Bytes Technology Group plc

Good morning and welcome to Bytes Technology Group, our full year 2026 financial results. I'm Sam Mudd, the CEO, and I'm joined today by Andrew, our CFO. I'm going to begin with a quick introduction to the business for those of you that are new to us, and then I'll hand over to Andrew who'll provide the financial review, and then he'll be handing back to me for the full business review. Bytes Technology Group is one of the largest providers of software solutions in the world and we operate under two brands both of which have a rich heritage in their markets Bytes focuses on the private sector and Phoenix focuses on the public sector we have a huge diversified customer base and we have more than 200 vendors that we represent with Microsoft being one of our most strategic on the right you can see that we've been delivering strong growth over the last year or so and we have good cash conversion and consistent capital returns to shareholders over the last five years since IPO looking at today's highlights and starting on the left hand side firstly we've made good strategic progress and implemented intentional organisational change and improvements which were needed to expand our services and streamline our customer focus. We believe these enhancements will drive our growth and enable us to stay ahead of the wider transitions that we're seeing in our industry today and more on that later. Suffice to say we will continue to evolve as an organisation as the landscape changes. And secondly, we have delivered good cash conversion and consistent capital returns of 74 million to shareholders in the last year. We're confident that despite growth being temporarily impacted in H1, H2 has showed movement back to recovery, including strong growth with Microsoft as we annualize the incentive changes. And thirdly, the full year 27 momentum, we enter the new financial year with good sales momentum and expect to return to high single digit to low double digit growth, growth profit growth. The sector alignment is progressing well and the teams that are moving are looking forward to being a part of the dedicated businesses and focus on their respective sectors. Now let me hand over to Andrew who will give you the full details on the numbers.

Thanks, Sam, and good morning to everyone. I just want to apologize for my head cold and for those that are on the webcast. I didn't reach anyone by hand, so hopefully I haven't spread it further. So thank you for joining the presentation. Our headline numbers, we increased gross income or GRR by 11.5%, driven by software and services sales. Gross profit grew 2.5% to £167.3 million, impacted by the Microsoft incentive changes. as well as the segmentation in our private sector sales teams. Operating profit of £62.7 million was 5.6% lower than in the prior year, however, in line with our guidance from October. This reflected both the lower than planned growth profit growth and the ongoing investment into our future. We will provide more detail on the next slide. We have a strong financial position with cash conversion remaining above 100%. We have also delivered further growth in our returns to shareholders with a 2% increase in ordinary dividends together with the share buyback program completed in November of 25 bringing back the total cash return to shareholders to £74 million. Our net customer numbers were broadly stable year on year resulting in a 2.4% increase in GP per customer. This comprised new customers contributing around £5 million to GP and a renewal rate of 99% from existing customers. Starting with the headline numbers, gross invoice income GRI grew by 11.5% with public and private sectors growing broadly in line with each other. Gross profit or GP growth of 2.5% comprised of public sector growth of 7.4% and private sector decline of 0.3%. GP over GRI this year was 7.1%, a reduction of 0.7% from the prior year. This reduction reflects the impact of the Microsoft incentive changes effective from January of 25. Microsoft remains our largest vendor and continues to contribute 30% of our GP. The incentive changes that impacted us impacted the private and public sectors differently. Enterprises remain the primary program used to fulfill the Microsoft public sector requirements. As we invoice the customers, the reduction in incentives does not impact the GII but reduces our GP. For the private sector, enterprise agreements are recognized only in the rebate. Therefore, our GP to GII remains at 100%. Part of the mitigation for the reduction of incentives is to move our customers to a Microsoft CSP program on a like for like basis we make more gross profit but as we now invoice the customer our GP to GRI margin reduces. I have given detail on the administrative costs which increase 8.5% to highlight some of the key changes in our cost base and to help with your modelling. Salary costs increase 17% year on year driven by headcount growth and this includes strengthening of our senior leadership roles and annual wage increases. Average headcount growth was 12%. Over 40% was annualised hires made in FY25 with less hiring this year. We capitalised £1.8 million of our employee cost in relation to our project to modernise some of our IT systems. In FY27, this £1.8 million of employee cost will be expensed now that the projects are complete. Commissions and bonuses are down 0.4%. Within this, Commissions have trended broadly in line with GP growth with bonuses which are driven by targets reducing In FY27 we expect bonuses to be just over 2 million pounds higher based on our full year guidance Social Security costs are up 20% due to the increased National Insurance contributions effective from April 25 which has now been annualised Share based payments are down 85% due to lower profitability impacting the level of investing of our performance share plans. We would expect share based payments to be around £1 million for FY27. Other administrative expenses increased 23% driven by investment in systems to improve employee and customer experience, travel and entertainment as we encourage our teams to connect in person with both our customers and our vendors. amortization will increase from the development of our IT systems, which we've developed over the last two years. With this last component in addition to the returning developer salary costs and higher bonuses, we expect 4.5% of cost normalization in FY27. Turning to our income analysis, on the left, we see GRI and GP for the full year, split by both our service types as well as public private sectors. The public sector GP growth rate was ahead of the private sector where the realignment of the sales resulted in an adjustment period in H1. Momentum improved in H2, however against the tougher comparator. In the public sector, GP was more heavily impacted in H1 by the Microsoft incentive changes, H1 being the peak of the Microsoft renewal period. Growth rebounded in H2 Microsoft incentive changes resulted in a lower software GP growth in GII. Microsoft GP returned to double-digit growth in H2 and remains around 50% of the group. Services grew strongly on the top and the bottom line, driven by continued investment in our offering and strong customer demand. The services margin was driven by both mix and cost efficiencies. OP to GP margin was higher in H1 than in H2 due to higher commissions rates in H2. These one sales targets are exceeded and also head counts phasing. Turning now to our cash flow bridge, we capped last 4.1 million pounds of software development costs in the year. And this relates to the two IT platforms. One to provide a marketplace gateway for our customers so that they can seamlessly purchase products in line online from a range of our vendors and the other is to enable us to improve our operational processes around customer order processing the marketplace platform is now complete with a cumulative CAPEX of 3.4 million pounds we started amortizing it in H2 FY26 at an annualized rate of 0.4 million pounds the second platform is expected to go live earlier this year the combined asset 7.6 million pounds at year end and this results in an annualized amortization of around a million pounds. Cash conversion continues to follow the same cycle that we've discussed in the past and as a reminder we tend to see lower cash conversion in H1 followed by a very strong cash conversion in the second. For the full year using operating profit as our denominator we had a cash conversion of 105%. After tax and returning £74 million to our shareholders, we are left with a cash balance of £98.6 million at year end. Looking towards our balance sheet, and this, I hope, will provide more context of how we think about our cash balance. We look to maintain a strong balance sheet for two reasons. Firstly, large gross payable balances at year end are inherent in our business models and working capital outflows in H1 align to our seasoned seasonality around GII due to the Microsoft and public sector year-ends. Secondly, we operate in a negative capital environment which was around $80 million at year-end. Taking both of these into account, we seek to remain a relatively strong level of cash on our balance sheet and remain debt-free. Moving on to a reminder of how we think about allocating our capital for maximizing value creation to our shareholders. Sam will pick up more on the first point here in a moment, but in summary, there's a strong market growth for the software solution that we sell. Investing in our organic growth through sales and technical people in order to drive customer growth remains our key priority. We are committed to returning between 40% to 50% of our post-tax adjusted profits to shareholders via ordinary dividends. I'm therefore pleased to announce that the Board has approved a final dividend of 7 pence per share, bringing the full-year dividend to 10.2p. That represents a 2% increase on FY25. Selective value accretive M&A remains an opportunity in our industry and we are actively monitoring opportunities by yet to find something that ticks our strategic quality and valuation criteria. And finally, we return excess cash back to our shareholders. In FY26, we completed a £25 million share buyback and are launching a new 25 million pound buyback today. This while maintaining our working capital requirements. With that, I'll hand back to Sam.

I want to start by taking a step back and highlight the strong growth market that we're in and why. Firstly, we have only 3% share of a large £82 billion addressable market in the UK software solutions across both the private and the public sector. There's a significant opportunity to grow our footprint with our existing customers as well as winning new ones. And secondly, the overall market is growing strongly. The solutions we sell meet four key areas of structural growth, AI, cloud, cyber and services, and these drivers all interlink. our customers want to reshape their businesses with AI and they need their data and their applications in the cloud to do so and this is often increasing their cyber attack surface all of this adopting AI modernizing and securing infrastructure to do so requires more specialist services and experience than ever before thirdly one of our significant growth opportunities and drivers is Microsoft who remain our largest vendor at 50% gross profit and remain a strategic partner. They're constantly a cornerstone of IT budgets and this creates a key gateway for us connecting to organisations on their wider technology investments which in turn supports our growth with other vendors. Let me turn to our strategic pillars and how they enable us to capture and drive our organic growth. We have three key levers of growth. Our people, our vendors, and our customers. And the propositions that we've built from all of these. We're a sales focused business and our people drive our sales. We have a highly engaged, well incentivized team who put our customers first and are accountable for their experience with us. We also drive our growth by being a trusted and valued partner to our vendors. And we turn our vendor partners technologies into wider solutions. The vendors want us to make their technologies relevant and importantly sticky for customers because this drives consumption and this is becoming the dominant revenue mechanism for many of them. The way we do this is through services. Importantly this trust and ability earns vendor investments in our business and for us to initiate customer activity into new technology areas. And finally, we aim to bring our people and vendor strategies together in the most customer-centric way possible. We increasingly organise how different customers actually buy and what they specifically need. We organise ourselves around that. And this is so that we can provide them with the best mix of support and solutions which are tailored to their needs by their size and their sector. Trust, value, choice and service remain key to our customers and also our ongoing focus. The industry that we're operating in has substantially changed and evolved over the last few years, and if I think back to my three decades in the industry, change has been a constant. There are broadly three transformations ongoing which all create opportunity. Firstly, the way that customers pay for their software continues to move from per-seat licensing to consumption. The shift started with the growth of cloud and customers buying compute and storage, and based on activity levels not headcount anymore. And this is only increasing with AI and token usage being brought out to market. So it makes it more important than ever to help customers get value from the solutions that they buy. This is also increasing the monetary investment that vendors are giving partners to support adoption and consumption. And secondly, customer demand continues to shift from wanting specific point products to whole solutions. This is driven by increasing complexity of modern IT. The customers need their IT estate to be secure, cost-optimized, and integrated. And this leads to them increasingly needing scalable solutions from us, which are more economic, safer to deploy, and easy to operate than individual point products. This in turn increases the growth potential for those that can advise, integrate, manage and deliver business outcomes for those customers. And finally, these changes together create a shift where customers and vendors need deeper relationships with us. Rather than being seen as a reseller, we're now seen as a partner. And these industry changes don't impact our structural growth opportunity, but they do drive a need for us to evolve in order to stay aligned and be able to capture growth in the medium term. This year, we've implemented strategic changes to align to these transitions. Firstly, customer-led segmentation. Back in March 2025, at the start of the year, we reorganised our BITES private sector sales teams from a single generalist structure to specialist teams. We segmented customers by their organisation size based on their number of seats into enterprise, corporate and mid-market. And our technical specialists moved into the same customer segments as sales. The rationale is that private sector customers need different things from us if they are small versus if they're a large organisation. And vendor incentives are structured differently too, accordingly to size. So this change will enable us to be a better seller and drive growth to customers as the industry evolves. And as Andrew has already set out, the impacted GP growth in our private sector business in H1 was impacted but it stabilised in H2. And the effects of the changes have settled into the business and the sales pipeline has returned to normal in H2. In FY27 we move forward with a clean comparator. Moving to services led capability, services GP grew 38% this year. We're growing in three broad areas. Firstly, using customer vendor investment to help customers deploy and adopt. Secondly, providing managed services to support the customer through the lifecycle. And thirdly, we're expanding services in our portfolio to ensure we can deliver integrated solutions around AI. And lastly, the sector-led go-to-market change announced in March 2026. We commenced this small change where we'll remove the market overlap between our two businesses to make each business a pure play in their sector. A small number of account managers will move within the group but customer relationships will be unaffected. Bytes will focus solely on the private sector and Phoenix will focus solely on the public sector. This will further strengthen their ability to deliver full, customised, focused solutions and services and allow deeper collaboration on shared services and vendor partnerships. Our people are our core assets and I'm proud of their energy, enthusiasm and commitment. We increased headcount 7% year on year and that said our average headcount increased 12% following the strong H2 growth of last year. This measured investment was focused on sales staff to drive future growth and technical delivery staff to meet the needs of services demand. And within this we've added new practice leads to ensure we build depth as well as breadth. We fitted out the first of two buildings acquired in FY25 and this adds capacity to existing modern and inviting workspaces. And we have plans to expand our London footprint in FY27. Our culture and engagement remains strong. Our eNPS increased to 62, up from 57. We were placed 14th in the FT's UK best employers ranking, the highest in our sector. And we increased the number of one million pound GP sellers. Having just spoken about our continued investment in sales and the increase of the one million pound GP sellers, I want to illustrate why we make that investment you'll see on this slide the maturity profile for successful sellers in the business and I've presented it here as steps because that's how we coach sellers in the business self-staff retention also grows with maturity which is equally important and this remains incredibly high amongst our top sellers our new sellers open the door in a number of ways such as our Microsoft expertise our licensing pedigree and increasingly our services capability and they expand from this with additional solutions from Microsoft and other vendors as they gain trust and learn more about the customer environments. And this is an iterative process and our customer requirements are so broad and there are always additional opportunities to go after. As I mentioned, our job is to turn our vendor partner technologies into solutions and we work closely with them to do so. Microsoft remains our largest vendor and our most strategic partner it's the cornerstone of our customer budget it's also the gateway to the majority of their technology decisions so covering all Microsoft bases supports our growth with other vendors but more importantly it helps us drive value for our customers we often support collaboration within their organisations where many silos might exist and I'm delighted the relationship goes from strength to strength I just got back from visiting the HQ in Seattle only two weeks ago Our Microsoft GII grew at 11.5% year-on-year, both across the private and the public sector. In H2, Microsoft GP returned to double-digit growth with incentive changes absorbed. And where Microsoft is investing, we are delivering. Our Microsoft services around pre-sales advisory implementation and adoption increased 31%. We've also deepened our relationship with other key vendors this year. We can continue to see growth with AWS in cloud, Flexera in optimization, SentinelOn in cyber, and Rubrik and VMware in the hybrid infrastructure space. I'm now going to show you a clip of a discussion I had with Microsoft's UK and Ireland channel lead around our partnership, Nick Hederman. And just before we press the start button, a little fun fact for you. Nick Hederman, he provides over the entire UK channel ecosystem and used to be Steve Barmer's demo buddy Steve liked working with Nick so much he decided to take him on a tour around the world that lasted many many years until Steve lost his job and then Nick had to come back to the UK and find a different role but we work tremendously well with Nick so on that note I'd like to just share a brief snippet of the video there is a longer version of this that will provide the link to you with as well Hi, I'm Sam Mudd, the CEO of Bytes Technology Group, and I'm delighted to be with Nick Hedeman today, who is the Microsoft UK and Ireland channel lead. We have been thriving with Microsoft as a partner, growing over a 40-year period, and I'm so excited about the era that we're entering now around AI. It's reminiscent of the internet era, which, as we all know, was a point in time where pervasive computing started to drive whole new work patterns.