provided training and consulting services through
third-party contractors.
Period Period Year ended
ended 31 ended 31 28 February
August 2022 August 2021 2022
Unaudited Unaudited Audited
(restated) (restated)
Revenue by geographical GBP'000 GBP'000 GBP'000
regions
United Kingdom 90,042 70,104 140,382
Europe 2,425 2,169 4,235
Rest of world 1,066 799 1,219
------------ ------------ ------------
93,533 73,072 145,836
------------ ------------ ------------
Period Period Year ended
ended 31 ended 31 28 February
August 2022 August 2021 2022
Unaudited Unaudited Audited
(restated) (restated)
3(b) Gross invoiced income by type(1) GBP'000 GBP'000 GBP'000
Software 738,448 602,908 1,136,039
Hardware 20,865 15,609 28,807
Services internal 13,350 10,106 21,761
Services external 13,538 9,623 21,517
------------ ------------ ------------
786,201 638,246 1,208,124
------------ ------------ ------------
Gross invoiced income 786,201 638,246 1,208,124
Adjustment to gross invoiced income
for income recognised as agent (2) (692,668) (565,174) (1,062,288)
------------ ------------ ------------
Revenue 93,533 73,072 145,836
------------ ------------ ------------
(1) In line with the revenue streams disclosed for the year
ended 28 February 2022, services revenue has been split between
internally provided services and externally provided services.
Services revenue in the prior year has consequently been
reclassified.
(2) The adjustment to gross invoiced income for income
recognised as an agent have been restated as noted in notes 1.3 and
1.5 above.
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.
4. Income tax expense
Income tax expense is recognised based on management's estimate
of the weighted average effective annual income tax rate expected
for the full financial year. The estimated average annual rate used
for the period to 31 August 2022 is 19.7%, compared to 19.9% for
the period to 31 August 2021. The tax rate is higher in the current
period, due primarily to the estimated non-deductible expenses
being higher in the period.
The major components of the Group's income tax expense for all
periods are:
Period Period Year ended
ended 31 ended 31 28 February
August 2022 August 2021 2022
Unaudited Unaudited Audited
Current tax expense GBP'000 GBP'000 GBP'000
Current income tax charge in the year 5,734 4,626 8,561
Adjustment in respect of current income
tax of previous years - - 150
Foreign taxation - - 1
------------ ------------ ------------
Total current income tax charge 5,734 4,626 8,712
------------ ------------ ------------
Deferred tax credit
Current year deferred tax credits (401) (74) (434)
Adjustments in respect of prior year - - 5
Effect of change in tax rates - - 429
------------ ------------ ------------
Total deferred tax credit (401) (74) -
------------ ------------ ------------
Total tax charge 5,333 4,552 8,712
------------ ------------ ------------
Amounts recognised directly in equity
Period Period Year ended
ended 31 ended 31 28 February
August August 2021 2022
2022 Unaudited Audited
Unaudited
GBP'000 GBP'000 GBP'000
Aggregate deferred tax arising in
the reporting period and not recognised
in net profit or loss or other comprehensive
income but directly credited to equity:
Deferred tax: share-based payments 1 172 192
------------ ------------ ------------
1 172 192
------------ ------------ ------------
5. Impairment testing of goodwill
The carrying value of indefinite useful life intangible assets
and goodwill are tested annually for impairment and when
circumstances indicate that the carrying value may be impaired. The
test was performed for the year ended 28 February 2022 and the key
assumptions used were disclosed in the Annual Report for the year
ended 28 February 2022. In determining the appropriateness of the
carrying value of goodwill, 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 review for potential indicators of impairment was performed
for the period to 31 August 2022. As a result of this review, no
indicators of impairment have been identified.
6. Financial assets and financial liabilities
This note provides information about the Group's financial
instruments, including:
-- an overview of all financial instruments held by the Group;
-- specific information about each type of financial instrument; and
-- information about determining the fair value of the
instruments, including judgements and estimation uncertainty
involved.
The Group holds the following financial instruments:
Financial assets As at 31 As at 31 As at 28
August 2022 August 2021 February
Unaudited Unaudited 2022
Audited
Note GBP'000 GBP'000 GBP'000
Financial assets at amortised
cost:
Trade receivables 7 166,598 97,176 154,928
Other financial assets 7 7,753 2,986 1,501
------------ ------------ ------------
174,351 100,162 156,429
------------ ------------ ------------
Financial liabilities As at 31 As at 31 As at 28
August 2022 August 2021 February
Unaudited Unaudited 2022
Audited
Note GBP'000 GBP'000 GBP'000
Financial liabilities at amortised
cost:
Trade and other payables - current,
excluding Payroll tax and other
statutory tax liabilities 9 196,109 148,933 208,183
Lease liabilities 1,085 1,269 1,177
------------ ------------ ------------
197,194 150,202 209,360
------------ ------------ ------------
Financial assets at amortised cost:
- 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. 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. Due to the
short-term nature of the Group's trade receivables, their carrying
amounts are considered to be the same as their fair values.
- Other financial assets
These amounts including certain rebates and rental deposits.
Other financial assets also include other receivables that
generally arise from transactions outside the usual operating
activities of the Group. Due to the short-term nature of the
Group's other financial assets, their carrying amounts are
considered to be the same as their fair values.
Financial liabilities at amortised cost:
- Trade and other payables
Trade payables are unsecured and are usually paid within 45 days
of invoice date or 30 days for small suppliers under the prompt
payment code. The carrying amounts of trade and other payables are
considered to be the same as their fair values, due to their
short-term nature.
- Leases
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. Leases
are initially measured at the net present value of the minimum
lease payments. The lease payments are discounted using the
interest rate implicit within the lease. Due to the short-term
nature of the Group's leases, their carrying amounts are considered
to be the same as their fair values.
Risk exposure
The Group's exposure to various risks associated with the
financial instruments is discussed in note 11. 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.
7. Trade and other receivables
As at 31 As at As at 28
August 2022 31 August February
Unaudited 2021 2022
Unaudited Audited
Financial assets GBP'000 GBP'000 GBP'000
Gross trade receivables 168,541 97,915 155,678
Less: impairment allowance (1,943) (739) (750)
------------ ------------ ------------
Net trade receivables 166,598 97,176 154,928
Other receivables 7,753 2,986 1,501
------------ ------------ ------------
174,351 100,162 156,429
------------ ------------ ------------
Non-financial assets
Prepayments 2,323 1,790 1,181
------------ ------------ ------------
2,323 1,790 1,181
------------ ------------ ------------
Trade and other receivables 176,674 101,952 157,610
------------ ------------ ------------
8. Cash and cash equivalents
As at As at As at 28
31 August 31 August February
2022 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Cash at bank and in hand 35,756 42,854 67,118
------------ ------------ ------------
35,756 42,854 67,118
------------ ------------ ------------
9. Trade and other payables
As at As at 31 As at 28
31 August August 2021 February
2022 Unaudited 2022
Unaudited (restated) Audited
GBP'000 GBP'000 GBP'000
Trade and other payables 139,597 106,804 129,430
Accrued expenses 56,512 42,129 78,753
Payroll tax and other statutory
liabilities 3,476 1,910 9,429
------------ ------------ ------------
199,585 150,843 217,612
------------ ------------ ------------
The figures as at 31 August 2021 have been restated with a
reclassification of GBP14.0 million from trade and other payables
to accrued expenses representing supplier invoices not received at
the period end. The restatement is consistent with the yearend
restatement. The correction of prior period has no impact on total
trade and other payables, and there is no change in the financial
position or profitability of the Group.
10. Cash generated from operations
Period Period Year ended
ended 31 ended 31 28 February
August 2022 August 2021 2022
Unaudited Unaudited Audited
Note GBP'000 GBP'000 GBP'000
Profit before taxation 27,040 22,870 41,566
Adjustments for:
Depreciation and amortisation 1,394 1,319 2,608
Loss on disposal of property,
plant and equipment - 2 15
Non-cash employee benefits expense
- share based payments 14 1,702 1,021 2,563
Finance costs - net 255 297 589
Decrease in contract assets 2,401 2,237 677
(Increase)/decrease in trade
and other receivables (19,065) 4,712 (50,946)
Decrease in inventories 51 333 495
(Decrease)/increase in trade
and other payables (18,027) (6,278) 60,491
Increase in contract
liabilities 4,011 462 3,661
------------ ------------ ------------
Cash (utilised by)/generated
from operations (238) 26,975 61,719
------------ ------------ ------------
11. Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current period consolidated profit or loss and
statement of financial position information has been included where
relevant to add further context.
Management monitors the liquidity and cash flow risk of the
Group carefully. Cash flow is monitored by management on a regular
basis and any working capital requirement is funded by cash
resources or access to the revolving credit facility.
The main financial risks arising from the Group's activities are
credit, liquidity and currency risks. The Group's policy in respect
of credit risk is to require appropriate credit checks on potential
customers before sales are made. The Group's approach to credit
risk is disclosed in note 25 in its annual consolidated financial
statements for the year ended 28 February 2022.
11(a) Derivatives
Derivatives are only used for economic hedging purposes and not
speculative investments.
The Group has taken out forward currency contracts during the
periods presented but has not recognised either a forward currency
asset or liability at each period end as the fair value of the
foreign currency forwards is considered to be immaterial to the
consolidated financial statements due to the low volume and
short-term nature of the contracts. Similarly, the amounts
recognised in profit or loss in relation to derivatives were
considered immaterial to disclose separately.
11(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the
reporting period, was as follows:
As at 31 August As at 31 August As at 28 February
2022 2021 2022
Unaudited Unaudited Audited
USD EUR NOK USD EUR NOK USD EUR NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade
receivables 9,646 3,958 - 12,420 3,743 - 5,375 1,423 -
Cash and cash
equivalents 4,898 1,734 606 124 71 - 3,093 75 -
Trade payables (12,207) (2,015) (30) (13,279) (6,797) (278) (15,243) (2,078) (97)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,337 3,677 576 (735) (2,983) (278) (6,775) (580) (97)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
The aggregate net foreign exchange gains/losses recognised in
profit or loss were:
Period Period Year ended
ended 31 ended 31 28 February
August August 2022
2022 2021 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Total net foreign exchange gains/(losses)
in profit or loss 15 6 38
------------ ------------ ------------
15 6 38
------------ ------------ ------------
11(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient
cash to meet obligations when due. The Group generates positive
cash flows from operating activities and these fund short-term
working capital requirements. The Group aims to maintain
significant cash reserves and none of its cash reserves are subject
to restrictions. Access to cash is not restricted and all cash
balances could be drawn upon immediately if required. Management
carefully monitors the levels of cash held and is comfortable that
for normal operating requirements, no further external borrowings
are currently required.
As at 31 August 2022, the Group had cash and cash equivalents of
GBP35.8 million (2022: GBP67.1 million), see note 8. Management
monitors rolling forecasts of the Group's liquidity position (which
comprises its cash and cash equivalents) on the basis of expected
cash flows generated from the Group's operations. These forecasts
are generally carried out at a local level in the operating
companies of the Group in accordance with practice and limits set
by the Group and take into account certain down case scenarios.
(2) Revolving Credit Facility
The Group entered into a three-year committed Revolving Credit
Facility (RCF) in December 2020. In December 2021 the RCF reduced
to GBP40 million, in December 2022 the RCF will reduce to GBP30
million and expire in December 2023. 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.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual
maturity for its financial liabilities based on undiscounted
contractual payments:
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
31 August 2022 - Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Unaudited
Trade and other
payables 9 196,109 - - - 196,109 196,109
Lease liabilities 231 116 694 198 1,239 1,085
------------ ------------ ------------ ------------ ------------ ------------
196,340 116 694 198 197,348 197,194
------------ ------------ ------------ ------------ ------------ ------------
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
31 August 2021 - GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Unaudited
Trade and other
payables 9 148,933 - - - 148,933 148,933
Lease liabilities 235 231 578 429 1,473 1,269
------------ ------------ ------------ ------------ ------------ ------------
149,168 231 578 429 150,406 150,202
------------ ------------ ------------ ------------ ------------ ------------
Total
Within 1 2 to Over contractual Carrying
1 year to 5 years 5 years cash flows amount
2 years
28 February 2022 - Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Audited
Trade and other
payables 9 208,183 - - - 208,183 208,183
Lease liabilities 231 116 694 313 1,354 1,177
------------ ------------ ------------ ------------ ------------ ------------
208,414 116 694 313 209,537 209,360
------------ ------------ ------------ ------------ ------------ ------------
12. Capital management
12(a) Risk management
For the purpose of the Group's capital management, capital
includes issued capital, ordinary shares, share premium and all
other equity reserves attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to maximise shareholder value.
The Group manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of
shareholders. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. In order to ensure an
appropriate return for shareholders' capital invested in the Group,
management thoroughly evaluates all material revenue streams,
relationship with key vendors and potential acquisitions and
approves them by the Board, where applicable. The Group's dividend
policy is based on the profitability of the business and underlying
growth in earnings of the Group, as well as its capital
requirements and cash flows. The Group's dividend policy is to
distribute 40% of the Group's post-tax pre-exceptional earnings to
shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider
returning excess cash to shareholders over time.
12(b) Dividends
Period Period Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
Declared and paid during the period GBP'000 GBP'000 GBP'000
Interim dividend - - 4,790
Final dividend 10,058 - -
Special dividend 14,848 - -
------------ ------------ ------------
Total dividends attributable to
ordinary shareholders 24,906 - 4,790
------------ ------------ ------------
Final and interim dividends in prior periods
Dividends per share for the year ended 28 February 2022 and
period ended 31 August 2021 were calculated by dividing the
dividend paid by the number of ordinary shares in issue.
Dividends not recognised at 31 August 2022
Since the end of the half year the directors have recommended
the payment of an interim dividend of 2.4 pence per fully paid
ordinary share (2021: 2.0 pence). The aggregate amount of the
proposed dividend expected to be paid on 2 December 2022 out of
retained earnings at 31 August 2022, but not recognised as a
liability at the end of the half year is GBP5.7 million.
13. Related party transactions
In the ordinary course of business, the Group carries out
transactions with related parties, as defined by IAS 24 'Related
Party Disclosures'. There have been no related party transactions
that materially affect the current period. Related party
transactions materially affecting the prior periods reported relate
to the final and interim dividends paid to the Group's former
parent group, disclosed in note 12(b).
14. Share-based payments
For the six months ended 31 August 2022 4,215,285 share options
were granted to eligible employees.
Period Period Year ended
ended 31 ended 31 28 February
August August 2022
2022 2021 Audited
Unaudited Unaudited
GBP'000 GBP'000 GBP'000
Share-based payment employee
expenses 1,702 1,021 2,563
------------ ------------ ------------
15. Earnings per share
The Group calculates earnings per share (EPS) on several
different bases in accordance with IFRS and prevailing South Africa
requirements. The Group is required to calculate headline earnings
per share (HEPS) in accordance with the JSE Listing
Requirements.
Period Period Year ended
ended 31 ended 31 28 February
August August 2022
2022 2021 Audited
Unaudited Unaudited
pence pence pence
Basic earnings per share 9.06 7.72 13.72
Diluted earnings per share 8.74 7.54 13.42
Headline earnings per share 9.06 7.72 13.72
Diluted headline earnings per share 8.74 7.54 13.42
Adjusted earnings per share 10.11 8.48 15.46
Diluted adjusted earnings per share 9.75 8.30 15.12
------------ ------------ ------------
15(a) Weighted average number of shares used as the
denominator
Period Period
ended 31 ended 31 Year ended
August August 28 February
2022 2021 2022
Unaudited Unaudited Audited
Number Number Number
Weighted average number of ordinary shares
used as the denominator in calculating
both basic EPS and HEPS 239,482,333 237,429,774 239,482,333
Adjustments for calculation of both diluted
EPS and diluted HEPS:
- share options(1) 8,866,180 5,385,330 5,385,330
------------ ------------ ------------
Weighted average number of ordinary shares
and potential ordinary shares used as
the denominator in calculating both diluted
EPS and diluted HEPS 248,348,513 242,815,104 244,867,663
------------ ------------ ------------
(1) Share options
Share options granted to employees under the Save As You Earn
Scheme, Company Share Option Plan and Bytes Technology Group plc
performance incentive share plan are considered to be potential
ordinary shares. They have been included in the determination of
diluted earnings per share on the basis that all employees are
employed at the reporting date, and to the extent that they are
dilutive. The options have not been included in the determination
of basic earnings per share.
15(b) Headline earnings per share
The table below reconciles the profits attributable to owners of
the company to headline profits attributable to owners of the
company:
Period Period Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Profits attributable to owners of the
company 21,707 18,318 32,854
Adjusted for:
* Loss on disposal of property, plant and equipment - - 15
* Tax effect thereon - - (3)
------------ ------------ ------------
Headline profits attributable to owners
of the company 21,707 18,318 32,866
------------ ------------ ------------
15(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative
performance measure which is consistent with the way that financial
performance is measured by senior management of the Group. It is
calculated by dividing the adjusted operating profit attributable
to ordinary shareholders by the total number of ordinary shares in
issue at the end of the year. Adjusted operating profit is
calculated to reflect the underlying long-term performance of the
Group by excluding the impact of the following items:
-- 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:
Period Period Year
ended ended ended
31 August 31 August 28 February
2022 2021 2022
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
Profits attributable to owners of the
company 21,707 18,318 32,854
Adjusted for:
* Amortisation of acquired intangible assets 805 805 1,611
* Share-based payment charges 1,702 1,021 2,563
------------ ------------ ------------
Total adjusted earnings attributable
to owners of the company 24,214 20,144 37,028
------------ ------------ ------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR DGBDGGXDDGDU
(END) Dow Jones Newswires
October 26, 2022 02:00 ET (06:00 GMT)
Bytes Technology (LSE:BYIT)
Historical Stock Chart
From Jun 2024 to Jul 2024
Bytes Technology (LSE:BYIT)
Historical Stock Chart
From Jul 2023 to Jul 2024
