Bytes Technology Group plc

So good morning and welcome to Byte Technology's half year results for six months ended the 31st of August 2026. I'm Sam Mudd the CEO and I'm joined this morning by Andrew Holden our CFO. When we presented our results last May we set out a series of changes we were making to the business and we said those changes would show through in our performance during this financial year. I'm pleased to say this morning that they have. BTG is building the UK's leading trusted advisor on AI, cloud and cyber, providing technical expertise and managed services to capture a greater share of our customers' technology spend. I'm going to start with the highlights of the half year and how we've delivered against what we set out. I'll then hand over to Andrew who'll take you through the numbers in detail. And I'll come back after that to talk to you about our market, our strategy and the outlook for the rest of the year. So turning to slide three and the highlights of the half, this has been an encouraging six months for the group with broad-based growth across both our businesses, across our product set and across our vendor portfolio. Grossed invoice income grew by 19.6%, gross profit grew by 17.8% and operating profit grew by 6.6%. Trading was ahead of our expectations through the period and as a result we were able to upgrade our guidance for the fall year in September. There are four key points I want to draw out on this slide. The first is that we grew in both sectors. Public sector gross profit was up 23.1%, private sector gross profit was up 14.6% and that balance is worth a moment. because the changes we made last year was to our private sector sales organisation and the fair question to ask was whether we had given up ground with customers whilst we made those changes and we had not. Both businesses have grown double digits. The second point is that this growth extended well beyond Microsoft. Microsoft grew broadly in line with the group as a whole and our security and hybrid platforms Businesses, they grew alongside it. So no single vendor, sector or product line carried the half, making for a more resilient, balanced portfolio. The third point is capability. We have increased our technical delivery headcount by 17.4% year on year to meet the demand to manage services. And today we announced the acquisition of CyberOne. I'm excited to share more detail on that later. And the fourth point is guidance. As announced in our trading update last month, we now expect gross profit growth for the full year in the low to mid-teens with low to mid-single digit growth in operating profit. You will also see Microsoft on this slide. The next set of partner incentive changes take effect this month, and we've planned for them, and we have the opportunity to benefit from them. Later in our presentation, I'll share more detail on this. Alongside all of that, we returned £41.3 million to shareholders during the half, completed the £25 million share buyback we announced in May. Moving on to slide four, I want to be quite specific about how we have delivered against what we told you in May, because we made a number of commitments in that presentation, and we are delivering on them. We said that the new sales structure in our private sector would support growth. and Gross Profit is up 17.8% with double digit growth in both sectors. We said that services would grow the share of the group and the services grossed invoice income is up 41% and the acquisition of CyberOne now accelerates that further. We said that Bytes and Phoenix would align to the sectors they serve. That work completed in July and it completed with every single customer retaining continuity of account manager. We said that this financial year we would carry around 4.5 million cost normalisation and that operating profit would be broadly flat as a result. Operating profit is up 6.6% and we guided to high single-digit to low double-digit gross profit growth for the year which we have since upgraded to low to mid-teens. I am confident at the end of this presentation you will understand where BTG is going and Why the organizational changes were made, why we're investing and acquiring in CyberONE, why AI matters, and why growth will continue with software licensing at the core. With that, let me hand over to Andrew who'll take you through the numbers in more detail.

Excuse me if I have to blow my nose, so good morning and thank you Sam. I'm pleased to be here to take us through the set of numbers for the half year. Turning to slide 6 and the headline numbers for the first half. Gross invoice income increased 19.6% to £1.6 billion with growth coming through across software, hardware and services. which as you know is our primary measure of performance was up 17.8% to £97.1 million. Operating profit grew 6.6% to £35.3 million after absorbing half the cost normalisation we set out in May. Innings per share were up 6.1% to 12.76 pence and we ended up the half with a net cash of £68.4 million having returned £41.3 million to shareholders during the period. Cash conversion was 46% which compares favourably to the 34% for the same period last year. This equates to 109% on a rolling 12 month basis. I'm pleased to say that the board has declared an interim dividend of 3.3 pence per share, an increase of 3.1p cent from last year. Moving on to slide 7, an income statement in more detail. Starting at the top, gross invoice income grew 19.6% to £1.6 billion, gross profit grew 17.8% to £97.1 million. Overall, gross profit to gross invoice income margin was broadly flat at 6.0% against the 6.1% last year. Administrative expenses increased by 24.7% and within that, employee costs rose 22.3% to £48.2 million. Our total headcount for the first half only grew 2% to 1,353 employees, so the driver for this cost increase was more to do with normalisation than headcount expansion. These costs were all flagged at the full year and include the developer salaries that were capitalised last year, and now recognises expenses as those platforms are now complete. Bonuses have returned to a normal level having been suppressed last year where we fell short of our internal targets and commissions were up in line with gross profit which as a reminder was up 17.8%. Other administrative expenses increased 34% to £13.8 million which includes amortisation of those platforms Continued systems investment, as well as once-for-fees related to sector alignment, the executive changes and the board changes announced. Taken together, these are the components of the £4.5 million worth of cost normalisation we set out in May, with around half of it having landed in the first half. Operating profit grew at 6.6% to £35.3 million. and our OP as a percentage of GP was 36.4% against 40.2% in the same period last year. I'd like to address this ratio directly as we expect this ratio to be a low point this year. As the cost normalisation annualises from FY28 onwards and we make full use of the sales and technical capacity that we've already built, we expect operating profit to grow broadly in line with gross profit from FY28 with the ratio recovering from there. Below operating profit, interest income of 4.9 million was lower than last year, both on lower rates and a lower average cash balance. Profit before tax grew 3.6% to 40 million pounds and our effective tax rate was 25.3% which is broadly in line with the UK strategy rate. Profit after tax grew 3.1% and earnings per share grew at 6.1%, with the difference reflecting the shares that we'd repurchased during the period. Turning to slide 8, where we break down the first half of products and sector. Taking the sector first, public sector gross profit grew 23.1% and private sector gross profit grew at 14.6%, so both sectors delivered double-digit growth. Public sector margin edged up from 3.4% to 3.5%, and the private sector margin moved from 12.5% to 12.2%. We don't see this as a negative, but rather as an indication of our success in our ongoing efforts to move customers from Microsoft Enterprise Agreement programs, where Microsoft invoices a customer and pays us a fee, and therefore a 100% margin, As you move across the CSP where we invoice the customer, carry the cost of sales and the reported margin comes down even though the gross profit does not. It is therefore a mix effect and not a pricing one and this is a good example why we prefer gross profit as our primary growth indicator. Looking at the product split, software gross product grew 15.8% with its margin broadly stable at 5.4% and hardware More than doubled, albeit off a small base. Services gross invoice income grew 41% and the services gross profit grew 12% to £9.3 million, against a comparative period that itself grew by more than 40%. You will note that the services margins moved from 24% to 19%. This is because we brought in capacity ahead of the revenue that it would carry, with technical delivery headcount up 17.4% since this time last year. We expect that capacity to generate high returns in the second half as utilisation builds, with security a strong area of customer demand. Our renewal rate was very strong at over 115% as we continued to grow our share of wallet from existing customers. We also brought in £1.8 million of gross profit from new customers, a figure that we would expect to annualise at a similar rate. Turning now to cash flow on slide 9. Cash conversion for the first half was 46% against 34% in the same period last year and 109% on a rolling 12 month basis. As a reminder, our cash conversion always follows the same seasonal pattern. Our largest billing months fall around the UK government's fiscal year end of March and April, and Microsoft's year end in June. The working capital associated with those months unwinds towards the end of our first half, so a number below 100% is entirely normal for us, and this year it's a cub to be ahead of where we were a year ago. After the final dividend of £16.3 million and £25 million of share buybacks, We close the first half with $68.4 million of cash and no debt Moving on to the balance sheet in slide 10 We carry very large gross receivables and payables which is inherent in our business model and our $68.4 million of cash sits against a negative net working capital of $54.6 million so then two need to be looked at together We continue to collect from our customers faster than we pay our vendors with debtors days of 39 against creditor days of 51, helped by our weighting towards the public sector. So we hold a strong cash position deliberately and we remain comfortable with where it sits. Slide 11 is a reminder of how we think about allocating capital. Our priorities are unchanged. Organic growth comes first and Sam will come back to this. but investing in sales and technical capacity remains where our capital works the hardest. Second is our ordinary dividend and our policy is to distribute between 40% to 50% of post-tax pre-exceptional earnings and as I mentioned before the board has declared an interim dividend of 3.3 pence per share. Third is acquisitions and we've said consistently that we would only act if something met our criteria on strategy, quality and valuation. and we announced this morning the acquisition of CyberOne that has met all three. This is our first acquisition as a listed business and we continue to explore strategically aligned opportunities. Sam will speak more about the deal in more detail shortly. The fourth is we return excess cash where we've completed a £25 million share buyback during the first half. And then finally from me on Outlook. We upgraded our guidance in September and guidance is unchanged this morning. We continue to expect gross profit growth for the full year to be low to mid teens with low to mid single digit growth in operating profit. Two things to bear in mind for the second half. First, we are measured against a stronger comparative because the second half of last year is where our recovery began. And second, some of our costs are weighted towards the second half. with Commission Accelerators applying once targets are exceeded and the November sales intake are joining part way through the half. We expect Cyber 1 to be earnings enhancing in the first full financial year of ownership and our guidance for this year Thank you Andrew.

Before I turn to what we did in the half, I want to spend a couple of minutes on slide 14, explaining why our model is so well positioned in the market currently. Because there are two things happening at the same time, and both of them work in our favor. The first is on the left. AI is increasing the portion of total business spend allocated to technology. Currently, technology accounts for approximately 10% of typical business spending. While labour accounts for under 50%. As AI absorbs labour-intensive tasks, technology spend is projected to move toward one-third of total expenditure. To give you a sense of the scale, global software spend is around $1.4 trillion, while global labour spend is around $65 trillion. So the pool AI is beginning to address is many times the size of software market that it's been sold into. The second is on the right. There is a notable shift in how software reaches customers. Direct sales by a vendor team fell from 74% to 59% while partner-led distribution rose from 20% to 33%. Vendors are intentionally moving towards partners because they cannot hire direct sales coverage fast and they can't meet the demand and self-service models are often insufficient for buyers that require governance, and Negotiated Terms. So AI native vendors are leveraging scale partners like BTG rather than relying on direct sales to achieve reach. What I would take from those two charts together is that through every one of these transitions, whether it's the internet, the cloud or now AI, the margin in our industry has moved steadily away from the product itself and towards the expertise around it. and that's the direction that we've been investing in for the last three years. And next I'm going to talk about where that investment has taken us. So let me show you on slide 15 where the growth actually came from. The chart on the left shows the shape of our recovery. On the right we have set out the picture by income stream. Software growth invoiced income was up 18.8%, Hardware was up 39.7% with gross profit more than doubling and services was up 41%. Microsoft accounted for 52% of our gross profit in the half and grew broadly in line with the group. While our non-Microsoft business grew alongside it, led by security, by hybrid platforms, as customer refresh infrastructure projects alongside their cloud investments continued. I want to take on one question directly here. Is the recovery the market or is it us? And my answer is that it's a bit of both and I would not pretend otherwise. The UK technology spend has improved this year and we would expect to benefit from that. But a stronger market on its own does not deliver 23.1% in one sector and 14.6% in the other. This is a result of our driving customer centricity. Numbers like those are the sum of individual customer relationships, and I'd like to share a few examples of this on slide 16. Samsonite is a new customer, and it's a good illustration of where we're heading. We're consolidating around 300 of their sites onto a single managed network platform over five years, taking around a third out of their network costs, with a path to around 1,000 sites globally. That's around a £6.5 million project total contract value. and this is International Services. It's services-led partnership and it does not include Microsoft. Howdens, we've been working with them for 10 years and we're now their strategic cyber partner advising on security transformation governance, AI security, risk management across the whole group. And we're proud to also work with the University of Oxford, one of the best universities in the world. We support more than 40 of their vendor relationships, increasingly advising on how the whole estate fits together rather than just on a single product. And then finally, Defra, where we renewed the Microsoft licensing for a further three years on a substantial contract. So, no one logo, sorry, one new logo, one continuation, two relationships, and two of them getting deeper. two great public sector customers and two great corporations evidence of our strategy working for us in different ways. Turning to Microsoft on slide 17 who remain our largest vendor and our most strategic partner looking back first in January 2025 Microsoft reduced their incentives available on enterprise agreements and you can see on the chart what that did to our growth rate. These changes are now fully annualized with return to material GP growth. Looking forward, there's a further set of announcements coming into effect from October this month. Microsoft set out to reduce commissions available on certain legacy products whilst increasing growth on products around enhancing incentives that are available on CSP. The growth products carry higher margins and they're precisely what we're built to advise on, security, AI and cloud workloads. and because those enhanced incentives are largely orientated around CSP, they reward moving customers onto longer multi-year commitments which deepens the relationship and improves the visibility of the gross profit that comes with it. We have the sales readiness in place to go after that. It will take time. It will not all land in a single year but it's a real opportunity and one that we've been building towards. What I would say is that we go into this change very prepared for three reasons. Our segmented sales, that structure, now puts specialists in the front of exactly the customers most likely to need those growth products, which was not the case 18 months ago. We have seller insights, which we launched this half, and it gives every account manager a live view of the funding available on each account and that evidence from the customer's own usage and why the conversation is timely. and our services capability now extended by Fiber One attaches directly to the products that Microsoft has chosen to reward. This change is already reflected in the guidance that we upgraded in September. So moving on to slide 18 and the second of the two structural changes we announced last year which completed in July. Bytes now serves the private sector and Phoenix serves the public sector. Bites was already generating 87% of its gross profit from the private sector and Phoenix 97% from the public sector. So in practice, it's affected a minority of relationships. The rationale is straightforward. Public and private sector organisations buy differently and need different support around what they buy. Our major vendors already separate their own sector teams, so this makes it easier for them to work with us and it removes any internal competition for the same customer. Getting closer to our customer calls for an adaptable organisation that can absorb shifts and I'm proud of how our group continues to show up. As we refined our execution, no customer accounts changed hands. Account managers moved with their customers and that is the reason you'll see growth in this half rather than another period of adjustment. And it reflects a great deal of careful planning by the teams involved. Driving customer centricity doesn't stop. The big changes we've made this year are in place and have delivered, but the real prize is what we unlock going forward. Which brings me onto services on slide 19. Services is the advice, the design, the implementation and the ongoing management that our customers need in order to get value from the technology they buy, bolstering customers to what comes next. It is where the vendor funding is increasingly being directed. It carries a higher margin than product and the managed element of it gives us a deeper and considerably longer and more strategic relationship with the customer. Services grossed invoiced income grew 41% in the half and services grossed profit grew 12% to 9.3 million. We built the delivery capacity to support that with technical delivery headcount up 17.4% year on year. and with the two businesses each focused on a single sector we can now build a services capability once and sell it through public and private. Build once, sell twice. Every pound we invest in a new service now has twice the addressable market it had before and we stop duplicating the same investment in two places. Andrew's already covered the services margin which moved from 24 to 19% against the comparative that grew by more than 40%. What I would add to this is that we have deliberately brought capacity ahead of the revenue that it will carry and we expect the second half to reflect that. Our ambition here is a simple one. We want to be the single point of accountability for the technology our customers are running, covering cloud, platform and how their people access it, the endpoints they use and the security around it. Security is an area of very strong customer demand. and with the CyberONE acquisition, we now have that delivery capacity to keep scaling. Which brings me on to slide 20 and the acquisition of CyberONE, which is an AI-enabled managed cybersecurity services provider built on Microsoft technology. It gives bytes its own accredited 24-7 security operations center, a SOC, delivering managed detection and response. The business has been established and has a strong position with the Microsoft security ecosystem, including recognition as a Microsoft security elite partner and a member of the Microsoft Intelligent Security Association, NISA. The initial consideration was $19.4 million, funded entirely from existing cash, with further performance related payments over the following 16 months. To give you a sense of the business, Cyber One has been operating since 2005, employs more than 80 people across the UK and the Philippines. It's generated revenue of around 10 million in 12 months to July, growing at high double digits with an expanding gross margin. Around 90% of its income is reoccurring under multi-year contracts, so the quality of the earnings is high, and it sits as a UK cyber We expect the acquisition to be earnings enhancing in the full financial first year of ownership and our guidance for this year excludes any contribution from it. Let me explain why we chose to buy rather than build. Apart from the incredible team at CyberOne that we're looking forward to working with, An accredited security operations centre takes years to stand up because the accreditations, the people who hold them and the delivery track record that customers look for are all earned over time. But meanwhile our customers are buying this capability now as security is moving fast and it's in line with their budgets. Until now we have fulfilled much of that work through third parties. and we can now deliver far more of it ourselves at a better margin and with better control of the customer experience. It also unlocks something we've been talking about internally for some time. Great many of our customers already hold Microsoft Security entitlements that they've never switched on or are not getting the best value from and now we're able to take them from licensed through to fully managed service while owning both ends of that conversation. Microsoft Publi welcomed the acquisition in our announcement which demonstrates how they see the combination of Cyber1's accreditation in our customer reach. Phoenix will continue to operate its own security capability for public sector customers where the accreditation and the tenancy requirements are different. This is the kind of acquisition we said we would look for. Strategically aligned, culturally compatible and funded entirely from cash. Turning to AI on slide 21. AI is the largest single item on our customer technology agendas at the moment and it's now driving growth across our core business rather than just sitting alongside it as a separate activity. The point I'd make is that adopting AI is not a single purchase. Before an organisation can deploy it at scale, It means identity. It means access controls in order. It means it's data governed and it's security tested and it's people trained and supported through that change. We sell and deliver every one of those things. And because Microsoft sits at the center of most of our customers' workplace technology, a good deal of that governance framework already resides in the licensing that they own today. So our role is to get customers to the point where AI can be adopted safely and then to make sure that the value lands with their people. Our ongoing work with the NHS is the clearest example. We first shared the full year results in May that we are supporting the deployment and adoption of Copilot for around half a million employees. This followed one of the largest Microsoft end customer investment fund awards globally. And most of that work sits in establishing the use case, setting guardrails, training users, supporting the change, and Microsoft recognises us as a frontier partner for it and our ability to deliver at scale. There's a second opportunity emerging behind the first, and I think it's currently underappreciated. For 30 plus years, helping customers manage software spend has meant helping them manage licences, which are countable and broadly predictable, but AI is charged by consumption which is neither and customers are asking us how they control it. The discipline is shifting from counting what an organization owns to managing the performance of what it actually uses which happens to be our heritage. Software asset management and licensing is what the business was built on and it's the right foundation for helping customers manage the economics of AI. We're also applying AI inside our own business with agents built by our own teams now supporting technical consultants scoping work, reviewing and completing pieces of work before it reaches the customer. And we have our own quote comparison agent that's reduced quote review time from 30 minutes to 7 minutes. That's a 77% reduction. These are just a few examples of how we're modernizing our own processes to remain efficient in how we grow our business. Moving to our people on slide 22, our hiring in the first half was deliberately measured, with headcount increasing 1.7% since the full year to 1,353, reflecting our prudence in this period. Over the previous two years, we've added a significant amount of sales and technical capacity, and this half was about making that capacity productive rather than adding further cost. Within the total, frontline sales headcount is up 4.4% since the fall year and technical deliveries up 17.4% year-on-year, or sales support headcount was reduced as we completed the reorganisation of the two sales teams. You can see the effect of that discipline in our productivity with gross profit per employee increasing 13% year-on-year. So having made good use of the capacity that we already had, we will now add more with sales intakes joining both businesses and we expect those people to be carrying full quota by the year end and covering their costs in year two. As you know, new sellers take time to reach full productivity so this is an investment into FY28 and beyond and we would not be making it without confidence in the demand that we see. With our London office expansion moving into new premises in August this year, that doubled our capacity, we're now being present in major cities and it helps us stay close to our customers and attracts talent for the future. Our engagement, Phoenix was ranked 51st in the best small to medium workplaces in Europe list and has also been named the UK's largest public sector reseller for the second year running. And both businesses were named on the Great Places to Work Best Workplace for Tech UK 2026 list. I'd like to thank all our people. They've observed a great deal of change over the last two years while continuing to deliver for their customers. And this half is very much their result. So to summarize, our growth in the first half was broad-based with double-digit growth, profit growth in both sectors with Microsoft and other vendors. The business itself is now simpler with the sector alignment complete and a common services capability being delivered across both our brands. Services is accelerating with delivery capacity up 17.4% and cyber one will add our own security operations. The demand drivers in our market are strengthening with software spend growing ahead of IT budgets as a whole, AI, cybersecurity and infrastructure attracting most of the incremental investment. And our balance sheet remains strong with no debt and 41.3 million returns to shareholders in the half. I hope from this presentation you now have a clear understanding of how BTG has been driving customer centricity in everything that we are doing. To reiterate, BTG is building the UK's leading trusted advisor on AI, cloud and cyber, providing technical expertise and managed services to capture a greater share of our customers' technology spend. Thank you. Andrew and I will now take questions. I saw three handled girls at the same time. I think so. Go on, Tintin.