Bytes Technology Group plc

Good morning, everyone. I'm Sam Ludd, the CEO of Bytes Technology Group, and thank you for joining us for our live presentation of our financial year-end results. We also have a live stream audience, so welcome to you that are watching on screen, and I'm delighted to be here alongside Andrew. I've had the pleasure of meeting a number of you before, but for those of you that I've not yet met, here's a quick introduction. I was previously the managing director of Phoenix Software for nearly a decade, and I've been a member of the board since July, which has given me a close understanding of the operations of the group working with Andrew and Patrick, our chair. The circumstances around my appointment are, of course, well known, and I wanted to take a moment to share some of my perspectives of Bytes and the opportunities we have ahead of us. Having worked in IT for many decades, I can detect when a culture is working and feels vibrant and purposeful. And this is very much the case for Bytes. The tenure and experience that we have across our staff positions us to continue to deliver what our customers need in the form of licensing advice, recommendations on solutions and procurement. And this is underpinned by our staff's commitment to delivering for our customers. I'm continually impressed with our expertise and capabilities across multiple technology areas, including new innovative solutions such as generative AI, co-pilot, and how we cater for the ongoing demand for cloud adoption, backup, storage, and security solutions. These will be our key focus areas in 2024 and 2025. One of our strategic strengths most certainly lies in our exhaustive list of vendor partners, many at the highest levels of accreditation available to any channel partner, global or local. We are relevant and well informed on the latest vendor commercial offerings and how to match them to our customer needs. Turning to our financial highlights, Bytes delivered over $145 million in gross profit in this year, an increase of 12.5% and an adjusted operating profit of $63.3 million, up 12.2%, driven by contributions from all areas of our business, but particularly in software. Growth from our public sector clients was particularly strong. due to strategically important contract wins, and we're also pleased that our business from our corporate customers grew strongly again. Our AOP to gross profit margin of 43.4% continued to meet our target of exceeding 40%, while cash conversion was also in excess of 100%, in line with our expectations. Despite the macroeconomic challenges, software and cloud demand remains strong in the UK and we have taken advantage of that. The momentum is there for us to make continued progress in FY25 as customers are still evolving their IT environment to capitalise on the technology available to help them drive productivity and efficiencies. The financial performance of 23 and 24 has continued the consistent trends of growth in our key reporting metrics that we've delivered over a prolonged period of time. We're very proud of this track record and we will spend some time now explaining the key drivers of this performance. Our consistent financial performance is only possible because of our dedicated workforce and we continue to invest in growing our sales teams and supporting functions that will allow us to deliver customer service that is expected of us. 97% of the GP in the year came from our existing customers, reflecting the stable account management culture we have and our commitment to meeting client requirements. And as we've grown as a business, so has our regional office presence. In the last 13 months, we've opened a further two offices in the City of London and Sunderland, bringing us closer to our customers in these important areas of growth, including financial services, retail and public sector. During 2023 and 24, we increased our headcount by 13.7% to 1,057 staff across the business, including sales and support, which came on top of the 20.3% headcount increase in the previous financial year. Our continued investments in technical expertise, of which there were 264 heads, which is 25% of our staff total, means we're able to capitalise on the opportunities we can see in the market. This investment in technical skills is important to provide our customers with the advice needed to make the right technology choices in a constantly evolving IT environment. At a cultural level, we continue to go from strength to strength and our ENPS score was an impressive 71. Moving forwards, employee morale will continue to be an area of focus for us and the management team during the course of the year. Both Bytes Software Services and Phoenix Software have been named among the UK's top 50 best workplaces in the large company category. This in addition to both being listed by the great places in tech, women and well-being categories. These exemplify that despite growing and scaling our operations, we have maintained a healthy culture for our staff to thrive in. And finally, we're delighted to have appointed Claire Metcalf as MD of Phoenix Software following an extended period of time in a senior leadership position within the business. Our diversified customer base is approaching 6,000 clients and we're pleased to report that 97% of GP in the year came from our existing customers, with a 109% renewal rate reflecting the stable account management culture we have and our commitment to meeting client requirements. The stickiness of the customer base is in part due to the large volume of non-discretionary spend from UK corporate and public sector organisations, where IT is vital to their day-to-day running. And this is evidenced by the high renewal rates of annuity-type contracts, which represent over 70% of our sales GP. Security represents 25% of our GP, and backup and storage and remote working technology are all still in demand, despite a challenging economic backdrop. These software licences are required to enable a business to function in the same way they need gas and electricity, and thus we have a high level of repeat business year on year. Inevitably, we're also seeing growing demand from customers for support and guidance around AI, products and functionality. And this represents a significant opportunity for us, not least with Microsoft Co-Pilot. And we're focused on capitalising on this emerging technology by helping our customers review their infrastructure, their data centres, their security and preparedness for this new era of AI. As a business, we have strong historical vertical capabilities in areas such as education, policing, NHS and public sector, and in corporate sales channel, but also particular expertise in retail, legal, finance and private health. We understand our customers' business challenges and their budgetary constraints and procurement routes that make our relationship more strategic and enduring. And the logos here depict our diversified customer base and our strong industry MPS score of 82. This is testament to the fabulous experience that we provide to our customers. Here are two case studies I'm going to quickly take you through. The first one is CFC, which is a great example of a strategic customer with whom we gained their trust and are able to show how we can grow our share of wallet to a wide range of products and services. Bytes have worked with CFC for more than five years with our initial engagements focusing on advising the team as they move their outsourced IT infrastructure back in-house. This included advising on the appropriate technology to support the needs of their fast-growing company as well as to help them gain visibility and control of their spend. Our partnership has grown over the years and Bytes now supply, advise and maintain approximately 80% of their IT spend. CFC use Bytes for all software, hardware and services and our consumers have managed service security and backup services too. Their total spend totalled 2.8 million of sales, which is 75% more than was delivered by Bytes in the previous financial year. The second case study covers our partnership with the University of Stirling, which is a great example of our land and expand strategy in action. Phoenix Software has held a long-term relationship with the university, mainly focused on their Microsoft and Adobe licenses over many years. But this strong partnership has helped us open up a really exciting stream of new business with them, a transformative five-year commitment to support a research project on the River Forth, which will see us partnering with the team to create a digital twin of the river. This project demonstrates the opportunities that can be opened up by nurturing long-term relationships and multiple services that we can offer to businesses and institutions. I've talked a lot about our vendor partnerships and it's key I underscore how important these relationships are to our strategy and how we go to market. You will see here the top tier strategic vendors we work with daily across both operations and where we derive a high proportion of our GP from. We benefit from over 100 strategic relationships with vendors and distributors across the group. There are strategic vendors we have worked with for decades, such as Dell, who have pivoted even more closely to channel in recent years and now rely on partners like Bytes for their reach and customer relationships that they no longer cover exhaustively. We're also focused on ensuring we're well-placed to understand new distribution and customer procurement routes to markets such as Adobe and Microsoft Marketplace, and also with new and up-and-coming vendors such as Bacarda, who we've recently partnered with, and we're excited about the physical security market opportunity we can see. Overall, we pride ourselves on being the best of the best in the industry. And these accreditation levels reflect that. We want to be the safe pair of hands that our customers trust. That brings a close to the first part of the presentation. I'll hand over to Andrew to now talk you through the financials in more detail.

Thanks, Sam. And good morning to everyone. And it's nice to be back in person for a change. And so I'll take you through the financial review and then a couple of words around our progress around our sustainability efforts. So starting off with... Gross invoice income up 26.7% to just over £1.8 billion. And this includes, obviously, the substantial Microsoft contract wins that we had in the first half of the FY. Just as a reminder, the biggest of those was the NHS contract coming in at around about £800 million over a five-year period, and we're approaching the second year of that now. Gross profit, this increased by 12.5% to £145.8 million. and reflects the impacts of those large public sector contracts that we've won, and typically these transact in the first year at a reduced margin, and then lasting three to five years, and we back ourselves, and we have a strategy and track record of converting these, opening up other software, hardware, services, environments over the next years, and I think Sam will come back and talk about the land and expand strategy in the latter part of the presentation. So as a result, GP over GRI, this reduced to 8%, and that was a reduction of 1% in the prior year of nine. But however, if we strip out these sort of major contract wins, then it's very, very similar to the year-on-year comparisons of 9%. So administrative costs. Administrative costs are up 13.2%, and that's slightly ahead of our gross profit growth. But we've seen our employee costs rise in line with our gross profit at 12.5%. And then during the year, we've added 127 heads. We've ended up at 1,057 heads for the full year, and this equates to a 13.7% growth on the prior year. If you look at the employee-related expenses, 80% of our total remains within the administrative environment. And then the non-human resources cost within our administrative increased by 16.2%. And this included some additional spend in our London office, which was new last year, if you recall, some additional spend around internal IT systems as we keep pace with the evolving environment. and then some additional one-off costs that we've absorbed during the year. Adjusted operating profit, which excludes amortisation of acquired intangibles and share-based payments, up 12.2% to 63.3 million pounds. And the efficiency ratio as a result of that, so efficiency ratio in our world is AOP divided by GP, remains at 43.4%, largely in line with the prior year of 43.5%. Finance costs. So finance costs up here largely related to the fees associated with our revolving credit facility, which we renewed in May last year. undrawn, but from a prudent point of view, renewed it. And then there's a small amount of finance lease costs on right-of-use assets, and we've introduced an electric car scheme for our staff, which is also included in those costs. And then for the first time in a long time, we've seen a significant interest being earned in our money market deposits, and that's a total of £5.1 million for the year. So the growth of profits plus the higher corporate rates meant that our overall tax expense has grown by 47% from 10 million to 14.7 million pounds. For this year, our effective tax rate is 23.9 million, slightly under the standard tax rate of 25, and this is primarily due to the reductions that have been allowed with the pre-IPO option investing in December. So those were the three-year anniversary. And then if we move... To the next slide. So if we have a look at our make-up of gross profits and split across the corporate and public sectors, just a moment here. Last year we were reporting on GRI. I've changed the slide to report on GP because it's more meaningful for us and it's the key. performance indicator. So software continues to make up the large portion of our sales, and this accounts for 94.5% of GRI, and it contributes, as you can see on the slide, by 90% of our GP, and the balance of that is made up hardware sales and services, so hardware 3% of GP and services 7.2% of GP. The UK government continues to ramp up its investment in software and we've had some success in winning some of these new contracts. This means that our overall mix by public sector to private sector has changed a little bit. So this year we see 62% coming from GRI on the public sector and 38% from the corporate sector. But as we've mentioned in the past, that swings around in the GP with 65% of our GP coming from the private sector and 35% from the public sector. So if we look at partnering, so we partner with all the major global software vendors, and we take all of these solutions to our growing customer base. Microsoft continues to be at the very core of our offering, and Microsoft makes up 64% of our GII and 50% of our gross profit, as it was in the past. And you can see the top vendors there making up another quarter of that, 25%, and then the long tail of our vendors increasing. including services and hardly making up the balance of the 25%. On to cash flow. So cash conversion continues to follow the same trends that we've seen in the past. And as a reminder, we've seen lower cash conversion in the first half and followed by a very strong cash conversion in the second. And this year was no different. At the end of the first half, we've seen a 48%, and the end of the second half, we've seen 172% cash conversion. So this equates to 104% cash conversion for the full year, and this is very much in line with what we've reported over a number of years. Interesting enough, our debtors' days for the year stood at 34 at the end of the financial year, down from the previous year's 37, and our creditors' days ended up at 44 days, slightly ahead of the 42 days in the prior year. Just to note, this is very much within our contractual terms, and we're pleased to have generated the cash that we did without impacting our debtors and our creditors, so there's good news there. We obviously have a very capital-light business, and that explains a very small £1.3 million outlay into fixed assets. And then during the year, we spent £3 million in acquiring the 25.1% stake in Cloudbridge, which was an AWS business, and we'll talk a little bit more about that under the cash framework. allocation side and then after tax and returning 36.6 million pounds to our shareholders we are left with a cash balance of 88.8 million for the year. So onto the capital allocation policy. And as a reminder, how we think about our cash and deploying our capital, as our framework shows, we focus on funding future growth, then investment into capital projects, inorganic growth through M&A, and then shareholder returns. So on the latter, our dividend policy remains to return 40% of our post-tax adjusted operating profit to shareholders via ordinary dividends. And I'm pleased to announce that the board is proposing a final dividend of six pence per share in addition to the 2.7 pence per share that we paid out as an interim dividend in December 23. This represents a 17.6% increase on the FY23 final dividend. During the period, we invested the three million pounds I've already spoken about, acquiring the 25.1% stake in CloudBridge, and this gave us access into over 80 skilled resources into the AWS space, enabled our multi-cloud strategy, and allowed the internal people to focus on our core, which is the Microsoft Azure stack. CloudBridge continues to deliver in line with our expectations, and they have recently started expanding into the UAE and into South Africa. It has become our practice to return excess cash to our shareholders, and with that, the board also considers it appropriate to propose a special dividend of 8.7p per share, equaling the full-year dividend and representing a 16% year-on-year increase. So sustainability and sustainability, fundamental part of who we are at BITES and how we do business. And over the past two years, we've been focusing our efforts on measuring the underlying categories within scope one and scope two, scope three. This year, we've completed our work on scope three. So all elements of scope three now measured. And this has enabled us to submit our targets to SBTI for validation. And we're expecting that during the course of the year. We continue to support charitable donations, sponsorships and fundraising initiatives through our local and national charities. And one of the things that we're very proud of is our people and passion to make a real difference in our communities. And this year we've seen our colleagues volunteer over 1,500 hours of time to support local initiatives like As we announced last week, the investigation that examined the circumstances around Neil Murphy's resignation has now been concluded. And hopefully this draws a line under what has been a challenging three-month period for all of us. We're looking forward to a new era under Sam's leadership. We've strengthened our board, and with Shruti joining with 20 years of experience in various senior roles in the technology sector, she joined the board on the 1st of February. And then another two non-executive directors set to join the board at the beginning of June, Ross Patterson, who joins with extensive CFO experience. listed board experience. He's also currently audit chair of FTSE 100, a company. We'll take over as the BART's chair of audit on the 1st of June. And then Anna Wickstrom also joins us, bringing significant board experience around advancing diversity, equality, and inclusion. We look forward to both of those individuals joining the board and drawing on their expertise. The establishment of an ESG committee is a natural evolution of the company's governance arrangements. Anna will assume the role of the chair of the new ESG committee and will guide the committee to support the executive team in the execution of BTG's ESG and sustainability strategy. With that, I'd like to hand back to Sam.

Thanks. So moving on to the summary and outlook. Our continued growth strategy remains the same in that we focus on our existing customers and growing share of wallet. Winning new customers and being experts in great value, innovative IT products and services that customers need, identifying and targeting those customers and being straightforward and enjoyable to do business with. Firstly, let's talk about the customers and wallet share. We're laser focused on meeting the needs of our existing customers and providing that excellent guidance and support. The software and IT services markets are expected to see robust growth with increasing popularity in cloud computing, hybrid infrastructure and managed services. And Bytes continues to invest in its technical capabilities and grow its teams to meet the demands for our customers. In terms of growing our customers, the customer base, we will continue to grow organically by expanding our sales teams, winning new customers and doing more for existing customers by having regular touchpoints, account reviews, customer success engagements throughout the year, as well as targeted marketing and invites to events and conferences. All of this to attract new customers and keep us closely aligned to our customers, seek feedback on how we sustain our strategic relationships in the future. In keeping with the trend in recent years, software and IT services will continue to be the two biggest areas of technology that we focus on within each organisation, and we're expected to see robust growth of that in the UK. We'll do this with further technical heads added into our business to enable our solutions approach of selling and expanding our solution sales capabilities. And in reference to vendors, we have a strategic relationship and partnership with many of the world's leading software vendors and distribution channels. This includes a long and deeply embedded relationship with the likes of Adobe and Microsoft. But our ability to also pick up new and emerging vendors that are relevant for our customers is also a strength and will continue to broaden our vendor partnerships where there is a good fit. Our reach to market is attractive for new vendors such as Wasabi and Tanium and many others that we need to work with. and that as partners they want scale and industry reputation that serves their needs and the appropriate routes to market via frameworks where public sector is concerned. And finally, as always, we will remain vigilant and open to suitable M&A transactions that will support the delivery of our strategic ambitions. As we look at our most strategic vendor partnership, there's no denying that Microsoft is a central one and has been the case for over 30 years, noting 68% of the group's grossed invoice income and 50% of the GPs generated from sales of Microsoft products and associated services. Furthermore, our alignment in strategy is reflected in the recent awards won by Phoenix as Global Endpoint Management Partner of the Year 2023 and as the UK Partner of the Year in 2021 and Bytes as the Global Partner of Operational Excellence in 2022. These are awards that thousands of partners submit for and to win is quite a moment for us. From a customer perspective, there has been a huge appetite for Copilot since it was announced in March 2023. And we have supported thousands of individuals across all our sectors in becoming technically ready, deploying, securing and adopting Copilot for Microsoft 365. From a Bytes internal perspective, we're rolling it out across the group to 63% of our staff, including 100% of sales and marketing personnel. This means we'll be well positioned to sell Copilot and evangelize its benefits. Before moving on to our final slide, I just wanted to play a short testimonial from Microsoft to bring to life the strength of our partnership with them.