Bytes Technology Group plc

Good morning. Thank you for joining us at the LSE this morning. I look forward to presenting to you online our full year presentation for the year ended 28th of February 2025. I'm Sam Mudd, CEO of Bytes Technology Group, and I'm delighted to be here alongside Andrew, our CFO. We'd like to invite those of you here with us in person to join us for tea and coffee afterwards if you'd like to. I'll begin quickly with an introduction to the business and overview of FY25. Andrew will then provide a financial overview before I come back to provide a strategic review. BTG is one of the largest IT resellers in the UK, and we have a focus on software. We're driven by a clear mission to help organisations succeed in a world of change through trusted partnerships and transformative technology. We have significant tenure and experience, not just in our leadership teams, but across all of our staff positions. This allows us to build and sustain those trusted partnerships and to deliver what customers need in the form of licensing advice, recommendations on solutions and procurement and providing technical services where required. We're on a mission to build a profitable growth company that's also a great place to work. And this clear focus on culture fosters the tenure and the experience critical to our success. And our staff's commitment to delivering for our customers is testament to the culture we provide to them. I'm proud to say that in FY25, we lived up to our mission. Thanks to the great people across Bytes, Software Services, and Phoenix Software, our loyal customers and our vendor partners, we help more businesses and public sector organizations than ever to meet their objectives through innovative IT solutions, I would like to thank our two managing directors, Jack and Claire, for steering their respective teams through a challenging year, delivering these superb results for the group. One area that I will spend a little bit more time on later in this presentation is our expanding services delivery offerings as part of our innovative, agile culture. On the headline numbers, I'm pleased to report another set of positive results for BTG, with a 15.2% increase in gross invoiced income, a 12% rise in gross profit, a 17.1% increase in operating profit, and over 100% cash conversion. We've doubled all of these income metrics in our five years as a listed entity while sustaining over 100% cash conversion, enabling us to distribute the majority of these growing earnings to shareholders whilst maintaining a strong balance sheet. And our track record of double-digit organic growth profit is now well over a decade. Last year's record results were again achieved despite a tricky macro backdrop. We saw this most in our corporate business in the middle of the year, given the uncertainty that customers faced last summer around the election, but our successful H2 sales execution gave us a strong overall position for the year, in line with our historical double-digit growth performance. This was also achieved as we entered into the new world of Microsoft incentives, January the 1st, 2025, which we were well prepared for. The performance was driven by continued demand for our broad range of software, solutions, and services with our existing customers spending more with us as they continue to invest in their IT needs with our client base growing in both public and corporate sectors. Now, I'll hand over to Andrew for the financial review.

Thanks Sam and good morning everyone and welcome to the LSE and this is the first time we're doing this in person so please forgive any glitches. So Sam has already highlighted some of the key numbers that we are particularly proud of and in the next few slides I'll walk you through some of the details and then be available for questions at the end. So if I start at the headline figures and looking at the grossed invoice income As Sam said, grown 15.2% to 2.1 billion, and this is the first time we've exceeded the 2 billion, so sort of a landmark growth for us. Gross profit grew at 12%, and this is the sum of the two halves for the two halves. So if you look at the H1, we reported a growth of 9%, so you can infer 15% growth in the second half, and maybe a switch in the two corporate at the end of the first half grew by... 3% and nearly 15% in the second half and so corporate averaged out at 8.8% or 9% growth for the year and then public sector averaged out at about 18% growth So in the next slide, I'll touch a little bit more on the GP over GII margin and skip it for now. And then if I look at the administrative costs, there's a couple of items in the administrative costs. At half here, we also spoke about the investment into our accounting systems as well as developing a new billing platform and the sales platform to assist in capitalizing on future growth. and simplifying our business and this is sort of a single source of truth. This development project will create an IP and so in line with our accounting policy we have capitalized these costs. So in the first half, sorry not in the first half, in the full year we've capitalized 3.7 million pounds of which 1.4 million pounds was internal cost and the balance, the 2.3 million pounds was external cost. That has artificially reduced our cost base by to 8.8%, and if you work it backwards and include the difference on the share-based payments, you'll see around about 13.7% cost growth for the year. We also started the year at 1,057 staff. We ended the year at 1,245 staff members. We averaged 1,150 staff members, which infers that our growth was slightly back-ended into the second half, and that also, when you look at the forward-looking statements, just keep that in mind in how our cost base grows. So our adjusted operating profit, excluding amortization of intangibles and share-based payments, grew at 14.4% to 72.4 million. And our operating profit, which we'll focus on in future, and we'll get to why we are focusing on that just now, in this period is up 17.1% to 66.4 million pounds. And this has obviously benefited from the share-based payments declining from 5.7 to 5.1 million in the period, and then the aforementioned capitalization. If I look at the efficiency ratio of operating profit divided by gross profit, this is at 40.7%. Last year's ratio was at 38.9%. So this expansion in that ratio is solely due to the decline in share-based payments as well as the capitalization. So don't expect that sort of expansion in margin into the future. Our finance cost largely comprises of the fees associated with our RCF facility, and this includes a little bit of right of use assets for our expanding electric vehicle scheme for staff. Our finance team has done incredibly well over the period, and we've seen a significant increase in interest earned to £8.5 million for the year. Our effective tax rate is 26.7%, which is marginally above the corporate tax rate of 25, and this is solely due to the deferred tax asset linked to the employee share schemes and the lower than anticipated share price for the year. So you have to write back some of the deferred tax asset. So on the previous slide, I mentioned the growth achieved by the public sector, and this has led to a slightly greater weighting towards the public sector, which now means we have 65% of our GII coming from the sector and 35% from our corporate sector. For those of you that we've spoken to before, You know that in the public sector, we invoice directly, so all enterprise agreements occur in our GII as well as in our GP. For the corporate sector environment, Microsoft typically invoices the EA agreements, and therefore, we don't reflect the same amount, and that is mostly what drives the difference on the GII side. So when we look at contributions from the public sector and the corporate sector by gross profit, we find a similar expansion in the public sector, moving from 34% contribution to a 35% contribution. This means at the total level, we see the GP to GRI conversion at declining from 8% to 7.8%. Now, that is not because there's a decline in margin. This is more to do with the mix. So if you look at the mix in the corporate sector and the public sector, we've explained the movement there, but what's interesting is our Public sector margin runs at 4.4%. This year, it's declined to 4.3%. And conversely, the margin in the corporate sector has expanded from 14.1% to 14.4%. So given those two elements, you can see the margins are fairly consistent year on year, and it's just the mix that changes them. When we segment our performance into the three broad categories of software, hardware, and services, We see that the GP from software grew at about 12% hardware. That was down over 40% in the first half. Now only shows a slight decline of 6% for the full year. And this had a positive impact on our corporate growth for the second half. And then we see that the services grew quite nicely by 19% to contribute $12.8 million, nearly 8% of our gross profit. In focusing on the services, you'll see the top line on the services, GII hasn't moved that much, but we've been focusing on building and utilizing the capacity that we have, moving externally based services internally, and then our utilization's gone up, and therefore our profitability has gone up significantly for that environment. When I look at this slide, and this is, I used the same slide at half here, and this is just to re-illustrate the move between AOP and OP, and you'll see on the, left-hand side of the screen. This denotes all the accounting adjustments that we've made since IPO between AOP and OP, and this is mostly share-based payments, and you can see it's peaked in 2024, and it'll stabilize, and so therefore it's not an excessive growth environment anymore, so it's appropriate now we move to OP as a primary measurement. And then what I've done from a completeness point of view is I've also shown the efficiency ratio of GP over AOP and GP over OP, just to look at it from a consistency point of view. So we've been reporting between 42% and 43% AOP over GP as a ratio, and this will now drop between 38% to 40%. And all the graph is reflecting on this side is that there's no smoke and mirrors in this, and we're not changing numbers because it suits us. It is comparable. So if you see us 38% to 40%, it is in line with what we had shown in prior years. Looking at the cash flow, and also... a bridge that you've seen before, a waterfall that you've seen before. So very good cash generation from our operations. And I just want to call out the 6.4 million that you see on the PPE side. Now that is abnormal for us, and normally PPE stands at about 1.2, 1.3 million. This year we have bought two buildings that are next door to our Leatherhead environment. And that total cost was $5.2 million, including stamp duty and legal fees and so on. Now, we bought those two buildings because it gives us access to 27,000 square feet that we'll utilize as we grow into that environment. And just to show how well we've utilized the current building, when we bought the building 11 years ago, Bites Software Services, BSS, had 210 staff members. It's well over 700 at the moment. They're obviously not all housed into the current building. A lot of them are remote, but it also denotes where we're moving in the view that we have around staff growth and the leatherhead environment and the talent pool that we have access to. When we look at the after-tax and returning 42.8 million pounds to our shareholders, we are left with a cash balance of 113.1 million pounds at the end of February. So our cash conversion continues to follow the same cycle that we've discussed in the past, and as a reminder, we tend to see a lower cash conversion in the first half, followed by a very strong cash conversion in the second. For the full year, and using operating profit as a denominator, we had a cash conversion of 114%. And again, if you use it the other way around, we reported cash conversion using AOP as a denominator, it's still 104%. So again, no sparking mirrors in changing the numbers there. If we look at capital deployment, as our framework shows, our priority is in order to fund organic growth, to fund capital projects, to pay normal dividends, to fund acquisitions, and then to return excess cash to shareholders via either special or share buybacks. Our dividend policy is to return between 40 and 50% of post-tax adjusted operating profits to shareholders via normal dividends. So I'm pleased to announce the Board has recommended a final dividend of 6.9p per share and bringing the full year dividend to 10p per share. This represents a 15% increase on FY24 numbers. We remain focused on delivering organic growth for which there remains a lot of opportunity within the UK. And Sam will talk about the progress we've made into executing some of their strategies. We'll also continue to monitor the potential acquisition opportunities that come up from time to time in the market that could assist us in accelerating our strategic goals. But we are mindful, any one that we have a look at has to be a good cultural fit. We have yet to find the opportunity and in keeping with our commitment to return all excess cash back to our shareholders, the board is also pleased to announce that we are recommending a further special dividend of 10p per share. Sustainability, so sustainability remains integral to the mission as a responsible business and as part of this in the environmental field we've enhanced our transparency and scientific rigor and we've achieved validation of our near term and net zero carbon reduction targets by SBTI and improved our third party accreditation scores. We've also made progress in developing multiple social initiatives, which we've listed on the slide, to ensure that we hear and support our people in their roles, their ambitions, their values, whoever they might be. All of this activity has been carried out under the direction of our board, ensuring good governance through a board town hall, a new ESG committee chaired by Anna, and a new designated executive director. So with that, I'm going to hand back to Sam for a walk through our strategic review. Thanks.

Thank you, Andrew. For those of you new to BTG, I'm going to explain how we fit into the technology value chain with customers and vendors. So why do customers buy through us? We act in their best interest. Our simple incentive structure aligns our staff's interests too. We understand them. Our people are experts in our customers, as well as technology, often having daily interaction with clients for years, enabling them to understand customer needs. And thanks to our relatively high staff retention rates, our customers often deal with the same account manager and the same team year in and year out, building up that trust. So we make their lives easy. By partnering with hundreds of vendors, we can act as the trusted advisor across multiple technologies. And we support communities, looking at the social value projects which are important, particularly for public sector customers. So why do vendors partner with us? Well, we offer scale. We give access to nearly 6,000 customers, and we provide a fantastic route to market for new and existing vendors. We drive adoption for them. We help customers get value from their products and improve renewal rates for vendors. This relies on our technical investments behind our partner technologies, evidenced by our accreditations and the number of specialists that we have in the business. And we can provide feedback to the vendors, giving our breadth of customers and closeness of relationships. We're often invited to partner advisory councils, sometimes called PACs, to help the vendors make informed decisions about their programs and customer campaigns. And most importantly, we have track record. We're a tried and tested route to market. Notably, Microsoft has increased the focus on its channel strategy on scale in the mid-market segment, where we have particularly strong presence. This is where they see the most white space for their technologies and portfolio expansion. And as a consequence, we are well positioned to take on their mission for more campaigns and lead generation. So having spoken about the proposition from a bottom-up perspective, I'm now going to frame it from the top down. This slide shows on the left the customer segments that we can target. In the middle, the technology areas where we can help customers with, which is constantly growing. And at the bottom, the vendors we partner with to help customers as broadly as possible leverage those technologies, noting Microsoft does sit across everything. And on the right-hand side, the services that we're providing in both pre- and post-sales capacity. Our broader vendor partnerships work well alongside our Microsoft focus, and I want to recap first on what drives that attractive, defining feature of our business, and then summarize how the incentive changes have settled since they were first announced in the autumn of last year. We've long been a strategic partner to Microsoft and are proud of our rank as the number one partner in the UK to overall revenue influence. The reason we stay focused on their growth strategy is threefold. First, they're a world-class vendor who consistently grow by taking market share and expanding their portfolio, giving our sellers something new to talk about on a regular basis when they visit their customer contracts for further upsell. Two, it becomes the springboard for us to work with customers on other technology needs, as noted on the bottom of the slide. Sorry, I'm actually going to come on to the next slide around account managers and what they're selling. The Microsoft Drive around co-pilot supports related work streams around data management, hybrid cloud, data preparation, segmentation, and security, all the areas that we generate new opportunities from, services opportunities in some cases. And thirdly, Microsoft are a partner-first organization, particularly supportive of large-scale partners whom they have worked with for decades. And we have built up our operations to enable more growth for them in the future. This is evidenced by us doubling our profit related to the Microsoft vendor over the last five years. So whilst enjoying the growth with the Microsoft juggernaut vendor that it is, we have simultaneously also kept up our growth with all other vendors that we represent. At this point, I'd like to play a video of Darren Hardman, the CEO of Microsoft UK, talking about Microsoft's relationship with BTG.