Bytes Technology Group plc

Good morning everyone and welcome to the bikes technology group H1 interim results update. Where we will consider our results up until 31st of August of this year, so it's half one results. Before we do this, let me just take you through the running order of today's update. And just to remind any analysts and investors on the call that we've got a Q&A tab on the screen you'll have in front of you. And you can put your questions on there and we'll answer those at the end of the presentation. Okay. So many of you know me, and for many of you who know the Bytes story, I'm the CEO and I've been working at Bytes now for 25 years. I'm pleased to still be going pretty strongly. I'll be sharing today's duties with Andrew, our CFO. And I've got here in brackets in my script, it says, he's only one bad haircut away from being a Boris Johnson lookalike, close brackets. So there's a bit of jesting first thing in the morning. I'll take you through the high level performance and overview before Andrew goes into a bit more detail on the financial results for the period under review. I'll then take a bit of time to remind the audience of our strategic imperatives. Followed by a summary of the half and then give you an outlook on the remainder of the financial year, which I know will be great for all of you. So let's just get into the meat and veg of this presentation. If I was to pick one word to describe this slide, I'd probably use the word continuity. At IPO almost two years ago, we talked about our commitment to delivering year on year double digit growth and what we're presenting today is a continuation of that theme. This performance reflects robust demand from both corporate and public sectors, with our customers showing continued appetite to invest in their IT requirements, despite the macroeconomic environment. A key reason for these results can be traced to the high-quality customer service that sits at the center of our business and makes us so competitive in our markets. And for this, I'd like to extend my thanks to the people at Bytes who do an outstanding job supporting our clients. But let's just spend a few moments and go through the headlines on the slide. I'm especially pleased with the continued strong double digit growth in grossed invoiced income or gross sales is another way of describing it. This reflects the very strong sales engine that we have built up in the group over the years. And just to put this into context and to illustrate our recent years growth, these half year sales at 786 million are delivered in just six years. But in the entire financial year to February 2020, which is just two and a half years ago, we did 722 million. So we've grown the sales engine quite considerably in just a very short period of time. Our almost 24% growth in gross profit reflects the quality of the work we do with our customers and indicates a healthy demand for our products and services. And it also further supports our decade-long double-digit CAGR track record. Obviously we delighted to report AOP up by 19.2%. It's a very pleasing number. It is below our GDP growth and that's due to the increased costs in the past year, which Andrew will talk about in his section. But it's an indication also of the continued investment we're making in the company and our people. Earnings per share up at 17.7% reflects another good year of organic profit growth for the group. Our AOP to GP ratio at 45.5% is a metric that reflects the efficiency of the business in terms of the efficiency model that we have in our operation and our ability to convert gross profits into adjusted operating profits. Whilst I often talk about the simplicity of our business, it's fair to say that our accountancy friends like to complicate things. And so the revenue number in our case is a good example of this added complexity. And it reflects the accounting principles of British 15. Again, Andrew is going to touch upon that a bit later. For businesses like Byte, GII is a much more relevant metric to measure our sales performance by rather than revenue, and we're happy to take questions about that at the end. Although you'll see in Andrew's section that our cash conversion is lower than the comparative period last year, in previous years to that, H1 has typically been a low-performing cash conversion half for the company. If I go back to it was very, very low in both of those years of 47% and no percent. There's not an uncommon thing for the company to have a difficult first half and cash conversion. It always makes it up. Makes great. Progress in the second half. So as a consequence of that, I'm pleased to announce a 20% increase in the interim dividend of 2.4 pence per share, which will be paid in early December. Now moving on to the how we move on to the how element of our success this last six months. This slide is really about our key stakeholders, employees, customers and vendors. It's fair to say that much of our success in this half is comes from the work we've done over many years and we continue to build upon these foundations. Our simple strategy in business has taken many years of investment and planning, and we believe we have a formula which works and is based upon these three core components. However, we will never be complacent, and we will keep a continual watchful eye on every moving part of these three pillars. Sustainability and continuity in these areas drive long-term value and growth. When it comes to employees, left-hand side, I'm often asked, how many people work at Bites? And I jokingly reply, about half of them. This is quite a well-known joke in the organisation, but of course, it's not true. It's probably more like two-thirds. But anyway, when we report our group employee MPS result at year end, I'm confident of continued good news in terms of staff satisfaction. We've increased our headcount by 13% this year as we continue to invest in the business and to build for future growth. We actively encourage a culture with a growth mindset, and in fact most of our staff advice have only ever known the business deliver double digit growth. small steps every day has allowed us to add 300 new customers as net new logos in our business in h1 with around 5 000 customers now in our portfolio and at the same time we have a gross profit renewal rate of 120 percent from a like-for-like customer set in the corresponding prior period the focus on customers is relentless And to help us with this focus, we ask ourselves various questions such as, are we meeting our customers' needs consistently? What's going on with our clients and our clients' clients? What impact is the energy crisis having on our customers? What about the inflation and interest rates? What about supply chain woes, logistics issues, continued COVID lockdown in China, etc., etc.? How are these things affecting our customers? that to better understand our clients, we must put ourselves in their shoes as customer service is at the core of our business philosophy. Again, we will report our group NPS for customer satisfaction at the end of the year, and I'm confident we'll be pleased with the outcome. I'm grateful also to our clients for their continued confidence in us as a value-added part of their own ecosystem of partners. And as far as our vendors are concerned, we continue to work with the world's biggest and best to provide our customers with first-class IT solutions. And in recognition of the strength of our partnerships, we won the Microsoft Worldwide Award for Operational Excellence. This was awarded to us in July just a few months ago, where we were selected from over 3,900 Microsoft partners globally. This is no average award. Microsoft said at the time, this achievement highlights your truly exceptional work in delivering solutions built on the Microsoft Cloud and platforms. Solutions that positively impact our mutual customers across the globe. Many other awards from vendors such as Minecast, Darktrace, Checkpoint, Barracuda, and Dell demonstrate our capability and strength of relationships with vendors. who see us as an integral part of their go-to-market channel. Moving on to the next slide, our high-quality customer service is at the center of our business. The holy grail of customer service is often defined by the willingness of customers to keep coming back to you. We've worked hard at this element of our business over many years so that we've become a trusted advisor to our clients. This is an iterative process. But once again, culture is at the heart of this. We believe we have built an organization that is a fun place to work where people can build a successful career and also build great friendships. We have an environment that is collaborative and teams-based, supported by highly experienced management teams where staff take responsibility for their actions and also take great pride in their work. It takes multiple activities and endeavours to get the right culture, but this includes elementary items like enrolling as many staff as possible into the company share-save scheme, where over 58% are now enrolled. These people now feel invested, both from a financial perspective and, of course, emotionally. Directors and managers are very conscious that the word care is a vital component of management currency. These efforts have recently been recognized with both operations in the business becoming certified as great places to work in 2022. Investing in the future by recruiting more people in order to scale the business to take advantage of the strong market opportunity is, of course, nothing new for Bytes. That's why in the past six months we've increased our headcount by 13%. and expanded our customer-facing headcount with 40 new technical people and more sales staff to ensure we continue to grow at double digits. We're confident that these additional costs will pay off in the medium and long term, just as they have done in recent years. We've also invested in skills development and training. We sincerely believe that by investing in our people, we are indirectly investing in our customers. This is significant because it helps us build long term sustainable customer relationships. As a sales driven business, 53% of staff are involved in customer facing roles and we will continue to build our sales engine through the rest of this financial year and further invest in our high performance and high reward sales culture. Our highly focused sales engine concentrates on where to play and how to win. I like to think of them as consultative salespeople, but with a degree of coin operation. Some of them, I must confess, are like Labradors who want the quickest and easiest meal. But like a pet dog, they are loyal and we have lost only one of our top 50 sellers in the last six and a half years. This is very significant for our business and is integral to our customer longevity story. And that's a lot of the fluffy stuff, but very important stuff. And I'm now going to turn to Andrew's section so that Andrew can cover the first half of the financial year at a financial overview. Thanks, Andrew.

Thanks a lot, Neil. And as Neil introduced me, I was... One bad haircut away from Boris Johnson. I'll remember that to keep the same hairdresser I've got. So straight on to the income statement. We can see our gross income is up $148 million to $786 million, which is a growth of just over 23%. And in Lionel's prior years, our sale of software solutions makes up most of our sales at 94%, with the sale of hardware and services coming in at 2.4% and 3.5% respectively. Our public sector grew by 20% from 416 to 500 million pounds, and this equates to 64% of our total GII, with a balance of 36% or 286 million pounds coming out of the corporate sector. This in turn equates to a 29% growth. As far as revenue concerned, our judgment around the way we recognize revenue has been updated since we published our full year results at the end of February 2022. This updated judgment is in line with our peer group in both the UK and the rest of Europe. In the past, we've seen ourselves as an agent when selling cloud solutions and security solutions, as well as some externally delivered services. In the period under review, we have changed this judgment to recognize all software sales and all externally delivered services as agent that is on a net basis. So where we only recognize the gross profit as the revenue. We have restated the prior year in line with this change. Our gross profit, which for us is one of the best measures of the company's performance, is up 23.8% to £65.5 million, and this in turn gives us a GP to GRI ratio of 8.3%, which is in line with the performance of the first half of the prior year. For the full year of 2022, this ratio reflected 8.9%, and at first glance, it would seem that we continue to face margin contraction. However, in the first half of our year, we see the majority of our lower margin public sector business, while the second half is dominated by a higher margin corporate market. In contrast, Our gross invoice income ratios, we see most of our profit coming from our corporate sector, and the sector grew at 22% to £41.3 million, representing 63% of our total gross profit, whilst the gross profit from our public sector grew 28% to represent £24.2 million. From an administrative cost point of view, we have a growth of 28.6%. And to get a clearer view of these costs, we need to break it down a little bit further. And so if we look at employee costs, which make up 78% of our total cost base, this grew at 19.8% to 29.7 million. And if we were to exclude share-based payments, this increase was 17.6%, which is notably lower than that of the 23.8% growth in gross profit. During the reporting period, we've seen total staff numbers increase from 773 to 871, and this equates to 13%, which is sort of the underlying reason why our remuneration cost has grown. The rest of our administration costs increased by £3.6 million to £8.5 million, and these included several staff-related costs such as welfare, entertainment, recruitment and so on. As predicted in the prior reporting period, our travel and entertainment costs have not reverted back to pre-lockdown levels, but have increased compared to those experienced in the corresponding period in H1 last year by £0.3 million. Also in line with our ageing debtor profile, in our debtors book, we've increased our doubtful debt provision by £1.15 million, which is included in the £3.5 million increase in administrative costs. This means that adjusted operating profit, which excludes AMORT and other acquired intangibles and share-based payments, is up 19.2% to £29.8 million, And at half-year, our efficiency ratio of just operating profit divided by gross profit is 45.5%, slightly down from the 47.3% in the prior period. So moving on to the balance sheet. And focusing on three key messages. Firstly, we continue to be a lot from a capital nature. We own our own buildings, the bigger buildings in Leatherhead and York, and with the smaller premises in Reading and Manchester are either leased or are shared office spaces. We have no intention of changing this model and prefer the flexibility of shared environments as we continue to look at expanding up the print to match opportunities, whether it be in the customer base or the skills base. From an IT and application perspective, all our contract management modules, cloud management platforms, software and asset management capabilities are all developed in-house with our own resources and in line with priority as we continue to expense these costs. If we spend a little bit more time on receivables and payables, and as Neil alluded to in his opening remarks, the cash balances of the first half show we've converted none of our operational profits into actual cash. So trade receivables increased from £102 million to £177 million, partly due to the increased trade, but mostly due to our average debtors' days increasing from 32 days to 38 days from the comparable period. Some of the positive attributes of the cloud include flexibility and agility. However, the downside of these positives are often complex and variable invoices, resulting in queries and different approval processes that in turn delay our payment processes. Trade payables also increased from £150 million to £199 million on the back of increased trading. Average creditor days are consistent with prior years and always. We continue to ensure that we remain within contract terms for all our partners and vendors. The last comment on the slide is around cash, and given the size of our monthly collections and patents, even a small movement of a few days would surely affect this number. We end the reporting period with cash of £35.8 million, which means a negative cash conversion for the first half. The group continues to target a sustainable cash conversion of over 100% over the longer period, and management are confident that we've returned to higher levels of H2 this year. So onto the cash flow. If we look at the cash generated from operations we've gone through, so I'd just like to spend a little bit of time around the trade receivables and more time around the trade payables. So we've already gone through the trade receivables of 30 million, and that represents, well, 30 million out of the 30.6 million pounds that we've absorbed into working capital. The balance of 18 million pounds are more cyclic in nature, include statutory, so i.e. VAT and bonus payments. And we've had a slight increase reduction in receipts in advance, and then our trade payables as such is also reduced by $8 million. So that makes up the $18 million that we've absorbed into working capital via the trade payables. We are currently and we are still in debt-free. We do have access to a revolving credit facility of 40 million pounds, which we have not utilized at all. However, the setup and maintenance cost of this facility is reflected as interest paid of 200,000 pounds for the half year. We've been asked before how much cash we need to keep in the balance sheet, and the answer is currently around the 40 million pound mark. as holding this amount of cash will enable us to navigate the monthly movements in working capital and ensure that we remain in a position to pay all our liabilities when they fall due. The factors that influence this cash flow include cash conversion and the planned reduction in our debt facilities. And as management are confident that we will return to higher cash conversion rate, only the revolving credit facility will alter the amount of cash that we need to hold. Onto the last side of my section, and our dividend policy is to return 40% of our post-tax adjusted operating profits to shareholders via ordinary dividends. I'm therefore pleased to announce that our board has approved an interim dividend of 2.4 pence per share, which is 20% up in the prior period of 2 pence per share. So with that, I'm going to hand back to Neil to cover that outlook. Thanks.

Typical user error. I was on mute so apologies for that and that'll teach me to play around with the mouse whilst Andrew's talking. So anyway, thank you Andrew for that. I'm going to talk about our ESG roadmap and also an update on the strategy before I go on to the outlook and summary. So just slight technical hitch there. But I think we're back to normal now. Apologies for that. All the best movies have technical hitches during the production process, I'm told. So as a business, we can't stand still. And so our biggest challenge really is how to transform the business whilst also running the business. And for us, transform means tiny incremental changes on a constant basis. A gradual measured transition over multiple years. So when we look back and join up the dots, we can see what we have achieved and how we've achieved it. When we do this at bytes, we see a pattern and a formula which is repeatable and which has longevity. You could describe it as more of the same and you would not be wrong. Small steps every day has allowed us to add 300 new customers as net new logos into the business in H1. Our organic growth continues to be at the heart of our business and our simple but repeatable strategy of expanding our customer base and increasing wallet share is a familiar story. We'll continue to pursue the simple but repeatable strategic goals by increasing the size of our sales engine with more feet on the street covering more ground and addressing the massive opportunity in our total addressable market. We'll be creating more regional sales capability across the UK and Ireland. We'll be collaborating with high growth vendors to harvest the maximum opportunity to help clients adopt the very latest technology. We'll be increasing share of wallet because we have low single digit market share and so we have plenty to go after. And we will be reporting on customer GP growth at the end of the financial year when we have a full 12 months of measurement. Whilst we focus on our organic growth, we always maintain the option of M&A to complement our future growth potential. There is opportunity for accretive growth in adjacent technology areas or other geographies. We always keep this under review, as you know, but we're extremely happy with our organic growth focus, and that continues to be the core focus of our strategic growth going forward. I would like to turn to the subject of sustainability in ESG. Let's start with the E as much talk about this, but let me give you an update on the subset of some of these very important topics and what we're doing about them here at BITES. We're progressing our environmental targets under our low carbon action plan. And while given the very nature of our business, our carbon footprint is relatively small. Reducing this further nevertheless remains a really key focus for the group. We've continued with our actions around scope one and two reductions, and we're engaging with our supply chain around scope three emissions reductions as well. As the initiatives under our low carbon action plan develop, we'll be partnering with environmental specialists to work with us in driving our net zero goals. And as part of this, we aim to align our plans with the science based targets initiative to ensure that these have maximum beneficial impact on the environment. Secondly, our carbon disclosure project. In H1, we completed our first CDP submission as a listed group. We view this as another important platform through which we are able to disclose to stakeholders the positive work we do around managing our environmental impact, and we're going to continue to mature our reporting in this regard. And finally, on the environmental points, in line with regulation, the start of this year was the first instance where we produced our TCFD, or Task Force on Climate-Related Financial Disclosures, report. We support the broader adoption of TCFD reporting, as we believe it will accelerate business efforts towards the net zero future we all strive for. As such, we follow the TCFD recommendations closely. And as our progress in this regard develops, I've identified areas for additional disclosure which is being attended to. Let's just look at the S. So hereby it's, you know, countless actions and activities were undertaken by staff to provide social and environmental support and charitable work. I never fail to be amazed at how much our staff do for good causes and for people in need. We supported dozens of charities and staff continue to donate a day per year to good causes. whilst the company once again continues to contribute up to 1% of post-tax profits to charities and good causes. In our last annual report, we highlighted our own Women in IT initiative, where the group takes positive steps to recruit, promote and retain more women in the business by offering a more structured succession planning and development programme. Both operations join together to form Women in Technology, It's a group which provides mentorship and buddying to female colleagues across our entire operation. And then finally, under S and social and in supporting staff through mental health and other well-being initiatives, we're further emphasising that care is the new currency of leadership and is an important part of our overall business philosophy. Then from a governance perspective, we continue to strengthen all components of our regulatory and framework obligations, and we continue to keep close supervision on risk management across our operations and very and are very pleased with the progress we have made across all of our operations. Now I'll turn to the summary slide. We've got another very positive start to the year with strong double digit growth in high teens or early 20s percentages in all our important financial metrics and all of it is entirely organic growth. Our customers in both the public sector and private sector continue investing software and services that we provide and we still see strong sector tailwinds in cyber security, hybrid data center and crowd based IT solutions. Much of this is provided by bytes by way of annuity type contracts, providing repeatable business for our group. We've continued to invest in the business, its people and the culture so that we can do just more of the same and scale up our operation to continue our medium and long term growth. Now let's just turn to the outlook as we complete the presentation this morning. With almost two months of H2 now under our belt, we've seen a continued momentum in our business across private and public sector verticals with demand across our entire range of products and services. Post COVID new ways of working are here to stay. We believe we are now operating in the new normal and our business, frankly, is thriving in this environment. We continue to be well-placed to capitalize on the demand for software services and IT solutions in a market where we have low single-digit market share. We continue to work in close partnership with the world's most successful IT vendors to grow our business. Yes, there is an uncertain economic and political landscape today. Business will not be without its challenges. We remain vigilant and will certainly not be complacent. but we remain confident that we will continue to deliver double-digit gains in line with our strategy. So that concludes today's presentation. You'll find further notes on the system on the screen for your benefit, and you also have other sources of material. But let's just turn to the questions in our Q&A box. Question one, I think, Andrew, is probably focused towards yourself. A question about cash flow from Alex Neugen.