TIDMBYIT
RNS Number : 5687M
Bytes Technology Group PLC
24 May 2022
24 May 2022
BYTES TECHNOLOGY GROUP plc
('BTG', 'the Group')
Audited preliminary results for the year ended 28 February
2022
Strong organic growth driven by robust customer demand; proposed
final and special dividends
Bytes Technology Group plc (LSE: BYIT, JSE: BYI), one of the
UK's leading software, security and cloud services specialists,
today announces its financial results for the year ended 28
February 2022 ('FY22').
Neil Murphy, Chief Executive Officer, said:
"This is another record set of results for BTG, with positive
contributions from all parts of the business. During the year we
continued to strengthen our market position, by deepening our
relationships with key software vendors and expanding our expertise
in areas such as cloud, security and annuity software and services.
These steps enabled us to make meaningful progress against our
strategy and ensure our customers continue to receive the highest
quality of service.
"I would like to thank all my colleagues who have done an
outstanding job supporting our clients through the past year. The
progress we have made is a direct result of their efforts and would
not have been possible without them. With our growing customer
base, strong reputation with key vendors and focus on sustainable
growth, our business remains well placed to deliver against our
strategy and capitalise on the exciting market opportunities
ahead."
Financial performance
GBP'million FY22 (year FY21 (year % change
ended 28 February ended 28 February year-on-year
2022) 2021)
Gross invoiced income ('GII')
(1) GBP1,208.1m GBP958.1m 26.1%
Revenue(2) GBP447.9m GBP393.6m 13.8%
Gross profit ('GP') GBP107.4m GBP89.6m
Gross margin % 24.0% 22.8% 19.9%
Operating profit GBP42.2m GBP26.8m 57.0%
Adjusted operating profit GBP46.3m GBP37.5m 23.6%
('AOP')(3)
GBP67.1m GBP20.7m 223.7%
Cash
Cash conversion(4) 131.9% 130.7%
Earnings per share (pence) 13.72 8.52 61.0%
Adjusted earnings per share(5)
(pence) 15.46 13.07 18.3%
Final dividend per share
(pence) 4.2
Special dividend per share
(pence) 6.2
Group highlights for the year ended 28 February 2022
- GII increased 26.1% to GBP1,208.1 million (FY21: GBP958.1
million), with growth spread across all areas of the business -
software, hardware and services - as corporate client demand
strengthened alongside continued growth from public sector
customers.
- Revenue increased 13.8% to GBP447.9 million (FY21: GBP393.6 million).
- GP growth of 19.9% to GBP107.4 million (FY21: GBP89.6
million), reflected strong customer acquisition trends across both
public and private sectors and increasing gross profit per
customer.
- Gross margin % has increased to 24.0% (FY21: 22.8%) in line
with growth in GP exceeding growth in revenue
- Operating profit increased 57.0% to GBP42.2 million (FY21:
GBP26.8 million); noting that FY21 included one-off IPO costs of
GBP8.1 million, whilst FY22 has an increased share-based payment
charge compared to FY21.
- AOP which, due to the above, is a better measure of underlying
profitability increased by 23.6% to GBP46.3 million (FY21: GBP37.5
million).
- Cash at the year end was GBP67.1m (FY21: GBP20.7m) reflecting
the growth in profit and the high cash conversion rate of 131.9%
(FY21: 130.7%)
- Earnings per share increased 61.0% to 13.72 pence (FY21: 8.52 pence).
- Adjusted earnings per share increased 18.3% to 15.46 pence
(FY21: 13.07 pence), which the Board believes is a more
representative measure than basic earnings per share as it removed
the impact of last year's IPO costs, amortisation of purchased
intangibles and share-based payment charges.
- The Board is pleased to propose a final dividend of 4.2 pence
per share and a special dividend of 6.2 pence per share, which if
approved by shareholders will both be paid on 12 August 2022 to
shareholders on the register as at 29 July 2022.
Current trading and outlook
After a successful FY22 with a continuation of double-digit
growth across key financial metrics, the business carries strong
momentum going into FY23. We have already made a good start in this
new financial year, although we remain mindful of the domestic and
global macroeconomic pressures. Our successful strategy of
acquiring new customers and then growing our share of wallet,
building on our strong vendor relationships and the technical and
commercial skills of our people, makes us confident that the Group
is well positioned for the remainder of the financial year, despite
current macro-economic uncertainties.
Analyst and investor presentation
A presentation for analysts and investors will be held today via
webcast at 9:30am (BST). Please find below access details for the
webcast:
Webcast link:
https://event.on24.com/wcc/r/3782892/0FC8CC8B04493B351E5B86FCC0875BED
A recording of the webcast will be available after the event at
www.bytesplc.com .
The announcement and presentation will be available at
www.bytesplc.com from 7.00am and 9.00am (BST), respectively.
Enquiries
Bytes Technology Group plc Tel: +44 (0)1372 418 500
Neil Murphy, Chief Executive Officer
Andrew Holden, Chief Financial Officer
Headland Consultancy Ltd Tel: +44 (0)20 3805 4822
Stephen Malthouse
Henry Wallers
Jack Gault
Forward-looking statements
This announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. By their nature,
forward-looking statements involve risk and uncertainty since they
relate to future events and circumstances. Actual results may, and
often do, differ materially from forward-looking statements.
Any forward-looking statements in this announcement reflect the
Group's view with respect to future events as at the date of this
announcement. Save as required by law or by the Listing Rules of
the UK Listing Authority, the Group undertakes no obligation to
publicly revise any forward-looking statements in this announcement
following any change in its expectations or to reflect events or
circumstances after the date of this announcement.
About Bytes Technology Group plc
BTG is one of the UK's leading providers of IT software
offerings and solutions, with a focus on cloud and security
products. The Group enables effective and cost-efficient technology
sourcing, adoption, and management across software services,
including in the areas of security and the cloud. It aims to
deliver the latest technology to a diverse range of customers
across corporate and public sectors and has a long track record of
delivering strong financial performance.
The Group has a primary listing on the Main Market of the London
Stock Exchange and a secondary listing on the Johannesburg Stock
Exchange.
(1) 'Gross invoiced income' ('GII') is a non-International
Financial Reporting Standard (IFRS) alternative performance measure
that reflects gross income billed to customers adjusted for
deferred and accrued revenue items. GII has a direct influence on
our movements in working capital, reflects our risks and shows the
performance of our sales teams.
(2) 'Revenue' is reported in accordance with IFRS 15, Revenue
from Contracts with Customers. Under this standard the Group is
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis
i.e., the gross profit achieved on the contract and not the gross
income billed to the customer.
(3) 'Adjusted operating profit' is a non-IFRS alternative
performance measure that excludes from operating profit the effects
of significant items of expenditure which are non-recurring events
or do not reflect our underlying operations. IPO costs,
amortisation of acquired intangible assets and share-based payment
charges are all excluded. The reconciliation of adjusted operating
profit to operating profit is set out in the Chief Financial
Officer's review below.
(4) 'Cash conversion' is a non-IFRS alternative performance
measure that divides cash generated from operations, excluding IPO
costs and less capital expenditure (together, 'free cash flow') by
adjusted operating profit.
(5) 'Adjusted earnings per share' is a non-IFRS alternative
performance measure that the Group calculates by dividing the
profit after tax attributable to owners of the company, adjusted
for the effects of significant items of expenditure which are
non-recurring events or do not reflect our underlying operations
('Adjusted earnings'), by the weighted average number of ordinary
shares in issue during the period. IPO costs, amortisation of
acquired intangible assets and share-based payment charges are all
excluded in arriving at Adjusted earnings. The calculation is set
out in note 30 of the financial statements.
_________________________________________________________________________________________
Chief Executive Officer's Review
A strong full year performance delivering on our strategy
We are delighted with the strong performance in FY22, which saw
the Group deliver robust growth in adjusted operating profit
('AOP') of 23.6% and gross profit ('GP') growth of 19.9%, driven by
an impressive 26.1% growth in gross invoiced income ('GII') across
both corporate and public customer sectors. Our revenue, stated
after the netting adjustment for cloud and critical security
licence sales required by IFRS 15, was up 13.8%.
We have maintained our track record of year-on-year growth
despite the ongoing uncertainty caused by the pandemic, with our
business benefiting from our wide-ranging product offering, with a
significant suite of software, services and IT hardware solutions
from the world's leading vendors and software publishers.
Encouragingly, we have seen continued growth from our public
sector customers and strengthening demand from our corporate
clients. This resulted in 26.3 % growth in software GII, 24.3% in
services GII, and hardware GII growing at 19.7% during FY22.
Complementing the substantial growth in GII and GP was our strong
cash conversion rate, at 131.9% for the reporting period. The
double-digit growth across all our key financial performance
measurements reflects the continued demand from our customers to
invest in resilient and efficient IT services.
Our customers' appetite for security, cloud adoption, digital
transformation, hybrid datacentres and remote working solutions
have underpinned our continued growth in FY22. These investments
increasingly take the form of annualised contracts and,
accordingly, we remain confident in the Group's growth prospects
going forward. This reinforces our belief in the potential for
future up-selling and cross-selling opportunities into existing
clients. The double-digit growth in GII, revenue and GP, reflects
the buoyant and robust nature of IT spend across the UK and
Ireland.
We continue to expand our IT services capability, underpinned by
our Microsoft Azure Expert status and the provision of managed
services, augmented with our own IP in the form of Quantum and
Licence Dashboard. These services, together with additional
cybersecurity services and consultancy, enable us to expand our
relevance to clients who need support and assurance as they seek to
strengthen their IT resilience and security.
We are evolving our internal systems to provide great user
experiences and improved productivity to drive efficiencies. This,
combined with our continued subdued costs in travel and
entertainment, and a slight lag on expanding our sales capacity has
resulted in AOP as a percentage of GP increasing on last year to
43.2% for the year under review (FY21: 41.8%)
We remain proud of the energy, enthusiasm and professionalism
demonstrated by our people through what continues to be a
challenging time for families, organisations, and society in
general. Our future growth will be supported by both increasing
headcount and training and development in key areas. As a
management team, we are extremely pleased with the way our people
continue to embrace our collaborative, team-based culture. Our
flexible working regime continues to deliver positive results for
our business, while also meeting our people's aspirations for a
healthy work/life balance. In June 2021, we launched our first
Share Save Plan ('the plan'), which has been well received by our
workforce. An encouraging 65% of employees chose to participate in
the plan, which far exceeded our expectations.
Our partnerships with key vendors go from strength to strength;
we are especially pleased to have been recognised by leading
industry vendors for our role in supporting the success of
Microsoft and Darktrace. Phoenix Software was awarded the
prestigious accolade of Microsoft Partner of the Year for the UK
for 2021 and Bytes Software Services was named Darktrace EMEA
Partner of the Year 2021. These awards reflect the status and high
esteem which the Group has with global technology leaders and is
testament to the expertise of our staff and the customer success
stories that we deliver.
We remain committed to executing our strategy in a responsible
manner, with sustainability rooted in everything we do. Our
framework in this space aims to deliver positive impacts for our
stakeholders across key themes which we have identified as most
relevant for the environment in which we operate. Within each theme
- financial sustainability, corporate responsibility, stakeholder
engagement and good governance - we set ourselves focus areas which
drive our activities. Through our environmental working groups, we
allocate time and resources to various initiatives, and are
committed to directing up to the equivalent of 1% of profit after
tax to corporate social responsibility activities. We remain
committed to supporting diversity across our business and are proud
of the balance represented across our people. We continue our
efforts to align with broader diversity targets to reflect the
society in which we, and our stakeholders, operate. Our latest
employee NPS survey was conducted in February 2022 and demonstrated
again the high level of engagement and positive feeling among our
employees in being part of the Group.
Our dividend policy is to distribute 40% of the Group's post-tax
pre-exceptional earnings to shareholders, which provides the
business with greater clarity on its capital allocation.
Accordingly, we are pleased to confirm that the Board has proposed
a final dividend of 4.2 pence per share and a special dividend of
6.2 pence per share, that subject to shareholder approval will be
paid on 12 August 2022 to shareholders on the register at 29 July
2022.
I wish to extend my gratitude to all my colleagues for their
resilience and dedication to the business during FY22 and the
preceding challenging months during the pandemic. Finally, I would
like to thank our clients for their support and entrusting their
business with us; they are our lifeblood and will always be our top
priority.
_________________________________________________________________________________________
Low carbon action plan
We set further goals for our business this year with the launch
of our low carbon action plan ('LCAP). This outlines our
aspirations to reduce our Scope 1, 2 and 3 emissions by 50% by
2025/6, from our 2020/21 baseline. In April 2022 we announced our
aim to reach net zero emissions by 2040.
Although our LCAP makes our future emission reduction plans
explicit, we have been working to reduce our energy use for a
number of years. Our actions to date include:
- Investments in our facilities to reduce electricity
consumption and the completion of our move to renewable electricity
in FY22
- The move to electricity contracts from green energy suppliers
and adopting environmental criteria in major equipment
purchases
- Installing electric car charging points at our main locations
and setting up a car sharing network
- Continuing to move services to the cloud where they are
supported by less carbon intensive third-party datacentres rather
than by our own servers.
Our environmental progress this year builds on our FY21
attainment of the ISO 14001 environmental management standard,
which aligned us to good practice throughout our supply chain and
operations. This commits us to such actions as having the necessary
controls to conserve resources and to continually monitoring the
environmental impact of our actions. Looking ahead, environmental,
social and governance issues (ESG) remain a key focus of our Board
and we will continue to pursue good practice in achieving our
environmental, and wider sustainability, goals.
Board and Committee Composition
During the year, our long-standing CFO, Keith Richardson,
retired from the Group with effect from 21 October 2021. Andrew
Holden joined BTG in June 2021 as Chief Operating Officer and was
appointed as CFO and member of the Board on 21 October 2021. Dr
Erika Schraner was appointed as an independent non-executive
director with effect from 1 September 2021. Erika also serves as a
member of the Audit, Nomination and Remuneration Committees. David
Maw stepped down as a member of the Audit Committee with effect
from 27 October 2021. He remains a non-executive director on the
BTG Board with continued responsibility for employee engagement.
The committees are comprised as follows:
- Audit Committee: Mike Phillips (Chair), Dr Alison Vincent and Dr Erika Schraner
- Nomination committee: Patrick De Smedt (Chair), Mike Phillips,
Dr Alison Vincent and Dr Erika Schraner
- Remuneration committee: Dr Alison Vincent (Chair), Patrick De
Smedt, Mike Phillips and Dr Erika Schraner
Chief Financial Officer's review
FY22 FY21 Change
Income statement GBP'm GBP'm %
Gross invoiced income (GII) 1,208.1 958.1 26.1%
GII split by product:
Software 1,136.0 899.2 26.3%
Hardware 28.8 24.1 19.7%
Services internal(1) 21.8 18.3 18.9%
Services external(2) 21.5 16.5 30.2%
Netting adjustment (760.2) (564.5) 34.7%
Revenue 447.9 393.6 13.8%
Revenue split by product:
Software 393.8 348.1 13.1%
Hardware 28.8 24.1 19.7%
Services internal(1) 21.8 18.3 18.9%
Services external(2) 3.5 3.1 15.5%
Gross profit (GP) 107.4 89.6 19.9%
GP / GII % 8.9% 9.4%
Gross margin % 24.0% 22.8%
Administrative expenses 65.2 62.7 3.9%
Administrative expenses split:
Employee costs 53.5 45.4 17.7%
Other administrative expenses 11.7 17.3 (32.2%)
Operating profit 42.2 26.8 57.0%
Add back:
Share-based payments 2.5 1.0 150.0%
Amortisation of acquired intangible
assets 1.6 1.6 0.0%
IPO costs 0.0 8.1 (100.0%)
Adjusted operating profit 46.3 37.5 23.6%
Finance costs (0.6) (0.2) 225.4%
Profit before tax 41.6 26.6 55.9%
Income tax expense (8.7) (6.7) 29.5%
Effective tax rate 21.0% 25.2%
Profit after tax 32.9 19.9 64.8%
(1) Provision of services to customers using the Group's own
internal resources
(2) Provision of services to customers using third party
contractors
Overview of FY22 results
Our second year as a FTSE-listed company has seen continued
double-digit growth across all our key performance measures,
reinforcing the strong start the Group made as a new listed entity
in FY21. FY21 laid down new foundations and a different way of
working with our customers and partners due to the onset of the
Covid-19 pandemic and created the platform for us to expand and
evolve further in FY22.
With a strengthening economy, and hybrid working widespread
across our whole customer base, opportunities have emerged to
become more fully engaged with our customers, supporting them in
their move to the cloud and with more sophisticated and resilient
security, support, and managed service solutions. This has resulted
in AOP growing by 23.6% year on year from GBP37.5 million to
GBP46.3 million. This measure excludes the impact of certain large
or one-off items which do not reflect the underlying performance of
the Group. Operating profit increased by 57.0% to GBP42.2 million
(FY21: GBP26.8 million), noting that FY21 included one-off IPO
costs of GBP8.1 million.
Gross invoiced income (GII)
GII reflects gross income billed to our customers, with some
small adjustments for deferred and accrued items (the latter mainly
relating to managed service contracts where the income is
recognised over time). We believe that GII provides a more
meaningful measure than revenue to evaluate our sales performance,
volume of transactions and rate of growth. As an organisation we
continue to focus and report on GII as a key alternative
performance measure. GII has a direct influence on our movements in
working capital, reflects our risks and shows the performance of
our sales teams.
GII has increased by 26.1% year-on-year, with growth spread
across all areas of the business, software, services and hardware.
Software remains the core focus, once again contributing 94% of the
total. The Group benefits from a substantial presence in the public
sector, with continued high levels of government investment in IT
technologies resulting in that part of our GII increasing by
GBP191.0 million, up 36%, to GBP726.6 million (FY21: GBP535.6
million). Our corporate GII increased by GBP59.1 million to
GBP481.5 million (FY21: GBP422.5 million), still representing a
healthy 14% rise.
As a result, our overall GII mix has moved slightly more in
favour of public sector, at 60% against corporate of 40%, (56% and
44%, respectively in FY21).
Revenue
Revenue is reported in accordance with IFRS 15 Revenue from
Contracts with Customers. Under this reporting standard, we are
required to exercise judgment to determine whether the Group is
acting as principal or agent in performing its contractual
obligations. Revenue in respect of contracts for which the Group is
determined to be acting as an agent is recognised on a 'net' basis,
that is, the gross profit achieved on the contract and not the
gross income billed to the customer.
The netting adjustment has been made on a consistent basis in
both the current and prior periods. While GII is showing a growth
of 26.1%, revenue (net of IFRS 15 adjustment) is showing lower
growth of 13.8%. This difference primarily reflects the ongoing and
accelerating trend towards sales of cloud-based software and
critical security software, where we are seen to be acting as
agent, rather than principal. We expect this trend to continue and
have been investing highly in our technical skills and technical
certifications around these areas which generate new and growing
gross profit opportunities.
Gross profit (GP) and gross profit/GII% (GP/GII%)
Gross profit increased by 19.9% to GBP107.4 million (FY21:
GBP89.6 million). While growth in GII was greater in the public
sector, at GP level the greatest growth was from our corporate
customer sectors. Corporate GP grew by of 24% to GBP70.0 million
(FY21: GBP56.2 million) with a 1.3% rise in the corporate GP/GII%
to 14.5% from 13.2%.
In the public sector, GP grew by 12% to GBP37.4 million (FY21:
GBP33.4 million) with a 1.1% reduction in GP/GII% from 6.2% to
5.1%. This reduction can be ascribed to increased competition,
particularly when winning new deals and renewing existing contracts
in a competitive tender environment. Where new large agreements
have been won at a lower margin, management is acutely focused on
tracking these customers individually to ensure that the strategy
delivers value for them, the business, and our other stakeholders
by complementing them with higher margin services over the duration
of the contract. Further, with low debtor days and virtually no bad
debts, the public sector remains a low-risk area in which to
conduct a significant share of the Group's business.
Our overall GP mix therefore moved slightly in favour of the
corporate sector due to the GP/GII% changes, contributing 65%
versus the public sector's 35% (63% and 37%, respectively in
FY21).
Our overall GP/GII% reduced slightly from 9.3% to 8.9%. It is
our key priority to maintain and then increase this measure from
the current level by focusing on selling our wide range of
solutions offerings and higher margin security products and
maximising our vendor incentives through achievement of technical
certifications.
GP/Revenue% on the other hand has increased to 24.0% (FY21:
22.8%) because of the increasing size of the netting adjustment
which reduces revenue but does not impact on GP.
Our strong presence in both the corporate and public sectors
makes us resilient to different levels of demand, where one area's
performance can compensate for or complement the other's. Our
public sector business has performed strongly over the last 24
months, in central and local government and in the NHS, while the
corporate sector team has seen a positive upturn in FY22 following
some reduced investment in the initial phases of the Covid-19
pandemic.
At the end of FY21 we reported 5,147 current customers; we are
pleased to report a net gain of 183 (3.6%) new customers in this
reporting period, bringing our total customer base to 5,330. In
FY22, 93% of our GP came from customers that we also traded with
last year at a renewal rate of 111% (which measures the GP from
existing customers this year compared to total GP last year). At
the same time, we increased gross profit per customer from
GBP17,400 to GBP20,100. We continue to focus on our customer NPS
which has increased from 63 to 64, and which has contributed to our
ability to retain customers.
Administrative expenses
This includes employee costs and other administrative expenses
as set out below.
Employee costs
Our success in growing GII and GP continues to be as a direct
result of the investments we have made over the years in our
front-line sales heads, vendor and technology specialists, service
delivery staff and technical support personnel, backed up by our
fantastic marketing, operations and finance teams. It has been, and
will remain, a carefully managed aspect of our business where we
strive to invest in line with actual growth, not before.
Another successful strategy that has borne fruit is where we
look to promote and expand from within, giving our people careers
rather than just employment. This, in turn, has created long tenure
from our employees that align with the long relationships we have
with our customers, vendors, and partners. This is at the very
heart of our low employee churn rate, the growth in gross profit
per customer, our high customer retention rate, and our exceptional
customer NPS, while our employee NPS has been maintained at a very
positive 69 across the past two years.
Employee costs included in administrative expenses rose by 17.7%
to GBP53.5 million (FY21: GBP45.4 million), and excluding
share-based payments, rose by 14.5%, lower than the 19.9% rise in
GP and reflecting the balanced and proportional way in which vital
staff investments are - and will continue to be - made. In H2 FY22
we welcomed our new graduate and apprentice sales intake, which
should see us well placed to continue our growth trajectory. Across
the year we saw our total staff complement rise from 685 to
773.
Other administrative expenses
Other administrative expenses reduced by GBP5.6 million to
GBP11.7 million (FY21: GBP17.3 million) but after excluding the
GBP8.1 million of IPO costs in FY21 there was an increase of GBP2.5
million year-on-year (FY21 adjusted: GBP9.2 million). This increase
included additional spend on internal systems, professional fees,
staff training, welfare and recruitment fees. This reflects the
costs of running and investing in a growing organisation and a full
year's expenditure related to operating a listed Group, including
evolving our governance structure, controls and processes with the
support of our professional advisors.
Travel and entertaining expenses have not yet reverted to
pre-lockdown levels and are still broadly in line with those
experienced last year. As our employees and customers return to
work, we expect these costs to increase gradually in FY23.
We have come through the year with only minimal bad debt
write-offs and maintained our credit loss provision at the previous
year's level of GBP0.75 million on 28 February 2022.
Adjusted operating profit and operating profit
Adjusted operating profit excludes, from operating profit, the
effects of:
- Share based payment charges as these do not arise from
ordinary operating activities and whilst new employee share schemes
are being launched the charge to the income statement will increase
each year
- Amortisation of acquired intangibles as this cost only appears
as a consolidation item and does not arise from ordinary operating
activities
- IPO costs as these were a substantial one-off cost in FY21 and
are non-recurring.
We believe that adjusted operating profit provides a more
meaningful measure to evaluate our profitability, performance, and
ongoing quality of earnings. Adjusted operating profit in FY22
increased to GBP46.3 million (FY21: GBP37.5 million), representing
growth of 23.6%.
Our operating profit increased from GBP26.8 million to GBP42.2
million equating to an increase of 57.0%. This substantial rise is
primarily due to the one-off costs of the IPO last year amounting
to GBP8.1 million, partly offset by a GBP1.5 million increase in
share-based payments' costs following the introduction of share
schemes during the year.
Adjusted operating profit as a percentage of GP is one of the
Group's key alternative performance indicators, being a measure of
the Group's operational effectiveness in running day-to-day
operations. We set a target of no less than 40% and we have again
achieved this, with a ratio of 43.2% (FY21: 41.8%).
Income tax expense
The effective rate of corporation tax charged for the year is
21.0% of profit before tax. Excluding the impact of the
non-deductible share-based payments costs and amortisation of
intangibles, the underlying adjusted rate reverts to close to 19%.
The higher rate of 25.2% in FY21 also reflects the impact of the
IPO costs which were non-deductible
Balance sheet and cashflow
As at
28 February 29 February
2022 2021
Summary balance sheet GBP'm GBP'm
Property plant and equipment 8.0 8.3
Intangible assets 42.8 44.4
Other non-current assets 1.1 1.7
Non-current assets 51.9 54.4
Trade and other receivables 157.6 106.7
Cash 67.1 20.7
Other current assets 6.9 7.8
Current assets 231.6 135.2
Trade and other payables 217.6 157.1
Lease liabilities 0.2 0.2
Other current liabilities 14.5 10.3
Current Liabilities 232.3 167.6
Lease liabilities 1.0 1.2
Other non-current liabilities 2.7 4.1
Non-current liabilities 3.7 5.3
Net assets 47.5 16.7
Share capital 2.4 2.4
Share premium 633.6 633.6
Other reserves 3.1 0.3
Merger reserve (644.4) (644.4)
Retained earnings 52.8 24.8
Total equity 47.5 16.7
Closing net assets stood at GBP47.5 million (FY21: GBP16.7
million).
While the balance sheet shows a small net current liability
position at year end, a portion of the current liabilities,
amounting to GBP28 million, relates to money received from
customers in advance for future services and project work. This
will be released to the income statement when the work is
delivered, and the related delivery costs will be expensed at the
same time. Hence this element will not result in an immediate cash
outflow and, where delivery is carried out by our internal
resources, the staff costs will be absorbed into our operational
cashflow.
The Group has maintained its historic track record of strong
discipline and good practices in cash collection built up over many
years, which minimises risk in the debtor's book. Accordingly, it
achieved average debtor days of 33 across the reporting period
(FY21: 33), backed up by only minimal write offs during the
year.
Our cash position remained positive throughout the 12 months.
However, if required, the Group does have in place an external
revolving credit facility, with GBP40 million of funds available at
28 February 2022 which will reduce to GBP30 million for a further
12 months from December 2022. The facility was put in place at the
time of the IPO and has never been used.
The consolidated cash flow is set out below along with the key
flows which have affected it:
FY22 FY21
Cashflow GBP'm GBP'm
Cash generated from operations 61.7 49.6
Payments for fixed assets (0.6) (0.6)
Free cash flow 61.1 49.0
Net Interest paid (0.5) (0.1)
Taxes paid (9.1) (10.2)
IPO Costs 0.0 (8.1)
Proceeds from issues of shares 0.0 8.3
Deferred consideration payments 0.0 (16.7)
Lease payments (0.3) (0.3)
Dividends (4.8) (48.6)
Net increase/(decrease) in cash 46.4 (26.7)
Cash at the beginning of the year 20.7 47.4
Cash at the end of the year 67.1 20.7
Cash Conversion 131.9% 130.7%
Cash generated from operations was GBP61.7 million and after
outflows for taxation (GBP9.1 million), finance costs (GBP0.5
million), capital expenditure (GBP0.6 million), and the interim
dividend (GBP4.8 million), the Group finished FY22 with a cash
balance of GBP67.1 million (FY21: GBP20.7 million).
The FY21 cashflow included IPO costs and settlement of share
scheme deferred consideration amounts which were one off items, not
repeated in FY22. The substantial dividends paid in FY21 included a
one-off and final pre-IPO dividend of GBP30 million to the Group's
former parent, Altron, in addition to further payments under
Altron's standard dividend policy. This year's payment is the
interim dividend for FY22 of 2p per share, paid in December
2021.
As part of its focus on managing working capital, the Group
measures its cash conversion by dividing cash generated from
operations, less capital expenditure (together as 'free cash flow')
by adjusted operating profit. For this period the Group achieved a
healthy cash conversion ratio of 131.9% (FY21: 130.7%). While the
ratio can be sensitive to even small delays in payment from
customers, the Group targets a sustainable cash conversion ratio
above 100%, which has been achieved.
Financial key performance indicators (KPIs)
We have set out below summaries of the financial KPIs we use to
measure and track our progress, noting that the Group uses a mix of
statutory performance measures and alternative performance measures
(APMs) to understand and respond to changes.
FY22 FY21 Change
GBP'm GBP'm
FINANCIAL KPIs or % or % %
Gross invoiced income (GII)(1) 1,208.1 958.1 26.1%
Revenue 447.9 393.6 13.8%
Gross profit (GP) 107.4 89.6 19.9%
Gross margin % 24.0% 22.8%
Operating profit 42.2 26.8 57.0%
Adjusted operating profit (AOP)(1) 46.3 37.5 23.6%
AOP / GP %(1) 43.2% 41.8%
Cash 67.1 20.7 223.7%
Cash conversion(1) 131.9% 130.7%
(1) Alternative performance measures which are explained
above
These all demonstrate improvements over last year, with strong
double-digit growth. This has provided the basis on which the Group
is able to make its FY22 dividend declaration below.
Proposed dividends
As stated above, the Group's dividend policy is to distribute
40% of post-tax pre-exceptional earnings to shareholders.
Accordingly, the Board is pleased to propose a gross final dividend
of 4.2 pence per share. The aggregate amount of the proposed
dividend expected to be paid out of retained earnings at 28
February 2022, but not recognised as a liability at the end of the
financial year, is GBP10.1 million. In light of the company's
continued strong performance and cash generation, the Board also
considers it appropriate to propose a cash return to ordinary
shareholders with a special dividend of 6.2 pence per share,
equating to GBP14.8 million. If approved by shareholders, the final
and special dividend will be payable on Friday, 12 August 2022 to
all ordinary shareholders who are registered as such at the close
of business on the record date of Friday, 29 July 2022. The salient
dates applicable to the dividend are as follows:
Dividend announcement date Tuesday, 24 May 2022
SARB approval for the special dividend Tuesday, 19 July 2022
to be obtained by this date
Currency conversion and South African Friday, 22 July 2022
(SA) tax treatment announcement released
on SENS by 11:00
AGM at which dividend resolutions will Tuesday, 26 July 2022
be proposed
Last day to trade cum dividend (SA register) Tuesday, 26 July 2022
Commence trading ex-dividend (SA register) Wednesday, 27 July 2022
Commence trading ex-dividend (UK register) Thursday, 28 July 2022
Record date Friday, 29 July 2022
Payment date Friday, 12 August 2022
Additional information required by the Johannesburg Stock
Exchange:
1. The GBP:ZAR currency conversion will be determined and
published on SENS on Monday, 18 July 2022.
2. A dividend withholding tax of 20% will be applicable to all
shareholders on the South African register who are not exempt.
3. The dividend payment will be made from a foreign source (UK).
4. At Tuesday, 24 May 2022, being the declaration announcement
date of the dividend, the company had a total of 239,482,333 shares
in issue (with no treasury shares).
5. No transfers of shareholdings to and from South Africa will
be permitted between Friday, 22 July 2022 and Friday, 29 July 2022
(both dates inclusive). No dematerialisation or rematerialisation
orders will be permitted between Wednesday, 27 July 2022 and
Friday, 29 July 2022 (both dates inclusive).
Principal risks
The Group Board has overall responsibility for risk. This
includes establishing and maintaining our risk management framework
and internal control systems and setting our risk appetite. In
doing this it receives support from our Audit Committee and
executive management teams. However, through their skills and
diligence, everyone in the Group plays a part in protecting our
business from risk and making the most of our opportunities.
We have identified principal risks and uncertainties that could
have a significant impact on the Group's operations, which we
assign to four categories: financial, strategic, process and
systems, and operational. BTG's management review each principal
risk looking at its level of severity, where it overlaps with other
risks, the speed at which it is changing, and its relevance to the
Group. We consider the principal risks both individually and
collectively, so that we can appreciate the interplay between them
and understand the entire risk landscape.
In 2021/22, the uncertain economic picture - exacerbated by the
crisis in Ukraine - the changing market, and the development of our
internal governance caused us to increase and evolve our principal
risks and uncertainties.
As indicated below, this includes the:
- Two new financial risks of margin pressure and inflation
- New People risk of attracting and retaining staff
- Evolution of last year's financial risk of major supplier
revenue changes to become Changes to vendors' commercial model
- Conflation of last year's strategic supply chain risk and part
of the competition and disintermediation risk to become security of
supply
- Separation of elements of the competition and
disintermediation risk to become part of the two new risks,
commoditisation and disintermediation
- Conflation of the two operational risks cyberthreats (direct)
and cyberthreats (indirect) to become one risk, cyberthreats -
direct and indirect. (We also no longer have ' changing cyber
threat' landscape as an emerging risk as we consider that this
landscape's changing nature is integral to the current and future
threat)
- Downgrading of legal and regulatory non-compliance as a
principal operational risk due to the strengthening and
formalisation of our internal governance as we enter our second
year as a listed company.
The current principal risks and uncertainties that the Board
believes could have a significant effect on the Group's financial
performance are:
Financial 1 Economic disruption Risk owner
CEO
The risk How we manage it
This includes the impact of We have so far continued to
the crisis in Ukraine, the perform well during the first
uncertainties caused by global months of the conflict in
economic pressures and geopolitical Ukraine, and during the continuing
risk within the UK post-Brexit. tail of Brexit and the Covid-19
pandemic.
These real-life experiences
have shown us to be resilient
under tough economic conditions.
The diversity of our client
base has also helped to maintain
and increase business in this
period. We are not complacent,
however, and keep operations
under constant review.
The impact
Major economic disruption -
including the risk of continuing
high inflation (see below)
and potential higher taxes
- could see reduced demand
for software licensing, hardware
and IT services, which could
be compounded by government
controls. Lower demand could
also arise from reduced customer
budgets, cautious spending
patterns or clients 'making
do' with existing IT.
Economic disruption could also
affect the major financial
markets, including currencies,
interest rates and the cost
of borrowing. Economic deterioration
like this could have an impact
on our business performance
and profitability.
2 Margin pressure Risk owner
MDs of subsidiary businesses
The risk How we manage it
BTG faces pressure on profit Profit margins are affected
margins from myriad directions, by many factors at customer
including increased competition, and micro levels.
changes in vendors' commercial
behaviour, certain offerings We can control some of these
being commoditised and changes factors that influence our
in customer mix or preferences. margins, however some factors,
such as economic and political
ones, are beyond our control.
We aim to agree acceptable
profit margins with customers
upfront.
Keeping the correct level
of certification by vendor,
early deal registration and
rebate management are methods
deployed to ensure we are
procuring at the lowest cost.
This risk area is reviewed
monthly.
The impact
These changes could have an
impact on our business performance
and profitability.
3 Changes to vendors' commercial Risk owner
model CEO
The risk How we manage it
BTG receives incentive income We maintain a diverse portfolio
from our vendor partners and of vendor products and services.
their distributors. This partially Although we receive major
offsets our costs of sales sources of funding from specific
but could be significantly vendor programmes, if one
reduced or eliminated if the source declines we can offset
commercial models are changed it by gaining new certifications
significantly. in, and selling, other technologies
where new funding is available.
We closely monitor incentive
income and make sure staff
are aligned to meet vendor
partner goals so that we don't
lose out on these incentives.
Close and regular communication
with all our major vendor
partners and distributors
means we can manage this risk
appropriately.
The impact
These incentives are very valuable
and contribute to our operational
profits. Significant changes
to the commercial models would
put pressure on our profitability.
4 Inflation Risk owner
CFO
The risk How we manage it
Inflation in the UK, as measured
by the Consumer Price Index The general business outlook
(CPI), is currently 9% in the shows that the Covid-19 pandemic
year to April 2022, which is and associated lockdowns created
driven by broad-based cost pent-up demand for IT in our
increases. markets.
Our continued focus on software
asset management means that
we continue to advise customers
in the most cost-effective
ways to fulfil their software
needs. Changes to economic
conditions mean many organisations
will look to IT to drive growth
and/or efficiency.
Staff costs constitute the
majority of our overheads,
therefore our attention is
focused on our staff and their
ability to cope with the rising
cost of living
The impact
This could create an environment
in which customers redirect
their spending from new IT
projects to more pressing needs.
Wage inflation, increased fuel
and energy costs have a direct
impact on our underlying cost
base.
Strategic 5 Security of supply Risk owner
CEO
The risk How we manage it
Overreliance on key vendors/suppliers We work with our vendors as
(principally Microsoft). partners - it is a relationship
Suppliers of technology or of mutual dependency since
services being unable to innovate we are their route to the
or supply products due to global end customer. We maintain
trade barriers. excellent relationships with
all our vendors, and have
The impact a particularly good relationship
Too heavy a reliance on any with Microsoft, which relies
one vendor could have an adverse on us as a key partner in
impact on our financial performance, the UK. Our growth plans,
should that relationship break which involve developing business
down. with all our vendors, will
Geopolitically, global shortages naturally reduce the risk
of computer hardware, components of relying too heavily on
and chips could occur, which any single one.
might limit our, and our customers', We monitor the geopolitical
ability to purchase hardware situation, continuously and
for internal use. This could work closely with suppliers
lead to delays in customers and industry bodies to identify
purchasing software, which any potential supply chain
is linked to, or dependent disruptions and impacts. This
on, the hardware being available. enables us to remain fully
Reduced access to computer informed, so that we can respond
chips could also slow down quickly should the landscape
vendor innovation, leading change, to ensure that we
to delays in the creation of have diverse supply routes.
new technology to resell to As this risk is largely driven
customers. by geopolitical and macroeconomic
factors, we maintain a watching
brief so that we can react
swiftly if required.
6 Commoditisation Risk owner
CEO
The risk How we manage it
Competition in the UK IT market, We closely watch commercial
or the commoditisation of IT and technological developments
products, may result in BTG in our markets.
being unable to win or maintain
market share. Currently, there's no sign
of commoditisation of any
kind that would be a serious
threat to the business model
in the short or medium term.
The impact
This would have a material
adverse impact on our business
and profitability.
A huge change would need a
big shift in business operations,
including a strategic overhaul
of the products, solutions
and services that we offer
to the market.
7 Disintermediation Risk owner
CEO
The risk How we manage it
Mergers and acquisitions have The threat of disintermediation
consolidated our distribution by vendors has always been
network and absorbed specialist present. We minimise this
services companies. This has threat by continuing to increase
caused overlap with our own the added value we bring to
offerings. customers directly. This reduces
clients' desire to deal directly
A move to direct vendor resale with vendors.
to end customers - called disintermediation
- could squeeze the market Equally, vendors cannot engage
opportunity even more. with millions of organisations
globally without the sort
of well-established network
of intermediaries that we
have.
The impact
More consolidation could lead
to less competition between
vendors and cause prices to
value-added resellers, like
us, to rise and service levels
to fall. Direct resale to customers
could also increase.
This could erode reseller margins,
given the purchase cost is
less for the distributor than
the reseller. This could reduce
Strategic our market, margin and profits.
8 Relevance and emerging technology Risk owner
CEO
The risk How we manage it
As the technology and security We stay relevant to our customers
markets evolve rapidly and by continuing to offer them
become more complex, the risk expert advice and innovative
exists that we might not keep solutions; specialising in
pace and so fail to be considered high-demand areas; holding
for new opportunities. superior levels of certification;
maintaining our good reputation
and helping clients find the
right solutions in a complex,
often confusing IT marketplace.
We defend our position by
keeping abreast of new technologies
and the innovators who develop
them. We do this, for example,
by running a Cyber Accelerator
Programme for new and emerging
solution providers, joining
industry forums and sitting
on new technology committees.
By identifying and developing
bonds with emerging companies,
we maintain good relationships
with them as they grow and
give our customers access
to their technologies.
The impact
As customers have wide choice
and endless opportunities to
research options, if we do
not offer cutting-edge products
and relevant services, we could
lose sales and customers, which
would affect our profitability.
Processes 9 Keeping pace with digital Risk owner
and systems change CEO
The risk How we manage it
Failure to transform our internal To make sure we keep our business
IT and business processes, processes and systems in the
so that we cannot keep pace best shape, we draw on insights
with, nor support, our customers from our customers, the market
effectively. and all levels of our business.
Transformation working groups
The impact - including members of our
If we could not support or Group technical, IT and security
interact with our customers teams - work in partnership
in the way they wanted, it with our operating companies
could damage our relationships to identify strategies and
with them, affect sales and solutions. Transformation
damage our profitability. work is then run, managed
and monitored locally.
Operational 10 Cyberthreats - direct and Risk owner
indirect Chief Information Security
Officer
Operational
The risk How we manage it
Breaches in the security of We use intelligence-driven
electronic and other confidential analysis, including research
information that BTG collects, by our internal digital forensics
processes, stores and transmits team, to protect ourselves.
may give rise to significant
liabilities and reputational This work provides insights
damage. into vulnerable areas and
the effects of any breaches,
which allow us to strengthen
our security controls.
We have established controls
that separate customer systems
and mitigate cross-breaches.
Our cyberthreat-level system
also lets us tailor our approach
and controls in line with
any intelligence we receive.
The impact
If a hacker accessed our IT
systems, they could infiltrate
one or more of our customer
areas. This could provide indirect
access, or the intelligence
required to compromise or access
a customer environment.
This would increase the chance
of first- and third-party risk
liability, with the possible
effects of regulatory breaches,
loss of confidence in our business,
reputational damage and potential
financial penalties.
11 Technology failure Risk owner
CFO
The risk How we manage it
Any failure or disruption of Our Chief Technology Officer
BTG's IT infrastructure or and Head of IT effectively
business applications may negatively manage and oversee our IT
affect us. infrastructure, network, systems
and business applications.
Regular IT audits have identified
areas of improvements and
ongoing reviews make sure
we have a high level of compliance
and uptime. This means our
systems are highly effective
and fit for purpose.
For business continuity, we
use different locations, sites
and solutions to limit the
impact of service outage to
customers. Where possible,
we use active resilience solutions
- designed to withstand or
prevent loss of services in
an unplanned event - rather
than just disaster-recovery
solutions and facilities,
which restore normal operations
after an incident.
The impact
Systems and IT infrastructure
are key to our operational
effectiveness. Failures or
significant downtime could
hinder our ability to serve
customers, sell solutions or
invoice.
Major outages in systems that
provide customer services could
limit clients' ability to extract
crucial information from their
systems or manage their software.
12 Attract and retain staff Risk owner
CEO
The risk How we manage it
The success of BTG's business We continually strive to be
and growth strategy depends the best company to work for
on our ability to attract, in our sector. One of the
recruit and retain a talented ways we manage this risk is
employee base. Being able to by growing our own talent
offer competitive remuneration pools. We've used this approach
is an important part of this. successfully in our graduate
intakes for sales, for example.
Three factors are affecting BTG also runs an extensive
this: apprenticeship programme to
-- The Consumer Price Index create a new security skillset.
is driving wage inflation
-- There is a skills s hortage
in the IT sector
-- With remote or hybrid working
becoming the norm, potential
employees in traditionally
lower-paid geographical regions
are able to work remotely in
higher-paying areas like London.
The impact
Excessive wage inflation could
either drive up costs or mean
we are unable to attract or
retain the talent pool we need
to continue to deliver our
planned growth.
Further information on these risks can be found in our 2021/
2022 Annual Report and Accounts, which will be available in due
course at www.bytesplc.com/investors/results-and-reports .
Going concern disclosure
The Group performed a full going concern assessment for the year
ended 28 February 2022. As outlined in the Chief Financial
Officer's review above, trading during the year demonstrated the
Group's strong performance in the period and our resilient
operating model. The Group has a healthy liquidity position with
GBP67.1 million of cash and cash equivalents available at 28
February 2022. The Group also has access to a committed revolving
credit facility that covers all BTG's reasonably expected cash
requirements over the going concern period to 31 August 2023. The
directors have reviewed trading and liquidity forecasts for the
Group, as well as continuing to monitor the effects of Covid-19 on
the business. The directors have considered the availability of the
Group's revolving credit facility, which remains undrawn as at 28
February 2022. The directors have also considered a number of key
dependencies which are set out in the Group's principal risks
report, specifically BTG's exposure to credit risk, liquidity risk,
currency risk and foreign exchange risk as described in note 17 and
note 25 of the financial statements. The Group continues to model
its base case, severe but plausible and stressed scenarios,
including mitigations, consistently with those disclosed in the
annual financial statements for the year ended 28 February 2021,
with the key assumptions summarised in the financial information
below. Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period.
Going concern conclusion
Based on the analysis described above, the Group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the Group has the
financial resources to enable it to continue in operational
existence for the period up to 31 August 2023. Accordingly, the
directors conclude it to be appropriate that the consolidated
financial statements be prepared on a going concern basis.
Responsibility statement pursuant to the Financial Services
Authority's Disclosure and Transparency Rule 4 (DTR 4)
Each director of the company confirms that (solely for the
purpose of DTR 4) to the best of his/her knowledge:
-- The financial information in this document, prepared in
accordance with the applicable UK law and applicable accounting
standards, gives a true and fair view of the assets, liabilities,
financial position, and result of the Group taken as a whole.
-- The Chief Executive Officer's and Chief Financial Officer's
reviews include a fair review of the development and performance of
the business and the position of the Group taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Neil Murphy Andrew Holden
Chief Executive Officer Chief Financial Officer
24 May 2022
Consolidated statement of profit or loss
Year ended Year ended
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Revenue 3 447,937 393,569
Cost of sales (340,576) (303,995)
Gross profit 107,361 89,574
4,
Administrative expenses 5 (65,057) (62,397)
Increase in loss allowance on trade receivables 17 (149) (333)
Operating profit 42,155 26,844
Finance income - 12
Finance costs (589) (193)
Finance costs - net 8 (589) (181)
Profit before taxation 41,566 26,663
Income tax expense 9 (8,712) (6,730)
Profit after taxation 32,854 19,933
Profit for the period attributable to
owners of the parent company 32,854 19,933
Pence Pence
Basic earnings per ordinary share 30 13.72 8.52
Diluted earnings per ordinary share 30 13.42 8.47
The consolidated statement of profit or loss has been prepared
on the basis that all operations are continuing operations.
There are no items to be recognised in other comprehensive
income and hence, the Group has not presented a statement of other
comprehensive income.
Consolidated statement of financial position
As at As at
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Assets
Non-current assets
Property, plant and equipment 10 8,049 8,275
Right-of-use assets 11 928 1,097
Intangible assets 12 42,832 44,443
Contract assets 13 125 214
Deferred tax assets 9 - 357
Total non-current assets 51,934 54,386
Current assets
Inventories 15 96 591
Contract assets 13 6,591 7,179
Trade and other receivables 17 157,610 106,664
Current tax asset 219 -
Cash and cash equivalents 18 67,118 20,734
Total current assets 231,634 135,168
Total assets 283,568 189,554
Liabilities
Non-current liabilities
Lease liabilities 11 (992) (1,176)
Contract liabilities 14 (1,495) (2,324)
Deferred tax liabilities 9 (1,189) (1,738)
Total non-current liabilities (3,676) (5,238)
Current liabilities
Trade and other payables 19 (217,612) (157,121)
Contract liabilities 14 (14,528) (10,038)
Current tax liabilities - (207)
Lease liabilities 11 (185) (202)
Total current liabilities (232,325) (167,568)
Total liabilities (236,001) (172,806)
Net assets 47,567 16,748
Equity
Share capital 20 2,395 2,395
Share premium 20 633,636 633,636
Other reserves 21 3,072 317
Merger reserve 22 (644,375) (644,375)
Retained earnings 23 52,839 24,775
Total equity 47,567 16,748
The consolidated financial statements were authorised for issue
by the Board of directors on 23 May 2022.
Consolidated statement of changes in equity
Attributable to owners of the company
Share Share Other Merger Retained Total
capital premium reserves reserve earnings equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 March
2020 2,325 625,373 1,170 (644,375) 51,612 36,105
Total comprehensive
income for the year - - - - 19,933 19,933
Dividends paid 26(b) - - - - (48,600) (48,600)
Shares issued during
the year 20 70 8,263 - - - 8,333
Deferred tax 9 - - 15 - - 15
Transfer to retained
earnings 21 - - (1,830) - 1,830 -
Share-based payment
transactions 29 - - 962 - - 962
Balance at 28 February
2021 2,395 633,636 317 (644,375) 24,775 16,748
Total comprehensive
income for the year - - - - 32,854 32,854
Dividends paid 26(b) - - - - (4,790) (4,790)
Deferred tax 9 - - 192 192
Share-based payment
transactions 29 - - 2,563 - - 2,563
Balance at 28 February
2022 2,395 633,636 3,072 (644,375) 52,839 47,567
Consolidated statement of cash flow
Year ended Year ended
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 24 61,719 41,546
Interest received 8 - 12
Interest paid 8 (532) (122)
Income taxes paid (9,138) (10,213)
Net cash inflow from operating activities 52,049 31,223
Cash flows from investing activities
Payments for property, plant and equipment 10 (617) (607)
Deferred consideration payments 20 - (16,677)
Net cash outflow from investing activities (617) (17,284)
Cash flows from financing activities
Proceeds from issues of shares 20 - 8,333
Principal elements of lease payments 11 (258) (295)
Dividends paid to shareholders 26(b) (4,790) (48,600)
Net cash outflow from financing activities (5,048) (40,562)
Net increase/(decrease) in cash and
cash equivalents 46,384 (26,623)
Cash and cash equivalents at the beginning
of the financial year 20,734 47,357
Cash and cash equivalents at end of
year 18 67,118 20,734
Notes to the financial statements
1.1 General information
Bytes Technology Group plc, together with its subsidiaries ("the
Group" or "the Bytes business") is one of the UK's leading
providers of IT software offerings and solutions, with a focus on
cloud and security products. The Group enables effective and
cost-efficient technology sourcing, adoption and management across
software services, including in the areas of security and cloud.
The Group aims to deliver the latest technology to a diverse and
embedded non-consumer customer base and has a long track record of
delivering strong financial performance. The Group has a primary
listing on the Main Market of the London Stock Exchange (LSE) and a
secondary listing on the Johannesburg Stock Exchange (JSE).
1.2 Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with UK-adopted International Accounting Standards
(IAS) in conformity with the requirements of the Companies Act
2006. On 31 December 2020 EU-adopted IFRS was brought into UK law
and became UK-adopted International Accounting Standards, with
future changes to IFRS being subject to endorsement by the UK
Endorsement Board. The consolidated financial statements
transitioned to UK-adopted international accounting standards for
the first financial period beginning after 1 January 2021. There
was no impact or change in accounting policies from the transition.
UK-adopted International Accounting Standards differs in certain
respects from International Financial Reporting Standards as
adopted by the EU, the differences have no material impact on the
Group's consolidated financial statements for the periods
presented.
The Group's accounting and presentation considerations on both
the current and comparative periods are detailed below.
In adopting the going concern basis for preparing the financial
statements, the directors have considered the business activities
and the Group's principal risks and uncertainties in the context of
the current operating environment. This includes possible ongoing
impacts of the global Covid-19 pandemic on the Group, the current
geo-political environment, the current challenging economic
conditions, and reviews of future liquidity headroom on existing
facilities and against the facility financial covenants during the
period under assessment. The approach and conclusion are set out
fully in note 1.4.
The consolidated financial statements have been prepared on a
historical cost basis, as modified to include derivative financial
assets and liabilities at fair value through the consolidated
statement of profit or loss.
1.3 Demerger and re-organisation transactions
Background
On 2 April 2020, Allied Electronics Corporation Limited
("Altron" and together with its subsidiaries "Altron Group") a
South African, JSE-listed technology company announced its
intention to demerge the Bytes business and pursue a potential LSE
listing with a secondary JSE listing. The parties entered into a
share purchase agreement ("Demerger SPA") on 2 November 2020 with
the separation and initial public offering ("IPO") taking place on
17 December 2020 (the "Date of the Demerger" and the "Admission
date"). The separation was implemented by way of a demerger of the
Bytes business to two newly incorporated companies, Bytes
Technology Group plc and Bytes Technology Holdco Limited. Bytes
Technology Group plc became the ultimate parent company of the
newly demerged group with Bytes Technology Holdco Limited, a wholly
owned subsidiary held directly by Bytes Technology Group plc. Both
companies are incorporated in England and Wales under the UK
Companies Act 2006.
Bytes Technology Limited was previously the parent company of
the Bytes business with the two main operating subsidiaries being
Bytes Software Services Limited (BSS) and Phoenix Software Limited
(Phoenix). BSS is a direct subsidiary of Bytes Technology Limited
and Phoenix was held indirectly through an intermediate holding
company, Blenheim Group Limited. As a result of the demerger of the
Bytes business, both Bytes Technology Group plc and Bytes
Technology Holdco Limited became holding companies of the Bytes
business, through a combination of issuing new Bytes Technology
Group plc shares and cash consideration paid to Altron, the Altron
shareholders and to management in exchange for shares held by them
in Bytes Technology Limited and Blenheim Group Limited.
The Demerger Transactions - new shares issued
In the comparative period Bytes Technology Group plc issued a
total of 232,480,611 new ordinary shares at an issue price of
GBP2.70 per share with an aggregate value of GBP627.7 million:
- 123,514,420 ordinary shares with an aggregate value of
GBP333.5 million were issued for cash to new institutional and
individual investors (including the non-executive directors)
introduced by the Group's brokers, Numis Securities. This cash was
paid to Altron and Altron shareholders. For the purposes of the
Demerger Transactions, the Group has accounted for the cash
proceeds received from issuing these shares and the cash paid to
Altron and Altron shareholders on a net basis, since both
transactions took place simultaneously, were of an equal amount and
conducted between the group's brokers, the new institutional and
individual investors, Altron and Altron shareholders
- 96,992,074 ordinary shares with an aggregate value of GBP261.9
million were issued directly to Altron shareholders
- 11,974,117 ordinary shares with an aggregate value of GBP32.3
million were issued to the Bytes Technology Limited management for
the Bytes Technology Limited B ordinary shares.
The Demerger Transactions - cash consideration
In the prior year the Group paid a total cash consideration of
GBP16.7 million:
- A further GBP14.3 million of cash consideration was paid by
the Group to the Bytes Technology Limited management for the Bytes
Technology Limited B ordinary shares
- GBP2.4 million of cash consideration was paid by Bytes
Technology Limited Blenheim Group Limited management for the
Blenheim Group Limited B ordinary shares.
The investments in the Bytes Technology Limited A ordinary
shares and B ordinary shares are held in Bytes Technology Holdco
Limited and Bytes Technology Group plc, respectively. On completion
of the transaction, Bytes Technology Group plc, together with its
direct and indirect subsidiary undertakings, operated as a single
corporate group.
IPO costs - shares issued
In addition to the share issues discussed above, Bytes
Technology Group plc issued a total of 7,001,720 new ordinary
shares last year at an issue price of GBP2.70 per share with an
aggregate value of GBP18.9 million. The cash proceeds of GBP18.9
million were used to pay commission costs of GBP10.6 million
associated with the issue of the shares. The remaining net share
issue proceeds of GBP8.3 million were used by the Group to pay the
other IPO costs of GBP8.1 million.
Accounting considerations for the demerger
Reorganisation of the Bytes business
The insertion of both Bytes Technology Group plc and Bytes
Technology Holdco Limited into the Group via a combination of a
share-for-share exchange and cash consideration with the original
stakeholders of the Bytes business (the "Demerger Transactions")
were determined not to be a business combination in the prior year;
see key accounting judgements, note 1.5 below. Instead, this
constitutes a reorganisation of the Bytes business for which the
pooling of interests method has been applied.
A separate reserve in equity, the "merger reserve", was created,
representing the difference between the total consideration of
GBP644.4 million and the total nominal value of issued share
capital acquired in Bytes Technology Limited of GBP1.10.
Presentation and disclosure including comparative periods
Under the pooling of interest method, the consolidated financial
statements have been prepared as if the Group had already existed
before the start of the earliest period presented. The comparative
information is, therefore, presented as if the Demerger
Transactions had occurred at 1 March 2019. The cash consideration
of GBP16.7 million paid on the date of the demerger has been
presented within cash flows from investing activities in the
consolidated statement of cash flows in the prior year.
Share-based payments
Prior to the IPO, the Bytes business operated two equity settled
share-based payment incentive schemes, the Bytes Technology Limited
scheme and the Blenheim Group Limited scheme. The Bytes Technology
Limited scheme was due to vest on 1 March 2021 and the Blenheim
Group Limited scheme on 1 March 2023. Both schemes vested on the
date of the IPO.
(1) Bytes Technology Limited scheme
On 15 November 2016, Bytes Technology Limited issued B ordinary
share awards to certain members of its management at an option
price of LIR0.001 per share. The IPO and divestiture of the Bytes
business by Altron Group was deemed to be a conversion event in
terms of the rules of the scheme and the B ordinary shareholders
received cash consideration of GBP14.3m and 5% of the issued share
capital of the company (equivalent to GBP32.3 million) for the
purchase of the B ordinary shares.
The cash consideration was deemed to be less than the fair value
of the equity instruments measured at the settlement date, so no
additional expense was recognised. This was determined with the use
of a market valuation approach.
(2) Blenheim Group Limited scheme
On 10 February 2020, Blenheim Group Limited issued and allotted
B ordinary share awards to certain members of its management at
LIR0.001 per share. On vesting, these B ordinary shares would be
converted into A ordinary shares in Blenheim Group Limited or
Altron shares, at Altron's election. The IPO and divestiture of the
Bytes business by Altron Group was deemed to be a conversion event
in terms of the rules of the scheme and the B ordinary shareholders
received cash consideration of GBP2.4m for the purchase of the B
ordinary shares.
The cash consideration was deemed to be less than the fair value
of the equity instruments measured at the settlement date, so no
additional expense was recognised. This was determined with the use
of a market valuation approach.
1.4 Going concern
The going concern of the group is dependent on maintaining
adequate levels of resources to continue to operate for the
foreseeable future. The directors have considered a number of
principal risks which are set out in the group's risk report within
the strategic report in addition to ever present risks such as the
group's exposure to credit risk as described in note 17 and
liquidity risk, currency risk and foreign exchange risk as
described in note 25. The directors continue to monitor the effects
of the Covid-19 pandemic on the business and will react accordingly
if associated risks present themselves.
When assessing the going concern of the group, the directors
have reviewed the year-to-date financial actuals, as well as
detailed financial forecasts for the period up to 31 August
2023.
The assumptions used in the financial forecasts are based on the
group's historical performance, management's extensive experience
of the industry and reflect expectations of future market
conditions. Taking into consideration the impact of the current
geopolitical environment on the wider economic environment, the
forecasts have been assessed and stress tested to ensure that a
robust assessment of the group's working capital and cash
requirements has been performed.
Further details, including the analysis performed and conclusion
reached, are set out below.
Operational performance
In preparing its going concern assessment, management have
considered the potential future impact of Covid-19 on the business,
given the limited impact it has had to date, with the Group now
reporting its second year of strong growth since the onset of the
pandemic in March 2020. In the current year of reporting, the Group
has achieved double-digit growth in revenue, gross profit and
operating profit and finished the year with GBP67.1 million of cash
compared to the prior year GBP20.7 million.
During the year customers have continued to move their software
products and data off-site and into the cloud and increasingly
required the Group's advice and ongoing support around this as well
as needing flexibility and added security with customers' employees
working a hybrid mix between home and office.
The directors therefore believe that the group operates in a
resilient industry enabling it to continue its profitable growth
trajectory but also aware of new and emerging risks which exist in
the wider economy such as: supply problems affecting the movement
of goods caused by the conflict in Ukraine; product shortages;
general price rises particularly in relation to fuel, gas and
electricity; climate change; and wage inflation. These are
considered further below.
-- The Group's supply chain is largely unaffected by global
supply issues given that 98% of its gross income is derived from
software licensing and provision of IT Services. Only 2% is
generated from sales of hardware where there may be supply and
transportation considerations.
-- The Group is not a significant consumer of gas, electricity
and fuel and hence is not materially affected by rising prices for
those commodities.
-- The Group does not consider that the effects of climate
change will have a material impact on its operations and
performance over the going concern review period considering the
small number of UK locations it operates from, a customer base
substantially located within the UK and a supply chain which is not
reliant on international trade and does not source products and
services from parts of the world which may be impacted more
severely by climate change. The Group sells predominantly
electronic software licenses and so has no manufacturing or storage
requirements, and the workforce can work seamlessly from home
should any of their normal work locations be impacted by a climatic
event. In the UK however these tend to be thankfully infrequent and
not extreme. Climate risks are considered fully in the Task Force
on Climate-related Financial Disclosures (TCFD) included in the
Annual Report.
-- The Group has experienced the impact of wage inflation in the
UK economy over the past 12 months and had to react by increasing
wages to retain key staff in the light of approaches from
competitors, especially where staff have specialist or technical
skills. Hence the Group has already undertaken steps to align staff
salaries to market rates. Nevertheless, the Group is not shielded
from ongoing wage pressures and therefore further expected rises
have been factored into the financial forecasts in line with those
awarded in the past year. Despite the rises, the Group still grew
operating profit in the year just ended and is forecast to continue
to do so.
Further resilience continues to be built into the Group's
operating model from its' wide customer base, high levels of repeat
business and strong vendor relationships.
-- The group's income includes a large volume of
non-discretionary spend from UK corporates as IT is vital to
establish competitive advantage in an increasingly digital age.
Public sector organisations, also a large and fast-growing area of
the business, have shown minimal negative sensitivity to Covid-19
to date as they've sought efficiencies, resilience, and security
within their IT infrastructures. This mix of private and public
customers means that a downturn in one area can be compensated for
by upturns in others. Risk is further mitigated by the fact that
the Group's business is derived from a wide range of customers,
none of which contribute more than 5% of total gross income or more
than 1% of total gross profit.
-- Due to the nature of licensing schemes and service contracts,
a high proportion of business is repeatable in nature with
subscriptions needing to be renewed for the customer to continue to
enjoy the benefit of the product or service. The most significant
software contracts, the Microsoft Enterprise Agreements (EAs), run
for 3 years and it is rare to lose a contract mid-term which
mitigates the risk of income reducing rapidly. The Group has a high
success rate in securing renewals of existing agreements and
winning new ones. The renewal rate for the year was 111%, a measure
of the rate of growth in gross profit from existing customers, who
also contributed 93% of total gross profit in the year. The group
will continue to focus on increasing its customer base and spend
per customer during the going concern period.
-- With over 50% of the Group's gross invoiced income and 50% of
gross profit generated from sales of Microsoft products and
associated service solutions, this is a very important partnership
for both parties. Just as from the customer side, the licencing of
a large proportion of EA software over 3-year terms reduces the
risk of income falling away quickly. Whilst there is a notable move
towards more agile "pay as you go" contracts around Cloud based
applications, this makes agreements even more "sticky" by
increasing the dependency of the customer on the Cloud
infrastructure and products which Microsoft provides.
-- Further, it has created the opportunity for the Group to
develop a host of skill sets so it is best placed to advise and
support the customers in whatever direction they choose to fulfil
their licencing requirements from a programmatic, purchasing and
consumption perspective. To this end, the Group has attained the
highest levels of Microsoft Expert status, specialist Competencies
and Advanced Specialisations in numerous Microsoft technology
areas. In turn, Microsoft rewards partners who have these awards
with additional levels of funding. The Board is engaged directly
with Microsoft Executives in developing the partnership further and
Microsoft business is currently growing at high double-digit
rates.
Liquidity and financing position
At 28 February 2022, the group held instantly accessible cash
and cash equivalents of GBP67.1 million.
While the balance sheet shows a small net current liability of
GBP0.7 million at year end, this amount is after the Group paid an
interim dividend of GBP4.8 million during the year. Post year end
the Group has remained cash positive and this is expected to remain
the case with continued profitable operations in the future and
customer receipts collected ahead of making the associated supplier
payments. This is on top of the funding available noted below.
The group has access to a committed revolving credit facility of
GBP40 million with HSBC, which reduces to GBP30 million in December
2022 and terminates in December 2023. To date, the group has not
been required to use the revolving credit facility and we do not
forecast use of this over the going concern assessment period.
Approach to stress testing
The going concern analysis reflects the actual trading
experience through the financial year to date, as well as detailed
financial forecasts for the period up to 31 August 2023. The group
has taken a measured approach to its forecasting and has balanced
the expected trading conditions with available opportunities.
In its assessment of going concern, the Board has considered the
potential impact of a generalised economic downturn which may
result from a combination of factors including general inflation,
wage inflation, the conflict in Ukraine and, climate change. If any
of these factors leads to a reduction in spending by the group's
customers, there may be an adverse effect on the group's future
gross invoiced income, gross profit, operating profit and debtor
collection periods. Under such downsides the Board have factored in
the extent to which they might be offset by savings in commissions
and bonuses and discretionary areas of spend. As part of the
stressed scenario, where only partial mitigation of downsides is
possible, the Board confirmed that the revolving credit facility
would not need to be used during the going concern period up to 31
August 2023.
Details of stress testing
The Group assessed the going concern by comparing a base case
scenario to two downside scenarios and in each of the downside
cases taking into consideration two levels of mitigation, "full"
and "partial". These scenarios are set out below:
-- Base case was forecast using the Board approved budget for
the year ending 28 February 2023 and extended across the first 6
months of the following year to 31 August 2023.
-- Downside case 1, Severe but plausible, modelled gross
invoiced income reducing by 10% year on year, gross profit reducing
by 15% year on year and debtor collection periods extending by 5
days, in each case effective from June 22.
-- Downside case 2, Stressed, modelled both gross invoiced
income and gross profit reducing by 30% year on year and debtor
collection periods extending by 10 days, again in each case
effective from June 22.
-- Partial mitigation measures modelled for the downsides were
to freeze future pay and new recruitment from March 23 and
"self-mitigating" reduction of commissions in line with falling
gross profit.
-- Full Mitigation a dditionally model led headcount reductions
from Mar ch 23 in line with falling g ross profit.
The mitigations applied in the downside scenarios relate to pay
costs and headcount which are within the control of the Group to
implement quickly in response to any downward trends should they be
necessary. While these additional mitigating actions could be
implemented more quickly, they have only been forecast from March
23 for the purposes of the going concern assessment.
Under all scenarios assessed, the Group would remain cash
positive throughout the whole of the going concern period with
dividends forecast to continue to be paid in line with the Group's
dividend policy to distribute 40% of the post-tax pre-exceptional
earnings to shareholders.
Going concern conclusion
Based on the analysis described above, the group has sufficient
liquidity headroom through the forecast period. The directors
therefore have reasonable expectation that the group has the
financial resources to enable it to continue in operational
existence for the period up to 31 August 2023. Accordingly, the
directors conclude it to be appropriate that the consolidated
financial statements be prepared on a going concern basis.
1.5 Critical accounting estimates and judgements
The preparation of the consolidated financial statements
requires the use of accounting estimates which, by definition, will
seldom equal the actual results. Management also needs to exercise
judgement in applying the Group's accounting policies.
This note provides an overview of the areas that involved
significant judgement or complexity. Estimates and judgements are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Detailed
information about each of these estimates and judgements is
included in other notes, together with information about the basis
of calculation for each affected line item in the consolidated
financial statements.
Climate change
The effect of climate change has been considered to determine
any critical judgements or adjustments required in the preparation
of the Group's financial statements. During the current year, and
within the next financial year, the impact, if any, is not expected
to create any significant risks which result in a material
misstatement to the financial statements occurring. However, the
effects of climate change over the longer term are more uncertain
and may be more significant.
The following areas of accounting have been included in this
review for the current year:
-- Property, plant and equipment (see notes 1.23 and note 10)
and leases (see notes 1.16 and 11).
The Group's net assets under these categories primarily comprise
freehold land and buildings and leasehold buildings with much
smaller net book values reported for computer equipment, furniture
and fittings. IAS 16 Property, Plant and Equipment requires an item
of property, plant and equipment (PPE) to be recognised if it is
probable that future economic benefits associated with the item
will flow to the entity and its cost can be measured reliably.
Consideration has been made as to whether climate-related
matters may affect the value of any items of PPE, their economic
life or residual value. As noted in the Task Force on
Climate-related Financial Disclosures (TCFD) statement with the
strategic report, none of the Group's items of PPE, the properties
and the assets included within them, are deemed to be at risk or
prone to damage from acute or chronic weather events which could
arise as part of climate change. Also, none of the items of PPE is
deemed susceptible to being phased out, replaced or made redundant
under any climate-related legislative changes.
Hence it is judged that there is no material risk from climate
change to the carrying values of any items of PPE on the balance
sheet at 28 February 2022
-- Impairment of intangible assets (see notes 1.18, 1.24 and 12).
The Group's net assets under this category comprise goodwill,
customer relationships and brands, arising on acquisition of
subsidiaries. Goodwill is not amortised but is tested for
impairment at least annually at the level of the cash generating
unit (CGU) to which it relates. Customer relationships and brands
are recognised at fair value after deduction of accumulated
amortisation over their useful lives. IAS 36 Impairment of Assets
requires an entity to assess, at the end of each reporting period,
whether there are any impairment indicators for an entity's assets.
Impairment indicators include significant changes in the
technological, market, economic or legal environment in which the
entity operates.
Consideration has been made as to whether climate-related
matters may affect any of these conditions which in turn may affect
the economic performance of an asset or CGU, or its long-term
growth rates. For example, customer buying behaviours, requirement
to make significant investments in new technologies, or an increase
in costs generally charged by suppliers. Further, climate change
indirectly resulting in an increase in market interest rates is
likely to affect the discount rate used in calculating an asset's
or CGU's value in use. This, in turn, could decrease the asset's or
CGU's recoverable amount by reducing the present value of the
future cash flows and result in a lower value in use.
However, as noted in the TCFD statement contained within the
strategic report in the Annual Report and Accounts for the year
ended 28 February 2022, the Group continually monitors the
regulatory and legal environment and takes external advice as
required. It expects the impact from changing customer behaviours
to be small given the Group's primary business is the supply of
critical cloud, security and software products and IT services.
Further, the Group does not rely on overseas operations, or require
colleagues to work on-site at all times. Nor does it need to have
physical products transported to maintain the economic performance
of its CGUs.
Hence it is judged that there is no material risk from climate
change to the carrying values of any intangible assets on the
balance sheet at 28 February 2022.
-- Provisions (see note 1.27)
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
requires a provision to be recognised when an entity has a present
obligation (legal or constructive) because of a past event, it is
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and a reliable estimate
can be made of the obligation. If any of the conditions for
recognition are not met, no provision is recognised, and an entity
may instead have a contingent liability. Contingent liabilities are
not recognised, but explanatory disclosures are required, unless
the possibility of an outflow in settlement is remote. In the case
of an onerous contract, the provision reflects the lower of the
costs of fulfilling the contract and any compensation or penalties
from a failure to fulfil it.
Consideration has been made as to whether climate-related
matters may result in the recognition of new liabilities or, where
the criteria for recognition are not met, new contingent
liabilities may have to be disclosed. Further consideration has
been made as to whether climate change, and any resulting
associated legislation, may require past judgements to be
reconsidered.
The Group has judged that there is no material risk from climate
change which requires new provisions to be made or existing
provisions to be reconsidered at 28 February 2022.
The Group will continue to review and assess potential climate
change impacts when making judgements in relation to its accounting
for assets and liabilities or for its future earnings and
cashflows. However, for the financial statements for the year ended
28 February 2022, the Group believes there is no material impact or
risk of misstatement.
(i) Significant accounting estimates and uncertainties
The areas involving significant accounting estimates are:
-- Estimation of recoverable amount of goodwill - The Group
tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 1.18. The
recoverable amounts of cash generating units (CGUs) have been
determined based on value-in-use calculations which require the use
of assumptions. The calculations use cash flow projections based on
forecasts approved by management covering a five-year period. The
growth rates used in the forecasts are based on historical growth
rates achieved by the Group. Cash flows beyond the five-year period
are extrapolated using the estimated growth rates disclosed in note
12. The forecast cashflows are discounted, at the rates disclosed
in note 12, to determine the CGUs value-in-use.
(ii) Key accounting judgements
The areas involving key accounting judgements are:
-- Revenue recognition - Principal versus agent, see note 1.11.
Under IFRS15, Revenue from Contracts with Customers, when
recognising revenue, the Group is required to assess whether its
role in satisfying its various performance obligations is to
provide the goods or services itself (in which case it is
considered to be acting as principal) or arrange for a third party
to provide the goods or services (in which case it is considered to
be acting as agent). Where it is considered to be acting as
principal, the Group recognises revenue at the gross amount of
consideration to which it expects to be entitled. Where it is
considered to be acting as agent, the Group recognises revenue at
the amount of any fee or commission to which it expects to be
entitled or the net amount of consideration that it retains after
paying the other party.
To determine the nature of its obligation, the entity shall:
(a) Identify the specified goods or services to be provided to
the customer (which, for example, could be a right to a good or
service to be provided by another party
(b) Assess whether it controls each specified good or service
before that good or service is transferred to the customer.
In November 2021, the IFRS Interpretations Committee (IFRIC)
discussed a submission received on whether, in applying IFRS 15, a
reseller of software licences is a principal or agent. The
discussions acknowledged that assessing whether an entity is a
principal or agent has historically proven to be a difficult
assessment in some situations, and in particular in the context of
contracts that involve intangible goods or services. Therefore,
determining whether the reseller obtains control of the software
licences would require knowledge and consideration of the terms and
conditions of the contracts between the reseller and the customer,
the reseller and the software manufacturer and the software
manufacturer and the customer.
For these reasons, the IFRIC believed it would be inappropriate
to conclude on whether the reseller is a principal or agent. It is
generally not the IFRIC's role to conclude accounting treatment in
a highly specific fact pattern. In the context of principal versus
agent considerations, the IFRIC acknowledged that the assessment of
whether an entity is a principal or agent might require judgement,
in particular when the specified good or service is intangible.
The IFRIC, after deliberations, concluded that the principles
and requirements in IFRS 15 provide an adequate basis for a
reseller to determine whether - in the fact pattern described in
the request - it is a principal or agent for the standard software
licences provided to a customer. Consequently, the IFRIC had
tentatively decided not to add a standard-setting project to the
work plan.
The tentative agenda decision issued by the IFRIC was discussed
at the International Accounting Standards Board (IASB) meeting held
on 23 May 2022. Bytes currently recognises revenue from indirect
licence sales (which are non-cloud services and without critical
upgrades) on a 'gross' basis as a principal. Bytes will consider
the final agenda decision when issued and assess its implications
on the current accounting policy. If Bytes were to change its
accounting policy to recognise revenue for the sale of indirect
licence sales (which are non-cloud services and without critical
upgrades) as agent rather than principal, revenues and cost of
sales would decrease by an estimated GBP302m (2021: GBP268m). Gross
profit, operating profit and profit before and after taxes will be
unchanged in all periods.
Judgement is therefore required as to whether the Group is a
principal or agent. The Group has identified its revenue streams
within its revenue recognition policy (see note 1.11) and applied
the following judgements in respect of principal versus agent
For direct licence sales the Group is considered to be acting as
agent. This is because the Group does not control the goods or
services prior to their delivery to the customer. The Group's role
is to facilitate the sale on behalf of the software vendor that
controls the goods or services. It is the software vendor that
contracts with and subsequently invoices the customer. The Group
does not set the prices paid by the customer and it is remunerated
in the form of a sales-based fee.
For those revenue streams that involve the indirect resale of
software licences and software assurance (additional benefits over
the licence term including software updates), there is often
considerable judgement in determining whether the Group is acting
as principal or agent. The Group's assessment is based primarily on
whether it controls the goods or services prior to their transfer
to the customer. However, the nature of these products and services
means that a purely control-based assessment does not always lead
to a clear conclusion. Consequently, the Group additionally
considers the other characteristics of principal set out in IFRS
15. These include whether the Group has primary responsibility for
fulfilling the contractual promises made to the customer, whether
the Group assumes inventory risk and whether the Group has
discretion in establishing the selling price.
1. For indirect licence sales related to cloud services and
licences with critical updates the Group is considered to be acting
as agent. This is because cloud services and licences with critical
updates require the significant ongoing involvement of the software
vendor. The Group does not control the service prior to it being
passed to the customer as it is provided as a service delivered by
the vendor. Any technical and administrative services provided by
the Group are critically dependent on, and so inseparable from, the
service provided by the vendor. The Group's role is to arrange for
the cloud service/updates to be provided by another party although
the vendor invoices the Group and the Group then invoices the
customer.
2. For all other indirect licence sales (those not related to
cloud services and without critical upgrades) the Group is
considered to be acting as principal. This is because, unlike for
cloud licences, the Group's performance obligation requires it to
take responsibility for agreeing licence types and quantities with
the customer in advance and for fulfilling the promise to provide
those licences to the customer. If orders are not placed correctly
with the manufacturer, resulting in incorrect licences being
rejected by the customer, the Group remains liable to pay the
manufacturer. Where licences are also accompanied by the right to
software assurance benefits from the software vendor to the
customer, the non-critical nature of the software updates means
that the customer's ability to derive benefit from the software is
not dependent on the continued involvement of the software vendor.
This results in the balance of the obligation to manage the
transfer of the benefits, resting more with the Group than is the
case with critical updates, as the Group will advise the customer
of their un-activated benefits and arrange for them to be provided
by third parties on behalf of the vendor where required. Hence the
Group is primarily responsible for fulfilling the
contractual promise to provide the specified good or service to
the customer, managing its delivery, and typically has
responsibility for acceptability of the specified good or service.
The Group assumes inventory risk in the event of customers not
accepting incorrect licences and has discretion in establishing the
prices of the goods and services.
When selling externally provided services, the Group acts as
agent because responsibility for delivering the service relies on
the performance of the third-party contractor. If the customer is
not satisfied with their performance, the third party will assume
responsibility for making good the service and obtaining customer
sign-off. The Group will not pay the third party until customer
sign-off has been received.
When selling internally provided services, the Group acts as
principal as there are no other parties involved in the
process.
When selling hardware, the Group acts as principal, as it
assumes responsibility for fulfilling the contractual promises made
to the customer.
1.6 Changes in accounting policy and disclosures
(a) New and amended standards adopted by the Group
The Group has applied the following standards for the first time
in the annual reporting period commencing 1 March 2021:
-- Proceeds before intended use - Amendments to IAS16
-- Onerous contracts - Amendments to IAS37.
For the annual reporting period commencing 1 March 2021, the
Group applied the following standards for the first time:
-- Definition of Material - Amendments to IAS 1 and IAS 8
-- Definition of a Business - Amendments to IFRS 3
-- Interest Rate Benchmark Reform - Amendments to IFRS 9, IAS 39 and IFRS 7
-- Revised Conceptual Framework for Financial Reporting.
The Group also elected to adopt the following amendments
early:
-- Annual Improvements to IFRS Standards 2018-2020 Cycle
-- Where applicable, Covid-19-Related Rent Concessions - Amendments to IFRS.
The amendments listed above did not have any impact on the
amounts recognised in current or prior periods and are not expected
to affect future periods.
(b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 28 February 2022 reporting
periods and have not been adopted early by the Group. These
standards are not expected to have a material impact on the Group
in the current or future reporting periods and on foreseeable
future transactions.
1.7 Principles of consolidation
1.7.1 Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity where the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The acquisition method of accounting is used to account for
business combinations by the Group, see note 1.17. For Group
reorganisations, the Group applies the pooling of interest method,
see note 1.7.2.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence
of an impairment of the transferred asset. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
1.7.2 Pooling of interests method for Group reorganisations
The pooling of interests method is used by the Group for Group
reorganisations, which are transactions between entities that are
ultimately controlled by the same party or parties. This method
treats the combined entities as if they had been combined
throughout the current and comparative accounting periods.
Accordingly, the consolidated financial statements have been
prepared as if the Group had already existed before the start of
the earliest period presented. The assets and liabilities of the
combining entities are stated at predecessor carrying values and no
fair value measurement is performed. No new goodwill arises in
applying the pooling of interests method. The difference between
the total consideration given and the total nominal value of the
Bytes Technology Limited issued share capital acquired, is included
in equity as a separate reserve, the 'merger reserve'.
Transaction costs, including professional fees, registration
fees, costs of furnishing information to shareholders, costs or
losses incurred in combining operations of the previously separate
businesses, and costs incurred in relation to the Group
reorganisation transactions that are to be accounted for by using
the pooling of interests method of accounting are recognised as an
expense in the year in which they are incurred.
1.8 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The Group has therefore determined that it has only one reportable
segment under IFRS 8, which is that of 'IT solutions provider'.
1.9 Finance income and costs
Finance income comprises interest income on funds invested.
Interest income is recognised as it accrues in profit or loss,
using the effective interest method.
Finance costs comprises interest expense on borrowings and the
unwinding of the discount on lease liabilities, that are recognised
in profit or loss as it accrues using the effective interest
method.
1.10 Foreign currency translation
(i) Functional and presentation currency
Items included in the consolidated financial statements of each
of the Group's entities are measured using the currency of the
primary economic environment in which the entity operates ('the
functional currency').
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions, and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange
rates, are generally recognised in profit or loss. They are
deferred in equity if they relate to qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of
the net investment in a foreign operation.
All foreign exchange gains and losses are presented in the
statement of profit or loss on a net basis, within 'other
gains/(losses)'.
1.11 Revenue recognition
The Group has applied the relevant principles of IFRS 15 Revenue
from Contracts with Customers to each of its key revenue streams as
follows:
Resale of software licences
As a software reseller, the Group acts as an advisor, analysing
customer requirements and designing an appropriate mix of licences
and technology. The Group's resale of software licences takes place
in three principal forms:
-- Direct licence sales - under direct licence sale
arrangements, the Group is not a party to the contract between the
software vendor and the customer. Activation of the licences,
invoicing and payment all take place directly between the software
vendor and the customer
-- Indirect licence sales - resale of cloud-based licences and
licences requiring critical updates - the Group operates as
reseller of a variety of cloud-based licence products and security
software, the functionality of which is critically dependent on
future updates provided by the software vendor
-- Indirect licence sales - resale of non-cloud (on-premise)
licences including software assurance and licences not requiring
critical updates - the Group operates as reseller of a variety of
non-cloud-based products that are not critically dependent on
future updates provided by the software vendor. Alongside or
separately to such licences, the Group also acts as a reseller of
software assurance - a package of benefits provided by the software
vendor that includes access to future (non-critical) updates at no
extra cost.
Identifying the performance obligations
When selling indirect licences, the Group's performance
obligation is to fulfil customers' requirements through the
procurement of relevant and necessary software licences and
software assurance. When selling direct licences, the Group's
performance obligation is to facilitate transactions between
vendors and customers.
For direct licence sales, and indirect licence sales related to
cloud services and licences with critical updates, the Group acts
as agent. As such, for the indirect sales, the Group recognises
revenue as the amount retained after paying the software vendor for
the licences and services provided and, for the direct license
sales, the Group recognises revenue as the fee received from the
software vendor. The judgements made in arriving at this conclusion
are set out at note 1.5.
For other indirect licence sales related to non-cloud (on
premise) licences including software assurance and licences not
requiring critical updates, the Group acts as principal. As such,
the Group recognises revenue at the gross amount receivable from
the customer for the goods and services provided. The judgements
made in arriving at this conclusion are set out at note 1.5.
Determining the transaction price
For direct licence sales, the transaction price between the
customer and software vendor is set by the vendor with no
involvement from the Group. The fee received by the Group is based
on fixed rates set by the software vendor applied to the customer
transaction price and determined according to the quantity and type
of products sold.
The transaction price for all other forms of indirect software
licence sales is fixed at the amount specified in the contract
between the customer and the Group and has no variable element.
Allocating the transaction price
When reselling software licences and/or software assurance,
which together represent one performance obligation, together with
other goods and services that represent additional separate
performance obligations, such as hardware, the Group allocates the
total transaction by reference to the prices it charges for those
goods and services when sold separately, i.e., their standalone
selling prices.
Recognising revenue
The Group recognises all licence sale revenue on a point-in-time
basis. This is because the Group's activities in satisfying its
performance obligations do not satisfy any of the criteria for
over-time revenue recognition set out in IFRS 15. As a reseller,
the Group's performance obligations are fully satisfied at the
point it has fulfilled its contractual requirements with both the
customer and the software vendor, ensuring that orders are
processed within any contractual timescales stipulated by the
customer and vendor and that billing of the customer has taken
place. Thereafter, the Group has no ongoing performance
obligations. The software vendor is responsible for issuing the
licences and for the software's functionality and is therefore
responsible in those respects for fulfilling the promise to provide
the licences to the customer.
Revenue arising from monthly billed cloud-based licence sales,
where the Group is acting as agent, is recognised in monthly
instalments based on the customer's previous month's usage. This is
because the responsibilities of the Group to monitor, review,
advise and undertake other ongoing activities, including billing,
in relation to customer usage mean that its performance obligation
is not satisfied at the point the contract is initiated. Rather,
the customer receives the benefits of the Group's activities, after
the initial contract set up, as they are performed. The Group is
rewarded for its performance across the contract term at each point
in time that the usage occurs, and revenue is recognised
accordingly. Revenue is recognised in the month after the usage
takes place when the amount consumed by the customer is confirmed
by the software vendor who is providing the service and the Group
has analysed the usage data, advised the customer and billing of
the customer has taken place.
Where the Group's customer offering includes multi-year deals of
typically three years in duration, the contractual arrangements for
such deals take two alternative forms - the customer may elect to
make a single up-front payment or may elect to pay through annual
instalments. For up-front payment contracts, the Group recognises
the total contract price when the contract is executed and invoiced
because its performance obligation is fully satisfied at that
point. For annual instalment contracts, which are more common, the
Group recognises revenue for each instalment when it is billed.
This is because, in contrast to up-front payment contracts, the
Group's performance obligation is not fully satisfied when the
contract is executed. Under annual instalment plans, the Group is
required to undertake various contract review activities at each
anniversary date, and at that point the customer also has the
option of moving to a different reseller should they wish to do so.
The contract term is therefore considered to be one year as this is
the period during which the parties to the contract have present
enforceable rights and obligations.
Fees earned from direct licence sales are recognised (accrued)
in the month when the vendor's invoicing to the customer takes
place.
Externally provided services
The Group's activities under this revenue stream comprise the
sale of a variety of IT services which are provided by third-party
contractors. These may be similar to the internally provided
consulting services, where the Group does not have the internal
capacity at the time required by the customer, or may be services
around different IT technologies and solutions where the Group does
not have the relevant skills in house.
Identifying the performance obligations
The Group's sale of externally provided services is generally
distinct from other goods and services that the Group might provide
to the same customer under the same or separate contracts. This is
because the customer can benefit from the services on their own or
from other resources (as is evidenced by the fact that the services
are provided by another party). Additionally, the services are not
generally integrated with, or dependent on, other services that
might be provided to the customer.
When selling externally provided services, the Group acts as
agent and so recognises revenue at the amount retained after paying
the service provider for the services delivered to the customer,
i.e., the gross profit earned. The judgements made in arriving at
this conclusion are set out at note 1.5.
Determining the transaction price
The transaction price for the services is fixed at the amount
specified in the contract and has no variable element.
Allocating the transaction price
When selling services provided through third-party contractors,
together with other goods and services under the same or linked
contracts, those goods and services represent more than one
performance obligation, the Group allocates the total transaction
by reference to the prices it charges for those goods and services
when sold separately, i.e., their standalone selling prices.
Recognising revenue
The Group recognises all revenue from externally provided
services on a point-in-time basis. This is because the Group's
activities in satisfying its performance obligation do not satisfy
any of the criteria for over-time revenue recognition set out in
IFRS 15. The Group's performance obligations are fully satisfied at
the point the service has been fully delivered by the third party
and the Group has confirmed with the customer that they are
satisfied all requirements have been met such that billing of the
customer can take place.
Internally provided consulting services
The Group's activities under this revenue stream comprise the
provision of consulting services using its own internal resources.
The services provided include, but are not limited to, helpdesk
support, cloud migration, implementation of security solutions,
infrastructure, and software asset management services. The
services may be one-off projects where completion is determined on
delivery of contractually agreed tasks, or they may constitute an
ongoing set of deliverables over a contract term which may be
multi-year.
Identifying the performance obligations
The Group's sale of internally provided consulting services is
generally distinct from other goods and services that the Group
might provide to the same customer under the same or separate
contracts. This is because the customer can benefit from the
services on their own or from other resources. Additionally, the
services are not generally integrated with, or dependent on, other
services that might be provided to the customer. When selling
internally provided consulting services, the Group acts as
principal and so recognises revenue at the gross amount receivable
from the customer for the services provided.
Determining the transaction price
The transaction price for consulting services is fixed by the
day rates or milestone prices specified in the contract and has no
variable element.
Allocating the transaction price
When selling internally provided consulting services together
with other goods and services under the same or linked contracts
and those goods and services represent more than one performance
obligation, the Group allocates the total transaction by reference
to the prices it charges for those goods and services when sold
separately, i.e., their standalone selling prices.
Recognising revenue
The Group recognises all revenue from internally provided
consulting services on an over-time basis. This is because the
customer benefits from the Group's activities as the Group performs
them. For service projects extending over more than one month the
Group applies an inputs basis by reference to the hours expended to
the measurement date, and the day rates specified in the contract.
For managed services and support contracts the revenue is
recognised evenly over the contract term.
Hardware sales
The Group's activities under this revenue stream comprise the
sale of hardware items such as servers, laptops, and devices.
Identifying the performance obligations
The Group's sale of hardware, which is made in the capacity of
principal, is generally distinct from other goods and services that
the Group might provide to the same customer under the same or
separate contracts. This is because the customer can usually
benefit from the hardware either on its own or with other
resources. Occasionally, the hardware may be integrated with
software licences resold by the Group in such a way that the
customer's ability to benefit from the software and hardware
products is interdependent. In such instances, the sale of the
hardware and related licence together represent a single
performance obligation. When selling hardware, the Group acts as
principal and so recognises revenue at the gross amount receivable
from the customer for the hardware provided.
Determining the transaction price
The transaction price for sales of hardware is fixed at the
amount specified in the contract and has no variable element.
Allocating the transaction price
When selling hardware together with other goods and services
under the same or linked contracts and those goods and services
represent more than one performance obligation, the Group allocates
the total transaction by reference to the prices it charges for
those goods and services when sold separately, i.e., their
standalone selling prices.
Recognising revenue
The Group recognises all revenue from sales of hardware on a
point-in-time basis. This is because the Group's activities in
satisfying its performance obligation do not satisfy any of the
criteria for over-time revenue recognition set out in IFRS 15.
Revenue is recognised on delivery when control of the hardware
passes to the customer.
1.12 Contract costs, assets and liabilities
Contract costs
Incremental costs of obtaining a contract
The Group recognises the incremental costs of obtaining a
contract when those costs are incurred. For revenue recognised on a
point-in-time basis, this is consistent with the transfer of the
goods or services to which those costs relate. For revenue
recognised on an over-time basis, the Group applies the practical
expedient available in IFRS 15 and recognises the costs as an
expense when incurred because the amortisation period of the asset
that would otherwise be recognised is less than one year.
Costs to fulfil a contract
The Group recognises the costs of fulfilling a contract when
those costs are incurred. This is because the nature of those costs
does not generate or enhance the Group's resources in a way that
enables it to satisfy its performance obligations in the future and
those costs do not otherwise qualify for recognition as an
asset.
Contract assets
The Group recognises a contract asset for accrued revenue.
Accrued revenue is revenue recognised from performance obligations
satisfied in the period that has not yet been invoiced to the
customer.
Contract liabilities
The Group recognises a contract liability for deferred revenue
when the customer is invoiced before the related performance
obligations of the contract are satisfied. A contract liability is
also recognised for payments received in advance from
customers.
1.13 Rebates
Rebates from suppliers are accounted for in the period in which
they are earned and are based on commercial agreements with
suppliers. Rebates earned are mainly determined by the type and
quantity of products within each sale but may also be
volume-purchase related. They are generally short term in nature,
with rebates earned but not yet received typically relating to the
preceding month's or quarter's trading. Rebate income is recognised
in cost of sales in the consolidated statement of profit or loss
and rebates earned but not yet received are included within trade
and other receivables in the consolidated statement of financial
position.
1.14 Non-underlying items
Non-underlying items are those items that, by virtue of their
nature, size or expected frequency, warrant separate additional
disclosure in the consolidated financial statements, to fully
understand the underlying performance of the Group. Such items have
been included within administrative expenses but have also been
disclosed separately in note 5 in the notes to the consolidated
financial statements.
1.15 Income tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income, based on the
applicable income tax rate for each jurisdiction, adjusted by
changes in deferred tax assets and liabilities attributable to
temporary differences and to unused tax losses.
The current income tax charge is calculated based on the tax
laws enacted or substantively enacted at the end of the reporting
period in the countries where the company and its subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions, where appropriate, based on amounts
expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted
for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that, at the
time of the transaction, affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the
end of the reporting period and are expected to apply when the
related deferred income tax asset is realised, or the deferred
income tax liability is settled.
Deferred tax assets are recognised only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
Deferred tax liabilities and assets are not recognised for
temporary differences between the carrying amount and tax bases of
investments in foreign operations where the Group is able to
control the timing of the reversal of the temporary differences and
it is probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset where there is a
legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the same
taxation authority. Current tax assets and tax liabilities are
offset where the entity has a legally enforceable right to offset
and intends either to settle on a net basis, or to realise the
asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except
to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax
is also recognised in other comprehensive income or directly in
equity, respectively.
1.16 Leases
Lessee
The Group leases a property and various motor vehicles. Lease
agreements are typically made for fixed periods but may have
extension options included. Lease terms are negotiated on an
individual basis and contain different terms and conditions. The
lease agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is
available for use by the Group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged
to profit or loss over the lease period to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis. The Group is depreciating the right-of-use
assets over the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured at the net present value of the minimum lease payments.
The net present value of the minimum lease payments is calculated
as follows:
-- Fixed payments, less any lease incentives receivable
-- Variable lease payments that are based on an index or a rate
-- Amounts expected to be payable by the lessee under residual value guarantees
-- The exercise price of a purchase option if the lessee is
reasonably certain to exercise that option
-- Payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease; where this rate cannot be determined, the
Group's incremental borrowing rate is used.
Right-of-use assets are measured at cost comprising the
following:
-- The net present value of the minimum lease payments
-- Any lease payments made at, or before, the commencement date
less any lease incentives received
-- Any initial direct costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over the lease term.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings, 8 years
-- Motor vehicles, 2 to 3 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of leased assets are included as capital
items in profit or loss.
1.17 Business combinations
The acquisition method of accounting is used to account for all
business combinations, except for those between entities under
common control. The consideration transferred for the acquisition
of a subsidiary comprises the:
-- Fair values of the assets transferred
-- Liabilities incurred to the former owners of the acquired business
-- Equity interests issued by the Group
-- Fair value of any asset or liability resulting from a contingent consideration arrangement
-- Fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. The Group
recognises any non-controlling interest in the acquired entity, on
an acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the acquired
entity's net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
-- Consideration transferred
-- Amount of any non-controlling interest in the acquired entity
-- Acquisition date fair value of any previous equity interest
in the acquired entity, over the fair value of the net identifiable
assets acquired is recorded as goodwill. If those amounts are less
than the fair value of the net identifiable assets of the business
acquired, the difference is recognised directly in profit or loss
as a bargain purchase.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. The discount rate used is the
Group's incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or as a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value, with changes in fair
value recognised in profit or loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
1.18 Impairment of non-financial assets
Goodwill and intangible assets that have an indefinite useful
life are not subject to amortisation and are tested annually for
impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired. Other assets
are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount might not be
recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset's fair value less
costs of disposal and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there
are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or groups of
assets (cash generating units). Non-financial assets other than
goodwill that suffered an impairment are reviewed for possible
reversal of the impairment at the end of each reporting period.
1.19 Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial
institutions repayable without penalty on notice of not more than
24 hours. Cash equivalents are highly liquid investments that
mature in no more than three months from the date of acquisition
and that are readily convertible to known amounts of cash with
insignificant risk of change in value.
1.20 Trade receivables
Trade receivables are amounts due from customers for merchandise
sold or services rendered in the ordinary course of business. Trade
receivables are recognised initially at the amount of consideration
that is unconditional, i.e. fair value and subsequently measured at
amortised cost using the effective interest method, less loss
allowance. Prepayments and other receivables are stated at their
nominal values.
1.21 Inventories
Inventories are measured at the lower of cost and net realisable
value considering market conditions and technological changes. Cost
is determined on the first-in first-out and weighted average cost
methods. Work and contracts in progress and finished goods include
direct costs and an appropriate portion of attributable overhead
expenditure based on normal production capacity. Net realisable
value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling
expenses.
1.22 Financial instruments
Financial instruments comprise investments in equity, loans
receivable, trade and other receivables (excluding prepayments),
investments, cash and cash equivalents, restricted cash,
non-current loans, current loans, bank overdrafts, derivatives and
trade and other payables.
Recognition
Financial assets and liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to
the contractual provisions of the instruments. Financial assets are
recognised on the date the Group commits to purchase the
instruments (trade date accounting).
Financial assets are classified as current if expected to be
realised or settled within 12 months from the reporting date; if
not, they are classified as non-current. Financial liabilities are
classified as non-current if the Group has an unconditional right
to defer payment for more than 12 months from the reporting
date.
Classification
The Group classifies financial assets on initial recognition as
measured at amortised cost, fair value through other comprehensive
income (FVOCI), or fair value through profit or loss (FVTPL) based
on the Group's business model for managing the financial asset and
the cash flow characteristics of the financial asset.
Financial assets are classified as follows:
-- Financial assets to be measured subsequently at fair value
(either through other comprehensive income (OCI) or through profit
or loss)
-- Financial assets to be measured at amortised cost.
Financial assets are not reclassified unless the Group changes
its business model. In rare circumstances where the Group does
change its business model, reclassifications are done prospectively
from the date that the Group changes its business model.
Financial liabilities are classified and measured at amortised
cost except for those derivative liabilities and contingent
considerations that are measured at FVTPL.
Measurement on initial recognition
All financial assets and financial liabilities are initially
measured at fair value, including transaction costs, except for
those classified as FVTPL which are initially measured at fair
value excluding transaction costs. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at FVTPL are recognised immediately in profit or
loss.
Subsequent measurement: financial assets
Subsequent to initial recognition, financial assets are measured
as described below:
-- FVTPL - these financial assets are subsequently measured at
fair value and changes therein (including any interest or dividend
income) are recognised in profit or loss
-- Amortised cost - these financial assets are subsequently
measured at amortised cost using the effective interest method,
less impairment losses. Interest income, foreign exchange gains and
losses and impairments are recognised in profit or loss. Any gain
or loss on derecognition is recognised in profit or loss
-- Equity instruments at FVOCI - these financial assets are
subsequently measured at fair value. Dividends are recognised in
profit or loss when the right to receive payment is established.
Other net gains and losses are recognised in OCI. On derecognition,
gains and losses accumulated in OCI are not reclassified to profit
or loss.
Subsequent measurement: financial liabilities
All financial liabilities, excluding derivative liabilities and
contingent consideration, are subsequently measured at amortised
cost using the effective interest method. Derivative liabilities
are subsequently measured at fair value with changes therein
recognised in profit or loss.
Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the assets have expired or have been transferred
and the Group has transferred substantially all risks and rewards
of ownership. Financial liabilities are derecognised when the
obligations specified in the contracts are discharged, cancelled or
expire. On derecognition of a financial asset or liability, any
difference between the carrying amount extinguished and the
consideration paid is recognised in profit or loss.
Offsetting financial instruments
Offsetting of financial assets and liabilities is applied when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously. The net
amount is reported in the statement of financial position.
Impairment
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have
been grouped based on credit risk characteristics and the days past
due.
The expected credit loss (ECL) rates are based on the payment
profiles of sales over a 12-month period before 28 February 2022,
28 February 2021 and 1 March 2020 respectively and the
corresponding historical credit losses experienced within this
period. The historical loss rates are reviewed and adjusted to
reflect current and forward-looking information on macroeconomic
factors affecting the ability of the customers to settle the
receivables.
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, among others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
Derivatives
Derivatives are initially recognised at fair value on the date
that a derivative contract is entered into as either a financial
asset or financial liability if they are considered material.
Derivatives are subsequently remeasured to their fair value at the
end of each reporting period, with the change in fair value being
recognised in profit or loss.
1.23 Property, plant and equipment
Owned assets
Property, plant and equipment is measured at cost less
accumulated depreciation and impairment losses. When components of
an item of property, plant and equipment have different useful
lives, those components are accounted for as separate items of
property, plant and equipment.
Cost includes expenditure that is directly attributable to the
acquisition of the asset. Purchased software that is integral to
the functionality of the related equipment is capitalised as part
of that equipment.
Subsequent costs
The Group recognises in the carrying amount of an item of
property, plant and equipment the cost of replacing part of such an
item when the cost is incurred, if it is probable that future
economic benefits embodied within the item will flow to the Group
and the cost of such item can be measured reliably. The carrying
amount of the replaced item of property, plant and equipment is
derecognised. All other costs are recognised in profit or loss as
an expense when incurred.
Depreciation
Depreciation is recognised in profit or loss for each category
of assets on a straight-line basis over their expected useful lives
up to their respective estimated residual values. Land is not
depreciated.
The estimated useful lives for the current and comparative
periods are as follows:
-- Buildings, 20 to 50 years
-- Leasehold improvements (included in land and buildings),
shorter of lease period or useful life of asset
-- Plant and machinery, 3 to 20 years
-- Motor vehicles, 4 to 8 years
-- Furniture and equipment, 5 to 20 years
-- IT equipment and software, 2 to 8 years.
The depreciation methods, useful lives and residual values are
reassessed annually and adjusted if appropriate. Gains and losses
arising on the disposal of property, plant and equipment are
included as capital items in profit or loss.
1.24 Intangible assets
Goodwill
Goodwill is measured as described in note 1.18. Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill is not amortised, but it is tested for impairment
annually, or more frequently if events or changes in circumstances
indicate that it might be impaired and is carried at cost less
accumulated impairment losses. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash generating units for the purpose
of impairment testing. The allocation is made to those cash
generating units or groups of cash generating units that are
expected to benefit from the business combination in which the
goodwill arose. The units or groups of units are identified at the
lowest level at which goodwill is monitored for internal management
purposes.
Brands and customer relationships
Brands and customer relationships acquired in a business
combination are recognised at fair value at the acquisition
date. They have a finite useful life and are subsequently
carried at cost less accumulated amortisation and impairment
losses.
The useful lives for the brands and customer relationships are
as follows:
-- Customer relationships, 10 years
-- Brands, 5 years.
Software
Costs associated with maintaining software programs are
recognised as an expense as incurred. Development costs that are
directly attributable to the design and testing of identifiable and
unique software products controlled by the Group are recognised as
intangible assets where the following criteria are met:
-- It is technically feasible to complete the software so that it will be available for use
-- Management intends to complete the software and use or sell it
-- There is an ability to use or sell the software
-- It can be demonstrated how the software will generate probable future economic benefits
-- Adequate technical, financial and other resources to complete
the development and to use or sell the software are available
-- The expenditure attributable to the software during its development can be reliably measured.
Research and development
Research expenditure and development expenditure that do not
meet the criteria above are recognised as an expense as incurred.
Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period.
1.25 Trade and other payables
Trade payables, sundry creditors and accrued expenses are
obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers. They are accounted
for in accordance with the accounting policy for financial
liabilities as included above. Amounts received from customers in
advance, prior to confirming the goods or services required, are
recorded as other payables. Upon delivery of the goods and
services, these amounts are recognised in revenue. Other payables
are stated at their nominal values.
1.26 Borrowings
Borrowings are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at
amortised cost. Any difference between the proceeds (net of
transaction costs) and the redemption amount, is recognised in
profit or loss over the period of the borrowings using the
effective-interest method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be
drawn down. In this case, the fee is deferred until the drawdown
occurs. To the extent that there is no evidence that it is probable
that some or all of the facility will be drawn down, the fee is
capitalised as a prepayment for liquidity services and amortised
over the period of the facility to which it relates.
1.27 Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation because of past events, for which it is
probable that an outflow of economic benefits will be required to
settle the obligation, and where a reliable estimate can be made of
the amount of the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax discount
rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the
liability.
1.28 Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and accumulating sick leave, that are
expected to be settled wholly within 12 months after the end of the
period in which the employees render the related service are
recognised in respect of employees' services up to the end of the
reporting period and are measured at the amounts expected to be
paid when the liabilities are settled. The liabilities are
presented as current employee benefit obligations in the balance
sheet.
Post-employment obligations
The Group operates various defined contribution plans for its
employees. Once the contributions have been paid, the Group has no
further payment obligations. The contributions are recognised as
employee benefit expense when they are due. Prepaid contributions
are recognised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Termination benefits
Termination benefits are payable when employment is terminated
by the Group before the normal retirement date, or when an employee
accepts voluntary redundancy in exchange for these benefits. The
Group recognises termination benefits at the earlier of the
following dates: (a) when the Group can no longer withdraw the
offer of those benefits; and (b) when the Group recognises costs
for a restructuring that is within the scope of IAS 37 and involves
the payment of termination benefits. In the case of an offer made
to encourage voluntary redundancy, the termination benefits are
measured based on the number of employees expected to accept the
offer. Benefits falling due more than 12 months after the end of
the reporting period are discounted to present value.
Share-based payments
Equity settled share-based payment incentive scheme
Share-based compensation benefits are provided to particular
employees of the Group through the Bytes Technology Group plc share
option plans. Before the demerger, the Bytes business had two share
schemes, the Bytes Technology Limited equity settled share-based
payment incentive scheme and the Blenheim Group Limited equity
settled share-based payment incentive scheme. Information relating
to all schemes is provided in note 29.
Employee options
The fair values of options granted under the Bytes Technology
Group plc share option plans are recognised as an employee benefit
expense, with a corresponding increase in equity. The total amount
to be expensed is determined by reference to the fair value of the
options granted.
The total expense is recognised over the vesting period, which
is the period over which all the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its
estimates of the number of options issued that are expected to vest
based on the service conditions. It recognises the impact of the
revision to original estimates, if any, in profit or loss, with a
corresponding adjustment to equity.
Employee shares
The fair values of shares issued under the Bytes Technology
Limited and the Blenheim Group Limited equity settled share-based
payment incentive schemes are recognised as employee benefit
expenses, with corresponding increases in equity. The total amount
to be expensed is determined by reference to the fair values of the
shares issued. The fair values of the shares issued are measured
using generally accepted valuation techniques.
The total expenses are recognised over the vesting period, which
is the period over which all the specified vesting conditions are
to be satisfied. At the end of each period, the Group revises its
estimates of the number of shares issued that are expected to vest
based on the non-market vesting and service conditions. It
recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to
equity.
1.29 Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
1.30 Dividends
Dividends paid on ordinary shares are classified as equity and
are recognised as distributions in equity.
1.31 Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing:
-- The profit attributable to owners of the company, excluding
any costs of servicing equity other than ordinary shares
-- By the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary
shares issued during the year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to consider:
-- The after-income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares
-- The weighted average number of additional ordinary shares
that would have been outstanding, assuming the conversion of all
dilutive potential ordinary shares.
1.32 Rounding of amounts
All amounts disclosed in the consolidated financial statements
and notes have been rounded off to the nearest thousand, unless
otherwise stated.
2 Segmental information
2(a) Description of segment
The information reported to the Group's Chief Executive Officer,
who is considered to be the chief operating decision maker for the
purposes of resource allocation and assessment of performance, is
based wholly on the overall activities of the Group. The Group has
therefore determined that it has only one reportable segment under
IFRS 8, which is that of 'IT solutions provider'. The Group's
revenue, results, assets and liabilities for this one reportable
segment can be determined by reference to the consolidated
statement of profit or loss and the consolidated statement of
financial position. An analysis of revenues by product lines and
geographical regions, which form one reportable segment, is set out
in note 3.
2(b) Adjusted operating profit
Adjusted operating profit is an alternative performance measure
which excludes the effects of non-underlying items, intangible
assets amortisation and share-based payment charges.
Adjusted operating profit reconciles to operating profit as
follows:
Year Year
ended ended
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Adjusted operating profit 46,329 37,481
Share-based payment charges 29 (2,563) (962)
Amortisation of acquired
intangible assets 4 (1,611) (1,610)
Non-underlying items 5 - (8,065)
Operating profit 42,155 26,844
3 Revenue from contracts with customers
3(a) Disaggregation of revenue from contracts with customers
The Group derives revenue from the transfer of goods and
services in the following major product lines and geographical
regions:
Year Year ended
ended 28 February
28 February 2021 (Restated)
2022
Revenue by product (1) GBP'000 GBP'000
Software 393,764 348,075
Hardware 28,807 24,073
Services internal (2) 21,761 18,301
Services external (3) 3,605 3,120
Total revenue from contracts
with customers 447,937 393,569
(1) In line with the revenue streams disclosed in note 1.11
Revenue recognition, services revenue has been split between
internally provided services and externally provided services. The
prior year figures have been restated, with reclassification of
GBP5 million revenue now correctly presented within software
revenue, having previously been incorrectly presented as services
revenue for the year ended 28 February 2021. The correction of the
prior year categorisation of revenue has no change to total revenue
and there is no change in the financial position and financial
performance .
(2) Provision of services to customers using the Group's own internal resources
(3) Provision of services to customers using third party contractors
Hardware
The Group's hardware revenue comprises the sale of items such as
servers, laptops and other devices.
Software
The Group's software revenue comprises the sale of various types
of software licences (including both cloud-based and
non-cloud-based licences), subscriptions and software assurance
products.
Services internal
The Group's internal services revenue comprises internally
provided consulting services through its own internal
resources.
Services external
The Group's external services revenue comprises the sale of
externally provided training and consulting services through
third-party contractors.
Year ended Year ended
28 February 28 February
2022 2021
Revenue by geographical GBP'000 GBP'000
regions
United Kingdom 430,875 380,616
Europe 13,289 9,594
Rest of world 3,773 3,359
447,937 393,569
3(b) Gross invoiced income by type
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Software 1,136,039 899,155
Hardware 28,807 24,073
Services internal 21,761 18,301
Services external 21,517 16,523
1,208,124 958,052
Gross invoiced income 1,208,124 958,052
Adjustment to gross invoiced
income for income recognised
as agent (760,187) (564,483)
Revenue 447,937 393,569
Gross invoiced income reflects gross income billed to customers
adjusted for deferred and accrued revenue items. The Group reports
gross invoiced income as an alternative financial KPI as management
believes this measure allows a better understanding of business
performance and position particularly in respect of working capital
and cash flow.
4 Material profit or loss items
The Group has identified several items included within
administrative expenses which are material due to the significance
of their nature and/or amount. These are listed separately here to
provide a better understanding of the financial performance of the
Group:
Year ended Year ended
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Depreciation of property,
plant and equipment 10 828 835
Depreciation of right-of-use
assets 11 169 235
Loss on disposal of property,
plant and equipment 15 18
Amortisation of acquired
intangible assets 12 1,611 1,610
Consulting fees 2,215 2,290
Share-based payment expenses 29 2,563 962
Operating lease charges: 11 16 54
- Property 16 54
- Plant, equipment and - -
vehicles
Foreign exchange (gains)/losses (38) 11
5 Non-underlying items
Year ended Year ended
28 February 28 February
2022 2021
GBP'000 GBP'000
IPO costs - 8,065
- 8,065
Items included in administrative expenses that are material,
either because of size or their nature and that are non-recurring
are considered as non-underlying items. In the current year the
Group incurred no costs considered to be non-underlying items. In
the prior year the Group incurred costs of GBP8.1 million in
respect of its IPO. These costs specifically related to stamp duty
taxes and other legal and professional costs. In addition, in the
prior year, commission costs of GBP10.6 million were incurred for
raising gross proceeds of GBP352.4 million on IPO. GBP333.5 million
of the proceeds were used to settle the Group's obligations under
the Demerger SPA with Altron and Altron's shareholders, with the
remaining GBP18.9 million being used to pay the commission costs of
GBP10.6 million and the IPO costs of GBP8.1 million. The GBP10.6
million of commission costs was offset against the share premium
created on the issue of the shares, see note 20.
6 Employees
Year ended Year ended
28 February 28 February
2022 2021
Employee benefit expense: GBP'000 GBP'000
Employee remuneration (including directors'
remuneration) 34,027 29,980
Commissions and bonuses 18,552 15,982
Social security costs 6,437 5,326
Pension costs 1,169 1,038
Share-based payments expense 2,563 962
62,748 53,288
Classified as follows:
Cost of sales 9,282 7,875
Administrative expenses 53,466 45,413
62,748 53,288
The average monthly number of employees during the year was:
Year Year ended
ended 28 February
28 February 2021
2022
Number Number
Sales 284 255
Technical 299 272
Administration 141 120
724 647
7 Auditors' remuneration
During the year, the Group obtained the following services from
the company's auditors and its associates:
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Fees payable to the company's auditors and
its associates for the audit of the parent
company and consolidated financial statements 198 161
Fees payable to the company's auditors and
its associates for other services:
Audit of the financial statements of the
company's subsidiaries 317 264
Non-audit services (1) 75 1,243
590 1,668
(1) Non-audit services in the current year relate to the
auditors' review of our interim report issued in October 2021, in
the prior year they relate to pre-IPO services provided which are
of a one-off nature.
8 Finance income and costs
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Finance income
Bank interest received - 12
Finance income - 12
Finance costs
Interest expense on financial
liabilities measured at amortised
cost (532) (122)
Interest expense on lease
liability (57) (71)
Finance costs expensed (589) (193)
Net finance costs (589) (181)
9 Income tax expense
The major components of the Group's income tax expense for all
periods are:
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Current income tax charge
in the year 8,561 7,049
Adjustment in respect of
current income tax of previous
years 150 165
Double taxation relief - (5)
Foreign taxation 1 20
Total current income tax
charge 8,712 7,229
Current year (434) (298)
Adjustments in respect of
prior year 5 (201)
Effect of changes in tax
rates 429 -
Deferred tax credit - (499)
Total tax charge 8,712 6,730
Reconciliation of total tax charge
The tax assessed for the year differs from the standard rate of
corporation tax in the UK applied to profit before tax:
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Profit before income tax 41,566 26,662
Income tax charge at the
standard rate of corporation
tax in the UK of 19% for
all periods 7,898 5,066
Effects of:
Non-deductible expenses 229 1,637
Foreign tax credits 1 14
Adjustment to previous periods 155 (36)
Effect of changes in tax
rate 429 -
Other differences - 49
Income tax charge reported
in profit or loss 8,712 6,730
Year Year ended
ended 28 February
28 February 2021
2022
Amounts recognised directly GBP'000 GBP'000
in equity
Aggregate deferred tax arising
in the reporting period and
not recognised in net profit
or loss or other comprehensive
income but directly credited
to equity:
Deferred tax: share-based
payments 192 15
192 15
Changes affecting the future tax charge
The UK Finance Act 2021 has been substantively enacted,
increasing the corporate tax rate to 25% effective from 1 April
2023. Since this change has been substantively enacted this has
resulted in rebasing of the deferred tax liability.
As at 28 February 2022 As at
28 February
2021
Deferred tax liabilities GBP'000 GBP'000
The balance comprises temporary differences
attributable to:
Intangible assets (1,309) (1,207)
Property, plant and equipment (769) (531)
Employee benefits 145 241
Provisions 53 101
Share-based payments 691 15
(1,189) (1,381)
As at 28 February 2022 As at 28 February 2021
Deferred tax assets GBP'000 GBP'000
At 1 March 357 -
Credited to profit or loss 340 342
Credited to equity 192 15
Carrying amount at end of year 889 357
Deferred tax liabilities GBP'000 GBP'000
At 1 March (1,738) (1,895)
(Charge) / Credited to profit or loss (340) 157
Carrying amount at end of year (2,078) (1,738)
Net deferred tax liabilities (1,189) (1,381)
The deferred tax asset and deferred tax liabilities carrying
amounts at the end of the year are set off as they arise in the
same jurisdiction and as such there is a legally enforceable right
to offset.
10 Property, plant and equipment
Freehold Furniture,
land Computer fittings Computer Motor
and buildings equipment and equipment software vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 March 2020 8,290 1,424 973 624 83 11,394
Transfers 509 1,806 332 - - 2,647
Additions 81 471 27 - 28 607
Disposals - (35) (29) - (22) (86)
At 28 February 2021 8,880 3,666 1,303 624 89 14,562
Additions 41 435 2 122 17 617
Disposals - (226) - - (5) (231)
At 28 February 2022 8,921 3,875 1,305 746 101 14,948
Depreciation
At 1 March 2020 1,003 758 514 563 35 2,873
Transfers 440 1,893 314 - - 2,647
On disposals - (35) (19) - (14) (68)
Charge for the year 348 327 104 38 18 835
At 28 February 2021 1,791 2,943 913 601 39 6,287
On disposals - (213) - - (3) (216)
Charge for the year 352 353 76 25 22 828
At 28 February 2022 2,143 3,083 989 626 58 6,899
Net book value
At 28 February 2021 7,089 723 390 23 50 8,275
At 28 February 2022 6,778 792 316 120 43 8,049
11 Leases
(i) Amounts recognised in the balance sheet
Motor
Buildings vehicles Total
Right-of-use assets GBP'000 GBP'000 GBP'000
Cost
At 1 March 2020 1,377 245 1,622
At 28 February 2021 and 28 February
2022 1,377 245 1,622
Depreciation
At 1 March 2020 162 128 290
Charge for the year 142 93 235
At 28 February 2021 304 221 525
Charge for the period 145 24 169
At 28 February 2022 449 245 694
Net book value
At 1 March 2020 1,215 117 1,332
At 28 February 2021 1,073 24 1,097
At 28 February 2022 928 - 928
As at As at As at
28 February 28 February 1 March
2022 2021 2020
Lease liabilities GBP'000 GBP'000 GBP'000
Current 185 202 307
Non-current 992 1,176 1,295
1,177 1,378 1,602
There were no additions to the right-of-use assets in the
financial year ended 28 February 2022 (financial year ended 28
February 2021: GBPNil).
(ii) Amounts recognised in the statement of profit or loss
The statement of profit or loss shows the following amounts
relating to leases:
Year ended Year ended
28 February 28 February
2022 2021
Depreciation charge of right-of-use GBP'000 GBP'000
assets
Buildings 145 142
Motor vehicles 24 93
169 235
Interest expense (included in finance
cost) 57 71
Expense relating to short-term leases
(included in administrative expenses) 16 54
Expense relating to leases of low-value - -
assets (included in administrative expenses)
(iii) Changes in liabilities arising from financing
activities
As at Cash As at
1 March flows Interest 28 February
2021 2022
GBP'000 GBP'000 GBP'000 GBP'000
Lease liabilities 1,378 (258) 57 1,177
Total liabilities from financing activities 1,378 (258) 57 1,177
1 March Cash 28 February
2020 flows Interest 2021
GBP'000 GBP'000 GBP'000 GBP'000
Lease liabilities 1,602 (295) 71 1,378
Total liabilities from financing activities 1,602 (295) 71 1,378
12 Intangible assets
Customer
Goodwill relationships Brand Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 March 2020, 28 February 2021
and 28 February 2022 37,493 8,798 3,653 49,944
Amortisation
At 1 March 2020 - 2,127 1,764 3,891
Charge for the year - 880 730 1,610
At 28 February 2021 - 3,007 2,494 5,501
Charge for the year - 880 731 1,611
At 28 February 2022 - 3,887 3,225 7,112
Net book value
At 28 February 2021 37,493 5,791 1,159 44,443
At 28 February 2022 37,493 4,911 428 42,832
Determination of recoverable amount
The carrying value of indefinite useful life intangible assets
and goodwill are tested annually for impairment. For each CGU and
for all periods presented, the Group has assessed that the value in
use represents the recoverable amount. The future expected cash
flows used in the value-in-use models are based on management
forecasts, over a five-year period, and thereafter a reasonable
rate of growth is applied based on current market conditions. The
recoverable amount of Bytes Software Services and Phoenix Software
is GBP778.6 million and GBP273.6 million respectively. For the
purpose of impairment assessments of goodwill, the goodwill balance
is allocated to the operating units which represent the lowest
level within the Group at which the goodwill is monitored for
internal management purposes.
A summary of the goodwill per CGU, as well as assumptions
applied for impairment assessment purposes, is presented below:
Goodwill
Long-term Discount carrying
growth rate amount
rate
28 February 2022 % % GBP'000
Bytes Software Services 2 8.54 14,775
Phoenix Software 2 8.54 22,718
37,493
28 February 2021
During the financial year to 28 February 2021, the Group
successfully integrated the Bytes Security Partnership into the
Bytes Software Services business. The GBP6.9 million carrying value
of goodwill previously allocated to Bytes Security Partnership has
been re-allocated to the Bytes Software Services CGU. The goodwill
per CGU as at 28 February 2021 is as follows:
Goodwill
Long-term Discount carrying
growth rate amount
rate
% % GBP'000
Bytes Software Services 2 8.44 14,775
Phoenix Software 2 8.44 22,718
37,493
Growth rates
The Group used a conservative growth rate of 2% which was
applied beyond the approved budget periods. The growth rate was
consistent with publicly available information relating to
long-term average growth rates for the market in which the
respective CGU operated.
Discount rates
Discount rates used reflect both time value of money and other
specific risks relating to the relevant CGU. Pre-tax discount rates
have been applied.
Sensitivities
The impacts of variations in the calculation of value-in-use of
assumed growth rate and pre-tax discount rates applied to the
estimated future cash flows of the CGUs have been estimated as
follows:
28 February 2022 Bytes Software Phoenix
Services Software
GBP'000 GBP'000
Headroom 738,557 240,596
1% increase in the pre-tax discount
rate applied to the estimated future
cash flows (104,467) (36,204)
1% decrease in the pre-tax discount
rate applied to the estimated future
cash flows 142,534 49,408
0.5% increase in the terminal growth
rate from 2023 to 2027 51,412 17,836
0.5% decrease in the terminal growth
rate from 2023 to 2027 (44,109) (15,302)
28 February 2021 Bytes Software Phoenix
Services Software
GBP'000 GBP'000
Headroom 377,502 127,899
1% increase in the pre-tax discount
rate applied to the estimated future
cash flows (55,339) (21,190)
1% decrease in the pre-tax discount
rate applied to the estimated future
cash flows 75,769 29,016
0.5% increase in the terminal growth
rate from 2022 to 2026 30,790 11,715
0.5% decrease in the terminal growth
rate from 2022 to 2026 (26,351) (10,026)
None of the above sensitivities, taken either in isolation or
aggregated, indicates a potential impairment. The directors
consider that there is no reasonable possible change in the
assumptions used in the sensitivities that would result in an
impairment of goodwill.
13 Contract assets
As at As at
28 February 28 February
2022 2021
GBP'000 GBP'000
Contract assets 6,716 7,393
As at As at
28 February 28 February
2022 2021
Contract assets is further broken GBP'000 GBP'000
down as:
Short term contract assets 6,591 7,179
Long term contract assets 125 214
6,716 7,393
14 Contract liabilities
As at As at
28 February 28 February
2022 2021
GBP'000 GBP'000
Contract liabilities 16,023 12,362
As at As at
28 February 28 February
2022 2021
Contract liabilities is further broken GBP'000 GBP'000
down as:
Short term contract liabilities 14,528 10,038
Long term contract liabilities 1,495 2,324
16,023 12,362
During the year, the Group recognised GBP10 million (2021: GBP10
million) of revenue that was included in the contract liability
balance at the beginning of the period.
15 Inventories
As at As at
28 February 28 February
2022 2021
GBP'000 GBP'000
Inventories 96 591
96 591
Inventories include asset management subscription licences
purchased in advance for a specific customer that as yet haven't
been consumed.
Inventories recognised as an expense in cost of sales during the
year amounted to GBP495,000 (28 February 2021: GBP97,000).
16 Financial assets and financial liabilities
This note provides information about the Group's financial
instruments, including:
-- An overview of all financial instruments held by the Group
-- Specific information about each type of financial instrument
-- Accounting policies
-- Information about determining the fair value of the
instruments, including judgements and estimation uncertainty
involved.
The Group holds the following financial instruments:
As at 28 As at
February 28 February
2022 2021
Financial assets Note GBP'000 GBP'000
Financial assets at amortised
cost:
Trade receivables 17 154,928 103,455
Other financial assets 17 1,501 1,193
156,429 104,648
As at 28 As at
February 28 February
2022 2021
Financial liabilities Note GBP'000 GBP'000
Financial liabilities at amortised
cost:
Trade and other payables -
current, excluding Payroll
tax and other statutory tax
liabilities 19 208,183 150,354
Lease liabilities 11 1,177 1,378
209,360 151,732
The Group's exposure to various risks associated with the
financial instruments is discussed in note 25. The maximum exposure
to credit risk at the end of the reporting period is the carrying
amount of each class of financial assets mentioned above.
17 Trade and other receivables
As at 28 As at 28
February February
2022 2021
GBP'000 GBP'000
Financial assets
Gross trade receivables 155,678 104,179
Less: impairment allowance (750) (724)
Net trade receivables 154,928 103,455
Other receivables 1,501 1,193
156,429 104,648
Non-financial assets
Prepayments 1,181 2,016
1,181 2,016
Trade and other receivables 157,610 106,664
(i) Classification of trade receivables
Trade receivables are amounts due from customers for goods sold
or services performed in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all
classified as current. Trade receivables are recognised initially
at the amount of consideration that is unconditional, unless they
contain significant financing components, in which case they are
recognised at fair value. The Group holds the trade receivables
with the objective of collecting the contractual cash flows, and so
it measures them subsequently at amortised cost using the effective
interest method. Details about the Group's impairment policies are
provided in note 1.22.
(ii) Fair values of trade receivables
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
(iii) Credit risk
Ageing and impairment analysis (excluding finance lease
assets)
Current Past Past Past Past
due 0 due 31 due 61 due 121
to 30 to 60 to 120 to 365 Total
days days days days
28 February 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expected loss rate 0.05% 0.58% 6.08% 25.87% 100%
Gross carrying amount -
trade receivables 87,557 12,077 3,764 545 236 104,179
Loss allowance 48 70 229 141 236 724
Current Past Past Past Past
due 0 due 31 due 61 due 121
to 30 to 60 to 120 to 365 Total
days days days days
28 February 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expected loss rate 0.06% 0.56% 6.67% 20.25% 100%
Gross carrying amount -
trade receivables 133,031 16,968 5,027 514 138 155,678
Loss allowance 78 95 335 104 138 750
The closing loss allowances for trade receivables reconcile to
the opening loss allowances as follows:
As at As at
28 February 28 February
2022 2021
Trade receivables GBP'000 GBP'000
Opening loss allowance at 1 March 724 402
Increase in loss allowance recognised
in profit or loss during the period 149 333
Receivables written off during the year
as uncollectable (123) (11)
Closing loss allowance 750 724
Trade receivables are written off where there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, among others, the failure of a
debtor to engage in a repayment plan with the Group, and a failure
to make contractual payments for a period of greater than 120 days
past due.
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
18 Cash and cash equivalents
As at As at
28 February 28 February
2022 2021
GBP'000 GBP'000
Cash at bank and in hand 67,118 20,734
67,118 20,734
19 Trade and other payables
As at 28 As at 28
February February
2022 2021 (Restated)
GBP'000 GBP'000
Trade and other payables 129,430 99,079
Accrued expenses 78,753 51,275
Payroll tax and other statutory
liabilities 9,429 6,767
217,612 157,121
The prior year figures have been restated with a
reclassification of GBP26 million from trade and other payables to
accrued expenses representing supplier invoices not received at the
prior year end. The correction of the prior year has no impact on
the total trade and other payables and there is no change in the
financial position of the Group.
Trade payables are unsecured and are usually paid within 45 days
of recognition. Included in other payables is GBP15m of funds
received from customers in advance, prior to confirming the goods
or services required. The carrying amounts of trade and other
payables are considered to be the same as their fair values, due to
their short-term nature.
20 Share capital and share premium
Number Nominal Share Total
of shares value premium
Authorised, allotted, called up GBP'000 GBP'000 GBP'000
and fully paid
At 1 March 2020 (1) 232,480,613 2,325 625,373 627,698
Shares issued during the year (2) 7,001,720 70 8,263 8,333
At 28 February 2021 and 28 February
2022 (3), (4) 239,482,333 2,395 633,636 636,031
(1) Demerger Transactions
The comparative figures are presented as if the Demerger
Transactions had occurred on 1 March 2019. On the Date of the
Demerger, the company had 2 ordinary shares in issue and issued a
further 232,480,611 ordinary shares in the company at an issue
price of GBP2.70 per share with an aggregate value of GBP627.7
million. This amount, together with the cash payments of GBP16.7
million to management for the acquisition of the Bytes Technology
Limited and Blenheim Group Limited B ordinary shares, is the total
consideration of GBP644.4 million paid to Altron and the management
under the Demerger SPA to acquire the entire issued share capital
of Bytes Technology Limited. The issue of 232,480,611 ordinary
shares by the company at an issue price of GBP2.70 per share, gave
rise to share capital of GBP2.3 million, being the nominal value of
the shares issued and share premium of GBP625.4 million with a
contribution to the merger reserve of GBP627.7 million, see note
22.
(2) Shares issued during the prior year
During the prior year the company issued 7,001,720 new ordinary
shares at an issue price of GBP2.70 per share to institutional
investors introduced by Numis Securities. This resulted in gross
share proceeds of GBP18.9 million consisting of share capital of
GBP70,000 and a share premium of GBP18.9 million which was offset
by GBP10.6 million of commission costs paid on the issue of the
shares. The remaining net share issue proceeds of GBP8.3 million
were used by the company to pay the other IPO costs of GBP8.1
million included in note 5. The GBP10.6 million of commission costs
were paid to Numis Securities for raising total gross proceeds of
GBP352.4 million for the introduction of the new institutional and
individual investors on the Date of the Demerger and during the
year.
(3) Ordinary shares
Ordinary shares have a nominal value of GBP0.01. All ordinary
shares in issue rank pari passu and carry the same voting rights
and entitlement to receive dividends and other distributions
declared or paid by the Group. The company does not have a limited
amount of authorised share capital.
(4) Share options
Information related to the company's share option schemes,
including options issued during the financial year and options
outstanding at the end of the reporting period is set out in note
29.
21 Other reserves
The following table shows a breakdown of the balance sheet line
item 'other reserves' and the movements in these reserves during
the year. All movements relate to the Group's share-based payment
schemes; further details are provided in note 29.
Bytes Technology Bytes Blenheim Total other
Group plc Technology Group Limited reserves
Limited
Note GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 March 2020 - 818 352 1,170
Share-based payment expenses 29 302 129 531 962
Deferred tax 9 15 - - 15
Transfer to retained earnings
(1) 23 - (947) (883) (1,830)
At 28 February 2021 317 - - 317
Share-based payment expenses 29 2,563 - - 2,563
Deferred tax 9 192 - - 192
At 28 February 2022 3,072 - - 3,072
(1) Transfer to retained earnings
On the Date of the Demerger, both the Bytes Technology Limited
scheme and the Blenheim Group Limited scheme were exercised. The
equity amounts relating to both schemes were transferred to
retained earnings on settlement.
22 Merger reserve
Year Year
ended ended
28 February 28 February
2022 2021
GBP'000 GBP'000
Balance at 1 March 2020, 28 February
2021 and 28 February 2022 (644,375) (644,375)
(644,375) (644,375)
The merger reserve of GBP644.4 million effective on the Date of
the Demerger is an accounting reserve in equity representing the
difference between the total nominal value of the issued share
capital acquired in Bytes Technology Limited of GBP1.10 and the
total consideration given of GBP644.4 million. The total
consideration was satisfied by the issue of new shares in the
company for a consideration of GBP627.7 million, see note 18 and
further cash consideration of GBP16.7 million for the acquisition
of the Bytes Technology Limited and Blenheim Group Limited B
ordinary shares. GBP14.3 million of the cash consideration was
satisfied by the company to acquire the Bytes Technology Limited B
ordinary shares and GBP2.4 million was satisfied by Bytes
Technology Limited to acquire the Blenheim Group Limited B ordinary
shares.
23 Retained earnings
Year Year
ended ended
28 February 28 February
2022 2021
Movements in retained earnings were Note GBP'000 GBP'000
as follows:
Balance at 1 March 24,775 51,612
Net profit for the period (1) 32,854 19,933
Transfer from other reserves 21 - 1,830
Dividends 26(b) (4,790) (48,600)
52,839 24,775
(1) Net profit in the prior period is stated after GBP8.1 million of IPO costs, see note 5.
24 Cash generated from operations
Year Year ended
ended 28 February
28 February 2021
2022
Note GBP'000 GBP'000
Profit before taxation 41,566 26,663
Adjustments for:
Depreciation and amortisation 4 2,608 2,680
Loss on disposal of property,
plant and equipment 4 15 18
Non-cash employee benefits
expense - share based payments 6 2,563 962
Finance (income)/costs
- net 8 589 181
(Increase)/decrease in
contract assets 677 (1,252)
(Increase) in trade and
other receivables (50,946) (29,570)
Decrease/(increase) in
inventories 495 97
Increase in trade and other
payables 60,491 40,611
Increase in contract liabilities 3,661 1,156
Cash generated from operations 61,719 41,546
25 Financial risk management
This note explains the Group's exposure to financial risks and
how these risks could affect the Group's future financial
performance. Current year consolidated profit or loss and statement
of financial position information has been included where relevant
to add further context.
Management monitors the liquidity and cash flow risk of the
Group carefully. Cash flow is monitored by management on a regular
basis and any working capital requirement is funded by cash
resources or access to the revolving credit facility.
The main financial risks arising from the Group's activities are
credit, liquidity and currency risks. The Group's policy in respect
of credit risk is to require appropriate credit checks on potential
customers before sales are made. The Group's approach to credit
risk is disclosed on note 17.
The Group's policy in respect of liquidity risk is to maintain
readily accessible bank deposit accounts to ensure that the company
has sufficient funds for its operations. The cash deposits are held
in a mixture of short-term deposits and current accounts which earn
interest at a floating rate.
The Group's policy in respect of currency risk, which primarily
exists as a result of foreign currency purchases, is to either sell
in the currency of purchase, maintain sufficient cash reserves in
the appropriate foreign currencies which can be used to meet
foreign currency liabilities, or take out forward currency
contracts to cover the exposure.
25(a) Derivatives
Derivatives are only used for economic hedging purposes and not
speculative investments.
The Group has taken out forward currency contracts during the
periods presented but has not recognised either a forward currency
asset or liability at each period end as the fair value of the
foreign currency forwards is considered to be immaterial to the
consolidated financial statements due to the low volume and
short-term nature of the contracts. Similarly, the amounts
recognised in profit or loss in relation to derivatives were
considered immaterial to disclose separately.
25(b) Foreign exchange risk
The Group's exposure to foreign currency risk at the end of the
reporting period, was as follows:
As at 28 February As at 28 February
2022 2021
USD EUR NOK USD EUR NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade receivables 5,375 1,423 - 11,468 605 -
Cash and cash equivalents 3,093 75 - 424 717 -
Trade payables (15,243) (2,078) (97) (11,163) (6,557) (1,294)
(6,775) (580) (97) 729 (5,235) (1,294)
The following table demonstrates the profit before tax
sensitivity to a possible change in the currency exchange rates
with GBP, all other variables held constant.
As at 28 February As at 28 February
2022 2021
GBP:USD GBP:EUR GBP:NOK GBP:USD GBP:EUR GBP:NOK
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
5% increase in
rate 323 28 5 (35) 249 62
5% decrease in
rate (357) (31) (5) 38 (276) (68)
The aggregate net foreign exchange gains/losses recognised in
profit or loss were:
Year ended Year ended
28 February 28 February
2022 2021
GBP'000 GBP'000
Total net foreign exchange
gains/(losses) in profit or
loss 38 (11)
38 (11)
25(c) Liquidity risk
(1) Cash management
Prudent liquidity risk management implies maintaining sufficient
cash to meet obligations when due. The Group generates positive
cash flows from operating activities and these fund short-term
working capital requirements. The Group aims to maintain
significant cash reserves and none of its cash reserves is subject
to restrictions. Access to cash is not restricted and all cash
balances could be drawn on immediately if required. Management
monitors the levels of cash deposits carefully and is comfortable
that for normal operating requirements, no further external
borrowings are currently required.
At 28 February 2022, the Group had cash and cash equivalents of
GBP67.1 million, see note 18. Management monitors rolling forecasts
of the Group's liquidity position (which comprises its cash and
cash equivalents) on the basis of expected cash flows generated
from the Group's operations. These forecasts are generally carried
out at a local level in the operating companies of the Group in
accordance with practice and limits set by the Group and take into
account certain down-case scenarios.
(2) Revolving Credit Facility
The Group entered into a three-year committed Revolving Credit
Facility (RCF) in December 2020. In December 2021 the RCF reduced
to GBP40 million and in December 2022 will reduce to GBP30 million.
The Group incurred arrangement fees of GBP0.4 million representing
0.75% of the initial GBP50 million facility available. The Group
has so far not drawn down any amount on this facility and to the
extent that there is no evidence that it is probable that some or
all of the facility will be drawn down, the fee has been
capitalised as a prepayment and amortised over the three-year
period of the facility. The facility also incurs a commitment fee
and utilisation fee, both of which are payable quarterly in
arrears. Under the terms of the facility, the Group is required to
comply with the following financial covenants:
-- Interest cover: EBITDA (earnings before interest, tax,
depreciation and amortisation) to net finance charges for the past
12 months shall be greater than 4.0 times
-- Leverage: net debt to EBITDA for the past 12 months must not exceed 2.5 times.
The Group has complied with these covenants throughout the
reporting period. As at 28 February 2022, EBITDA to net finance
charges was approximately 76 times (2021: 208 times). The group has
been in a net cash position as at 28 February 2022 and 28 February
2021 and has therefore complied with the Net debt to EBITDA
covenant.
(3) Contractual maturity of financial liabilities
The following table details the Group's remaining contractual
maturity for its financial liabilities based on undiscounted
contractual payments:
Within 1 2 Over Total contractual
1 year to to 5 years cash flows Carrying
2 years 5 years amount
28 February 2022 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 16 208,183 - - - 208,183 208,183
Lease liabilities 11 231 116 694 313 1,354 1,177
208,414 116 694 313 209,537 209,360
Within 1 1 to 2 to Over Total contractual
year 2 years 5 years 5 years cash flows Carrying
amount
28 February 2021 Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Trade and other
payables 16 150,354 - - - 150,354 150,354
Lease liabilities 11 257 231 578 545 1,611 1,378
150,611 231 578 545 151,965 151,732
26 Capital management
26(a) Risk management
For the purpose of the Group's capital management, capital
includes issued capital, ordinary shares, share premium and all
other equity reserves attributable to the equity holders of the
parent. The primary objective of the Group's capital management is
to maximise shareholder value.
The Group manages its capital structure and makes adjustments in
light of changes in economic conditions and the requirements of
shareholders. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. To ensure an
appropriate return for shareholders' capital invested in the Group,
management thoroughly evaluates all material revenue streams,
relationships with key vendors and potential acquisitions and
approves them by the Board, where applicable. The Group's dividend
policy is based on the profitability of the business and underlying
growth in earnings of the Group, as well as its capital
requirements and cash flows. The Group's dividend policy is to
distribute 40% of the Group's post-tax pre-exceptional earnings to
shareholders in respect of each financial year. Subject to any cash
requirements for ongoing investment, the Board will consider
returning excess cash to shareholders over time.
26(b) Dividends
2022 2021
Pence Pence
Ordinary shares per share GBP'000 per share GBP'000
Interim dividend paid 2.00 4,790 8.00 18,600
Dividend paid prior to Demerger - - 12.90 30,000
Total dividends attributable to
ordinary shareholders 2.00 4,790 20.90 48,600
Final and interim dividends paid for the year ended 28 February
2021 relates to the distributions of profits prior to the Date of
Demerger. For more information on the Group's demerger from its
former parent group, see the Group's annual consolidated financial
statements for the year ended 28 February 2021. Dividends per share
is calculated by dividing the dividend paid by the number of
ordinary shares in issue. Dividends are paid out of available
distributable reserves of the company.
The Board has proposed a final ordinary dividend of 4.2 pence
and a special dividend of 6.2 pence per share for the year ended 28
February 2022 to be paid to shareholders on the register as at 29
July 2022. The aggregate of the proposed dividends expected to be
paid on 12 August 2022 is GBP24.9 million. The proposed dividends
per ordinary shares are subject to approval at the annual general
meeting and are not recognised as a liability in the consolidated
financial statements.
27 Capital commitments
At 28 February 2022, the Group had GBPNil capital commitments
(28 February 2021: GBPNil).
28 Related-party transactions
In the ordinary course of business, the Group carries out
transactions with related parties, as defined by IAS 24 Related
Party Disclosures. Apart from those disclosed elsewhere in the
consolidated financial statements, material transactions
for the year are set out below:
28(a) Transactions with key management personnel
In the prior year, prior to the Date of the Demerger, the key
management personnel were defined as the directors of the Bytes
business. Certain directors were not paid directly by the Bytes
business but received remuneration from Altron, in respect of their
services to the larger Group which included the Bytes business. The
Group was not recharged for these services, since it was not
possible to make an accurate apportionment of their remuneration.
The total remuneration relating to these directors was included in
the aggregate of directors' remuneration disclosed in the
consolidated financial statements of the Altron group. Following
the Date of Demerger, the key management personnel are defined as
the directors (both executive and non-executive) of Bytes
Technology Group plc, Bytes Software Services Limited and Phoenix
Software Limited. Details of the compensation paid to the directors
of Bytes Technology Group plc as well as their shareholdings in the
Group are disclosed within the remuneration report in the Annual
Report and Accounts for the year ended 28 February 2022.
28(b) Subsidiaries
Interests in subsidiaries are set out in note 31.
28(c) Transactions with former parent group, Altron
The following transactions occurred with related parties:
Year ended Year ended
28 February 28 February
2022 2021
GBP'000 GBP'000
Purchase of services
Management services provided by
fellow Group company - 42
Other transactions
Dividends paid to former parent
group - (48,600)
28(d) Outstanding balances arising from sales/purchases of
services
There were no outstanding balances at the end of each reporting
period .
29 Share-based payments
The Group established new equity settled share-based payment
incentive schemes with effect from the Admission Date. These share
option awards have been accounted for as equity settled share-based
payments. The fair value of the awards granted is recognised as an
expense over the vesting period.
Performance Incentive Share Plan
On 17 December 2020, 1,480,110 share options were granted to
eligible employees under the Performance Incentive Share Plan
(PIP). Options granted in the scheme are for shares in Bytes
Technology Group plc. The exercise price of the options is a
nominal amount of GBP0.01. There are no performance conditions
attached to the awards, but options will only vest if certain
employment conditions are met. The fair value at grant date was
GBP3.40 per option, based on the share price at grant date. The
share price at the date of grant was deemed to be the fair value of
the option - given that there are no performance conditions; the
exercise price is a nominal amount, being GBP0.01; and option
holders are entitled to dividend equivalents. The normal vesting
date shall be not earlier than the third anniversary of the grant
date and not later than the day before the tenth anniversary of the
grant date. There is no cash settlement of the options available
under the scheme. For the year ended 28 February 2022, 45,153
options were forfeited, and no options were exercised or
expired.
Company Share Option Plan
On 1 June 2021, 2,802,000 share options were granted to eligible
employees under the Company Share Option Plan (CSOP). Options
granted in the scheme are for shares in Bytes Technology Group plc.
The exercise price of the options of GBP5.00 was equal to the
market price of the shares on the last business day before the date
of grant, being 28 May 2021. There are no performance conditions
attached to the awards, but options will only vest if certain
employment conditions are met. The fair value at grant date is
estimated using a Black Scholes option-pricing model, taking into
account the terms and conditions on which the options were granted.
The contractual life of each option granted is the earliest date
(or dates) on which the award may be exercised, unless an earlier
event occurs to cause the award to lapse or become exercisable. The
normal vesting date shall be not earlier than the third anniversary
of the grant date and not later than the day before the tenth
anniversary of the grant date. There is no cash settlement of the
options available under the scheme. For the year ended 28 February
2022, 63,000 options were forfeited, and no options were exercised
or expired.
Save as You Earn Scheme
On 1 August 2021, 1,103,220 share options were granted to
eligible employees under the Save As You Earn Scheme (SAYE). Under
the SAYE scheme, employees enter a three-year savings contract in
which they save a fixed amount each month in return for their SAYE
options. At the end of the three-year period, employees can either
exercise their options in exchange for shares in Bytes Technology
Group plc or have their savings returned to them in full.
The exercise price of the options of GBP4.00 represents a 20%
discount to the market price of the shares on the last business day
before 1 June 2021, being 28 May 2021. The fair value at grant date
is estimated using a Black Scholes option-pricing model, taking
into account the terms and conditions on which the options were
granted. There is no cash settlement of the options. For the year
ended 28 February 2022, 49,815 options were forfeited, and no
options exercised or expired.
Bytes Technology Limited Scheme
This scheme was settled on the Date of the Demerger. For more
information on the Group's demerger from its former parent group
and the settlement of these schemes, see the Group's annual
consolidated financial statements for the year ended 28 February
2021.
Blenheim Group Limited Scheme
This scheme was settled on the Date of the Demerger. For more
information on the Group's demerger from its former parent group
and the settlement of these schemes, see the Group's annual
consolidated financial statements for the year ended 28 February
2021.
Share-based payment employee expenses
Year Year ended
ended 28 February
28 February 2021
2022
GBP'000 GBP'000
Equity settled share-based
payment expenses 2,563 962
2,563 962
Assumptions PIP CSOP SAYE
Grant date 17 Dec 1 Jun 1 Aug
20 21 21
Vesting period 3 years 3 years 3 years
Expected volatility n/a 35% 35%
Risk-free interest rate n/a 0.16% 0.22%
Expected dividend yield n/a 1.26% 1.26%
Expected forfeitures 9% 9% 11%
The expected volatility reflects the assumption that the
historical volatility of the company and publicly quoted companies
in a similar sector to the company over a period similar to the
life of the options is indicative of future trends.
30 Earnings per share
The Group calculates earnings per share (EPS) on several
different bases in accordance with IFRS and prevailing South Africa
requirements.
The share issues in respect of the Demerger Transactions in the
prior year are reflected in the EPS denominator as if these shares
were in issue on 1 March 2020.
Year Year
ended ended
28 February 28 February
2022 2021
pence pence
Basic earnings per share 13.72 8.52
Diluted earnings per share 13.42 8.47
Headline earnings per share 13.72 8.52
Diluted headline earnings per
share 13.42 8.47
Adjusted earnings per share 15.46 13.07
Diluted adjusted earnings per
share 15.12 12.99
30(a) Weighted average number of shares used as the
denominator
Year ended Year ended
28 February 28 February
2022 2021
Number Number
Weighted average number of
ordinary shares used as the
denominator in calculating
basic earnings per share and
headline earnings per share 239,482,333 233,900,138
Adjustments for calculation
of diluted earnings per share
and diluted headline earnings
per share:
- share options (1) 5,385,330 1,480,110
Weighted average number of
ordinary shares and potential
ordinary shares used as the
denominator in calculating
diluted earnings per share
and diluted headline earnings
per share 244,867,663 235,380,248
(1) Share options
Share options granted to employees under the Save As You Earn
Scheme, Company Share Option Plan and Bytes Technology Group plc
performance incentive share plan are considered to be potential
ordinary shares. They have been included in the determination of
diluted earnings per share on the basis that all employees are
employed at the reporting date, and to the extent that they are
dilutive. The options have not been included in the determination
of basic earnings per share. Details relating to the share options
are disclosed in note 29.
30(b) Headline earnings per share
The Group is required to calculate headline earnings per share
(HEPS) in accordance with the JSE Listing Requirements. The table
below reconciles the profits attributable to ordinary shareholders
to headline earnings and summarises the calculation of basic and
diluted HEPS:
Year Year ended
ended 28 February
28 February 2021
2022
Note pence pence
Profit for the period attributable
to owners of the company 32,854 19,933
Adjusted for:
Loss on disposal of property, plant
and equipment 4 15 18
Tax effect thereon (3) (3)
Headline profits attributable to
owners of the company 32,866 19,948
30(c) Adjusted earnings per share
Adjusted earnings per share is a Group key alternative
performance measure which is consistent with the way that financial
performance is measured by senior management of the Group. It is
calculated by dividing the adjusted operating profit attributable
to ordinary shareholders by the total number of ordinary shares in
issue at the end of the year. Adjusted operating profit is
calculated to reflect the underlying long-term performance of the
Group by excluding the impact of the following items:
-- Non-underlying items
-- Share-based payment charges
-- Acquired intangible assets amortisation
The table below reconciles the profit for the financial year to
adjusted earnings and summarises the calculation of adjusted
EPS:
Year Year
ended ended
28 February 28 February
2022 2021
Note GBP'000 GBP'000
Profits attributable to owners of the
company 32,854 19,933
Adjusted for:
- Amortisation of acquired intangible
assets 4 1,611 1,610
- Non-underlying items 5 - 8,065
- Share-based payment charges 29 2,563 962
Adjusted profits attributable to owners
of the company 37,028 30,570
31 Subsidiaries
The Group's subsidiaries included in the consolidated financial
statements are set out below. The country of incorporation is also
their principal place of business.
Name of entity Country Ownership Principal activities
of incorporation interest
Bytes Technology UK 100% Holding company
Holdco Limited
(1)
Bytes Technology UK 100% Holding company
Limited
Bytes Software UK 100% Providing cloud-based licensing
Services Limited and infrastructure and security
sales within both the corporate
and public sector sectors
Bytes Security UK 100% Dormant in current year. Provided
Partnerships Limited cloud-based licensing and infrastructure
and security sales within both
the corporate and public sector
sectors in prior year
Blenheim Group UK 100% Holding company in prior year.
Limited The company transferred its
investment in Phoenix Software
Limited to Bytes Technology
Limited and became dormant
during February 2022.
Phoenix Software UK 100% Providing cloud-based licensing
limited and infrastructure and security
sales within both the corporate
and public sector sectors
License Dashboard UK 100% Dormant in current year. Provided
Limited cloud-based licensing and infrastructure
and security sales within both
the corporate and public sector
sectors in prior year
Bytes Technology UK 100% Dormant for all periods
Group Holdings
Limited
Bytes Technology UK 100% Dormant for all periods
Training Limited
Elastabytes Limited UK 50% Dormant for all periods
(1) Bytes Technology Holdco Limited is held directly by the
company. All other subsidiary undertakings are held indirectly by
the company.
The registered address of all of the Group subsidiaries included
above is Bytes House, Randalls Way, Leatherhead, Surrey, KT22
7TW.
32 Events after the reporting period
On 24 February 2022, Russia commenced a military invasion of
Ukraine which is still ongoing. In response, multiple jurisdictions
have imposed economic sanctions and restrictions on Russia. The
Group has no business involvement in either Ukraine or Russia and
the economic and market effects of the war are uncertain and cannot
be predicted at this stage. Therefore, management concludes that
there are no events after the reporting period that require
disclosure in these financial statements.
Corporate Information
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in the UK governing the preparation
and dissemination of financial information differs from legislation
in other jurisdictions.
Directors at the date of this report
PJM De Smedt
NR Murphy
AJ Holden
MS Phillips
E Schraner
A Vincent
DN Maw
Group Company Secretary
WK Groenewald
Company registration number
12935776
Bytes LEI
213800LA4DZLFBAC9O33
Registered office
Bytes House
Randalls Way
Leatherhead
Surrey
KT22 7TW
Corporate brokers and financial advisers
Numis Securities Limited
London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
JSE sponsor
Rand Merchant Bank, a division of FirstRand Bank Limited
1 Merchant Place
Fredman Drive
Johannesburg
2196
South Africa
Auditor
Ernst & Young LLP
1 More London Place
London
SE1 2AF
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END
FR EASSLAEXAEEA
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May 24, 2022 03:14 ET (07:14 GMT)
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