TIDMBYIT
RNS Number : 2662A
Bytes Technology Group PLC
23 May 2023
23 May 2023
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Audited preliminary results for the year ended 28 February
2023
Strong performance extending track record of double-digit
growth
Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the
UK's leading software, security, and cloud services specialists,
today announces its financial results for the year ended 28
February 2023 ('FY23').
Neil Murphy, Chief Executive Officer, said:
"I am delighted to be reporting another positive set of results,
with strong double-digit growth driven by contributions from all
areas of the business. This performance was underpinned by
continued growth from both our public sector and corporate clients,
with customers showing a sustained appetite to invest in their IT
requirements. We have seen our gross profit increase by 20.7% as we
have expanded our customer base and increased our share of wallet
among existing customers. At the same time, we believe that our
customer-oriented proposition has enabled us to take market share
from competitors.
"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. We continue to focus on recruitment and training to ensure
we have the right expertise and resources in place to service our
clients' evolving needs. Looking ahead, we have made a positive
start to the current year, and we believe our strategy leaves us
well positioned to benefit from the growth opportunities we see in
our chosen markets."
Financial performance
GBP'million FY23 (year FY22 (year % change
ended 28 February ended 28 February year-on-year
2023) 2022)
(restated)
Gross invoiced income ('GII')
(1) GBP1,439.3m GBP1,208.1m 19.1%
Revenue(2) GBP184.4m GBP145.8m 26.5%
Gross profit ('GP') GBP129.6m GBP107.4m
Gross margin % (GP/Revenue) 70.3% 73.7%
GP/GII % 9.0% 8.9% 20.7%
Operating profit GBP50.9m GBP42.2m 20.6%
Adjusted operating profit GBP56.4m GBP46.3m 21.8%
('AOP')(3)
43.5% 43.1%
AOP/GP %
GBP73.0m GBP67.1m 8.8%
Cash
Cash conversion(4) 84.3% 131.9%
Earnings per share (pence) 16.88 13.72 23.0%
Adjusted earnings per share(5)
(pence) 18.83 15.30 23.1%
Final dividend per share 5.1 4.2 21.4%
(pence)
7.5 6.2 21.0%
Special dividend per share
(pence)
------------------- ------------------- --------------
The restatement in FY22 is in respect of the Revenue and Gross
margin % as described below.
Financial highlights
- GII increased 19.1% to GBP1,439.3 million (FY22: GBP1,208.1
million). Strong growth spread across software, hardware, and
services, driven by continued demand from both corporate and public
sector customers.
- Revenue increased 26.5% to GBP184.4 million (FY22: GBP145.8 million - restated).
- Growth in the customer base to 5,941 (FY22: 5,330 customers);
higher GP per customer of GBP21,800 (FY22: GBP20,100) supported GP
growth of 20.7% to GBP129.6 million (FY22: GBP107.4 million).
- Operating profit increased by 20.6% to GBP50.9 million (FY22: GBP42.2 million).
- AOP increased by 21.8% to GBP56.4 million (FY22: GBP46.3
million); AOP as a percentage of GP has remained in line with the
previous year at 43.5%.
- Adjusted earnings per share increased 23.1% to 18.83 pence (FY22: 15.30 pence).
- Full year cash conversion of 84.3% reflects a very strong
conversion in the second six months of the financial year.
- The Board proposes a final dividend of 5.1 pence per share and
a special dividend of 7.5 pence per share.
-- The final dividend represents a 21.4% increase over last
year's payment, reflecting the strong growth in AOP and takes the
full year dividend to 7.5 pence per share, an increase of
21.0%.
-- The special dividend has increased by 21.0% compared to last
year, matching the full year dividend.
Operational highlights
- Customer appetite for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions
underpinned the Group's continued growth in FY23.
- 96% of GP came from customers that traded with BTG last year
(FY22: 93%), at a renewal rate of 116%.
- Increased headcount by 20% to 930 in the year to service high levels of customer demand.
- Bytes Software Services named Microsoft Partner of the Year
for Operational Excellence in 2022 from over 3,900 partner entries
globally.
- Phoenix Software named Dell Technologies Public Sector Partner of the Year 2022.
- Both the Group's businesses, Bytes Software Services and
Phoenix Software, becoming Great Place to Work certified.
- In April 2023, we acquired a 25.1% interest in AWS partner,
Cloud Bridge Technologies. As a long term partner of Bytes, Cloud
Bridge and its significant technical work force gives us additional
access to resources which will underpin our multi-cloud strategy
over the years to come.
Current trading and outlook
We delivered another year of very positive performance in FY23,
extending our track record of delivering strong double-digit growth
across our key financial metrics. The business has continued to
trade strongly since the beginning of March, bringing the momentum
delivered last year into FY24.
Looking ahead to the coming year, we remain mindful of
continuing macroeconomic headwinds. However, we are confident that
the Group's proven strategy of acquiring new customers and then
growing our share of wallet, building on our strong vendor
relationships and the technical and commercial skills of our
people, ensures we are well placed to make further progress in
FY24.
Analyst and investor presentation
A presentation for analysts and investors will be held today via
webcast at 9:30am (BST). Please find below access details for the
webcast:
Webcast link:
https://stream.brrmedia.co.uk/broadcast/644be818ef37f7f001dea767
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). 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 and in note 1.6 of the financial
statements. Our key financial metrics of gross invoiced income,
gross profit, adjusted operating profit and cash conversion are
unaffected by this change.
(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 year. Amortisation of acquired
intangible assets and share-based payment charges are excluded in
arriving at Adjusted earnings. The calculation is set out in note
29 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 FY23, which saw
the Group deliver growth in adjusted operating profit ('AOP') of
21.8% and gross profit ('GP') of 20.7%, driven by a 19.1% increase
in gross invoiced income ('GII'). Our revenue, stated after the
netting adjustment for software and external services sales, under
IFRS 15, was up 26.5%.
We have maintained our track record of strong double-digit
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
substantial suite of software, services and IT hardware solutions
from the world's leading vendors and software publishers.
Encouragingly, we have seen continued strong double-digit growth
for GII and GP from both our public sector customers and corporate
clients. This is also reflected in our 18.5% growth in software GII
and 30.7% increase in our internal services GII during FY23, the
two areas of our business that are key drivers in delivering our
growth targets. These have been supported by hardware growth of
33.0% and external services growth of 22.8%. 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 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 both to
continue to improve user experiences and 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 the previous
year at 43.5%, and therefore achieving our target to exceed
40%.
We remain proud of the energy, enthusiasm and professionalism
demonstrated by our people. 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 inaugural plan a year before. An
encouraging 50% of employees now participate in one, or both, of
these plans.
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
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
sustainability framework aims to deliver positive impacts for our
stakeholders across key themes which we have identified as most
relevant for the environment in which we operate. Within each theme
- financial sustainability, corporate responsibility, stakeholder
engagement and good governance - we set ourselves focus areas 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 by way of normal
dividends. Accordingly, we are pleased to confirm that the Board
has proposed a final dividend of 5.1 pence per share and an
additional special dividend of 7.5 pence per share that, subject to
shareholder approval, will both be paid on 4 August 2023 to
shareholders on the register at 21 July 2023.
I wish to extend my gratitude to all my colleagues for their
hard work and dedication to the business during 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.
Continued focus on Environment, Social and Governance (ESG)
Our approach to responsible business and ESG is aimed at helping
to build a sustainable future and create long term value for 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.
Evolving our Low Carbon Journey
This year we partnered with an external environmental consultant
to help refine our carbon reduction plan through expanding our
emissions reporting and aligning this with Science Based Targets
with the aim to make an application for our plan to be recognised
by the Science Based Targets initiative (SBTi). We continued to
develop our Taskforce for Climate-Related Financial Disclosures
(TCFD) with our second iteration in FY23, further embedding its
risk and financial disclosure recommendations into our processes.
Following our first submission to Carbon Disclosure Project in the
year, we will continue with this on an annual basis.
In March 2023, our first Group Sustainability Manager was
appointed to drive forward social and environmental initiatives and
align processes with both our operating companies.
Positively impacting our society
Employee support and wellbeing remains key focus areas for the
Group, particularly in light of the continuing cost-of-living
crisis. In FY23 we introduced Wellness Days and partnered with
vendors to offer broader health and wellbeing benefits to our
employees. 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 supported our communities through
volunteer days, donations, and fundraising events, such as our
Charity Matched Funding project and making contributions to
charities such as Shelter.
Building on our robust corporate governance
As announced on 12 April 2023, Sam Mudd will be appointed as an
Executive Director, with effect from the conclusion of the next
Annual General Meeting to be held on 12 July 2023. Sam is currently
the Managing Director of Phoenix Software Limited, a wholly owned
subsidiary of the Group, and she will continue in this role
following her appointment to the Board. It was also announced that
after 23 years with the Group, David Maw will be stepping down as a
non-executive director at the 2023 AGM. We are satisfied that the
size, structure, and composition of our Board and committees remain
appropriate in serving the best interests of the company and our
stakeholders, while maintaining a focus on our Board and senior
leadership diversity targets. Following Sam's appointment, our
female representation on the Board will stand at 43%.
We have continued to improve our internal controls in
conjunction with ongoing internal audit engagement, along with
enhancing our process documentation and management reporting.
Chief Financial Officer's review
FY22
(restated(3)
FY23 ) Change
Income statement GBP'm GBP'm %
-------------------------------------- ------------- --------------
Gross invoiced income (GII) 1,439.3 1,208.1 19.1%
-------------------------------------- ------------- --------------
GII split by product:
Software 1,346.1 1,136.0 18.5%
Hardware 38.3 28.8 33.0%
Services internal(1) 28.5 21.8 30.7%
Services external(2) 26.4 21.5 22.8%
-------------------------------------- ------------- --------------
Netting adjustment (3) (1,254.9) (1,062.3) 18.1%
Revenue (3) 184.4 145.8 26.5%
-------------------------------------- ------------- --------------
Revenue split by product:
Software 114.1 91.6 24.6%
Hardware 38.3 28.8 33.0%
Services internal(1) 28.5 21.8 30.7%
Services external(2) 3.5 3.6 (2.8)%
-------------------------------------- ------------- --------------
Gross profit (GP) 129.6 107.4 20.7%
-------------------------------------- ------------- --------------
GP / GII % 9.0% 8.9%
Gross margin %(3) 70.3% 73.7%
Administrative expenses 78.7 65.2 20.7%
-------------------------------------- ------------- --------------
Administrative expenses split:
Employee costs 63.3 53.5 18.3%
Other administrative expenses 15.4 11.7 31.6%
Operating profit 50.9 42.2 20.6%
-------------------------------------- ------------- --------------
Add back:
Share-based payments 4.2 2.5 68.0%
Amortisation of acquired intangible
assets 1.3 1.6 (18.8)%
Adjusted operating profit (AOP) 56.4 46.3 21.8%
-------------------------------------- ------------- --------------
Finance costs (0.5) (0.6) (16.7)%
Profit before tax 50.4 41.6 21.2%
-------------------------------------- ------------- --------------
Income tax expense (10.0) (8.7) 14.9%
Effective tax rate 19.9% 20.7%
Profit after tax 40.4 32.9 22.8%
-------------------------------------- ------------- --------------
(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 FY23 results
FY23 has seen continued double-digit growth across all our key
performance measures, reinforcing the strong start the Group has
made since listing at the end of 2020. As the country and the
economy have emerged from the Covid-19 restrictions imposed three
years ago, 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 FY23.
With hybrid working now widespread across our whole customer
base, and heightened requirements around cybersecurity, customers
have continued to engage with us to support their move into the
cloud, or extending their presence in it, with more sophisticated
and resilient security, support, and managed service solutions.
This has resulted in operating profit increasing by 20.6% to
GBP50.9 million (FY22: GBP42.2 million) and AOP growing by a
slighter higher 21.8% year on year from GBP46.3 million to GBP56.4
million. The adjusted operating profit excludes the impact of a
mortisation of acquired intangible assets and share-based payment
charges which do not reflect the underlying day-to-day performance
of the Group.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some
small adjustments for deferred and accrued items (mainly relating
to managed service contracts where the income is recognised over
time). We believe that GII is the most useful measure to evaluate
our sales performance, volume of transactions and rate of growth.
GII has a direct influence on our movements in working capital,
reflects our risks and demonstrates the performance of our sales
teams. Therefore, it is the income measure which is most
recognisable amongst our staff, and we believe most relevant to our
customers, suppliers, investors, and shareholders for them to
understand our business.
GII has increased by 19.1% 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 year and prior year. The Group
benefits from a substantial presence in the public sector, with
continued high levels of government investment in IT technologies
resulting in our public sector GII increasing by GBP130.0 million,
up 17.9%, to GBP856.6 million (FY22: GBP726.6 million). Our
corporate GII increased by GBP101.2 million to GBP582.7 million
(FY22: GBP481.5 million), representing an even stronger rise of
21.0%.
This means that our overall GII mix has remained consistent with
last year at 60% in public sector against corporate of 40%.
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 licences) on an agency basis, with the remainder
of indirect software sales treated as principal. The change in
judgement for FY23 is to treat all indirect software sales on an
agency basis (including those previously treated as principal).
Full details are set out in note 1.6 of the financial statements.
This has resulted in a reduction in our revenue and the prior year
figures have been restated accordingly as follows.
- Prior year (FY22) 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 both years. The
consolidated statements of financial position, cashflows and
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 26.5% against the prior year re-stated
figure reflects this revised judgement, but nevertheless shows the
growth in the business alongside the reported GII increase.
Gross profit (GP) and gross profit/GII (GP/GII%)
Gross profit increased by 20.7% to GBP129.6 million (FY22:
GBP107.4 million) with this growth coming from across the
business.
Corporate GP grew by 19.6% to GBP83.7 million (FY22: GBP70.0
million) with the corporate GP/GII% remaining in line with the
prior year at just over 14%. This reflects the continued
strengthening of demand from corporate clients post the
pandemic.
In the public sector, GP grew by 22.7% to GBP45.9 million (FY22:
GBP37.4 million) with an increase in GP/GII% from 5.2% to 5.4%.
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. 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.
Our overall GP mix remains balanced in favour of the corporate
sector due to the higher GP/GII% which is generated there,
contributing 65% versus the public sector's 35% (also 65% and 35%
respectively in FY22).
Our overall GP/GII% has increased to 9.0% from 8.9% last year,
which is a strong outcome. It remains a key priority to increase
this measure further by focusing on selling our wide range of
solutions offerings and higher margin security products, whilst
maximising our vendor incentives through achievement of technical
certifications.
In FY22 we reported 5,330 customers trading with us whilst in
this year the figure has risen to 5,941, a net gain of 611 (up
11%). In FY23, 96% of our GP came from customers that we also
traded with last year (FY22: 93%), at a renewal rate of 116% (which
measures the GP from existing customers this year compared to total
GP in the prior year) (FY22: 111%).
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.
In addition to continuing to hire in line with growth, another
successful strategy that has delivered results is our commitment to
develop, promote and expand from within the existing employee base,
giving our people careers rather than just employment. This, in
turn, has encouraged 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 18.3%
to GBP63.3 million (FY22: GBP53.5 million) but excluding
share-based payments of GBP4.2 million (FY22: GBP2.5 million), the
rise was 15.9%, notably lower than the 20.7% rise in GP and
reflecting the balanced and proportional way in which vital staff
investments are and will continue to be made. During the year we
have seen total staff numbers rise to 930 on our February 2023
payroll, up by 20% from the year-end position of 773 on 28 February
2022.
Other administrative expenses
Other administrative expenses increased by GBP3.7 million to
GBP15.4 million (FY22: GBP11.7 million). This increase included
additional spend on internal systems, professional fees, staff
welfare and travel costs. This reflects the costs of running, and
investing in, a growing organisation and in operating a listed
Group, including evolving our governance structure, controls, and
processes with the support of our professional advisors.
Travel and entertaining expenses have not yet reverted to
pre-lockdown levels but have increased by GBP0.3 million compared
with those incurred last year. We expect these costs to increase
gradually in the coming year but to remain far lower than
previously experienced pre Covid-19.
Our trade and other receivables balance at this year end is up
on last year by GBP28.3 million (18.0%), in line with the growth of
GII. We have therefore increased our closing impairment allowance
by GBP0.79 million to
GBP1.54 million from the GBP0.75 million provided at 28 February
2022. However, we are not seeing any indication of customer
non-payments and have come through the year with only GBP0.1
million in bad debt write-offs. Accordingly, the increased
allowance represents a small percentage of the gross receivables
balance
of GBP179.9 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. Accordingly, the charge for the current year
has risen to GBP4.2 million, compared to GBP2.5 million last
year.
- Amortisation of acquired intangibles as this cost only appears
as a consolidation item and does not arise from ordinary operating
activities.
We believe that adjusted operating profit is a meaningful
measure which the Board can use to effectively evaluate our
profitability, performance, and ongoing quality of earnings.
Adjusted operating profit in FY23 increased to GBP56.4 million
(FY22: GBP46.3 million), representing growth of 21.8%. Our
operating profit increased from GBP42.2 million to GBP50.9 million
equating to an increase of 20.6%.
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 43.5% (FY22: 43.1%).
Income tax expense
The effective rate of tax charged for the year is 19.9% of
profit before tax (FY22: 20.7%). Excluding the impact of the
non-deductible share-based payments costs and amortisation of
intangibles, the underlying adjusted rate reverts to close to the
standard rate of corporation tax of 19% for FY23 (FY22: 19%).
Balance sheet and cashflow
As at
------------------------------------
28 February 29 February
2023 2022
Balance sheet GBP'm GBP'm
------------------------------- ------------ ----------------------
Property plant and equipment 8.4 8.0
Intangible assets 41.5 42.8
Other non-current assets 1.2 1.1
------------------------------- ------------
Non-current assets 51.1 51.9
------------------------------- ------------ ----------------------
Trade and other receivables 185.9 157.6
Cash 73.0 67.1
Other current assets 10.7 6.9
------------------------------- ------------
Current assets 269.6 231.6
------------------------------- ------------ ----------------------
Trade and other payables 231.7 217.6
Lease liabilities 0.1 0.2
Other current liabilities 23.9 14.5
------------------------------- ------------
Current Liabilities 255.7 232.3
------------------------------- ------------ ----------------------
Lease liabilities 0.9 1.0
Other non-current liabilities 2.6 2.7
------------------------------- ------------
Non-current liabilities 3.5 3.7
------------------------------- ------------ ----------------------
Net assets 61.5 47.5
------------------------------- ------------ ----------------------
Share capital 2.4 2.4
Share premium 633.6 633.6
Share-based payment reserve 7.2 3.1
Merger reserve (644.4) (644.4)
Retained earnings 62.7 52.8
Total equity 61.5 47.5
------------------------------- ------------ ----------------------
Closing net assets stood at GBP61.5 million (FY22: GBP47.5
million) with net current assets of GBP13.9 million (FY22: net
current liabilities GBP0.7 million)
Growth in the trade and other receivables of 18.0% reflects the
growth in our GII, whilst the growth in trade and other payables is
lower at 6.5%. The impact on cash flow and cash conversion is
explained below.
The increase in other current liabilities primarily relates to
deferred income connected to our managed service contracts, a
growing and strategically important part of our business, where we
receive customer payments up front.
The consolidated cash flow is set out below along with the key
flows which have affected it:
FY23 FY22
Cashflow GBP'm GBP'm
----------------------------------- ------- -------
Cash generated from operations 48.9 61.7
Payments for fixed assets (1.3) (0.6)
----------------------------------- ------- -------
Free cash flow 47.6 61.1
Net Interest paid (0.5) (0.5)
Taxes paid (10.3) (9.1)
Lease payments (0.2) (0.3)
Dividends (30.7) (4.8)
----------------------------------- ------- -------
Net increase/(decrease) in cash 5.9 46.4
Cash at the beginning of the year 67.1 20.7
Cash at the end of the year 73.0 67.1
----------------------------------- ------- -------
Cash Conversion 84.3% 131.9%
----------------------------------- ------- -------
Cash as at the end of the year has increased by 8.8% to GBP73.0
million (28 February 2022: GBP67.1 million) which is after the
payment of dividends totalling GBP30.6 million during the past 12
months. Final and special dividends for FY22 accounted for GBP24.9
million of this figure and the remaining GBP5.7 million was the
interim dividend for FY23.
The Group's cash conversion ratio for the year (free cash flow
divided by AOP) was 84.3% (FY22: 131.9%), against its target of
100%. With all other key performance measures moving in a positive
direction, the movement from last year to the current year,
illustrates the sensitivity of this particular ratio to even small
delays in payment from customers, given that it is measured at a
point in time at the year-end rather than as a rolling average.
This makes it susceptible to short-term, but potentially high
value, timing of customer receipts. Further, the Group does not
delay payments to suppliers, when due, as a means of mitigating any
such delays in customer receipts with its average creditor days
remaining just above 45.
Nevertheless, after reporting a negative cash conversion for the
first six months of FY23, the full-year position reflects a very
strong conversion in the second six months, equating to 180%, and
hence moving the full-year figure substantially back towards the
Group's target sustainable cash conversion ratio of 100%.
The differences between the two halves, whilst unusually wide in
FY23, is in line with our expectations due to the timing of
receipts and payments in relation to some our largest Microsoft
software enterprise agreements where, for our public sector
customers, many of the agreement anniversaries fall on 1 April,
aligned to the public sector year end. With these orders needing to
be placed at least 30 days ahead of anniversary we often see the
customers pay us prior to the end of our financial year, whilst our
payments to Microsoft do not fall due until the first quarter of
the next year.
As a more general trend across the year, we also saw our
customers continuing their digital transformation into the cloud
under usage-based licensing models, typically with monthly billing
based on customer usage rather than fixed amounts per licence or
agreement. This has been most notable within Microsoft's Cloud
Solution Provider (CSP) program and has led to some delays in
payments where customers requested additional analysis around their
usage. This has contributed to an increase in debtor days from an
average 33 in FY22 to 39 in FY23.
As customers become more familiar with usage-based programs,
combined with our development of improved systems to provide
greater clarity around CSP invoicing, and a policy to on-board new
customers with direct debit as the standard payment method, we
expect to see a general reduction in queries and fewer delays in
payments as we go forward.
FY23 can therefore be seen as a transitional year for the
business as well as for its customer base when it comes to the
expansion of usage-based licensing programs. Whilst we still expect
to see the seasonal variation in cash conversion from H1 to H2
during FY24, as explained above, we feel confident that the two
halves will not see such a disparity as in FY23 and we are focused
on a return to our targeted 100% for the full year in FY24. This is
a key performance target at both operating company and Group
levels.
If required, the group has access to a committed revolving
credit facility (RCF) of GBP30 million with HSBC. The facility
commenced on 17 May 2023, replacing the Group's previous facility
for the same amount and runs for three years, until 17 May 2026. To
date, the Group has not been required to use either it's previous
or new facilities.
Proposed dividends
As stated above, the Group's dividend policy is to distribute
40% of post-tax pre-exceptional earnings to shareholders.
Accordingly, the Board is pleased to propose a gross final dividend
of 5.1 pence per share. The aggregate amount of the proposed
dividend expected to be paid out of retained earnings at 28
February 2023, but not recognised as a liability at the end of the
financial year, is GBP12.2 million. In light of the company's
continued strong performance and cash generation, the Board also
considers it appropriate to propose a cash return to ordinary
shareholders with a special dividend of 7.5 pence per share,
equating to GBP18.0 million. If approved by shareholders, the final
and special dividend will be payable on Friday, 4 August 2023 to
all ordinary shareholders who are registered as such at the close
of business on the record date of Friday, 21 July 2023. The salient
dates applicable to the dividend are as follows:
Dividend announcement date Tuesday, 23 May 2023
Currency conversion determined and announced Monday, 3 July 2023
together with the South African (SA) tax
treatment on SENS by 11.00
------------------------
AGM at which dividend resolutions will be Wednesday, 12 July 2023
proposed
------------------------
Last day to trade cum dividend (SA register) Tuesday 18 July 2023
------------------------
Commence trading ex-dividend (SA register) Wednesday 19 July 2023
------------------------
Last day to trade cum dividend (UK register) Wednesday 19 July 2023
------------------------
Commence trading ex-dividend (UK register) Thursday 20 July 2023
------------------------
Record date Friday, 21 July 2023
------------------------
Payment date Friday, 4 August 2023
------------------------
Additional information required by the Johannesburg Stock
Exchange:
1. The GBP:ZAR currency conversion will be determined and
published on SENS on Friday, 30 June 2023
2. A dividend withholding tax of 20% will be applicable to all
shareholders on the South African register unless a shareholder
qualifies for exemption not to pay such dividend withholding
tax.
3. The dividend payment will be made from a foreign source (UK).
4. At Tuesday 23 May 2023, being the declaration announcement
date of the dividend, the Company had a total of 239,482,333 shares
in issue (with no treasury shares).
5. No transfers of shareholdings to and from South Africa will
be permitted between Friday 30 June 2023 and Friday 21 July 2023
(both dates inclusive). No dematerialisation or rematerialisation
orders will be permitted between Wednesday 19 July 2023 and Friday
21 July 2023 (both dates inclusive).
Principal risks
The Group Board has overall responsibility for risk. This
includes establishing and maintaining our risk management framework
and internal control systems and setting our risk appetite. In
doing this it receives support from our Audit Committee 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 We have so far continued to
of the crisis in Ukraine, perform well during the conflict
the uncertainties caused in Ukraine, and under the current
by global economic pressures effects of inflation, the cost-of-living
and geopolitical risk within crisis and leaving the EU.
the UK post-Brexit.
Despite the economic shocks
of the past year and continued
pressure from the Ukraine conflict,
we have not seen an impact
on our business.
These real-life experiences
have shown us to be resilient
through tough economic conditions.
The diversity of our client
base has also helped to maintain
and increase business in this
period. We are not complacent,
however - economic disruption
remains a risk and we keep
operations under constant review.
---------------------------------------- ------------------------------------------
The impact
Major economic disruption
- including the risk of continuing
high inflation (see below)
and potentially higher taxes
- could see reduced demand
for software licensing, hardware
and IT services, which could
be compounded by government
controls. Lower demand could
also arise from reduced customer
budgets, cautious spending
patterns or clients 'making
do' with existing IT.
Economic disruption could
also affect the major financial
markets, including currencies,
interest rates and the cost
of borrowing. Economic deterioration
like this could have an impact
on our business performance
and profitability.
---------------------------------------- ------------------------------------------
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 the
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.
In the past year we have sought
to increase margins where possible;
cost increases from vendors
have grown our margins organically.
Our diverse portfolio of offerings,
with a mix of vendors as well
as a mix of software and services,
has enabled us to absorb any
changes. Services delivered
internally are consistently
measured against competition
to ensure we remain competitive
and maximise margins.
We aim to agree acceptable
profit margins with customers
upfront.
Keeping the correct level of
certification by vendor, early
deal registration and rebate
management are three methods
deployed to ensure we are procuring
at the lowest cost and maximising
incentives earned.
This risk area is reviewed
monthly.
---------------------------------------- ------------------------------------------
The impact
These changes could affect
our business performance
and profitability.
---------------------------------------- ------------------------------------------
3 CHANGES TO VORS' COMMERCIAL Risk owner CEO
MODEL
---------------------------------------- ------------------------------------------
The risk How we manage it
BTG receives incentive income We maintain a diverse portfolio
from our vendor partners of vendor products and services.
and their distributors. This Although we receive major sources
partially offsets our costs of funding from specific vendor
of sales but could be significantly programmes, if one source declines,
reduced or eliminated if we can offset it by gaining
the commercial models are new certifications in, and
changed significantly. selling, other technologies
where new funding is available.
We closely monitor incentive
income and make sure staff
are aligned to meet vendor
partner goals so that we don't
lose out on these incentives.
Close and regular communication
with all our major vendor partners
and distributors means we can
manage this risk appropriately.
In some areas we have seen
a positive change from vendor
commercials, where we have
been able to adapt practices.
---------------------------------------- ------------------------------------------
The impact
These incentives are very
valuable and contribute to
our operational profits.
Significant changes to the
commercial models could put
pressure on our profitability.
---------------------------------------- ------------------------------------------
4 INFLATION Risk owner CFO
---------------------------------------- ------------------------------------------
The risk How we manage it
Inflation in the UK, as measured Our ongoing focus on software
by the Consumer Price Index asset management means that
(CPI), is currently 10.4% we continue to advise customers
in the year to February 2023, in the most cost-effective
which is driven by three ways to fulfil their software
main drivers: electricity/gas, needs. Changes to economic
transport costs and food/non-alcoholic conditions mean many organisations
beverages. will look to IT to drive growth
and/or efficiency.
Staff costs are the largest
part of our overheads, so our
attention is focused on our
staff and their ability to
cope with the rising cost of
living.
Externally, we have seen an
increase in customers looking
to avoid increased staff costs
by outsourcing their IT through
managed services. This may
create an opportunity to accelerate
our service offerings.
---------------------------------------- ------------------------------------------
The impact
This could create an environment
in which customers redirect
their spending from new IT
projects to more pressing
needs.
Wage inflation and increased
fuel and energy costs have
a direct impact on our underlying
cost base.
---------------------------------------- ------------------------------------------
5 INCREASING DEBTOR RISK Risk owner CFO
---------------------------------------- ------------------------------------------
The risk How we manage it
As customers face the challenges Our credit collections teams
of inflation and rising interest are focused on collecting customer
rates in the current economic debts on term and maintaining
environment, there is a greater our debtor days at targeted
risk of an increasing aged levels. Debt collection is
debt profile, with customers reported and analysed continually
slower to pay and the possibility and escalated to senior management
of bad debts. as required.
A large part of a successful
outcome is maintaining strong,
open relationships with our
customers, understanding their
issues and ensuring our billing
systems deliver accurate, clear
and timely invoicing, so that
queries can be quickly resolved.
---------------------------------------- ------------------------------------------
The impact
This could adversely affect
our businesses' profitability
and/or cashflow
---------------------------------------- ------------------------------------------
STRATEGIC 6 VOR CONCENTRATION Risk owner CEO
The risk How we manage it
Over-reliance on any one We work with our vendors as
technology or supplier could partners - it is a relationship
pose a potential risk, should of mutual dependency because
that technology be superseded we are their route to the end
or be exposed to economic customer. We maintain excellent
down cycles, or if the vendor relationships with all our
fails to innovate ahead vendors, and have a particularly
of customer demands. good relationship with Microsoft,
which relies on us as a key
partner in the UK. Our growth
plans, which involve developing
business with all our vendors,
will naturally reduce the risk
of relying too heavily on any
single one.
Hardware is not a core element
of our business, but is a growing
sector, so we will be monitoring
supply closely. However, we
monitor the geopolitical situation
continuously and work closely
with suppliers to stay fully
informed, so that we can respond
quickly should the landscape
change. With a diverse portfolio
of suppliers and vendors, we
are able to offer alternatives
to customers if there is a
particular vendor with a supply
issue. Given this risk is largely
driven by geopolitical and
macroeconomic factors, we maintain
a watching brief so that we
can react swiftly if we need
to.
------------------------------------------------------------- -------------------------------------------------------------------
The impact
Too heavy a reliance on
any one vendor could have
an adverse effect on our
financial performance, should
that relationship break
down.
Global shortages of computer
hardware and components
could also reduce customers'
ability to purchase hardware
for internal use. This could
lead to delays in customers
purchasing software, which
is linked to or dependent
on the hardware being available.
Reduced access to computer
chips could also slow down
vendor innovation, leading
to delays in the creation
of new technology to resell
to customers.
------------------------------------------------------------- -----------------------------------------------------------------
7 COMPETITION Risk owner CEO
------------------------------------------------------------- -------------------------------------------------------------------
The risk How we manage it
Competition in the UK IT We closely watch commercial
market, or the commoditisation and technological developments
of IT products, may result in our markets.
in BTG being unable to win
or maintain market share. The threat of disintermediation
by vendors has always been
Mergers and acquisitions present. We minimise this threat
have consolidated our distribution by continuing to increase the
network and absorbed specialist added value we bring to customers
services companies. This directly. This reduces clients'
has caused overlap with desire to deal directly with
our own offerings. vendors.
A move to direct vendor Equally, vendors cannot engage
resale to end customers with millions of organisations
(disintermediation) could globally without the sort of
place more pressure on the well-established network of
market opportunity. intermediaries that we have.
Platforms, like marketplaces, We currently work with AWS
with direct sales to customers Marketplace and can sell to
could also be seen as disintermediation. our vendors through their platform,
which gives discounts to the
customer versus buying directly.
Currently, there is no sign
of any commoditisation that
would be a serious threat to
our business model in the short
or medium term.
------------------------------------------------------------- -------------------------------------------------------------------
The impact
This 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.
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 Risk owner CEO
TECHNOLOGY
------------------------------------------------------------- -------------------------------------------------------------------
The risk How we manage it
As the technology and security We stay relevant to our customers
markets evolve rapidly and by:
become more complex, the * Continuing to offer them expert advice and innovative
risk exists that we might solutions
not keep pace and so fail
to be considered for new
opportunities by our customers. * Specialising in high-demand areas
* Holding superior levels of certification
* Maintaining our good reputation and helping clients
find the right solutions in a complex, often
confusing IT marketplace.
We defend our position by keeping
abreast of new technologies
and the innovators who develop
them. We do this, for example,
by running a Cyber Accelerator
Programme for new and emerging
solution providers, joining
industry forums and sitting
on new technology committees.
We have expanded the number
and range of our subject matter
experts, who stay abreast of
developments in their areas
and communicate this internally
and externally.
By identifying and developing
bonds with emerging companies,
we maintain good relationships
with them as they grow and
give our customers access to
their technologies. This is
core to our business, so the
risk from this is relatively
low.
------------------------------------------------------------- -------------------------------------------------------------------
The impact
As customers have wide choice
and endless opportunities
to research options, if
we do not offer cutting-edge
products and relevant services,
we could lose sales and
customers, which would affect
our profitability.
------------------------------------------------------------- -----------------------------------------------------------------
PROCESSES 9 CYBERTHREATS - DIRECT Risk owner Chief Information
AND SYSTEMS AND INDIRECT Security Officer
------------------------------------------------------------- -------------------------------------------------------------------
The risk How we manage it
Breaches in the security We use intelligence-driven
of electronic and other analysis, including research
confidential information by our internal digital forensics
that BTG collects, processes, team, to protect ourselves.
stores and transmits may
give rise to significant This work provides insights
liabilities and reputational into vulnerable areas and the
damage. 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 to, or the
intelligence required to
compromise or access, a
customer environment.
This would increase the
chance of first- and third-party
risk liability, with the
possible effects of regulatory
breaches, loss of confidence
in our business, reputational
damage and potential financial
penalties.
------------------------------------------------------------- -----------------------------------------------------------------
OPERATIONAL 10 BUSINESS CONTINUITY Risk owner CFO
FAILURE
------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
Any failure or disruption Our Chief Technology Officer
of BTG's IT infrastructure and Head of IT effectively
or business applications manage and oversee our IT infrastructure,
may negatively affect us. network, systems and business
Not keeping pace with changes applications. All our operational
in technology might also teams are focused on the latest
mean we are unable to advise vendor products and educate
our customers and so lose sales teams appropriately.
market share.
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.
Increased automation means
a heavier reliance on technology.
Although it reduces human error,
it could potentially increase
our reliance on other vendors.
------------------------------------------------------------- -----------------------------------------------------------------
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.
------------------------------------------------------------- -----------------------------------------------------------------
11 ATTRACT AND RETAIN STAFF Risk owner CEO
WHILE KEEPING OUR CULTURE
------------------------------------------------------------- -----------------------------------------------------------------
The risk How we manage it
The success of BTG's business We continually strive to be
and growth strategy depends the best company to work for
on our ability to attract, in our sector.
recruit and retain a talented
employee base. Being able One of the ways we manage this
to offer competitive remuneration risk is by growing our own
is an important part of talent pools. We've used this
this. approach successfully in our
graduate intakes for sales
Three factors are affecting staff, for example. BTG also
this: runs an extensive apprenticeship
* The CPI is driving wage inflation programme to create a new security
skill set. We also look to
make sure management has enough
* There is a skills shortage in the IT sector time to coach new staff.
Maintaining our culture is
* With remote or hybrid working becoming the norm, important to retain current
potential employees in traditionally lower-paid staff. Our small-company feel
geographical regions are able to work remotely in is maintained through regular
higher-paying areas like London. communications, clubs, charity
events and social events.
Maintaining BTG culture
also affects how we attract
and retain staff, which
growth can change.
------------------------------------------------------------- -----------------------------------------------------------------
The impact
Excessive wage inflation
could either drive up costs
or mean we are unable to
attract or retain the talent
pool we need to continue
to deliver our planned growth.
------------------------------------------------------------- -----------------------------------------------------------------
Going concern disclosure
The Group has performed a full going concern assessment for the
year ended 28 February 2023. As outlined in the Chief Financial
Officer's review above, trading during the year demonstrated the
Group's strong performance in the period and our resilient
operating model. The Group has a healthy liquidity position with
GBP73.0 million of cash and cash equivalents available at 28
February 2023. The Group also has access to a committed revolving
credit facility that covers the going concern period to 31 August
2024 and which remains undrawn. The directors have reviewed trading
and liquidity forecasts for the Group, as well as continuing to
monitor the effects of macro-economic, geopolitical and climate
related risks on the business. The directors have also considered a
number of key dependencies which are set out in the Group's
principal risks report, and including BTG's exposure to inflation
pressures, credit risk, liquidity risk, currency risk and foreign
exchange risk. The Group continues to model its base case, severe
but plausible and stressed scenarios, including mitigations,
consistently with those disclosed in the annual financial
statements for the year ended 28 February 2022, with the key
assumptions summarised within the financial statements below. Under
all scenarios assessed, the Group would remain cash positive
throughout the whole of the going concern period without needing to
utilise the revolving credit facility.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 31 August 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
23 May 2023
Consolidated statement of profit or loss
Year ended Year ended
28 February 28 February
2023 2022
(Restated)
Note GBP'000 GBP'000
------------------------------------- ---- ----- --- ------------- -------------
1.6,
Revenue 3 184,421 145,836
Cost of sales (54,848) (38,475)
------------------------------------------- ----- --- ------------- -------------
Gross profit 129,573 107,361
Administrative expenses 4 (77,753) (65,057)
Impairment on trade receivables 16 (937) (149)
------------------------------------------- ----- --- ------------- -------------
Operating profit 50,883 42,155
Finance costs 7 (491) (589)
------------------------------------------- ----- --- ------------- -------------
Profit before taxation 50,392 41,566
Income tax expense 8 (9,971) (8,712)
------------------------------------------- ----- --- ------------- -------------
Profit after taxation 40,421 32,854
------------------------------------------- ----- --- ------------- -------------
Profit for the period attributable
to owners of the parent company 40,421 32,854
------------------------------------------- ----- --- ------------- -------------
Pence Pence
Basic earnings per ordinary share 29 16.88 13.72
Diluted earnings per ordinary share 29 16.28 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.
Consolidated statement of financial position
As at As at
28 February 28 February
2023 2022
Note GBP'000 GBP'000
------------------------------- ----- ------------- -------------
Assets
Non-current assets
Property, plant and equipment 9 8,380 8,049
Right-of-use assets 10 783 928
Intangible assets 11 41,526 42,832
Contract assets 12 397 125
Total non-current assets 51,086 51,934
----------------------------------- ----- ------------- -------------
Current assets
Inventories 14 58 96
Contract assets 12 10,684 6,591
Trade and other receivables 16 185,920 157,610
Current tax asset - 219
Cash and cash equivalents 17 73,019 67,118
----------------------------------- ----- ------------- -------------
Total current assets 269,681 231,634
----------------------------------- ----- ------------- -------------
Total assets 320,767 283,568
----------------------------------- ----- ------------- -------------
Liabilities
Non-current liabilities
Lease liabilities 10 (917) (992)
Contract liabilities 13 (1,976) (1,495)
Deferred tax liabilities 8 (635) (1,189)
----------------------------------- ----- ------------- -------------
Total non-current liabilities (3,528) (3,676)
----------------------------------- ----- ------------- -------------
Current liabilities
Trade and other payables 18 (231,717) (217,612)
Contract liabilities 13 (23,914) (14,528)
Current tax liabilities (36) -
Lease liabilities 10 (75) (185)
----------------------------------- ----- ------------- -------------
Total current liabilities (255,742) (232,325)
----------------------------------- ----- ------------- -------------
Total liabilities (259,270) (236,001)
----------------------------------- ----- ------------- -------------
Net assets 61,497 47,567
----------------------------------- ----- ------------- -------------
Equity
Share capital 19 2,395 2,395
Share premium 19 633,636 633,636
Share-based payment reserve 20 7,235 3,072
Merger reserve 21 (644,375) (644,375)
Retained earnings 22 62,606 52,839
----------------------------------- ----- ------------- -------------
Total equity 61,497 47,567
----------------------------------- ----- ------------- -------------
The consolidated financial statements were authorised for issue
by the Board of directors on 22 May.
Consolidated statement of changes in equity
Attributable to owners of the company
-------- ---------------------------------------------------------------
Share-based
Share Share payment Merger Retained Total
capital premium reserve reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------ -------- -------- ------------ ---------- --------------- ----------
Balance at 1 March
2021 2,395 633,636 317 (644,375) 24,775 16,748
Total comprehensive
income for the year - - - - 32,854 32,854
Dividends paid 25(b) - - - - (4,790) (4,790)
Deferred tax 8 - - 192 - - 192
Share-based payment
transactions 28 - - 2,563 - - 2,563
--------------------- ------ -------- -------- ------------ ---------- --------------- ----------
Balance at 28
February
2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Total comprehensive
income for the year - - - - 40,421 40,421
Dividends paid 25(b) - - - - (30,654) (30,654)
Deferred tax 8 - - (25) - - (25)
Share-based payment
transactions 28 - - 4,188 - - 4,188
Balance at 28
February
2023 2,395 633,636 7,235 (644,375) 62,606 61,497
--------------------- ------ -------- -------- ------------ ---------- --------------- ----------
Consolidated statement of cash flow
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
-------------------------------------------- ------ ------------- -------------
Cash flows from operating activities
Cash generated from operations 23 48,889 61,719
Interest paid 7 (443) (532)
Income taxes paid (10,295) (9,138)
-------------------------------------------- ------ ------------- -------------
Net cash inflow from operating activities 38,151 52,049
-------------------------------------------- ------ ------------- -------------
Cash flows from investing activities
Payments for property, plant and equipment 9 (1,363) (617)
Net cash outflow from investing activities (1,363) (617)
-------------------------------------------- ------ ------------- -------------
Cash flows from financing activities
Principal elements of lease payments 10 (233) (258)
Dividends paid to shareholders 25(b) (30,654) (4,790)
-------------------------------------------- ------ ------------- -------------
Net cash outflow from financing activities (30,887) (5,048)
-------------------------------------------- ------ ------------- -------------
Net increase in cash and cash equivalents 5,901 46,384
Cash and cash equivalents at the beginning
of the financial year 67,118 20,734
-------------------------------------------- ------ ------------- -------------
Cash and cash equivalents at end of
year 17 73,019 67,118
-------------------------------------------- ------ ------------- -------------
Notes to the financial statements
1.1 General information
Bytes Technology Group plc, together with its subsidiaries ('the
Group' or 'the Bytes business') is one of the UK's leading
providers of IT software offerings and solutions, with a focus on
cloud and security products. The Group enables effective and
cost-efficient technology sourcing, adoption and management across
software services, including in the areas of security and cloud.
The Group aims to deliver the latest technology to a diverse and
embedded non-consumer customer base and has a long track record of
delivering strong financial performance. The Group has a primary
listing on the Main Market of the London Stock Exchange (LSE) and a
secondary listing on the Johannesburg Stock Exchange (JSE).
1.2 Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with UK-adopted International Accounting Standards
(IAS) in conformity with the requirements of the Companies Act
2006.
The Group's accounting and presentation considerations on both
the current and comparative periods are detailed below.
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business activities
and the Group's principal risks and uncertainties in the context of
the current operating environment. This includes the current
geo-political environment, the current challenging economic
conditions, and reviews of future liquidity headroom against the
Group's revolving credit facilities, during the period under
assessment. The approach and conclusion are set out fully in note
1.3.
The consolidated financial statements have been prepared on a
historical cost basis, as modified to include derivative financial
assets and liabilities at fair value through the consolidated
statement of profit or loss.
1.3 Going concern
The going concern of the Group is dependent on maintaining
adequate levels of resources to continue to operate for the
foreseeable future. The directors have considered a number of
principal risks which are set out in the Group's risk report within
the strategic report in addition to ever present risks such as the
Group's exposure to credit risk as described in note 16 and
liquidity risk, currency risk and foreign exchange risk as
described in note 24.
When assessing the going concern of the Group, the directors
have reviewed the year-to-date financial actuals, as well as
detailed financial forecasts for the period up to 31 August 2024,
being the going concern assessment period.
The assumptions used in the financial forecasts are based on the
Group's historical performance and management's extensive
experience of the industry. Taking into consideration the impact of
the current economic conditions and geopolitical environment, along
with future expectations, the forecasts have been stress tested to
ensure that a robust assessment of the Group's working capital and
cash requirements has been performed.
Operational performance and operating model
The Group is now reporting its third year of strong growth since
it listed in December 2020. In the current year of reporting, the
Group has achieved double-digit growth in gross invoiced income,
revenue, gross profit, and operating profit, all in the high teens
or low twenties percentages, and finished the year with GBP73.0
million of cash compared to the prior year GBP67.1 million.
During the year customers have continued to move their software
products and data off-site and into the cloud, requiring the
Group's advice and ongoing support around this, as well as needing
flexibility and added security with hybrid working now the norm for
many customers.
Resilience continues to be built into the Group's operating
model from its wide customer base, high levels of repeat business,
strong vendor relationships, increased demand driven by heightened
IT security risks, and the back-to-back nature of most of its
sales. This is explained further below.
-- The Group's income includes a large volume of
non-discretionary spend from UK corporates as IT is vital to
establish competitive advantage in an increasingly digital age.
Public sector organisations have similarly sought efficiencies,
resilience, and security within their IT infrastructures. This mix
of private and public customers means that a downturn in one area
can be compensated for by upturns in others. Risk is further
mitigated by the fact that none of the Group's wide range of
customers contributes more than 5% of total gross invoiced income
or more than 1.5% of total gross profit.
-- Due to the nature of licensing schemes and service contracts,
a high proportion of business is repeatable in nature with
subscriptions needing to be renewed for the customer to continue to
enjoy the benefit of the product or service. The largest software
contracts, Microsoft enterprise agreements (EAs), run for three
years and it is rare to lose a contract mid-term which mitigates
the risk of income reducing rapidly. The Group has a high success
rate in securing renewals of existing EA agreements and winning new
ones.
Increasingly customers transact their cloud software
requirements under usage-based cloud solution provider (CSP)
contracts which provide flexibility but also makes the running of
many of their key business functions dependent on maintaining these
agreements, and reliant on the Group's support managing them.
The high level of customer retention and growth is illustrated
by the renewal rate for the year of 116%, a measure of the rate of
growth in gross profit from existing customers, who also
contributed 96% of total gross profit in the year. The Group will
continue to focus on increasing its customer base and spend per
customer during the going concern period.
-- With 65% of the Group's gross invoiced income and over 50% of
gross profit generated from sales of Microsoft products and
associated service solutions, this is a very important partnership
for both parties. As from the customer side, the licensing of a
large proportion of EA software over three-year terms reduces the
risk of income falling away quickly. Also, with the notable move
towards more agile 'pay as you go' CSP contracts around cloud-based
applications, this makes those agreements even more 'sticky' by
increasing the dependency of the customer on the cloud
infrastructure and products which Microsoft provides.
-- Further, it has created the opportunity for the Group to
develop a host of skill sets so it is best placed to advise and
support the customers in whatever direction they choose to fulfil
their licensing requirements from a programmatic, purchasing and
consumption perspective. To this end, the Group has attained high
levels of Microsoft expert status, specialisations, and solution
partner designations in numerous Microsoft technology areas. In
turn, Microsoft rewards partners who have these awards with
additional levels of funding. The Board is engaged directly with
Microsoft executives in developing the partnership further and
Microsoft business is currently growing at double-digit rates.
-- Within the Microsoft program offerings, and also those of
other vendors, including dedicated security software providers, the
Group has seen an increased demand for security products and
functionality to protect customer IT systems. This has arisen from
the increased risk of cyber threats and attacks, and has generated
additional requirements for the Group's support in this area.
-- The Group's business is substantially derived from the sale
of software which it transacts on a 'back-to-back' basis, meaning
all orders placed with vendors follow the receipt of a customer
order, and the intangible nature of software products means that
the Group is not exposed to inventory risk. Hardware sales are also
made on a back-to-back basis, and delivered direct from suppliers
to customers, so the Group is not required to invest in, or hold,
stock.
As a result of these factors described above, the directors
believe that the Group operates in a resilient industry, which will
enable it to continue its profitable growth trajectory but are also
very aware of the risks which exist in the wider economy.
Whilst the Covid-19 pandemic has had limited negative impact
over the past three years, as illustrated by the Group results over
that period, the business remains vigilant around the safety of
staff at work and who are all fully equipped to work from home if
required to enable smooth and undisrupted service provision to
customers.
Over the past year other risks have become more prominent around
energy, wage, and commodities inflation; supply problems caused by
the conflict in Ukraine; product shortages; and climate change.
These risks align to those identified in our principal risks
statement, notably economic disruption, inflation, and attraction
and retention of staff. The Board monitor these macroeconomic and
geopolitical risks on an ongoing basis. They are considered further
below.
Macroeconomic risks
-- Energy cost inflation - Our businesses are not naturally
heavy consumers of energy, and hence this element of our overall
cost base is very small at less than 0.5% of the total group
administrative expenses. Even a substantial percentage rise would
not have a significant impact on our operating profit.
-- Cost of sale inflation - Pricing from our suppliers may be at
risk of increasing, particularly those whose underlying currency is
USD. However, our commercial model is based on passing on supplier
price increases to our customers. During the year the maintenance
of our gross profit/gross invoiced income (GP/GII%) has
demonstrated this, despite the fall in the value of sterling over
that period. This is one of the biggest focus areas in our business
and has 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 maintained its GP/GII% during the year.
-- Wage inflation - the business has been facing pressure from
wage inflation since the Covid-19 restrictions were eased and the
labour market opened up again. Where strategically required we have
increased salaries to retain key staff in the light of approaches
from competitors, especially where staff have specialist or
technical skills, but there is always a line which we will not
cross. We monitor our staff attrition rate and maintained a level
below 15% which is consistent with last year. We do not believe
there has been any significant outflow of staff due to being
uncompetitive with salaries. We have a strong, collaborative, and
supportive culture and offer our staff employment in a business
which is robust and which they are proud of, and this is a key part
of our attraction and retention strategy.
Moreover, when we look at our key operational efficiency ratio
of adjusted operating profit/gross profit (AOP/GP) we have achieved
43.5% which is in line with the 43.1% from last year, hence
demonstrating the control over rising staff costs in response to
the growth of the business. Whilst we have already aligned staff
salaries to market rates, further expected rises have been factored
into the financial forecasts in line with those awarded in the past
year.
-- Interest rates - interest rates rising rapidly in the UK and
internationally 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 its revolving credit
facility. Therefore, this does not currently, or in the foreseeable
future, affect our income statement or cash flow.
-- Foreign currency rate changes - as already mentioned above,
we have withstood significant reductions in the value of the pound
throughout the year and yet maintained our GP/GII%. Our foreign
currency transactions are only a very small part of our business.
At the end of the year, we have just GBP1.5 million net exposure in
USD and GBP0.1 million net in Euros.
-- Inflation and rising interest rates impacting on customer
spending - whilst customers may consider reducing spending on IT
goods and services, if it is seen as non-essential, we have seen
increased spending by our customers as these areas may in fact be a
means to efficiency and savings elsewhere. During the Covid-19
pandemic we saw many customers undergo significant IT
transformation, trending to the cloud, automation, and managed
service and with growing cybersecurity concerns also heightening
the requirements for IT security. We are seeing a continuation in
this movement and no let-up in demand, as illustrated by our
reported trading performance. This is supported by our very robust
operating model which has been explained above, with business
spread over many customers in repeat subscription programs and
service contracts, and high renewal rates.
-- Inflation and rising interest rates impacting on customer
payments - whilst we saw an increase in debt collection periods
during the year, with some customers taking longer to pay, this has
reduced towards the end of the year. In part, this is connected
with the trend to more cloud-based software programs as noted above
under our operating model analysis, whereby customers pay in
arrears based on software usage rather than upfront. However, there
has been no evidence that customers ultimately do not pay, and we
have suffered only a small level of bad debt during the year,
GBP145,000 against gross invoiced income of GBP1.4 billion (see
note 16). As in the previous year 60% of our GII came from the
public sector, traditionally very safe and with low credit risk,
whilst our corporate customer base includes a wide range of
blue-chip organisations and with no material reliance on any single
customer.
Geopolitical risks
The current geopolitical environment, most notably the conflict
in Ukraine, has created potential supply problems, product
shortages and general price rises particularly in relation to fuel,
gas and electricity.
-- As noted above, increasing energy prices are not having a
noticeable impact on our profitability.
-- In terms of supply chain, we are not significantly or
materially dependent on the movement of goods and hence physical
trade obstacles are not likely to affect us directly. Hardware only
made up 3% of our GII during the year and 3% of GP. 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; this
indicates that we have managed the supply chain well.
-- Software sales though continue to be the dominant element of
our overall GII and hence is not inherently affected by
cross-border issues.
Climate change risks
The Group does not believe that the effects of climate change
will have a material impact on its operations and performance over
the going concern review period considering:
-- The small number of UK locations it operates from
-- A customer base substantially located within the UK
-- A supply chain which is not reliant on international trade
and does not source products and services from parts of the world
which may be impacted more severely by climate change
-- It sells predominantly electronic software licences and so
has no manufacturing or storage requirements
-- Its workforce can work seamlessly from home should any of
their normal work locations be impacted by a climatic event,
although in the UK these tend to be thankfully infrequent and not
extreme.
Climate risks are considered fully in the Task Force on
Climate-related Financial Disclosures (TCFD) included in the Annual
Report.
Liquidity and financing position
At 28 February 2023, the Group held instantly accessible cash
and cash equivalents of GBP73.0 million.
The balance sheet shows net current assets of GBP13.9 million at
year end, this amount is after the Group paid final and special
dividends for the prior year totalling GBP24.9 million and an
interim dividend for the current year of GBP5.7 million. Post year
end the Group has remained cash positive and this is expected to
remain the case with continued profitable operations in the future
and customer receipts collected ahead of making the associated
supplier payments.
The group has access to a committed revolving credit facility
(RCF) of GBP30 million with HSBC. The facility commenced on 17 May
2023, replacing the Group's previous facility for the same amount
and runs for three years, until 17 May 2026. The new facility
includes an optional one-year extension to 17 May 2027 and a
non-committed GBP20 million accordion to increase the availability
of funding should it be required for future activity. To date, the
Group has not been required to use either its previous or new
facilities, and we do not forecast use of the new facility over the
going concern assessment period.
Approach to stress testing
The going concern analysis reflects the actual trading
experience through the financial year to date, as well as detailed
financial forecasts for the period up to 31 August 2024, being the
going concern assessment period. The Group has taken a measured
approach to its forecasting and has balanced the expected trading
conditions with available opportunities.
In its assessment of going concern, the Board has considered the
potential impact of the current economic conditions and
geopolitical environment as described fully above, most notably
general inflation, wage inflation, the conflict in Ukraine and,
climate change. If any of these factors leads to a reduction in
spending by the Group's customers, there may be an adverse effect
on the Group's future gross invoiced income, gross profit,
operating profit, and debtor collection periods. Under such
downsides the Board have factored in the extent to which they might
be offset by reductions in headcount, recruitment freezes, and
savings in pay costs (including commissions and bonuses). As part
of the stressed scenario, where only partial mitigation of
downsides is possible, the Board confirmed that the RCF would not
need to be used during the going concern period up to 31 August
2024.
Details of stress testing
The Group assessed the going concern by comparing a base case
scenario to two downside scenarios and in each of the downside
cases taking into consideration two levels of mitigation, 'full'
and 'partial'. These scenarios are set out below:
-- Base case was forecast using the Board-approved budget for
the year ending 28 February 2024 and extended across the first six
months of the following year to 31 August 2024
-- Downside case 1, Severe but plausible, modelled gross
invoiced income reducing by 10% year on year, gross profit reducing
by 15% year on year and debtor collection periods extending by five
days, in each case effective from June 2023
-- Downside case 2, Stressed, modelled both gross invoiced
income and gross profit reducing by 30% year on year and debtor
collection periods extending by ten days, again in each case
effective from June 2023
-- Partial mitigation measures modelled for the downsides were
to freeze future pay and new recruitment from March 2024 and
'self-mitigating' reduction of commissions in line with falling
gross profit
-- Full Mitigation a dditionally model led headcount reductions
from Mar ch 20 24 in line with falling g ross profit.
The mitigations applied in the downside scenarios relate to pay
costs and headcount which are within the control of the Group to
implement quickly in response to any downward trends should they be
necessary. While these mitigating actions have only been forecast
from March 2024 for the purposes of the going concern assessment,
they could be implemented much sooner, notably an earlier
recruitment freeze and non-replacement of natural leavers, either
immediately or within a small number of months following the
decline in income and profits.
Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period with
dividends forecast to continue to be paid in line with the Group's
dividend policy to distribute 40% of the post-tax pre-exceptional
earnings to shareholders.
The directors consider that the level of stress testing is
appropriate to reflect the potential collective impact of all the
macroeconomic and geopolitical matters described and considered
above.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 31 August 2024, being the going
concern assessment period. Accordingly, the directors conclude it
to be appropriate that the consolidated financial statements be
prepared on a going concern basis.
1.4 Critical accounting estimates and judgements
The preparation of the consolidated financial statements
requires the use of accounting estimates which, by definition, will
seldom equal the actual results. Management also needs to exercise
judgement in applying the Group's accounting policies.
This note provides an overview of the areas that involved
significant judgement or complexity. Estimates and judgements are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Detailed
information about each of these estimates and judgements is
included in other notes, together with information about the basis
of calculation for each affected line item in the consolidated
financial statements.
(i) Key accounting judgements
The areas involving key accounting judgements are:
-- Revenue recognition - Principal versus agent, see note 1.11.
Under IFRS 15, Revenue from Contracts with Customers, when
recognising revenue, the Group is required to assess whether its
role in satisfying its various performance obligations is to
provide the goods or services itself (in which case it is
considered to be acting as principal) or arrange for a third party
to provide the goods or services (in which case it is considered to
be acting as agent). Where it is considered to be acting as
principal, the Group recognises revenue at the gross amount of
consideration to which it expects to be entitled. Where it is
considered to be acting as agent, the Group recognises revenue at
the amount of any fee or commission to which it expects to be
entitled or the net amount of consideration that it retains after
paying the other party.
To determine the nature of its obligation, the standard
primarily requires that an entity shall:
(a) Identify the specified goods or services to be provided to
the customer
(b) Assess whether it controls each specified good or service
before that good or service is transferred to the customer by
considering if it:
a. is primarily responsible for fulfilling the promise to provide the specified good or service
b. has inventory risk before the specified good or service has been transferred to a customer
c. has discretion in establishing the price for the specified good or service.
Judgement is therefore required as to whether the Group is a
principal or agent against each specified good or service, noting
that a balanced weighting of the above indicators may be required
when making the assessment.
The specific judgements made for each revenue category are
discussed in the accounting policy for revenue, note 1.11 and 1.6,
as disclosed below.
(ii) Significant accounting estimates and uncertainties
There are no major sources of estimation uncertainty at the end
of the reporting period that have a significant risk of resulting
in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
(iii) Other accounting estimates and uncertainties
The other areas involving accounting estimates as follows have
been included in this review for the current year. Further, the
effect of climate change has been considered to determine any
critical judgements or adjustments required in the preparation of
the Group's financial statements. During the current year, and
within the next financial year, the impact, if any, is not expected
to create any significant risks which result in a material
misstatement to the financial statements occurring. However, the
effects of climate change over the longer term are more uncertain
and may be more significant.
-- Property, plant and equipment (see notes 1.21 and 9) and leases (see notes 1.15 and 10).
The Group's net assets under these categories primarily comprise
freehold land and buildings and leasehold buildings with much
smaller net book values reported for computer equipment, furniture
and fittings. IAS 16 Property, Plant and Equipment requires an item
of property, plant and equipment (PPE) to be recognised if it is
probable that future economic benefits associated with the item
will flow to the entity and its cost can be measured reliably.
Consideration has been made as to whether climate-related
matters may affect the value of any items of PPE, their economic
life or residual value. As noted in the Task Force on
Climate-related Financial Disclosures (TCFD) statement with the
strategic report, none of the Group's items of PPE, the properties
and the assets included within them, are deemed to be at risk or
prone to damage from acute or chronic weather events which could
arise as part of climate change. Also, none of the items of PPE is
deemed susceptible to being phased out, replaced or made redundant
under any climate-related legislative changes.
Hence it is judged that there is no material risk from climate
change to the carrying values of any items of PPE on the balance
sheet at 28 February 2023.
-- Estimation of recoverable amount of goodwill (see notes 1.16 and 11).
The Group tests annually whether goodwill has suffered any
impairment, in accordance with the accounting policy stated in note
1.16. The recoverable amounts of cash generating units (CGUs) have
been determined based on value-in-use calculations which require
the use of assumptions. The calculations use cash flow projections
based on forecasts approved by management covering a five-year
period. The growth rates used in the forecasts are based on
historical growth rates achieved by the Group. Cash flows beyond
the five-year period are extrapolated using the estimated growth
rates disclosed in note 11. The forecast cash flows are discounted,
at the rates disclosed in note 11, to determine the CGUs
value-in-use. The sensitivity of changes in the estimated growth
rates and the discount rate are disclosed in note 11.
-- Impairment of intangible assets (see notes 1.16, 1.22 and 11).
The Group's net assets under this category comprise goodwill,
customer relationships and brands, arising on acquisition of
subsidiaries. Goodwill is not amortised but is tested for
impairment at least annually at the level of the cash generating
unit (CGU) to which it relates. Customer relationships and brands
are recognised at fair value after deduction of accumulated
amortisation over their useful lives. IAS 36 Impairment of Assets
requires an entity to assess, at the end of each reporting period,
whether there are any impairment indicators for an entity's assets.
Impairment indicators include significant changes in the
technological, market, economic or legal environment in which the
entity operates.
Consideration has been made as to whether climate-related
matters may affect any of these conditions which in turn may affect
the economic performance of an asset or CGU, or its long-term
growth rates. For example, customer buying behaviours, requirement
to make significant investments in new technologies, or an increase
in costs generally charged by suppliers. Further, climate change
indirectly resulting in an increase in market interest rates is
likely to affect the discount rate used in calculating an asset's
or CGU's value in use. This, in turn, could decrease the asset's or
CGU's recoverable amount by reducing the present value of the
future cash flows and result in a lower value in use.
However, as noted in the TCFD statement with the strategic
report, the Group continually monitors the regulatory and legal
environment and takes external advice as required. It expects the
impact from changing customer behaviours to be small given the
Group's primary business is the supply of critical cloud, security
and software products and IT services. Further, the Group does not
rely on overseas operations, or require colleagues to work on-site
at all times. Nor does it need to have physical products
transported to maintain the economic performance of its CGUs.
Hence it is judged that there is no material risk from climate
change to the carrying values of any intangible assets on the
balance sheet at 28 February 2023.
-- Provisions (see note 1.25)
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
requires a provision to be recognised when an entity has a present
obligation (legal or constructive) because of a past event, it is
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate
can be made of the obligation. If any of the conditions for
recognition are not met, no provision is recognised, and an entity
may instead have a contingent liability. Contingent liabilities are
not recognised, but explanatory disclosures are required, unless
the possibility of an outflow in settlement is remote. In the case
of an onerous contract, the provision reflects the lower of the
costs of fulfilling the contract and any compensation or penalties
from a failure to fulfil it.
Consideration has been made as to whether climate-related
matters may result in the recognition of new liabilities or, where
the criteria for recognition are not met, new contingent
liabilities may have to be disclosed. Further consideration has
been made as to whether climate change, and any resulting
associated legislation, may require past judgements to be
reconsidered.
The Group has judged that there is no material risk from climate
change which requires new provisions to be made or existing
provisions to be reconsidered at 28 February 2023.
The Group will continue to review and assess potential climate
change impacts when making judgements in relation to its accounting
for assets and liabilities or for its future earnings and cash
flows. However, for the financial statements for the year ended 28
February 2023, the Group believes there is no material impact or
risk of misstatement.
1.5 New standards, interpretations and amendments adopted by the Group
(a) New and amended standards adopted by the Group
There are no new standards applied for the first time in the
annual reporting period commencing 1 March 2022.
(b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 28 February 2023 reporting
periods and have not been adopted early by the Group. These
standards are not expected to have a material impact on the Group
in the current or future reporting periods and on foreseeable
future transactions.
1.6 Changes in accounting policy and disclosures
The following change in accounting policy is effective in the
year to 28 February 2023. Other than the one mentioned below, there
are no further changes to accounting policies applicable in the
period.
Change in accounting policy - IFRS 15
During the year, the IFRS Interpretation Committee (the
'Committee') concluded on a response to a request to clarify
whether a company should recognise revenue from the resale of
standard software licences on a gross or net basis under IFRS 15,
Revenue from Contracts with Customers ('IFRS 15'). The fact pattern
provided to the Committee was very similar to that faced by the
Group when transacting software sales with customers.
The Committee did not provide direct clarification on the topic,
as they stated that the specifics of each case may vary and must be
analysed in detail, and 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
concluded that the principles and requirements in IFRS 15 already
provided an adequate basis for a reseller to determine whether it
is a principal or agent for software licences provided to a
customer based on the control criteria set out in the standard and
summarised under our key accounting judgements policy, note 1.4
(iii), above.
However, following the Committee's conclusion, and in line with
developing clear and consistent practice within its industry, the
Group further considered the balance of the guidance around control
indicators provided in IFRS 15.
In the previous year, the Group recognised revenue from indirect
software licence sales relating to cloud-based licences and
licences requiring critical updates on an agency, 'net', basis.
This is because these do not meet the control criteria noted under
IFRS 15 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.
All remaining indirect software licence sales, those which were
non-cloud based and without critical updates, were treated on a
'gross' basis as a principal. However, this previous gross
conclusion required significant judgement as these sales comprise
elements which can also be indicative of a net treatment with the
conclusion being dependent on an assessment of the relative
weighting of the various factors. Whilst the Group does have
discretion in establishing the price of the software previously
treated on a gross basis, the other key control indicators
highlighted in note 1.4 (ii) were not being satisfied. The Group is
not exposed to any inventory risk, it is the vendor who has primary
responsibility for fulfilling the promise to provide the licences
to the customer, and the Group does not control the software
licences prior to their transfer.
As a result of its reassessment of the above control indicators
outlined under IFRS 15, the Group has amended its judgement and now
concludes that an accounting policy change in favour of agent (and
net) presentation should be adopted for all software sales that
were previously recorded as principal and presented gross.
In accordance with IAS 8, the Group has applied this accounting
policy change retrospectively, so the prior year and current year
are presented consistently.
The impact of this change in accounting policy on the prior year
financial statements is set out below:
-- Revenue and cost of sales decreased by GBP302 million, being
the additional cost of transactions assessed as being recognised on
an agency basis
-- The consolidated statements of profit or loss, financial
position, cash flows and of changes in equity remain unchanged in
both years and there is no impact on basic and diluted earnings per
share.
The prior year impact is summarised in the following table
noting that the Group continues to report Gross Invoiced Income as
an Alternative Performance Measure, and this is unaffected. The
impact on the current year has not been quantified as it is
impractical to do so.
Previous accounting policy Revised accounting policy
Gross invoiced Agency Revenue Gross invoiced Agency Revenue
income Adjustment income adjustment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------------ --------- --------------- ------------ ---------
28 February
2022 1,208,124 (760,187) 447,937 1,208,124 (1,062,288) 145,836
--------------- ------------ --------- --------------- ------------ ---------
1.7 Principles of consolidation
1.7.1 Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity where the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
1.8 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker
who views the Group's operations on a combined level, given they
sell similar products and services, and substantially purchase from
the same suppliers and under common customer frameworks. The Group
has therefore determined that it has only one reportable segment
under IFRS 8, which is that of 'IT solutions provider'.
1.9 Finance income and costs
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs comprises interest expense on borrowings and the
unwinding of the discount on lease liabilities, that are recognised
in profit or loss as it accrues using the effective interest
method.
1.10 Foreign currency translation
(i) Functional and presentation currency
Items included in the consolidated financial statements of each
of the Group's entities are measured using the currency of the
primary economic environment in which the entity operates ('the
functional currency').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year-end exchange
rates, are generally recognised in profit or loss. They are
deferred in equity if they relate to qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of
the net investment in a foreign operation.
All foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis, within 'other
gains/(losses)'.
1.11 Revenue recognition
Revenue recognition principles across all revenue streams
The Group recognises revenue on completion of its performance
obligations at the fixed transaction prices specified in the
underlying contracts or orders. There are no variable price
elements arising from discounts, targets, loyalty points or
returns. Where the contract or order includes more than one
performance obligation, the transaction price is allocated to each
obligation based on their stand-alone selling prices. These are
separately listed as individual items within the contract or
order.
In the case of sales of third-party products and services, the
Group's performance obligations are satisfied by fulfilling its
contractual requirements with both the customer and the supplier
(which may be direct with the product vendor), ensuring that orders
are processed within any contractual timescales stipulated. In the
case of sales of the Group's own in-house products and internal
services, this includes the Group fulfilling its contractual
responsibilities with the customer.
That primary areas of judgement for revenue recognition as
principal versus agent are set out above under our key accounting
judgements policy and described further below for each revenue
category.
Software
The Group acts as an advisor, analysing customer requirements
and designing an appropriate mix of software products under
different licensing programs. This may include a combination of
cloud and on-premise products, typically used to enhance users'
productivity, strengthen IT security or assist in collaboration.
The way in which the Group satisfies its performance obligations
depends on the licensing program selected.
Direct software sales - the Group's performance obligation is to
facilitate software sales between vendors and customers, but the
Group is not party to those sales contracts. Supply and activation
of the software licences, invoicing and payment all take place
directly between the vendor and the customer. The transaction price
for the customer is set by the vendor with no involvement from the
Group. Therefore, the Group does not control the licences prior to
their delivery to the customer and hence acts as agent. The Group
is compensated by the vendor with a fee based on fixed rates set by
the vendor applied to the customer transaction price and determined
according to the quantity and type of products sold. Revenue is
recognised as the fee received from the vendor on a point in time
basis when the vendor's invoicing to the customer takes place.
Indirect software sales - the Group's performance obligation is
to fulfil customers' requirements through the procurement of
appropriate on-premise software products, or cloud-based software,
from relevant vendors. Operating as a reseller, the Group invoices,
and receives payment from, the customer itself. Whilst the
transaction price is set by the Group at the amount specified in
its contract with the customer, the software licensing agreement is
between the vendor and the customer. The vendor is responsible for
issuing the licences and activation keys, for the software's
functionality, and for fulfilling the promise to provide the
licences to the customer. Therefore, the Group acts as agent and
revenue is recognised as the amount retained after paying the
software vendor. As a reseller, the Group recognises indirect
software sales revenue on a point-in-time basis once it has
satisfied its performance obligations. This takes two main forms as
follows:
In the case of cloud-based software sales, the Group arranges
for third-party vendors to provide customers with access to
software in the cloud. As the sales value varies according to
monthly usage, revenue is recognised once the amount is confirmed
by the vendor and the Group has analysed the data and advised the
customer. This is because the responsibilities of the Group to
undertake such activities mean that these performance obligations
are satisfied at each point usage occurs and the Group has a right
to receive payment.
In the case of licence sales (non cloud-based software) arising
from fixed-price subscriptions where the customer makes an up-front
payment, the Group recognises revenue when the contract execution
or order is fulfilled by the Group because its performance
obligation is fully satisfied at that point. Typically, these take
the form of annual instalments where the Group is required to
undertake various contract review activities at each anniversary
date.
Hardware - resale of hardware products
The Group's activities under this revenue stream comprise the
sale of hardware items such as servers, laptops and devices. For
hardware sales, the Group acts as principal, as it assumes primary
responsibility for fulfilling the promise to provide the goods and
for their acceptability, is exposed to inventory risk during the
delivery period and has discretion in establishing the selling
price.
Revenue is recognised at the gross amount receivable from the
customer for the hardware provided and on a point-in-time basis
when delivered to the customer.
Services internal - provision of services to customers using the
Group's own internal resources
The Group's activities under this revenue stream comprise the
provision of consulting services using its own internal resources.
The services provided include, but are not limited to, helpdesk
support, cloud migration, implementation of security solutions,
infrastructure, and software asset management services. The
services may be one-off projects where completion is determined on
delivery of contractually agreed tasks, or they may constitute an
ongoing set of deliverables over a contract term which may be
multi-year.
When selling internally provided services, the Group acts as
principal as there are no other parties involved in the process.
Revenue is recognised at the gross amount receivable from the
customer for the services provided. The Group recognises revenue
from internally provided consulting services on an over-time basis.
This is because the customer benefits from the Group's activities
as the Group performs them. For service projects extending over
more than one month the Group applies an inputs basis by reference
to the hours expended to the measurement date, and the day rates
specified in the contract. For managed services and support
contracts the revenue is recognised evenly over the contract
term.
Services external - provision of services to customers using
third-party contractors
The Group's activities under this revenue stream comprise the
sale of a variety of IT services which are provided by third-party
contractors. These may be similar to the internally provided
consulting services, where the Group does not have the internal
capacity at the time required by the customer or may be services
around different IT technologies and solutions where the Group does
not have the relevant skills in-house.
Whilst the transaction price is set by the Group at the amount
specified in its contract with the customer, when selling
externally provided services, the Group acts as agent because
responsibility for delivering the service relies on the performance
of the third-party contractor. If the customer is not satisfied
with their performance, the third party will assume responsibility
for making good the service and obtaining customer sign-off. The
Group will not pay the third party until customer sign-off has been
received. Revenue is recognised at the amount retained after paying
the service provider for the services delivered to the customer on
a point-in-time basis. The Group does not control the services
prior to their delivery and its performance obligations are
satisfied at the point the service has been delivered by the third
party and confirmed with the customer.
1.12 Contract costs, assets and liabilities
Contract costs
Incremental costs of obtaining a contract
The Group recognises the incremental costs of obtaining a
contract when those costs are incurred. For revenue recognised on a
point-in-time basis, this is consistent with the transfer of the
goods or services to which those costs relate. For revenue
recognised on an over-time basis, the Group applies the practical
expedient available in IFRS 15 and recognises the costs as an
expense when incurred because the amortisation period of the asset
that would otherwise be recognised is less than one year.
Costs to fulfil a contract
The Group recognises the costs of fulfilling a contract when
those costs are incurred. This is because the nature of those costs
does not generate or enhance the Group's resources in a way that
enables it to satisfy its performance obligations in the future and
those costs do not otherwise qualify for recognition as an
asset.
Contract assets
The Group recognises a contract asset for accrued revenue.
Accrued revenue is revenue recognised from performance obligations
satisfied in the period that has not yet been invoiced to the
customer.
Contract assets also include costs to fulfil services contracts
(deferred costs) when the Group is invoiced by suppliers before the
related performance obligations of the contract are satisfied by
the third party. Deferred costs are measured at the purchase price
of the associated services received. Deferred costs are released
from the consolidated statement of financial position in line with
the recognition of revenue on the specific transaction.
Contract liabilities
The Group recognises a contract liability for deferred revenue
when the customer is invoiced before the related performance
obligations of the contract are satisfied. A contract liability is
also recognised for payments received in advance from customers.
Contract liabilities are recognised as revenue when the Group
performs its obligations under the contract to which they
relate.
1.13 Rebates
Rebates from suppliers are accounted for in the period in which
they are earned and are based on commercial agreements with
suppliers. Rebates earned are mainly determined by the type and
quantity of products within each sale but may also be
volume-purchase related. They are generally short-term in nature,
with rebates earned but not yet received typically relating to the
preceding month's or quarter's trading. Rebate income is recognised
in cost of sales in the consolidated statement of profit or loss
and rebates earned but not yet received are included within trade
and other receivables in the consolidated statement of financial
position.
1.14 Income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income, based on the
applicable income tax rate for each jurisdiction, adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated based on the tax
laws enacted or substantively enacted at the end of the reporting
period in the countries where the company and its subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions, where appropriate, based on amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that, at the
time of the transaction, affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
end of the reporting period and are expected to apply when the
related deferred income tax asset is realised, or the deferred
income tax liability is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the Group is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
1.15 Leases
Lessee
The Group leases a property and various motor vehicles. Lease
agreements are typically made for fixed periods but may have
extension options included. Lease terms are negotiated on an
individual basis and contain different terms and conditions. The
lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged
to profit or loss over the lease period to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis. The Group is depreciating the right-of-use
assets over the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured at the net present value of the minimum lease payments.
The net present value of the minimum lease payments is calculated
as follows:
-- Fixed payments, less any lease incentives receivable
-- Variable lease payments that are based on an index or a rate
-- Amounts expected to be payable by the lessee under residual value guarantees
-- The exercise price of a purchase option if the lessee is
reasonably certain to exercise that option
-- Payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease; where this rate cannot be determined, the
Group's incremental borrowing rate is used.
Right-of-use assets are measured at cost comprising the
following:
-- The net present value of the minimum lease payments
-- Any lease payments made at, or before, the commencement date
less any lease incentives received
-- Any initial direct costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise IT
equipment and small items of office furniture.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over the lease term.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings, 8 years
-- Motor vehicles, 2 to 3 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of leased assets are included as capital
items in profit or loss.
1.16 Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. Other assets
are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount might not be
recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset's fair value less
costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of
assets (cash generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
1.17 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial
institutions repayable without penalty on notice of not more than
24 hours. Cash equivalents are highly liquid investments that
mature in no more than three months from the date of acquisition
and that are readily convertible to known amounts of cash with
insignificant risk of change in value.
1.18 Trade receivables
Trade receivables are amounts due from customers for merchandise
sold or services rendered in the ordinary course of business. Trade
receivables are recognised initially at the amount of consideration
that is unconditional, i.e. fair value and subsequently measured at
amortised cost using the effective interest method, less loss
allowance. Prepayments and other receivables are stated at their
nominal values.
1.19 Inventories
Inventories are measured at the lower of cost and net realisable
value considering market conditions and technological changes. Cost
is determined on the first-in first-out and weighted average cost
methods. Work and contracts in progress and finished goods include
direct costs and an appropriate portion of attributable overhead
expenditure based on normal production capacity. Net realisable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling
expenses.
1.20 Financial instruments
Financial instruments comprise investments in equity, loans
receivable, trade and other receivables (excluding prepayments),
investments, cash and cash equivalents, restricted cash,
non-current loans, current loans, bank overdrafts, derivatives and
trade and other payables.
Recognition
Financial assets and liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to
the contractual provisions of the instruments. Financial assets are
recognised on the date the Group commits to purchase the
instruments (trade date accounting).
Financial assets are classified as current if expected to be
realised or settled within 12 months from the reporting date; if
not, they are classified as non-current. Financial liabilities are
classified as non-current if the Group has an unconditional right
to defer payment for more than 12 months from the reporting
date.
Classification
The Group classifies financial assets on initial recognition as
measured at amortised cost, fair value through other comprehensive
income (FVOCI), or fair value through profit or loss (FVTPL) based
on the Group's business model for managing the financial asset and
the cash flow characteristics of the financial asset.
Financial assets are classified as follows:
-- Financial assets to be measured subsequently at fair value
(either through other comprehensive income (OCI) or through profit
or loss)
-- Financial assets to be measured at amortised cost.
Financial assets are not reclassified unless the Group changes
its business model. In rare circumstances where the Group does
change its business model, reclassifications are done prospectively
from the date that the Group changes its business model.
Financial liabilities are classified and measured at amortised
cost except for those derivative liabilities and contingent
considerations that are measured at FVTPL.
Measurement on initial recognition
All financial assets and financial liabilities are initially
measured at fair value, including transaction costs, except for
those classified as FVTPL which are initially measured at fair
value excluding transaction costs. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognised immediately in profit or
loss.
Subsequent measurement: financial assets
Subsequent to initial recognition, financial assets are measured
as described below:
-- FVTPL - these financial assets are subsequently measured at
fair value and changes therein (including any interest or dividend
income) are recognised in profit or loss
-- Amortised cost - these financial assets are subsequently
measured at amortised cost using the effective interest method,
less impairment losses. Interest income, foreign exchange gains and
losses and impairments are recognised in profit or loss. Any gain
or loss on derecognition is recognised in profit or loss
-- Equity instruments at FVOCI - these financial assets are
subsequently measured at fair value. Dividends are recognised in
profit or loss when the right to receive payment is established.
Other net gains and losses are recognised in OCI. On derecognition,
gains and losses accumulated in OCI are not reclassified to profit
or loss.
Subsequent measurement: financial liabilities
All financial liabilities, excluding derivative liabilities and
contingent consideration, are subsequently measured at amortised
cost using the effective interest method. Derivative liabilities
are subsequently measured at fair value with changes therein
recognised in profit or loss.
Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the assets have expired or have been transferred
and the Group has transferred substantially all risks and rewards
of ownership. Financial liabilities are derecognised when the
obligations specified in the contracts are discharged, cancelled or
expire. On derecognition of a financial asset or liability, any
difference between the carrying amount extinguished and the
consideration paid is recognised in profit or loss.
Offsetting financial instruments
Offsetting of financial assets and liabilities is applied when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously. The net
amount is reported in the statement of financial position.
Impairment
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have
been grouped based on credit risk characteristics and the days past
due.
The expected credit loss (ECL) rates are based on the payment
profiles of sales over a 12-month period before 28 February 2023,
28 February 2022 and 1 March 2021 respectively and the
corresponding historical credit losses experienced within this
period. The historical loss rates are reviewed and adjusted to
reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the
receivables.
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, among others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
Derivatives
Derivatives are initially recognised at fair value on the date
that a derivative contract is entered into as either a financial
asset or financial liability if they are considered material.
Derivatives are subsequently remeasured to their fair value at the
end of each reporting period, with the change in fair value being
recognised in profit or loss.
1.21 Property, plant and equipment
Owned assets
Property, plant and equipment is measured at cost less
accumulated depreciation and impairment losses. When components of
an item of property, plant and equipment have different useful
lives, those components are accounted for as separate items of
property, plant and equipment.
Cost includes expenditure that is directly attributable to the
acquisition of the asset. Purchased software that is integral to
the functionality of the related equipment is capitalised as part
of that equipment.
Subsequent costs
The Group recognises in the carrying amount of an item of
property, plant and equipment the cost of replacing part of such an
item when the cost is incurred, if it is probable that future
economic benefits embodied within the item will flow to the Group
and the cost of such item can be measured reliably. The carrying
amount of the replaced item of property, plant and equipment is
derecognised. All other costs are recognised in profit or loss as
an expense when incurred.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over their expected useful lives
up to their respective estimated residual values. Land is not
depreciated.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings, 20 to 50 years
-- Leasehold improvements (included in land and buildings),
shorter of lease period or useful life of asset
-- Plant and machinery, 3 to 20 years
-- Motor vehicles, 4 to 8 years
-- Furniture and equipment, 5 to 20 years
-- IT equipment and software, 2 to 8 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of property, plant and equipment are
included as capital items in profit or loss.
1.22 Intangible assets
Goodwill
Goodwill is measured as described in note 1.16. Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised, but it is tested for impairment
annually, or more frequently if events or changes in circumstances
indicate that it might be impaired and is carried at cost less
accumulated impairment losses. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash generating units for the purpose
of impairment testing. The allocation is made to those cash
generating units or groups of cash generating units that are
expected to benefit from the business combination in which the
goodwill arose. The units or groups of units are identified at the
lowest level at which goodwill is monitored for internal management
purposes.
Brands and customer relationships
Brands and customer relationships acquired in a business
combination are recognised at fair value at the acquisition date.
They have a finite useful life and are subsequently carried at cost
less accumulated amortisation and impairment losses.
The useful lives for the brands and customer relationships are
as follows:
-- Customer relationships, 10 years
-- Brands, 5 years.
Software
Costs associated with maintaining software programs are
recognised as an expense as incurred. Development costs that are
directly attributable to the design and testing of identifiable and
unique software products controlled by the Group are recognised as
intangible assets where the following criteria are met:
-- It is technically feasible to complete the software so that it will be available for use
-- Management intends to complete the software and use or sell it
-- There is an ability to use or sell the software
-- It can be demonstrated how the software will generate probable future economic benefits
-- Adequate technical, financial and other resources to complete
the development and to use or sell the software are available
-- The expenditure attributable to the software during its development can be reliably measured.
Research and development
Research expenditure and development expenditure that do not
meet the criteria above are recognised as an expense as incurred.
Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
1.23 Trade and other payables
Trade payables, sundry creditors and accrued expenses are
obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. They are accounted
for in accordance with the accounting policy for financial
liabilities as included above. Amounts received from customers in
advance, prior to confirming the goods or services required, are
recorded as other payables. Upon delivery of the goods and
services, these amounts are recognised in revenue. Other payables
are stated at their nominal values.
1.24 Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount, is recognised in
profit or loss over the period of the borrowings using the
effective-interest method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be
drawn down. In this case, the fee is deferred until the drawdown
occurs. To the extent that there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised
over the period of the facility to which it relates.
1.25 Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation because of past events, for which it is
probable that an outflow of economic benefits will be required to
settle the obligation, and where a reliable estimate can be made of
the amount of the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax discount
rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the
liability.
1.26 Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and accumulating sick leave, that are
expected to be settled wholly within 12 months after the end of the
period in which the employees render the related service are
recognised in respect of employees' services up to the end of the
reporting period and are measured at the amounts expected to be
paid when the liabilities are settled. The liabilities are
presented as current employee benefit obligations in the balance
sheet.
Post-employment obligations
The Group operates various defined contribution plans for its
employees. Once the contributions have been paid, the Group has no
further payment obligations. The contributions are recognised as
employee benefit expense when they are due. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Termination benefits
Termination benefits are payable when employment is terminated
by the Group before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The
Group recognises termination benefits at the earlier of the
following dates: (a) when the Group can no longer withdraw the
offer of those benefits; and (b) when the Group recognises costs
for a restructuring that is within the scope of IAS 37 and involves
the payment of termination benefits. In the case of an offer made
to encourage voluntary redundancy, the termination benefits are
measured based on the number of employees expected to accept the
offer. Benefits falling due more than 12 months after the end of
the reporting period are discounted to present value.
Share-based payments
Equity settled share-based payment incentive scheme
Share-based compensation benefits are provided to particular
employees of the Group through the Bytes Technology Group plc share
option plans. Information relating to all schemes is provided in
note 28.
Employee options
The fair values of options granted under the Bytes Technology
Group plc share option plans are recognised as an employee benefit
expense, with a corresponding increase in equity. The total amount
to be expensed is determined by reference to the fair value of the
options granted.
The total expense is recognised over the vesting period, which
is the period over which all the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its
estimates of the number of options issued that are expected to vest
based on the service conditions. It recognises the impact of the
revision to original estimates, if any, in profit or loss, with a
corresponding adjustment to equity.
1.27 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
1.28 Dividends
Dividends paid on ordinary shares are classified as equity and
are recognised as distributions in equity.
1.29 Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
-- The profit attributable to owners of the company, excluding
any costs of servicing equity other than ordinary shares
-- By the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary
shares issued during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to consider:
-- The after-income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares
-- The weighted average number of additional ordinary shares
that would have been outstanding, assuming the conversion of all
dilutive potential ordinary shares.
1.30 Rounding of amounts
All amounts disclosed in the consolidated financial statements
and notes have been rounded off to the nearest thousand, unless
otherwise stated.
2 Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer,
who is considered to be the chief operating decision maker for the
purposes of resource allocation and assessment of performance, is
based wholly on the overall activities of the Group. The Group has
therefore determined that it has only one reportable segment under
IFRS 8, which is that of 'IT solutions provider'. The Group's
revenue, results, assets and liabilities for this one reportable
segment can be determined by reference to the consolidated
statement of profit or loss and the consolidated statement of
financial position. An analysis of revenues by product lines and
geographical regions, which form one reportable segment, is set out
in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure
which excludes the effects of intangible assets amortisation and
share-based payment charges.
Adjusted operating profit reconciles to operating profit as
follows:
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
------------------------------------- ----- ------------- -------------
Adjusted operating profit 56,377 46,329
Share-based payment charges 28 (4,188) (2,563)
Amortisation of acquired intangible
assets 4 (1,306) (1,611)
-------------------------------------- ----- ------------- -------------
Operating profit 50,883 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:
Year ended Year ended
28 February 28 February
2023 2022
(Restated)
Revenue by product (1) GBP'000 GBP'000
------------------------------ ---- ---- ---- ------------- -------------
Software 114,108 91,663
Hardware 38,355 28,807
Services internal 28,454 21,761
Services external 3,504 3,605
------------------------------------------------ ------------- -------------
Total revenue from contracts
with customers 184,421 145,836
------------------------------------------------ ------------- -------------
(1) Revenue from contracts with customers have been restated as
noted in note 1.6 above. This arises from all software sales being
classified as agent and presented on a 'net' basis, thereby
reducing Software revenue from GBP393.8 million to GBP91.7
million.
Software
The Group's software revenue comprises the sale of various types
of software licences (including both cloud-based and
non-cloud-based licences), subscriptions and software assurance
products.
Hardware
The Group's hardware revenue comprises the sale of items such as
servers, laptops and other devices.
Services internal
The Group's internal services revenue comprises internally
provided consulting services through its own internal
resources.
Services external
The Group's external services revenue comprises the sale of
externally provided training and consulting services through
third-party contractors.
Year ended Year ended
28 February 28 February
2023 2022
(Restated)
GBP'000 GBP'000
Revenue by geographical
regions
--------------------------------------------- ------------- -------------
United Kingdom 177,882 140,382
Europe 4,358 4,235
Rest of world 2,181 1,219
--------------------------------------------- ------------- -------------
184,421 145,836
------------------------------------------ ------------- -------------
3(b) Gross invoiced income by type
Year ended Year ended
28 February 28 February
2023 2022
(Restated)
GBP'000 GBP'000
----------------------------------------- ---- ---- ------------- -------------
Software 1,346,110 1,136,039
Hardware 38,355 28,807
Services internal 28,454 21,761
Services external 26,395 21,517
----------------------------------------------------- ------------- -------------
1,439,314 1,208,124
--------------------------------------------------- ------------- -------------
1,208,124
Gross invoiced income 1,439,314 (1)
Adjustment to gross invoiced income for
income recognised as agent (1,254,893) (1,062,288)
----------------------------------------------------- ------------- -------------
Revenue 184,421 145,836
----------------------------------------------------- ------------- -------------
(1) The adjustment to gross invoiced income for income
recognised as an agent has been restated, refer note 1.6 above.
Gross invoiced income reflects gross income billed to customers
adjusted for deferred and accrued revenue items amounting to GBP5.5
million (2022: GBP4.3 million). The Group reports gross invoiced
income as an alternative financial KPI as management believes this
measure allows further understanding of business performance and
position particularly in respect of working capital and cash
flow.
4 Material profit or loss items
The Group has identified several items included within
administrative expenses which are material due to the significance
of their nature and/or amount. These are listed separately here to
provide a better understanding of the financial performance of the
Group:
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
------------------------------------- ----- ------------- -------------
Depreciation of property, plant
and equipment 9 1,029 828
Depreciation of right-of-use assets 10 145 169
Loss on disposal of property,
plant and equipment 3 15
Amortisation of acquired intangible
assets 11 1,306 1,611
System support and maintenance 2,991 2,215
Share-based payment expenses 28 4,188 2,563
Operating lease charges - property 10 25 16
Foreign exchange gains (32) (38)
--------------------------------------- ----- ------------- -------------
5 Employees
Year ended Year ended
28 February 28 February
2023 2022
Employee benefit expense: GBP'000 GBP'000
--------------------------------------------- --- ------------- -------------
Employee remuneration (including directors'
remuneration (1) ) 40,725 34,027
Commissions and bonuses 22,299 18,552
Social security costs 8,158 6,437
Pension costs 1,413 1,169
Share-based payments expense 28 4,188 2,563
76,783 62,748
--------------------------------------------- --- ------------- -------------
Classified as follows:
Cost of sales 13,527 9,282
Administrative expenses 63,256 53,466
---------------------------------------------- --- ------------- -------------
76,783 62,748
--------------------------------------------- --- ------------- -------------
(1) Directors' remuneration is included in the directors' remuneration report.
Year ended Year ended
28 February 28 February
2023 2022
The average monthly number of employees Number Number
during the year was:
----------------------------------------- ------------- -------------
Sales - account management 285 228
Sales - support and specialists 199 209
Service delivery 204 146
Administration 173 141
861 724
----------------------------------------- ------------- -------------
Employee numbers has been reclassified this year to split sales
support and specialists from service delivery. We believe this
provides a more useful presentation of how the Group's employees
are deployed. The employee benefit expenses in relation to the
service delivery employees are included within cost of sales.
6 Auditors' remuneration
During the year, the Group obtained the following services from
the company's auditors and its associates:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
-------------------------------------------- ------------- -------------
Fees payable to the company's auditors
and its associates for the audit of the
parent company and consolidated financial
statements 281 198
Fees payable to the company's auditors
and its associates for other services:
Audit of the financial statements of the
company's subsidiaries 372 317
Other fees 14 -
Non-audit services (1) 95 75
762 590
-------------------------------------------- ------------- -------------
(1) Non-audit services in the current and prior year relate to
the auditors' review of our interim report issued in October 2022
(October 2021).
7 Finance costs
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Finance costs
Interest expense on financial liabilities
measured at amortised cost (443) (532)
Interest expense on lease liability (48) (57)
Finance costs (491) (589)
---------------------------------------------- ------------- -------------
8 Income tax expense
The major components of the Group's income tax expense for all
periods are:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
---------------------------------- ------------- -------------
Current income tax charge in the
year 10,483 8,561
Adjustment in respect of current
income tax of previous years 66 150
Foreign taxation - 1
Total current income tax charge 10,549 8,712
------------------------------------- ------------- -------------
Current year (402) (434)
Adjustments in respect of prior
year (75) 5
Effect of changes in tax rates (101) 429
------------------------------------- ------------- -------------
Deferred tax credit (578) -
---------------------------------- ------------- -------------
Total tax charge 9,971 8,712
------------------------------------- ------------- -------------
Reconciliation of total tax charge
The tax assessed for the year differs from the standard rate of
corporation tax in the UK applied to profit before tax:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
------------------------------------------ ------------- -------------
Profit before income tax 50,392 41,566
--------------------------------------------- ------------- -------------
Income tax charge at the standard rate
of corporation tax in the UK of 19% for
all periods 9,574 7,898
Effects of:
Non-deductible expenses 507 229
Foreign tax credits - 1
Adjustment to previous periods (9) 155
Effect of changes in tax rate (101) 429
Income tax charge reported in profit or
loss 9,971 8,712
--------------------------------------------- ------------- -------------
Amounts recognised directly in equity
Year ended Year ended
28 February 28 February
2023 2022
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 (24) 192
----------------------------------------------------- ------------- -------------
(24) 192
-------------------------------------------------- ------------- -------------
Changes affecting the future tax charge
Effective from 1 April 2023 the UK corporate tax rate increases
to 25%, this change has been used to rebase the deferred tax
liability in both the current and prior year.
As at As at
28 February 28 February
2023 2022
Deferred tax liabilities GBP'000 GBP'000
------------------------------------------------ --------- ---- ------------- -------------
The balance comprises temporary differences
attributable to:
Intangible assets (1,008) (1,309)
Property, plant and equipment (884) (769)
Employee benefits 3 145
Provisions 65 53
Share-based payments 1,189 691
(635) (1,189)
------------------------------------------------ --------- ---- ------------- -------------
As at As at
28 February 28 February
2023 2022
Deferred tax liabilities GBP'000 GBP'000
-------------------------------------------- --------- -------- ------------- ---------------
At 1 March (1,189) (1,381)
Credited to profit or loss 578 -
(Charge)/credited to equity (24) 192
Carrying amount at end of year (635) (1,189)
----------------------------------------------------------------- ------------- ---------------
The deferred tax asset and deferred tax liabilities carrying
amounts at the end of the year are set-off as they arise in the
same jurisdiction and as such there is a legally enforceable right
to offset.
9 Property, plant and equipment
Freehold Furniture,
land Computer fittings Computer Motor
and buildings equipment and equipment software vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------------- ------------ --------------- ----------- ----------- --------
Cost
At 1 March 2021 8,880 3,666 1,303 624 89 14,562
Additions 41 435 2 122 17 617
Disposals - (226) - - (5) (231)
--------------------- --------------- ------------ --------------- ----------- ----------- --------
At 28 February 2022 8,921 3,875 1,305 746 101 14,948
Additions 484 590 8 271 10 1,363
Disposals - (126) - - (7) (133)
--------------------- --------------- ------------ --------------- ----------- ----------- --------
At 28 February 2023 9,405 4,339 1,313 1,017 104 16,178
--------------------- --------------- ------------ --------------- ----------- ----------- --------
Depreciation
At 1 March 2021 1,791 2,943 913 601 39 6,287
On disposals - (213) - - (3) (216)
Charge for the year 352 353 76 25 22 828
--------------------- --------------- ------------ --------------- ----------- ----------- --------
At 28 February 2022 2,143 3,083 989 626 58 6,899
On disposals - (122) - - (8) (130)
Charge for the year 373 508 54 72 22 1,029
--------------------- --------------- ------------ --------------- ----------- ----------- --------
At 28 February 2023 2,516 3,469 1,043 698 72 7,798
--------------------- --------------- ------------ --------------- ----------- ----------- --------
Net book value
At 28 February 2022 6,778 792 316 120 43 8,049
--------------------- --------------- ------------ --------------- ----------- ----------- --------
At 28 February 2023 6,889 870 270 319 32 8,380
--------------------- --------------- ------------ --------------- ----------- ----------- --------
10 Leases
(i) Amounts recognised in the balance sheet
Motor vehicles
Buildings Total
Right-of-use assets GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ --------------- --------
Cost
At 1 March 2021 1,377 245 1,622
------------------------------------------ ------------ --------------- --------
At 28 February 2022 and 28 February
2023 1,377 245 1,622
------------------------------------------ ------------ --------------- --------
Depreciation
At 1 March 2021 304 221 525
Charge for the year 145 24 169
------------------------------------------ ------------ --------------- --------
At 28 February 2022 449 245 694
Charge for the period 145 - 145
------------------------------------------ ------------ --------------- --------
At 28 February 2023 594 245 839
------------------------------------------ ------------ --------------- --------
Net book value
At 1 March 2021 1,073 24 1,097
------------------------------------------ ------------ --------------- --------
At 28 February 2022 928 - 928
------------------------------------------ ------------ --------------- --------
At 28 February 2023 783 - 783
------------------------------------------ ------------ --------------- --------
As at As at As at
28 February 28 February 1 March
2023 2022 2021
Lease liabilities GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ --------------- ----------
Current 75 185 202
Non-current 917 992 1,176
------------------------------------------ ------------ --------------- ----------
992 1,177 1,378
----------------------------------------- ------------ --------------- ----------
There were no additions to the right-of-use assets in the
financial year ended 28 February 2023 (financial year ended 28
February 2022: GBPNil).
(ii) Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts
relating to leases:
Year ended Year ended
28 February 28 February
2023 2022
Depreciation charge of right-of-use assets GBP'000 GBP'000
------------------------------------------------- ------------- -------------
Buildings 145 145
Motor vehicles - 24
-------------------------------------------------- ------------- -------------
145 169
------------------------------------------------- ------------- -------------
Interest expense (included in finance cost) 48 57
Expense relating to short-term leases (included
in administrative expenses) 25 16
-------------------------------------------------- ------------- -------------
(iii) Changes in liabilities arising from financing
activities
As at Cash As at
1 March flows Interest 28 February
2022 2023
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- -------- ----------- -------------
Lease liabilities 1,177 (233) 48 992
--------------------------------------------- --------- -------- ----------- -------------
Total liabilities from financing activities 1,177 (233) 48 992
--------------------------------------------- --------- -------- ----------- -------------
1 March Cash 28 February
2021 flows Interest 2022
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------- --------- -------- ----------- -------------
Lease liabilities 1,378 (258) 57 1,177
--------------------------------------------- --------- -------- ----------- -------------
Total liabilities from financing activities 1,378 (258) 57 1,177
--------------------------------------------- --------- -------- ----------- -------------
11 Intangible assets
Customer
Goodwill relationships Brand Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --- ----------- ---------------- -------- ----------
Cost
At 1 March 2021, 28 February 2022
and 28 February 2023 37,493 8,798 3,653 49,944
----------------------------------------- ----------- ---------------- -------- ----------
Amortisation
At 1 March 2021 - 3,007 2,494 5,501
Charge for the year - 880 731 1,611
----------------------------------------- ----------- ---------------- -------- ----------
At 28 February 2022 - 3,887 3,225 7,112
Charge for the year - 878 428 1,306
----------------------------------------- ----------- ---------------- -------- ----------
At 28 February 2023 - 4,765 3,653 8,418
----------------------------------------- ----------- ---------------- -------- ----------
Net book value
At 28 February 2022 37,493 4,911 428 42,832
----------------------------------------- ----------- ---------------- -------- ----------
At 28 February 2023 37,493 4,033 - 41,526
----------------------------------------- ----------- ---------------- -------- ----------
Determination of recoverable amount
The carrying value of indefinite useful life intangible assets
and goodwill are tested annually for impairment. For each CGU and
for all periods presented, the Group has assessed that the value in
use represents the recoverable amount. The future expected cash
flows used in the value-in-use models are based on management
forecasts, over a five-year period, and thereafter a reasonable
rate of growth is applied based on current market conditions. The
recoverable amount of Bytes Software Services and Phoenix Software
is GBP720.1 million and GBP261.6 million respectively. For the
purpose of impairment assessments of goodwill, the goodwill balance
is allocated to the operating units which represent the lowest
level within the Group at which the goodwill is monitored for
internal management purposes.
A summary of the goodwill per CGU, as well as assumptions
applied for impairment assessment purposes, is presented below:
Goodwill
Long-term Discount carrying
growth rate amount
rate
28 February 2023 % % GBP'000
------------------------- ------------ ----------- ----------
Bytes Software Services 2 9.10 14,775
Phoenix Software 2 9.10 22,718
37,493
------------------------- ------------ ----------- ----------
Goodwill
Long-term Discount carrying
growth rate amount
rate
28 February 2022 % % GBP'000
------------------------- ------------ ----------- ----------
Bytes Software Services 2 8.54 14,775
Phoenix Software 2 8.54 22,718
37,493
------------------------- ------------ ----------- ----------
Growth rates
The Group used a conservative growth rate of 2% which was
applied beyond the approved budget periods. The growth rate was
consistent with publicly available information relating to
long-term average growth rates for the market in which the
respective CGU operated.
Discount rates
Discount rates used reflect both time value of money and other
specific risks relating to the relevant CGU. Pre-tax discount rates
have been applied.
Sensitivities
The impacts of variations in the calculation of value-in-use of
assumed growth rate and pre-tax discount rates applied to the
estimated future cash flows of the CGUs have been estimated as
follows:
Bytes Software Phoenix
Services Software
28 February 2023 GBP'000 GBP'000
-------------------------------------------------- --------------- ----------
Headroom 675,427 229,245
1% increase in the pre-tax discount rate applied
to the estimated future cash flows (94,815) (32,956)
1% decrease in the pre-tax discount rate applied
to the estimated future cash flows 126,339 43,885
0.5% increase in the terminal growth rate from
2024 to 2028 45,179 15,660
0.5% decrease in the terminal growth rate from
2024 to 2028 (39,234) (13,599)
--------------------------------------------------- --------------- ----------
Bytes Software Phoenix
Services Software
28 February 2022 GBP'000 GBP'000
-------------------------------------------------- --------------- ----------
Headroom 738,557 240,596
1% increase in the pre-tax discount rate applied
to the estimated future cash flows (104,467) (36,204)
1% decrease in the pre-tax discount rate applied
to the estimated future cash flows 142,534 49,408
0.5% increase in the terminal growth rate from
2023 to 2027 51,412 17,836
0.5% decrease in the terminal growth rate from
2023 to 2027 (44,109) (15,302)
--------------------------------------------------- --------------- ----------
None of the above sensitivities, taken either in isolation or
aggregated, indicates a potential impairment. The directors
consider that there is no reasonable possible change in the
assumptions used in the sensitivities that would result in an
impairment of goodwill.
12 Contract assets
As at 28 As at 28
February February
2023 2022
GBP'000 GBP'000
----------------- ---------- ----------
Contract assets 11,081 6,716
------------------- ---------- ----------
As at As at
28 February 28 February
2023 2022
Contract assets is further broken GBP'000 GBP'000
down as:
----------------------------------- ------------- -------------
Short-term contract assets 10,684 6,591
Long-term contract assets 397 125
------------------------------------- ------------- -------------
11,081 6,716
----------------------------------- ------------- -------------
Contract assets include GBP3.8 million (2022: GBP2.1 million) of
deferred costs relating to internal services contracts, and the
recognition of accrued revenue of GBP7.3 million (2022: GBP4.6
million) for certain large software orders where performance
obligations were satisfied in the period but not yet invoiced to
the customer at the period end.
13 Contract liabilities
As at As at
28 February 28 February
2023 2022
GBP'000 GBP'000
---------------------- ------------- -------------
Contract liabilities 25,890 16,023
------------------------ ------------- -------------
As at As at
28 February 28 February
2023 2022
Contract liabilities is further GBP'000 GBP'000
broken down as:
--------------------------------- ------------- -------------
Short-term contract liabilities 23,914 14,528
Long-term contract liabilities 1,976 1,495
----------------------------------- ------------- -------------
25,890 16,023
--------------------------------- ------------- -------------
During the year, the Group recognised GBP14.5 million (2022:
GBP10.0 million) of revenue that was included in the contract
liability balance at the beginning of the period. The increase in
contract liabilities reflects the rise in internal services
business where revenue has been deferred when the customer is
invoiced before the related performance obligations of the contract
are satisfied, and the deferral of certain large payments received
in advance from customers.
14 Inventories
As at As at
28 February 28 February
2023 2022
GBP'000 GBP'000
------------- ------------- -------------
Inventories 58 96
--------------- ------------- -------------
58 96
------------- ------------- -------------
Inventories include asset management subscription licences
purchased in advance for a specific customer that as yet haven't
been consumed.
Inventories recognised as an expense in cost of sales during the
year amounted to GBP38,000 (28 February 2022: GBP495,000).
15 Financial assets and financial liabilities
This note provides information about the Group's financial
instruments, including:
-- An overview of all financial instruments held by the Group
-- Specific information about each type of financial instrument
-- Accounting policies
-- Information about determining the fair value of the
instruments, including judgements and estimation uncertainty
involved.
The Group holds the following financial instruments:
As at 28 As at
February 28 February
2023 2022
Financial assets Note GBP'000 GBP'000
------------------------------- ----- ---------- -------------
Financial assets at amortised
cost:
Trade receivables 16 178,386 154,928
Other financial assets 16 5,896 1,501
184,282 156,429
------------------------------- ----- ---------- -------------
As at 28 As at
February 28 February
2023 2022
Financial liabilities Note GBP'000 GBP'000
------------------------------------ ----- ---------- -------------
Financial liabilities at amortised
cost:
Trade and other payables -
current, excluding Payroll
tax and other statutory tax
liabilities 18 217,253 208,183
Lease liabilities 10 992 1,177
218,245 209,360
------------------------------------ ----- ---------- -------------
The Group's exposure to various risks associated with the
financial instruments is discussed in note 24. The maximum exposure
to credit risk at the end of the reporting period is the carrying
amount of each class of financial assets mentioned above.
16 Trade and other receivables
As at 28 As at
February 28 February
2023 2022
GBP'000 GBP'000
----------------------------- ---------- -------------
Financial assets
Gross trade receivables 179,928 155,678
Less: impairment allowance (1,542) (750)
------------------------------- ---------- -------------
Net trade receivables 178,386 154,928
Other receivables 5,896 1,501
------------------------------- ---------- -------------
184,282 156,429
----------------------------- ---------- -------------
Non-financial assets
Prepayments 1,638 1,181
------------------------------- ---------- -------------
1,638 1,181
----------------------------- ---------- -------------
Trade and other receivables 185,920 157,610
------------------------------- ---------- -------------
(i) Classification of trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies are
provided in note 1.20.
(ii) Fair values of trade receivables
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
(iii) Credit risk
Ageing and impairment analysis (excluding finance lease
assets)
Current Past Past Past Past
due 0 due 31 due 61 due 121
to 30 to 60 to 120 to 365 Total
days days days days
28 February 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- -------- --------- --------
Expected loss rate 0.06% 0.56% 6.67% 20.25% 100%
Gross carrying amount -
trade receivables 133,031 16,968 5,027 514 138 155,678
Loss allowance 78 95 335 104 138 750
------------------------- -------- -------- -------- -------- --------- --------
Current Past Past Past Past
due 0 due 31 due 61 due 121
to 30 to 60 to 120 to 365 Total
days days days days
28 February 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- -------- -------- -------- -------- --------- --------
Expected loss rate 0.09% 0.55% 6.39% 16.34% 92.68%
Gross carrying amount -
trade receivables 145,832 25,343 6,760 1,310 683 179,928
Loss allowance 124 139 432 214 633 1,542
------------------------- -------- -------- -------- -------- --------- --------
The closing loss allowances for trade receivables reconcile to
the opening loss allowances as follows:
As at 28 As at
February 28 February
2023 2022
Trade receivables GBP'000 GBP'000
------------------------------------------ ---------- -------------
Opening loss allowance at 1 March 750 724
Increase in loss allowance recognised in
profit or loss during the period 937 149
Receivables written off during the year
as uncollectable (145) (123)
-------------------------------------------- ---------- -------------
Closing loss allowance 1,542 750
-------------------------------------------- ---------- -------------
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, among others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
(iv) Other receivables
Other receivables include accrued rebate income.
17 Cash and cash equivalents
As at As at
28 February 28 February
2023 2022
GBP'000 GBP'000
-------------------------- ------------- -------------
Cash at bank and in hand 73,019 67,118
---------------------------- ------------- -------------
73,019 67,118
-------------------------- ------------- -------------
18 Trade and other payables
As at 28 As at 28
February February
2023 2022
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Trade and other payables 138,307 129,430
Accrued expenses 78,946 78,753
Payroll tax and other statutory liabilities 14,464 9,429
231,717 217,612
--------------------------------------------- ---------- ----------
Trade payables are unsecured and are usually paid within 45 days
of recognition.
The carrying amounts of trade and other payables are considered
to be the same as their fair values, due to their short-term
nature.
19 Share capital and share premium
Number Nominal Share Total
of shares value premium
Authorised, allotted, called up GBP'000 GBP'000 GBP'000
and fully paid
------------------------------------- ------------ -------- --------- --------
At 1 March 2021 239,482,333 2,395 633,636 636,031
Shares issued during the year (1) - - - -
------------------------------------- ------------ -------- --------- --------
At 28 February 2022 and 28 February
2023 (2), (3) 239,482,333 2,395 633,636 636,031
------------------------------------- ------------ -------- --------- --------
(1) Shares issued during the prior year
During the current and prior year no new ordinary shares were
issued by the company.
(2) Ordinary shares
Ordinary shares have a nominal value of GBP0.01. All ordinary
shares in issue rank pari passu and carry the same voting rights
and entitlement to receive dividends and other distributions
declared or paid by the Group. The company does not have a limited
amount of authorised share capital.
(3) Share options
Information related to the company's share option schemes,
including options issued during the financial year and options
outstanding at the end of the reporting period is set out in note
28.
20 Share-based payment reserve
The following table shows the movements in these reserves during
the year. All movements relate to the Group's share-based payment
schemes, further details are provided in note 28.
Share-based
payment reserve
Note GBP'000
------------------------------ ----- -----------------
Balance at 1 March 2021 317
Share-based payment expenses 28 2,563
Deferred tax 8 192
------------------------------- ----- -----------------
At 28 February 2022 3,072
Share-based payment expenses 28 4,188
Deferred tax 8 (25)
At 28 February 2023 7,235
------------------------------- ----- -----------------
21 Merger reserve
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
--------------------------------------- --- ------ ------------- -------------
Balance at 1 March 2021, 28 February
2022 and 28 February 2023 (644,375) (644,375)
(644,375) (644,375)
-------------------------------------------------- ------------- -------------
The merger reserve of GBP644.4 million arose in December 2019,
on the date that the Group demerged from its previous parent
company. This is an accounting reserve in equity representing the
difference between the total nominal value of the issued share
capital acquired in Bytes Technology Limited of GBP1.10 and the
total consideration given of GBP644.4 million.
22 Retained earnings
Year ended Year ended
28 February 28 February
2023 2022
Movements in retained earnings were Note GBP'000 GBP'000
as follows:
------------------------------------- ------ ----- ------------- -------------
Balance at 1 March 52,839 24,775
Net profit for the period 40,421 32,854
Dividends 25(b) (30,654) (4,790)
------------------------------------- ------ ----- ------------- -------------
62,606 52,839
------------------------------------- ------ ----- ------------- -------------
23 Cash generated from operations
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
----------------------------------------- ----- -------------- --------------
Profit before taxation 50,392 41,566
Adjustments for:
Depreciation and amortisation 4 2,480 2,608
Loss on disposal of property, plant
and equipment 4 3 15
Non-cash employee benefits expense
- share-based payments 4 4,188 2,563
Finance costs 7 491 589
(Increase)/decrease in contract assets (4,365) 677
Increase in trade and other receivables (28,310) (50,946)
Decrease in inventories 38 495
Increase in trade and other payables 14,105 60,491
Increase in contract liabilities 9,867 3,661
Cash generated from operations 48,889 61,719
------------------------------------------- ----- -------------- --------------
24 Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current year 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 16.
The Group's policy in respect of liquidity risk is to maintain
readily accessible bank deposit accounts to ensure that the company
has sufficient funds for its operations. The cash deposits are held
in a mixture of short-term deposits and current accounts which earn
interest at a floating rate.
The Group's policy in respect of currency risk, which primarily
exists as a result of foreign currency purchases, is to either sell
in the currency of purchase, maintain sufficient cash reserves in
the appropriate foreign currencies which can be used to meet
foreign currency liabilities, or take out forward currency
contracts to cover the exposure.
24(a) Derivatives
Derivatives are only used for economic hedging purposes and not
speculative investments.
The Group has taken out forward currency contracts during the
periods presented but has not recognised either a forward currency
asset or liability at each period end as the fair value of the
foreign currency forwards is considered to be immaterial to the
consolidated financial statements 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.
24(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the
reporting period, was as follows:
As at 28 February As at 28 February
2023 2022
---------------------------- -------------------------------
USD EUR NOK USD EUR NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- --- ---- ----------- -------- --------- ----------- -------- --------
Trade receivables 13,529 1,900 - 5,375 1,423 -
Cash and cash
equivalents 250 214 - 3,093 75 -
Trade payables (15,286) (1,981) (221) (15,243) (2,078) (97)
------------------------------ ----------- -------- --------- ----------- -------- --------
(1,507) 133 (221) (6,775) (580) (97)
---------------------------- ----------- -------- --------- ----------- -------- --------
The following table demonstrates the profit before tax
sensitivity to a possible change in the currency exchange rates
with GBP, all other variables held constant.
As at 28 February As at 28 February
2023 2022
---------------------------- -----------------------
GBP:USD GBP:EUR GBP:NOK GBP:USD GBP:EUR GBP:NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- --- ----- -------- -------- -------- ---------- -------- ---------
5% increase
in rate 72 (6) 11 323 28 5
------------------------- -------- -------- -------- ---------- -------- ---------
5% decrease
in rate (79) 7 (12) (357) (31) (5)
------------------------- -------- -------- -------- ---------- -------- ---------
The aggregate net foreign exchange gains/losses recognised in
profit or loss were:
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
---------------------------------- ------------- -------------
Total net foreign exchange gains
in profit or loss 32 38
------------------------------------- ------------- -------------
24(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient
cash to meet obligations when due. The Group generates positive
cash flows from operating activities and these fund short-term
working capital requirements. The Group aims to maintain
significant cash reserves and none of its cash reserves is subject
to restrictions. Access to cash is not restricted and all cash
balances could be drawn on immediately if required. Management
monitors the levels of cash deposits carefully and is comfortable
that for normal operating requirements, no further external
borrowings are currently required.
At 28 February 2023, the Group had cash and cash equivalents of
GBP73.0 million, see note 17. Management monitors rolling forecasts
of the Group's liquidity position (which comprises its cash and
cash equivalents) on the basis of expected cash flows generated
from the Group's operations. These forecasts are generally carried
out at a local level in the operating companies of the Group in
accordance with practice and limits set by the Group and take into
account certain down-case scenarios.
(2) Revolving Credit Facility
On 17 May 2023 the Group entered into a new three-year committed
Revolving Credit Facility (RCF) for GBP30 million including an
optional one-year extension to 17 May 2027, and a non-committed
GBP20 million accordion to increase the availability of funding
should it be required for future activity. The new facility
replaced the previous RCF which was entered into in December 2020
and reduced to GBP30 million in December 2022. This was set to
expire in December 2023 but was cancelled, without penalty, on 17
May 2023, on commencement of the new RCF. In December 2020, the
Group incurred arrangement fees of GBP0.4 million representing
0.75% of the initial GBP50 million facility available at the time.
The new facility has incurred an arrangement fee of GBP0.1 million,
being 0.4% of the new funds available. The Group has so far not
drawn down any amount on either the previous or new facility and to
the extent that there is no evidence that it is probable that some
or all of the facility will be drawn down, the fees are capitalised
as a prepayment and amortised over the initial three-year period of
the facility. The facility also incurs a commitment fee and
utilisation fee, both of which are payable quarterly in arrears.
Under the terms of both the previous and new facilities, the Group
is required to comply with the following financial covenants:
-- Interest cover: EBITDA (earnings before interest, tax,
depreciation and amortisation) to net finance charges for the past
12 months shall be greater than 4.0 times
-- Leverage: net debt to EBITDA for the past 12 months must not exceed 2.5 times.
The Group has complied with these covenants throughout the
reporting period. As at 28 February 2023, EBITDA to net finance
charges was approximately 109 times (2022: 76 times). The Group has
been in a net cash position as at 28 February 2023 and 28 February
2022 and has therefore complied with the Net debt to EBITDA
covenant.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual
maturity for its financial liabilities based on undiscounted
contractual payments:
Within 1 2 Over Total contractual Carrying
1 year to to 5 years cash flows amount
2 years 5 years
28 February 2023 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ----- -------- --------- --------- --------- ------------------ ---------
Trade and other
payables 18 217,253 - - - 217,253 217,253
Lease liabilities 10 116 463 545 - 1,124 992
------------------- ----- -------- --------- --------- --------- ------------------ ---------
217,369 463 545 - 218,377 218,245
------------------- ----- -------- --------- --------- --------- ------------------ ---------
Within 1 to 2 to Over Total contractual Carrying
1 year 2 years 5 years 5 years cash flows amount
28 February 2022 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------- ----- -------- --------- --------- --------- ------------------ ---------
Trade and other
payables 18 208,183 - - - 208,183 208,183
Lease liabilities 10 231 116 694 313 1,354 1,177
------------------- ----- -------- --------- --------- --------- ------------------ ---------
208,414 116 694 313 209,537 209,360
------------------- ----- -------- --------- --------- --------- ------------------ ---------
25 Capital management
25(a) Risk management
For the purpose of the Group's capital management, capital
includes issued capital, ordinary shares, share premium and all
other equity reserves attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to maximise shareholder value.
The Group manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of
shareholders. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. To ensure an
appropriate return for shareholders' capital invested in the Group,
management thoroughly evaluates all material revenue streams,
relationships with key vendors and potential acquisitions and
approves them by the Board, where applicable. The Group's dividend
policy is based on the profitability of the business and underlying
growth in earnings of the Group, as well as its capital
requirements and cash flows. The Group's dividend policy is to
distribute 40% of the Group's post-tax pre-exceptional earnings to
shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider
returning excess cash to shareholders over time.
25(b) Dividends
2023 2022
----------------------- -----------------------
Pence Pence
Ordinary shares per share GBP'000 per share GBP'000
--------------------------------- ----------- ---------- ----------- ----------
Interim dividend paid 2.40 5,748 2.00 4,790
Special dividend paid 6.20 14,848 - -
Final dividend paid 4.20 10,058
--------------------------------- ----------- ---------- ----------- ----------
Total dividends attributable to
ordinary shareholders 12.80 30,654 2.00 4,790
--------------------------------- ----------- ---------- ----------- ----------
Dividends per share is calculated by dividing the dividend paid
by the number of ordinary shares in issue. Dividends are paid out
of available distributable reserves of the company.
The Board has proposed a final ordinary dividend of 5.1 pence
and a special dividend of 7.5 pence per share for the year ended 28
February 2023 to be paid to shareholders on the register as at 21
July 2023. The aggregate of the proposed dividends expected to be
paid on 4 August 2023 is GBP30.2 million. The proposed dividends
per ordinary shares are subject to approval at the Annual General
Meeting and are not recognised as a liability in the consolidated
financial statements.
26 Capital commitments
At 28 February 2023, the Group had GBPNil capital commitments
(28 February 2022: GBPNil).
27 Related-party transactions
In the ordinary course of business, the Group carries out
transactions with related parties, as defined by IAS 24 Related
Party Disclosures. Apart from those disclosed elsewhere in the
consolidated financial statements, material transactions
for the year are set out below:
27(a) Transactions with key management personnel
Key management personnel are defined as the directors (both
executive and non-executive) of Bytes Technology Group plc, Bytes
Software Services Limited and Phoenix Software Limited. Details of
the compensation paid to the directors of Bytes Technology Group
plc as well as their shareholdings in the Group are disclosed in
the remuneration report.
Compensation of key management personnel of the Group
The remuneration of key management personnel, which consists of
persons who have been deemed to be discharging managerial
responsibilities, is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures.
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
---------------------------------- ------------- -------------
Short-term employee benefits 4,158 3,598
Post-employment pension benefits 92 79
------------------------------------- ------------- -------------
Total compensation paid to
key management 4,250 3,677
------------------------------------- ------------- -------------
The amounts disclosed in the table are the amounts recognised as
an expense during the reporting period related to key management
personnel including executive directors.
Key management personnel received a total of 565,782 share
option awards (2022: 391,000) at a weighted average exercise price
of GBP1.33 (2022: GBP4.91).
Share-based payment charges include GBP1,006,423 (2022:
GBP512,908) in respect of key management personnel, refer to note
28 for details on the Group's share-based payment incentive
schemes.
27(b) Subsidiaries
Interests in subsidiaries are set out in note 30.
27(c) Outstanding balances arising from sales/purchases of
services
There were no outstanding balances at the end of each reporting
period .
28 Share-based payments
The Group established new equity-settled share-based payment
incentive schemes with effect from IPO. These share option awards
have been accounted for as equity-settled share-based payments. The
fair value of the awards granted is recognised as an expense over
the vesting period. As noted in the prior year Annual Report
one-third of the annual bonus for the financial year ended 28
February 2022 awarded to each of the Company's executive directors
is deferred in shares for two years. This deferral has resulted in
the granting of the awards under the Deferred Bonus Plan during the
year.
Performance Incentive Share Plan
Options granted under the Performance Incentive Share Plan
(PISP) are for shares in Bytes Technology Group plc. The exercise
price of the options is a nominal amount of GBP0.01. Performance
conditions attached to the awards granted in the current year are
employee specific, in addition to which, options will only vest if
certain employment conditions are met. The fair value of the share
options is estimated at the grant date using a Monte Carlo option
pricing model for the element with market conditions and Black
Scholes option-pricing model for non-market conditions. The normal
vesting date shall be no earlier than the third anniversary of the
grant date and not later than the day before the tenth anniversary
of the grant date. There is no cash settlement of the options
available under the scheme. During the year the Group granted
552,480 (2022: nil) options. For the year ended 28 February 2023,
30,589 (2022: 45,153) options were forfeited, and no options were
exercised or expired.
Company Share Option Plan
Options granted under the Company Share Option Plan (CSOP) are
for shares in Bytes Technology Group plc. The exercise price of the
options granted in the current year was determined by the average
of the last three dealing days prior to the date of grant. There
are no performance conditions attached to the awards, but options
will only vest if certain employment conditions are met. The fair
value at grant date is estimated at the grant date using a Black
Scholes option-pricing model. The normal vesting date shall be no
earlier than the third anniversary of the grant date and not later
than the day before the tenth anniversary of the grant date. There
is no cash settlement of the options available under the scheme.
During the year the Group granted 2,904,100 (2022: 2,802,000)
options. For the year ended 28 February 2023, 127,400 (2022:
63,000) options were forfeited, and no options were exercised or
expired.
Save as You Earn Scheme
Share options were granted to eligible employees under the Save
As You Earn Scheme (SAYE) during the year. Under the SAYE scheme,
employees enter a three-year savings contract in which they save a
fixed amount each month in return for their SAYE options. At the
end of the three-year period, employees can either exercise their
options in exchange for shares in Bytes Technology Group plc or
have their savings returned to them in full. The exercise price of
the options represents a 20% discount to the exercise price of the
CSOP awards. The fair value at grant date is estimated using a
Black Scholes option-pricing model. There is no cash settlement of
the options. During the year the Group granted 722,863 (2022:
1,103,220) options. For the year ended 28 February 2023, 523,974
(2022: 49,815) options were forfeited, and no options were
exercised or expired.
Deferred Bonus Plan
Options granted under the Deferred Bonus Plan (DBP) are for
shares in Bytes Technology Group plc. The exercise price of the
options is a nominal amount of GBP0.01. There are no performance
conditions attached to the awards, but options will only vest if
certain employment conditions are met. The fair value at grant date
is estimated at the grant date using a Black Scholes option-pricing
model. The normal vesting date shall be no earlier than the second
anniversary of the grant date. During the year the Group granted
35,842 options. No options granted under the DBP were forfeited,
exercised or expired.
Share-based payment employee expenses
Year ended Year ended
28 February 28 February
2023 2022
GBP'000 GBP'000
---------------------------- ------------- -------------
Equity settled share-based
payment expenses 4,188 2,563
------------------------------- ------------- -------------
There were no cancellations or modifications to the awards in
2023 or 2022.
Movements during the year
The following table illustrates the number and weighted average
exercise prices (WAEP) of, and movements in, share options during
the year:
28 February 28 February 28 February 28 February
2023 2023 2022 2022
Number WAEP Number WAEP
---------------------------- ------------ ------------ ------------ ------------
Outstanding at 1 March 5,227,362 GBP3.43 1,480,110 GBP0.01
Granted during the year 4,215,285 GBP3.84 3,905,220 GBP4.72
Forfeited during the
year (681,963) GBP3.98 (157,968) GBP3.26
----------------------------- ------------ ------------ ------------ ------------
Outstanding at 28 February 8,760,684 GBP3.59 5,227,362 GBP3.43
Exercisable at 28 February - - - -
----------------------------- ------------ ------------ ------------ ------------
The weighted average expected remaining contractual life for the
share options outstanding at 28 February 2023 was 2.9 years (2022:
3.2 years).
The weighted average fair value of options granted during the
year was GBP1.63 (2022: GBP1.29).
The range of exercise prices for options outstanding at the end
of the year was GBP0.01 to GBP5.00 (2022: GBP0.01 to GBP5.00).
The tables below list the inputs to the models used for the
awards granted under the below plans for the years ended 28
February 2023 and 28 February 2022:
28 February 28 February 28 February 28 February
2023 2023 2023 2023
Assumptions PISP CSOP SAYE DBP
-------------------------- -------------- -------------- -------------- --------------
Weighted average fair GBP4.06 GBP1.20 GBP1.38 GBP4.52
value at measurement
date
Expected dividend yield 1.52% 1.52% 1.54% 0.00%
Expected volatility 37% 34% 37% 35%
Risk-free interest rate 1.59% 1.72% 1.59% 1.53%
Expected life of options 3 years 5 years 3 years 2 years
Weighted average share GBP4.53 GBP4.53 GBP4.48 GBP4.53
price
Model used Black Scholes Black Scholes Black Scholes Black Scholes
and Monte
Carlo
--------------------------- -------------- -------------- -------------- --------------
28 February 28 February
2022 2022
Assumptions CSOP SAYE
------------------------------ -------------- --------------
Weighted average fair value GBP1.26 GBP1.38
at measurement date
Expected dividend yield 1.26% 1.26%
Expected volatility 35% 35%
Risk-free interest rate 0.16% 0.22%
Expected life of options 5 years 3 years
Weighted average share price GBP5.00 GBP4.82
Model used Black Scholes Black Scholes
--------------------------------- -------------- --------------
The expected life of the options is based on current
expectations and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption
that the historical volatility of the company and publicly quoted
companies in a similar sector to the company over a period similar
to the life of the options is indicative of future trends, which
may not necessarily be the actual outcome.
29 Earnings per share
The Group calculates earnings per share (EPS) on several
different bases in accordance with IFRS and prevailing South Africa
requirements.
Year ended Year ended
28 February 28 February
2023 2022
pence pence
-------------------------------- ------------- -------------
Basic earnings per share 16.88 13.72
Diluted earnings per share 16.28 13.42
Headline earnings per share 16.88 13.72
Diluted headline earnings per
share 16.28 13.42
Adjusted earnings per share(1) 18.83 15.46
Diluted adjusted earnings per
share(1) 18.16 15.12
---------------------------------- ------------- -------------
1 Refer note 29(c), had the prior year adjusted operating profit
included the effects of deferred tax on the adjusting items the
adjusted earnings per share would have been 15.30 and the diluted
adjusted earnings per share would have been 14.97.
29(a) Weighted average number of shares used as the
denominator
Year ended Year ended
28 February 28 February
2023 2022
Number Number
------------------------------------------------- -------------- --------------
Weighted average number of ordinary shares
used as the denominator in calculating
basic earnings per share and headline earnings
per share 239,482,333 239,482,333
Adjustments for calculation of diluted
earnings per share and diluted headline
earnings per share:
- share options (1) 8,760,684 5,385,330
---------------------------------------------------- -------------- --------------
Weighted average number of ordinary shares
and potential ordinary shares used as the
denominator in calculating diluted earnings
per share and diluted headline earnings
per share 248,243,017 244,867,663
---------------------------------------------------- -------------- --------------
(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. Details relating to the share options
are disclosed in note 28.
29(b) Headline earnings per share
The Group is required to calculate headline earnings per share
(HEPS) in accordance with the JSE Listing Requirements. The table
below reconciles the profits attributable to ordinary shareholders
to headline earnings and summarises the calculation of basic and
diluted HEPS:
Year ended Year ended
28 February 28 February
2023 2022
Note pence pence
------------------------------------- ----- ------------- -------------
Profit for the period attributable
to owners of the company 40,421 32,854
Adjusted for:
Loss on disposal of property, plant
and equipment 4 3 15
Tax effect thereon (1) (3)
--------------------------------------- ----- ------------- -------------
Headline profits attributable to
owners of the company 40,423 32,866
--------------------------------------- ----- ------------- -------------
29(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative
performance measure which is consistent with the way that financial
performance is measured by senior management of the Group. It is
calculated by dividing the adjusted operating profit attributable
to ordinary shareholders by the total number of ordinary shares in
issue at the end of the year. Adjusted operating profit is
calculated to reflect the underlying long-term performance of the
Group by excluding the impact of the following items:
-- Share-based payment charges
-- Acquired intangible assets amortisation.
The table below reconciles the profit for the financial year to
adjusted earnings and summarises the calculation of adjusted
EPS:
Year ended Year ended
28 February 28 February
2023 2022
Note GBP'000 GBP'000
--------------------------------------------------- ----- ------------- -------------
Profits attributable to owners of
the company 40,421 32,854
Adjusted for:
* Amortisation of acquired intangible assets 4 1,306 1,611
(301) -
* Deferred tax effect on above(1)
* Share-based payment charges 28 4,188 2,563
(522) -
* Deferred tax effect on above(1)
--------------------------------------------------- ----- ------------- -------------
Adjusted profits attributable to
owners of the company 45,092 37,028
---------------------------------------------------- ----- ------------- -------------
(1) The prior year has not been restated to include the deferred
tax effect on the adjusting items as the impact was considered to
be immaterial. Had the prior year been restated the adjusted
profits attributable to owners of the company would have been
GBP36.6 million.
30 Subsidiaries
The Group's subsidiaries included in the consolidated financial
statements are set out below. The country of incorporation is also
their principal place of business.
Country Ownership
Name of entity of incorporation interest Principal activities
---------------------------- ------------------ ---------- --------------------------------
Bytes Technology Holdco UK 100% Holding company
Limited (1)
Bytes Technology Limited UK 100% Holding company
Bytes Software Services UK 100% Providing cloud-based licensing
Limited and infrastructure and
security sales within both
the corporate and public
sectors
Blenheim Group Limited UK 100% Holding company in prior
(2) year. The company transferred
its investment in Phoenix
Software Limited to Bytes
Technology Limited and
became dormant during February
2022.
Phoenix Software limited UK 100% Providing cloud-based licensing
and infrastructure and
security sales within both
the corporate and public
sectors
License Dashboard Limited UK 100% Dormant for all periods
(2)
Bytes Security Partnerships UK 100% Dormant for all periods
Limited (2)
Bytes Technology Group UK 100% Dormant for all periods
Holdings Limited (2)
Bytes Technology Training UK 100% Dormant for all periods
Limited (2)
Elastabytes Limited (2) UK 50% Dormant for all periods
---------------------------- ------------------ ---------- --------------------------------
(1) Bytes Technology Holdco Limited is held directly by the
company. All other subsidiary undertakings are held indirectly by
the company.
(2) Taken advantage of the audit exemption set out within
section 479A of the Companies Act 2006 for the year ended 28
February 2023.
The registered address of all of the Group subsidiaries included
above is Bytes House, Randalls Way, Leatherhead, Surrey, KT22
7TW.
31 Events after the reporting period
With effect from 18 April 2023 the Group acquired 25.1% interest
in Cloud Bridge Technologies Limited for GBP3.0 million. As
disclosed in note 24(c)(2) the Group replaced the current Revolving
Credit Facility (RCF) with a new RCF. These have no impact on the
results reported for the year ended 28 February 2023. There are no
other events after the reporting period that require disclosure in
these financial statements.
Corporate Information
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial information differs from legislation
in other jurisdictions.
Directors at the date of this report
PJM De Smedt
NR Murphy
AJ Holden
MS Phillips
E Schraner
A Vincent
DN Maw
Group Company Secretary
WK Groenewald
Company registration number
12935776
Bytes LEI
213800LA4DZLFBAC9O33
Registered office
Bytes House
Randalls Way
Leatherhead
Surrey
KT22 7TW
Corporate brokers and financial advisers
Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
JSE sponsor
Investec Bank Limited
100 Grayston Drive
Sandton
Johannesburg
2196
South Africa
Auditor
Ernst & Young LLP
1 More London Place
London
SE1 2AF
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END
FR EANSAASPDEFA
(END) Dow Jones Newswires
May 23, 2023 02:00 ET (06:00 GMT)
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