Bytes Technology Group plc

Good morning. I'd like to thank you for joining us for Byte's full year results presentation for the year ending February 2023. We're delighted to present another very positive set of results with strong double digit growth driven by contributions from all areas of the business. As we enter our 41st year of trading, I'm pleased to say that demand for IT across our entire customer base remains high and more on that shortly. Before we turn to the highlights, I just want to take a moment to reflect on what has been a cracking 12 months for the business. This success is built on the solid foundations we've laid over many years. It's built on long-term investments we've made in our systems, our relationships with customers, and our partnerships with the world's most successful IT vendors. And importantly, it's down to our people. Each and every member of the team who works in the business has played a crucial role. And without them, these results simply would not be possible. And I would just like to pay tribute to their passion, their commitment, and their hard work. Turning first to the headline results, as I said a moment ago, we've delivered another strong year of sales and profit growth, extending our track record of progress. Grossed invoiced income is up almost 20% at £1.44 billion, which is double the level of sales we reported this time three years ago. Looking at our other core metrics, gross profits are up by 20.7% to nearly £130 million and adjusted operating profit is up 21.8% to £56.4 million. This reflects strong demand for software, services and hardware from both our public and private sector clients. These results are also further evidence that we're continuing to grow our market share. Now, in terms of other headline figures, our AOP to GP conversion rate remains industry leading and ended up a little higher than the previous year, at 43.5%. Going forward, we think maintaining this ratio in the low 40s is sustainable. As far as cash conversion is concerned, after a very strong second half, we finished the year at 84.3%. Looking ahead, we're comfortable with delivering normalised cash conversion of above 100%. Now, for the benefit of those new to the company, I'd like to spend a few brief moments and turn to our track record of performance over the past 10 years and since IPO in December 2020. It's only when you look back and review the journey we've taken that you see the scale of the progress we have made and the consistency of our performance. The results you see today are the consequence of decades of investment in people, in systems and in culture. Layer upon layer of experience, skills, relationships, customers, contracts, projects and knowledge. We have a tried and tested business model that has stood the test of time. And our plan is to stay true to that strategy. It's well understood by management and it's well understood by our teams. The 10-year picture shows a CAGR that's even higher than the last three years. And this reflects the accretive benefit of our acquisition of Phoenix in late 2017. Now, turning to a key part of our business model, let's briefly look at the vendor partnerships we have. Our role as a multi-vendor reseller provides our customers with a leading selection of technology solutions to meet their specific needs. Our long-standing partnerships with vendors means we're also able to help our customers access those solutions on the best commercial terms. This makes us a trusted partner And together with our increasing range of value-added services, these client relationships stick. In turn, this supports a level of familiarity with clients that vendors cannot cultivate themselves. So we connect vendors with thousands of clients that they would otherwise find it challenging to reach. We have had long-term relationships with most of the vendors on this slide. We also have newer vendor partnerships that we hope to convert into key relationships over time, such as that with AWS. In addition, we will grow our business with the likes of Cisco, with IBM, and with Oracle, and other global success stories to offer our clients more choice. Winning awards from vendors is an important measure of success and a stamp of approval which our customers demand. This builds our brand not just with customers, but also with the sales and marketing functions at the vendors. That's crucial as those teams are often a rich source of lead generation and new business activity. They can be and are an extension to our own new business efforts. Now let's turn to our most important partnership and spend a few moments on Microsoft. While continuing to diversify through adding new vendors, There is no doubting the continued importance and benefit of a strong relationship with Microsoft. I think by most people's measure, the world's most successful software company and the go-to vendor for digital transformation. We first partnered with Microsoft in the 1990s and just over half our gross profit comes from the relationship with Microsoft and continues to grow at consistently healthy growth rates. Reflecting our focus, our work with Microsoft is firmly with their fastest growing segments, namely public cloud, cybersecurity, and productivity and data, all of which are growing in double digits. After almost three decades, there is a deeply embedded relationship and a mutual respect for one another's achievements in that time. Bytes was their first partner in the UK to pass one billion in Microsoft sales back in 2021. and we continue to be a key partner for them in the UK and Ireland. We also help to manage some of their very largest UK contracts. The success of this partnership was underscored by Bytes winning a global award last year for operational excellence. This was all the more remarkable as we were selected from over 3,900 partners globally. We continue to invest in the relationship by expanding our services portfolio and by achieving the very highest technical accreditations. This further strengthens and cements our relationship with Microsoft and a whole host of satellite vendors, and it also makes us even stickier to our customer base as they come to rely on us more for value added services. Looking ahead, we are well placed to further expand this relationship. Turning now to customers. They're at the heart of what we do. Our commitment here remains crystal clear to develop and maintain close, trusted partnerships over the long term. There are customers I remember dealing with a sales director back in 1997, and they remain customers of ours to this day. As they grow, so does the scale and sophistication of their IT requirements And so does the level of repeat or annuity business. Last year's performance illustrates the strength of these sticky customer relationships with the renewal rate of 116% of our gross profit coming from existing customers. This strong level of repeat business allows us to more accurately forecast our trajectory. The growth of our own IP in the form of Licensed Dashboard, Quantum for Azure and 365, and a whole host of cloud and security services has helped drive sticky customer relationships and an array of annuity-based software and services. This gives our business strong revenue visibility as we estimate between 60% and 70% of our business is now sold as software as a service or of an annuity type. In terms of historic growth in our customer base, you can see here the last 10 years' growth in the group's number of customers and the growth in gross profit per customer. Last year alone, we added 600 net new customers, taking the total to nearly 6,000 and growing gross profit from existing customers by 8.5% to nearly £22,000 per customer. And that's down to the fantastic work of our sales teams. We estimate that on average, we still have less than 20 to 25% of the available share of wallet in our client base, meaning there's a significant runway for further growth from these existing relationships. For some years now, we've run a program we used to call Seven Steps to a Million. It's a framework which guides new salespeople to optimal performance. laying out a seven-year path to delivering more than £1 million of gross profit for the business. We've now renamed it Five Steps to a Million, as we're finding that this level of achievement is being reached by newly qualified sales heads within just five years. And finally, we know our customer relationships are strong and meaningful because we validate them with customer satisfaction surveys to help guide us and to ensure we are supporting our clients appropriately. I'm pleased to report that our customer NPS score remains outstanding at 77, underlining our reputation as a trusted partner with a strong focus on the customer. I'll now hand over to Andrew to talk through the financials in a bit more detail.

Good morning. Neil has talked you through the headlines. In a moment, I'll take you through the financial results for the full year 2023. But first, a few words around our accounting policy in regard to revenue recognition. As announced at half year, we've aligned our judgment to our peer group across UK and Europe. We now record all our software sales and externally delivered services as agent. So here we record only the gross profit from those sales as revenue. We have also restated the prior year in line with this change. So turning now to the income statement, we saw strong growth across all our key indicators. Our gross invoice income is up £231 million to just over £1.4 billion, which equates to a growth rate of 19.1%. Due to the accounting policy change, revenue growth as a percentage is now better aligned to our growth recorded in the GRI figure. The difference in percentage reflects a higher growth in hardware and services than what we achieved in software sales. Our gross profit, which for us is one of the best measures of the company's performance, is up 20.7% to £129.7 million. This in turn gives us a GP to GII ratio of 9.0% for the full year. FY22, this ratio was 8.9% and the improvement reflects good work at both operations to add richer margin solutions and services to all of our customers. Adjusted operating profits, which excludes amortisation of acquired intangibles and shared base payments, is up 21.8% to £56.4 million. The efficiency ratio of adjusted operating profit divided by gross profit is at 43.5% up from the 43.1% in the prior period. This improvement is mostly due to the enhanced productivity arising from increased economies of scale. All of this gives me real confidence for the future. Underpinning our strong performance, is a real diversity in our market segmentation, our customer base, and our vendor partnerships. Software solution sales continues to make up most of our sales at 93.5%. Hardware and services come in at 2.7% and 3.8% respectively. Although hardware and services make up a small percentage of our total sales, The combined contribution to our GII is in excess of £90 million. That's a 29% growth year-on-year. Real progress has been made in creating value-added services surrounding our software solutions that assist our customers in getting the best value from their software estates. We continue our dual focus on both the small, medium, enterprise segments in the corporate market, as well as growing our public sector business. Our public sector business grew by 18%, from £727 million to £857 million. This equates to 60% of our total GRI, with a balance of 40%, or £583 million, coming out of the corporate sector, which grew 21%. We partner with over 100 vendors and take these solutions to our extensive customer base. As in the prior years, Microsoft and their products and solutions remain at the very core of our value proposition, representing 64% of our GRI and just over 50% of our gross profit. We are seeing major areas of growth in both the transition and the consumption of cloud-based technologies, modern workplace and our cyber security offerings. Cybersecurity pervades all that we do, so it's difficult to pinpoint cybersecurity's exact contribution to our gross profit. But when we look at the contribution of our cybersecurity-focused vendors and the nature of our Microsoft sales, we can confidently say that cybersecurity contributes in excess of 20% to our gross profits. So this all gives you a flavor of our diversity of our income streams across our market, our customer base, and from our vendors. Now, in their interactions with various stakeholders over the last year, the conversation has often turned to the current inflationary environment. It's true that in the last 12 months, we've seen various vendors increase their prices. But if anything, this has been a benefit to us as we've been able to generally pass these increases through to our customers. And so, our margins have been unaffected. Historically, in terms of cost, the bulk is in salary, commissions and other employee-related lines, making up over 80% of our administrative expenses. As you can see from the graph, over half of our employees are in sales and sales support. They benefit from a variable income linked directly to the gross profit they are responsible for. So as we grow, so do they. We continue our practice of promoting from within, continuing to train and develop our people to ensure that we have the right skills on hand when the opportunity arises. As we grow and people rise in seniority, vacancies are created at a more junior level, which we fill, focusing our selection criteria on a cultural fit, continuing our investment for the current requirements as well as investing for future growth, as seen with our headcount growing 20% from 773 to 930 people. With our continued investment in our people, we feel that we are well placed to win new customers and to continue to grow wallet share with the existing customers for many years to come. Our cash conversion has followed similar cycles for most of the last five years. A cycle where we have low cash conversion in the first half, followed by an excellent cash conversion in the second. 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 of 180%, moving the full year figure to 84.3%, which is back towards the group's target of 100%. Our average net as days for the year has moved out to 39 days. However, the focus over the last six months has meant that we've ended the year at 37 days, and this we see as a new normal. As you know, we have a capital light business, so it should come as no surprise to see a relatively small spend of £1.3 million on capex. After tax and returning £30.7 million to our shareholders, we are left with a cash balance of £73 million for the year. We have never drawn down on our revolving credit facility of £30 million, but we thought it prudent to renew this facility for a further three years, which was completed earlier in May. We have reviewed how much cash we need to keep in the balance sheet and are comfortable with around £40 million level. Holding this amount of cash will enable us to navigate our monthly movements in working capital and it ensures that we comfortably remain in a position to pay our liabilities as they're foredue. Our dividend policy is to return 40% of the post-tax adjusted operation profits back to our shareholders via ordinary dividends. So I'm pleased to announce that the board is proposing a final dividend of 5.1 pence per share in addition to the 2.4 pence per share that was paid as an interim dividend in December 22. After the year end, we spent £3 million in acquiring 25.1% stake in an AWS services business, CloudBridge. This enhances our multi-cloud capability whilst ensuring that the internal teams continue to focus on our core capabilities. We have stated that we will return excess cash to our shareholders. Therefore, the board also considers it appropriate to propose a special dividend of 7.5 pence per share, up 21% on the special dividend paid last year. As a responsible business, we recognise that we have a duty, not only to those who work for us, but also to those who work around us and with us. We are committed to protecting the planet by reducing our carbon emissions and helping our customers do the same. Our goal is to achieve net zero by 2040 at the latest. This year we have appointed our first Group Sustainability Manager, reduced our Scope 2 emissions by moving to renewable electricity, expanded our data collection in additional Scope 3 categories in which we have progressed significantly in the past year. Our people believe passionately in making a difference and giving back to our local communities. During the year, over 170 of our staff use their fully paid volunteer days to work for charities and other causes close to their hearts, all causes that are much needed and highly valued in our communities. Strong corporate governance remains the key focus for us, both at the board level and throughout the company. This year, We further strengthened our risk management processes and internal controls, and we'll continue to build on our engagements with both the internal and external auditors. So, from where I sit, the key messages from this past financial year are clear. We are seeing strong, consistent growth across all matrices, continued investment for our long-term future, significant business opportunities, and attractive returns to our shareholders. Neil.

Thank you, Andrew. Now let's turn to our strategy for growth. Many of you will be familiar with our strategy, but for those of you that are new to our story, I want to stress how firmly the customer is at the center of everything we do. Our focus is to achieve consistent profit growth while maintaining our focus on providing high quality services to our customers and maintaining a positive and dynamic workplace culture. We know that this works. To grow our business, we must carry on doing what we've done for years, increasing our scale along the way. So, we've increased our sales headcount and we'll do so again this year. We've opened a new London office to focus on new business opportunities in insurance, banking and professional services. And also, we've opened the office to attract more sales talent into the organisation. We've also grown our headcount in Manchester, in York and Reading. We've also expanded our Irish sales team as well. And we will continue to look at new regions for further growth, including a new Scottish office. We've shown over the years our ability to grow our market share and we will continue to see further gains as we invest in our business. A key part of this will be to work strategically with high growth software companies, especially in cloud and cyber, so that we're in the best possible position when it comes to helping customers with product selection. Increasing our share of wallet is the second key pillar of our strategy. IT is no longer a discretionary item for organisations. It's an absolute must. IT has been and will continue to be the most critical element in enabling the success of business strategy for all organisations. The push towards digitalisation, cloud and hybrid infrastructure, multi-cloud, AI and cyber security all represent tailwinds that we are well positioned to take advantage of. To give you an idea of the structural growth we're expecting, Microsoft expects technology spend as a percentage of GDP to double from 5% to 10% by 2030. With a market share of less than 4%, we see ample headroom for many more years of growth. Whilst we are delighted with our organic growth in recent years, we continue to monitor M&A opportunities, and if and when anything appropriate is identified, we'll take a look. But we see our organic growth as our biggest strategic opportunity, and that's where we're going to focus our energies. Now, let's turn to one of our key differentiators and talk briefly about our staff and our culture. We all know that our strategy is worthless without the right kind of culture. I've been working for Bytes for more than 25 years. I've seen remarkable change and growth in that time. But our culture has been and remains absolutely fundamental. Yes, we're proud of the headlines, of the awards and of the results. But at the end of the day, Culture is about much more than that and bleeds into what we are and how we operate every day with our customers, with our vendors and with each other. It's about innovating, collaborating, being open and empowering others. And very importantly, it's about keeping it fun. It's the energy and expertise of our people that drive this business forward. We don't want our people just to have a job. We want them to build a career with us. Just take a look at our management team. In the main, this group is made up of people who have grown up with the business. We strive wherever possible to promote from within, providing valuable, worthwhile careers. To this point, we recently announced that Sam Mudd, having successfully led our Phoenix operation, is stepping up onto our PLC board at our AGM in July. This is hugely deserved. It's recognition for her achievements and those of the team around her. Our regular company meetings and staff forums allow management to test whether we're staying true to our guiding principles. We're proud of the fact that we support staff in times of difficulty as we behave like one of a big corporate family with staff at the center. We like to go the extra mile for our staff because they do so for the company. We know our staff recognize this. It's reflected in our strong employee MPS score of 70. So in summary, we've once again delivered excellent results with growth year on year of over 20% across our core metrics. We've seen broad-based growth across all vertical markets and all of our business segments. Our business is built on firm foundations with a track record of over 40 years, a strong culture, superb relationships with the world's most successful vendors, and a powerful array of services and subscription-based products that our customers depend upon. At the heart of all of this is a company culture that drives high customer and staff satisfaction, which accelerates growth in gross profit and customer numbers. Underpinning our aspirations and expectations is the demand we see continuing across all of our markets. As a result, we expect to continue to deliver double digit gross profit growth and an increase in our market share. I am pleased to say demand has remained strong since the beginning of our new financial year in March, and we have seen the same momentum continue through our quarter one. As much as we are proud of our achievements over the years, we are just as excited about our growth prospects moving forwards, and we feel energised by the enormous potential of the markets that we operate in. I'd like to thank you for listening today, and we now look forward to answering your questions.