28 October 2021

Bytes Technology Group plc

("Bytes" or "the Group")

Results for the six months ended 31 August 2021

 A strong half year performance delivering on our strategy

Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the UK's leading software, security, and cloud services specialists, today announces its half year results for the six months ended 31 August 2021 ("H1 FY22").

Neil Murphy, Chief Executive Officer, said:

"I am delighted to report this strong set of results, which saw the Group deliver against its strategic goals, producing growth across all areas of the business. We have maintained our track record of year-on-year growth despite the ongoing uncertainty caused by the pandemic, with our business benefitting from our wide-ranging offering, and our partnerships with the world's leading vendors and software publishers. Reflecting the strength of our business and our performance, I am pleased to announce an interim dividend of 2.0 pence per share."

"I am particularly proud of the energy, enthusiasm and professionalism demonstrated by our people through what has been and remains a challenging time. I would also like to thank our clients for their continued support; they are the lifeblood of this business and will always be our top priority. Looking ahead, we remain confident in delivering our growth strategy and capitalising on the market opportunity for the benefit of all our stakeholders." 

Financial performance

Group highlights for the six months ended 31 August 2021

-     Gross invoiced income increased 26.3% to £638.2 million (H1 FY21: £505.4 million), with growth primarily in software and services, as corporate client demand strengthened alongside continued growth from public sector customers.

-       Revenue has also increased by 13.7% to £251.4 million (H1 FY21: £221.2 million).

-     Gross profit growth of 14.0% to £52.9 million (H1 FY21: £46.4 million), reflecting strong customer acquisition trends across both public and private sectors and increasing gross profit per customer.

-      Operating profit has increased by 19.0% from £19.5 million to £23.2 million.

-       Adjusted operating profit of £25.0 million (H1 FY21: £20.5 million), representing growth of 22.0%.

-     Earnings per share has increased by 13.9% from 6.78 pence to 7.72 pence.

-   Accordingly, the Board is pleased to declare an interim dividend of 2.0 pence per share to be paid on 3 December 2021.

Current trading and outlook

After a successful H1 FY22 with a continuation of double-digit growth, the business carries strong momentum going into the second half of the year where we have already got off to a good start. Travel and marketing expenses have not reverted to pre-lockdown levels and are still broadly in line with those experienced in H1 last year. These costs are expected to increase gradually in the second half of the year. Our successful strategy of acquiring new customers and then growing our share of wallet, building on our strong vendor relationships and the technical and commercial skills of our people, makes us confident that the Group is well positioned for the remainder of the financial year.

Analyst and investor presentation

A presentation and Q&A session for analysts and investors will be held today via webcast at 9:30am BST. If you wish to access the webcast, please contact Headland Consultancy at Bytes@headlandconsultancy.com for the registration details.

The announcement and presentation will be available after the event at: https://www.bytesplc.com/investors. 

Enquiries

Forward-looking statements

This announcement includes statements that are, or may be deemed to be, 'forward-looking statements'. By their nature, forward-looking statements involve risk and uncertainty since they relate to future events and circumstances. Actual results may, and often do, differ materially from any forward-looking statements.

Any forward-looking statements in this announcement reflect the Group's view with respect to future events as at the date of this announcement. Save as required by law or by the Listing Rules of the UK Listing Authority, the Group undertakes no obligation to publicly revise any forward-looking statements in this announcement following any change in its expectations or to reflect events or circumstances after the date of this announcement. 

About Bytes Technology Group plc

Bytes is one of the UK's leading providers of IT software offerings and solutions, with a focus on cloud and security products. The Group enables effective and cost-efficient technology sourcing, adoption, and management across software services, including in the areas of security and cloud. It aims to deliver the latest technology to a diverse and embedded non-consumer customer base and has a long track record of delivering strong financial performance.

The Group has a primary listing on the Main Market of the London Stock Exchange and a secondary listing on the Johannesburg Stock Exchange.

¹ 'Gross invoiced income' ("GII") is a non-IFRS alternative performance measure that reflects gross income billed to customers adjusted for deferred and accrued revenue items.

² 'Revenue' is reported in accordance with International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers. Under this standard the Group is required to exercise judgment to determine whether the Group is acting as principal or agent in performing its contractual obligations. Revenue in respect of contracts for which the Group is determined to be acting as an agent is recognised on a 'net' basis i.e., the gross profit achieved on the contract and not the gross income billed to the customer.

³ 'Adjusted operating profit' is a non-IFRS alternative performance measure that excludes from operating profit the effects of significant items of expenditure which are non-recurring events or do not reflect our underlying operations. IPO costs, amortisation of acquired intangible assets and share-based payment charges are all excluded. The reconciliation of adjusted operating profit to operating profit is set out in the Chief Financial Officer review below.

⁴ 'Adjusted earnings per share' is a non-IFRS alternative performance measure that the Group calculates by dividing the profit after tax attributable to owners of the Company, adjusted for the effects of significant items of expenditure which are non-recurring events or do not reflect our underlying operations ("Adjusted earnings") by the weighted average number of ordinary shares in issue during the period. IPO costs, amortisation of acquired intangible assets and share-based payment charges are all excluded in arriving at Adjusted earnings.  The calculation is set out in note 15 of the financial statements.

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Chief Executive Officer's Review

 A strong half year performance delivering on our strategy

We are delighted with the strong performance in H1 FY22, which saw the Group deliver robust growth in adjusted operating profit ("AOP") of 22.0% and gross profit ("GP") growth of 14.0%, driven by impressive growth in gross invoiced income ("GII") across both corporate and public sector customers of 26.3%. Our revenue, stated after the netting adjustment for cloud and critical security license sales, was up 13.7%.

We have maintained our track record of year-on-year growth despite the ongoing uncertainty caused by the pandemic, with our business benefitting from our wide-ranging product offering, with a significant suite of software, services and IT hardware solutions from the world's leading vendors and software publishers.

Encouragingly, we have seen continued growth from our public sector customers and strengthening demand from our corporate clients. This resulted in 27.0% growth in software GII and 27.1% in services GII, with hardware GII relatively flat during H1 FY22. Complementing the substantial growth in GII and GP was our strong cash conversion rate, at 107.5% for the reporting period. The Group had double-digit growth across all our key financial performance measurements, reflecting the continued demand from our customers to invest in resilient and efficient IT services.

Our customers' appetite for security, cloud adoption, digital transformation, hybrid datacentre and remote working solutions have underpinned growth in H1 FY22. 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, revenue and GP, reflects the buoyant and robust nature of IT spend across the UK and Ireland.

We continue to expand our IT services capability, with GII growth of 27.1% underpinned by our Microsoft Azure Expert status and the provision of managed services, augmented with our own IP in the form of Quantum and Licence Manager. These services, together with additional cyber security 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're not standing still either and are developing our systems to provide great user experiences and improved productivity to help drive efficiencies. This, combined with the subdued costs in travel and entertainment, and a slight lag on expanding our sales capacity has resulted in AOP as a percentage of GP increasing above our expectations to 47.3% for the period under review.

We remain proud of the energy, enthusiasm and professionalism demonstrated by our people through what continues to be a challenging time for families, organisations and society in general. Our future growth will be supported by both increasing headcount as well as 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, whilst also meeting our people's aspirations for a healthy work/life balance. In June 2021, we launched our first ShareSave Plan ("the Plan"), which has been well received by our workforce. An encouraging 65% of employees chose to participate in the Plan, which far exceeded our expectations.

Our partnerships with key vendors go from strength to strength; we are especially pleased to have been recognised by leading industry vendors for our role in supporting the success of Microsoft and Darktrace. Phoenix Software was awarded the prestigious accolade of Microsoft Partner of the Year for the UK for 2021 and Bytes Software Services was recently named Darktrace EMEA Partner of the Year 2021. These awards reflect the status and high esteem which the Group has with global technology leaders and is testament to the expertise of our staff and the customer success stories that we deliver.

We remain committed to executing our strategy in a responsible manner, with sustainability rooted in everything we do. Our framework in this space aims to deliver positive impacts for our stakeholders across key themes which we have identified as most relevant for the environment in which we operate. Within each theme - financial sustainability, corporate responsibility, stakeholder engagement and good governance - we set ourselves focus areas which drive our activities. Through our environmental working committees, we allocate time and resources to various initiatives, and continue to commit the equivalent of 1% of profit after tax to social initiatives, including charitable causes. We remain committed to supporting diversity and continue our efforts towards equal gender balance across our business. We continue our efforts to align with broader diversity targets to reflect the society in which we, and our stakeholders, operate. Our latest eNPS survey was conducted in September 2021 and demonstrated again the high level of staff engagement and positive feeling among our employees in being part of the Group.

As we stated during our 2020 IPO process, it was our intended policy to distribute between 40% and 50% of the Group's post-tax pre-exceptional earnings to shareholders. The Board now considers it appropriate to adopt a simplified policy effective from this set of results, which will see 40% of the Group's post-tax pre-exceptional earnings distributed to shareholders as a dividend. Removing the range associated with the previous policy provides the business with greater clarity on its capital allocation moving forwards. Accordingly, we are pleased to confirm that the Board has approved the declaration of an interim dividend of 2.0 pence per share, for payment early in December 2021.

I wish to extend my gratitude to all my colleagues for their resilience and dedication to the business during H1 FY22 and the preceding challenging months during the pandemic. Finally, I would like to thank our clients for their support and entrusting their business with us; they are the lifeblood of this business and will always be our top priority.

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Board and Committee Composition

As announced on 11 August 2021, Dr Erika Schraner has been appointed as an Independent Non-Executive Director with effect from 1 September 2021. Erika also serves as a member of the Audit, Nomination and Remuneration committees.

Following a review of the composition of the Audit committee, for it to align with the UK Corporate Governance Code, David Maw has stepped down as a member of the Audit committee, with effect from 27 October 2021. We wish to express our appreciation to David for his valued contribution to the committee. He will remain a Non-Executive Director on the Bytes Board with continued responsibility for employee engagement.

Accordingly, the committees are comprised as follows:

-    Audit committee: Mike Phillips (Chair), Dr. Alison Vincent and Dr. Erika Schraner

-    Nomination committee: Patrick De Smedt (Chair), Mike Phillips, Dr. Alison Vincent and Dr. Erika Schraner

-    Remuneration committee: Dr. Alison Vincent (Chair), Patrick De Smedt, Mike Phillips and Dr. Erika Schraner

Chief Financial Officer's Review

Gross invoiced income ("GII")

GII reflects gross income billed to our customers, adjusted for deferred and accrued revenue items, mainly relating to managed service contracts. We believe that GII provides a more meaningful measure than revenue to evaluate our sales performance, volume of transactions and rate of growth. As an organisation we continue to focus and report on GII as a key metric. GII has a direct influence on our movements in working capital, reflects our risks and shows the performance of our sales teams.

GII has increased by 26.3% year-on-year, with growth primarily in software and services. Software remains the core focus, contributing 94.5% of total gross invoiced income. The Group benefits from a substantial presence in the public sector, with reported GII having increased by £99.6 million, whilst our corporate GII increased by £33.3 million. 

Revenue

Revenue is reported in accordance with International Financial Reporting Standard ("IFRS") 15 Revenue from Contracts with Customers. Under this reporting standard, we are required to exercise judgment to determine whether the Group is acting as principal or agent in performing its contractual obligations. Revenue in respect of contracts for which the Group is determined to be acting as an agent is recognised on a 'net' basis i.e., the gross profit achieved on the contract and not the gross income billed to the customer.

The netting adjustment has been made on a consistent basis in both the current and prior periods. GII is showing a growth of 26.3% whilst revenue (net of IFRS 15 adjustment) is showing a 13.7% growth. This difference primarily reflects the ongoing and accelerating trend towards cloud-based software sales, where we are seen to be acting as agent, rather than principal. We expect this trend to continue into the future.  

Gross profit

Gross profit has increased by 14.0% to £52.9 million (FY21: £46.4 million). In the corporate sector, growth in terms of GII and gross profit have closely followed each other, thereby ensuring that gross profit as a percentage of GII for this sector remains at broadly similar levels when compared to H1 in the prior reporting period.

In the public sector, gross profit growth of 7% against a GII growth of 32% means we have seen around a 1% reduction in the gross profit / GII percentage. This reduction can be ascribed to increased competition, particularly when winning new deals and renewing existing contracts in a competitive tender environment. Where new large agreements have been won at a lower margin, management is acutely focussed on tracking these customers individually to ensure that the strategy delivers value for these customers, the business and our other stakeholders by building them out with higher margin services over the duration of the contract.

At the end of FY21 we reported 5,147 current customers, and we are pleased to report a gain of 448 (8.7%) new customers in this reporting period, bringing our total customer base to 5,595, 94% of which we have already transacted with in H1 FY22. At the same time, we have increased gross profit per customer from £17,400 to £18,100 (on a rolling 12-month basis). We continue to focus on our NPS which has increased from 61 to 63, and which has contributed in our ability to retain customers.  

Staff costs

Our success in growing GII and gross profit continues to be as a direct result of the investments we have made in our sales and support people over the years. It has been and will remain a carefully managed aspect of our business where we strive to invest in line with the actual growth and not before. Another successful strategy that has borne fruits is one where we look to promote and expand from within giving our employees careers rather than employment. This in turn has created long tenure from our employees that hold and grow equally as long relationships with our customers. This is at the very heart of our low employee churn rate, the growth in gross profit per customer, our high customer retention rate and our exceptional NPS.

Staff costs included in administrative expenses, excluding share-based payments, have increased by 7.7%. The lower growth rate when measured against the GP growth of 14.0%, demonstrates the return from the investment made in new staff in the previous financial year. Early in H2 FY22 we welcomed our new graduate and apprentice sales intake, which should see us well placed to continue our growth trajectory.

Other costs

Other costs, while only representing 16.6% of total Group administrative costs, has increased by 6.1% primarily due to new head office costs arising in H1 FY22 not present in the prior year period. These include professional fees and other items related to operating as a public listed company.

Travel, communication and marketing expenses have not reverted to pre-lockdown levels and are still broadly in line with those experienced during H1 last year. With the return to work by our employees and customers, and following our graduate and apprentice sales intake in early H2 FY22, we expect these costs to increase gradually in the second half of the year.

Adjusted operating profit and operating profit

Adjusted operating profit excludes, from operating profit, the effects of significant items of expenditure which are non-recurring events or do not reflect our underlying operations. IPO costs, acquired intangible amortisation and share-based payment charges are excluded. We believe that adjusted operating profit provides readers with a more meaningful measure to evaluate our profitability, performance, and ongoing quality of earnings. Adjusted operating profit for H1 FY22 increased to £25.0 million (FY21: £20.5 million), representing growth of 22.0%.

Operating profit increased from £19.5 million to £23.2 million equating to an increase of 19.0%. This difference is primarily due to the introduction of share schemes during the period with share based payment costs increasing from £154k to £1,021m, which was expected and budgeted for in light of the IPO occurring in December 2020 (H2 FY21).

Corporation tax charge

The effective rate of Corporation tax charged for the half year is 19.9% of profit before tax. This is higher than the standard rate of tax of 19% due primarily to the estimated non-deductible expenses being higher in the period.

Cash

The Group started the year with a cash balance of £20.7m. Cash generated from operations was £27.0m and after outflows for taxation (£4.3m), finance costs (£0.3m), financing activities (£0.1m) and capital expenditure (£0.1m), finished H1 FY22 with a cash balance of £42.9m.

The Group has maintained its historic track record of strong discipline and good practices in cash collections that have been built up over many years and which minimises risk in the debtors book. Accordingly, it has achieved average debtor days of 36 across the reporting period.

As part of its focus on managing working capital, the Group measures its cash conversion by dividing cash generated from operations, less capital expenditure (together, 'free cash flow') by adjusted operating profit. For the period the Group achieved a healthy cash conversion ratio of 107.5% (H1 FY21 47.5%). The prior year ratio illustrates the sensitive nature of this number to even small delays in payment from customers. However, the Group targets a sustainable cash conversion ratio above 100%.    

Dividend declaration

As stated above, the Group's dividend policy is to distribute 40% of post-tax pre-exceptional earnings to shareholders. Accordingly, the Board is pleased to declare a gross interim dividend of 2.0 pence per share. The aggregate amount of the proposed dividend expected to be paid on 3 December 2021 out of retained earnings at 31 August 2021, but not recognised as a liability at the end of the half year, is £4.8m. The salient dates applicable to the dividend are as follows:  

Additional information required by the Johannesburg Stock Exchange:

1.    The GBP:ZAR currency conversion will be determined and published on SENS on 15 November 2021.

2.    A dividend withholding tax of 20% will be applicable to all shareholders on the South African register who are not exempt therefrom.

3.    The dividend payment will be made from a foreign source.

4.    At 28 October 2021, 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 Tuesday, 16 November 2021 and Friday,19 November 2021 (both dates inclusive). No dematerialisation or rematerialisation orders will be permitted between Wednesday, 17 November 2021 and Friday, 19 November 2021 (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, although, through their skills and diligence, everyone in the Group plays a part in protecting our business from risk and making the most of our opportunities.

We have identified ten principal risks and uncertainties that could have a significant impact on the Group's operations and are assigned to four categories: financial, strategic, process and systems, and operational. Bytes 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. 

The current principal risks and uncertainties that the Board believes could have a significant effect on the Group's financial performance are:

These risks and uncertainties have not changed significantly since those published in the 28 February 2021 Annual Report in May 2021. Contained above is a revision of risks pertaining to Vendor relationships, Competition and disintermediation and Cyber threats (Direct). The Group continues to monitor the impact of Covid-19, as discussed within the Chief Executive Officer's review, above.  Further information on the risks can be found on pages 44 to 53 of Bytes' 2021 Annual Report and Accounts, which is available at

https://www.bytesplc.com/investors/results-and-reports 

Going concern disclosure

The Group performed a full going concern assessment for the year ended 28 February 2021. As outlined in the Chief Financial Officer's Review above, trading in the first half of the year demonstrates the Group's strong performance in the period and its resilient operating model, with the Group exceeding budget expectations in the period. The Group has a healthy liquidity position with £42.9 million of cash and cash equivalents available as at 31 August 2021. The Group also has access to a committed revolving credit facility that covers all the Group's reasonably expected cash requirements over the going concern period to 28 February 2023. The Directors have reviewed trading and liquidity forecasts for the Group as well as continued to monitor the effects of Covid-19 on the business. The Directors have considered the availability of the Group's revolving credit facility, which remains undrawn as at 31 August 2021. The Directors have also considered a number of key dependencies which are set out in the Group's Principle Risks report, specifically the Group's exposure to credit risk, liquidity risk, currency risk and foreign exchange risk as described in note 11 of the interim accounts. 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 2021. Under all scenarios assessed, the Group would remain cash positive throughout the whole of the going concern period.

Going concern conclusion

Based on the analysis described above, the Group has sufficient liquidity headroom through the forecast period. The Directors therefore have reasonable expectation that the Group has the financial resources to enable it to continue in operational existence for the period up to 28 February 2023.  Accordingly, the Directors conclude it to be appropriate that the consolidated financial statements be prepared on a going concern basis.

Directors' Responsibility Statement

The Directors confirm that, to the best of their knowledge:

-      the unaudited Condensed Interim Financial Statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union;

-      the Interim Management Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

-     the Interim Management Report includes a fair review of the information required by DTR 4.2.8R (disclosure of relates parties' transactions and changes therein).

Neither the Company nor the Directors accept any liability to any person in relation to the half-year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

On behalf of the Board

Neil Murphy                                Andrew Holden                                         

Chief Executive Officer              Chief Financial Officer

27 October 2021

Bytes Technology Group plc

Interim condensed consolidated statement of profit or loss

For the six months ended 31 August

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.

Bytes Technology Group plc

Interim condensed consolidated statement of financial position

Bytes Technology Group plc

Interim condensed consolidated statement of changes in equity (unaudited)

For the six months ended 31 August