BYTES Technology Group Annual Report and Accounts 2021/22 # Team spirit --- CONTENTS ## Strategic report 2 BTG at a glance 4 Team spirit ### Our business today 8 Chair's statement 10 CEO's review 14 Our market environment 16 Our business model 18 Our strategy 20 Key performance indicators ### Review of the year 22 CFO's introduction to the operational and financial reviews 24 Operational review 28 Financial review 33 Our partners 36 Sustainability review 36 Introduction 37 Our sustainability framework 38 Our people 42 Our communities 44 Our planet 46 Task Force on Climate-related Financial Disclosures 52 Risk report 58 Non-financial information statement 59 Our viability statement 60 Section 172 statement ## Governance report 62 Board of directors 65 Executive Committee 66 Chair's introduction to corporate governance 68 Corporate governance report 77 Stakeholder engagement 82 Audit Committee report 90 Nomination Committee report 94 Compliance with the UK Corporate Governance Code 96 Directors' remuneration report 113 Directors' report 118 Statement of directors' responsibilities ## Financial statements 120 Independent auditor's report 130 Consolidated financial statements 134 Notes to consolidated financial statements 172 Parent company financial statements 174 Notes to parent company financial statements ### Other information 184 Glossary 185 Company information and financial calendar ![img-0.jpeg](img-0.jpeg) Bytes Technology Group plc --- “Partnership is core to our success: among our outstanding people, between our businesses and our customers, vendors and the community. Such collaboration – and the can-do attitude that runs through everything we do – makes us a winning team.” Neil Murphy CEO Annual Report and Accounts 2021/2022 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS 1 --- # Bytes Technology Group plc (BTG) is one of the UK’s leading providers of software, IT security, cloud services and hardware. We are made up of two companies with one shared culture: Bytes Software Services (Bytes), which supports both private and public sector organisations, and Phoenix Software (Phoenix), which focuses on the public sector. BYTES PHOENIX 2 Bytes Technology Group plc --- Gross invoiced income¹ 1,208.1m (2021: £958.1m) +26.1% Gross profit £107.4m (2021: £89.6m) +19.9% Revenue³ £447.9m (2021: £393.6m) +13.8% Average gross profit per customer £20,100 (2021: £17,400) +15.5% Adjusted operating profit² £46.3m (2021: £37.5m) +23.6% Employees 773 up from 685 Customers 5,330 up from 5,147 1 'Gross invoiced income' is a non-IFRS financial measure that reflects gross income billed to customers, adjusted for deferred and accrued revenue items. The reconciliation of gross invoiced income to revenue is set out in note 3(b) to the consolidated financial statements. 2 '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 note 2(b) to the consolidated financial statements. 3 'Revenue' is reported in accordance with IFRS 15, Revenue from Contracts with Customers. Under this standard, the Group is required to exercise judgement 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. ![img-1.jpeg](img-1.jpeg) Annual Report and Accounts 2021/22 3 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- TEAM SPIRIT Team spirit infuses everything we do – from the way our people support each other to the partnerships we develop with our customers, vendors and the wider world. It’s also behind one of our core values: ‘We work together and collaborate across all teams’. # How we work together Throughout the year, and the business, we worked as a team: - BTG’s leaders and our business MDs came together in a new Executive Committee (pages 66 and 74) - Several vendors named us as their partner of the year, including Microsoft (pages 35 and 80) - We partnered with Hull City Council to make an online hub to support charities (page 34) - Bytes launched a website to encourage employee feedback (page 38) - Phoenix people took part in a survey confirming it was a ‘Great Place to Work’ (pages 5 and 12) - We launched a Sharesave scheme to help employees save money for BTG shares (pages 18, 39 and 79) - Bytes and Phoenix aligned behind our low carbon action plan (pages 36, 44 and 54) - We signed up to a volunteering app to make it easier for our people to help good causes (pages 36 and 42). ![img-2.jpeg](img-2.jpeg) 4 Bytes Technology Group plc --- ![img-3.jpeg](img-3.jpeg) Our team spirit starts flowing from day one, with the comprehensive inductions and social events we run for new starters. And we reinforce this team ethos throughout our employees' time with us. From presenting 'team player' awards to holding 'listening sessions' where employees share their opinions with senior managers, every day we celebrate and embed kind, supportive behaviour. "Our team spirit may start inside BTG, but it doesn't end there. In essence, we work as part of our vendors' teams – while remaining impartial about the IT products we recommend to our customers." ![img-4.jpeg](img-4.jpeg) ### A family feeling that goes back decades This helps explain why more than nine out of ten people agreed that 'there is a family or team feeling here' in a recent survey that confirmed Phoenix is a 'great place to work'. It also shines through in that the vast majority of staff across both our businesses said they would recommend working with us, in our latest employee net promoter survey (eNPS). Such statistics don't just mean that our people enjoy coming to work, it means they're always happy to go the extra mile for our customers. This in turn means that our clients keep on working with us on more of their IT needs and recommending us to other organisations. It also means that, as the IT industry faces a dearth of talent, our turnover rate is just 14%, with many of our people staying with us for 10, 20, and even 30 years.¹ Our CEO, Neil Murphy, for one, has been with us for 25 years. ![img-5.jpeg](img-5.jpeg) ### Bringing our people and vendors together As we marked our first full year as a listed company, we added the concept of a single team spirit into our processes too, by bringing areas of our two businesses closer together. This included: - Forming an Executive Committee which, along with Neil, includes our CFO, Andrew Holden, and our two MDs, Phoenix's Sam Mudd and Bytes's Jack Watson - Standardising HR policies - Providing opportunities for our businesses to benefit from our strengthened Group-level finance, risk and control environment - Launching a BTG-wide environmental, social and governance (ESG) and sustainability framework which builds on the businesses' existing corporate social responsibility (CSR) policies - Creating two steering committees, with representatives from across BTG, to drive our social and environmental commitments. ![img-6.jpeg](img-6.jpeg) Our team spirit may start inside BTG, but it doesn't end there. In essence, we work as part of our vendors' teams – while remaining impartial about the IT products we recommend to our customers. With our vendors, we work on promotional campaigns together; give them direct customer feedback; continuously develop our people so they know our vendors' products inside out; and advise and train vendor staff. Our success in staying up to speed with our vendors' portfolios is seen in our high level of accreditations in their products – and the number of our vendor awards. In 2021/22, our clutch of awards included Phoenix winning the Microsoft 2021 UK Partner of the Year title, and Bytes clinching the Darktrace EMEA Partner of the Year award. 1 gartner.com/en/articles/worried-about-employee-turnover-ask-these-6-questions-to-size-your-risk, 24 November 2021 Annual Report and Accounts 2021/22 5 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- TEAM SPIRIT ## Collaborating with our communities Our collaborative spirit extends to the global community. As our Board members say in our BTG sustainability framework, we do business with 'integrity, kindness and respect' and believe ourselves accountable to 'both current and future generations'. This ethos guides our people in their long-standing support for our communities: this year, employees raised tens of thousands of pounds for local hospices, cancer research, mental health charities, a special-care baby unit and other good causes, through such means as netball matches, cake sales, fitness challenges, sponsored walks and quizzes. "I would like to thank you for all your efforts and commitment to support us. We have ended with a great result which wouldn't have been possible without all your hard work." Lesley Spencer-Ford The AA Head of Partner Management ![img-7.jpeg](img-7.jpeg) Our people's efforts are encouraged and enabled by our businesses, who: - Give employees time off to volunteer - Match fundraising sums - Have partnerships with local charities - Sponsor neighbourhood sports teams - Attend regional university careers events - Donate IT equipment to local schools and institutions. And, at Group level, BTG leads the way with strategic pledges that benefit the wider world: such as supporting various corporate social responsibility initiatives and, as we announced in April 2022, aiming for net zero emissions by 2040. Such sustainable activities – be they important actions that protect the planet, or smaller ones that help local schools – satisfy the expectations of our investors and wider stakeholders. But more than that, they make our employees feel good about the contribution they're making, and proud of each other and of the company. In doing so, in a virtuous circle, they inspire even stronger team spirit. ## Our trust-based relationships with our customers We have worked with many of our customers for years, often moving companies with individual clients. We've built up an extensive knowledge of their businesses and IT estates and developed mutual trust, respect and affection. Our customers know we are not in business for short-term benefit, but genuinely want to help them use technology to work better and save money. And because we offer such a wide range of products and services, they know our IT solutions and expert advice will answer their specific needs. Our bond with our customers is seen in the ongoing growth in the number of our clients and the amount of work we do for them, and in the rise in our customer NPS rating this year, to 64 from 63 in 2021. It also comes through in their feedback. Lesley Spencer-Ford, The AA Head of Partner Management, echoed the sentiments of many BTG customers when she wrote in early 2022: 'I would like to thank you for all your efforts and commitment to support us. We have ended with a great result which wouldn't have been possible without all your hard work.' ## Matchless camaraderie "One of the great examples of team spirit this year was the Bytes vs Phoenix football match at the home of England's national teams, St George's Park, Burton-upon-Trent. One of our members of staff had sadly lost her husband and she hung up her gloves at Bytes after 30 years of service. We made St Catherine's Hospice our selected charity in honour of her husband. For those who couldn't attend the game, we have an infamous 5km run around our office in Leatherhead and invited all local staff to walk, jog or run it wearing orange (the colour of the charity). Forty people took part and some even ran 5km 'virtually' from home to join in. This speaks to the heart of how we genuinely care for our own people, promoting wellness inside and outside the organisation." Jack Watson MD, Bytes ![img-8.jpeg](img-8.jpeg) ![img-9.jpeg](img-9.jpeg) 6 Bytes Technology Group plc --- # Our business today 8 Chair's statement 10 CEO's review 14 Our market environment 16 Our business model 18 Our strategy 20 Key performance indicators STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 7 --- CHAIR'S STATEMENT # Our successful first full year as a listed company The past 12 months – our first full year as a listed company – was another successful period for BTG. We achieved strong results, despite the pressures of Covid-19 which continued during the year. And, as we invested in future business growth, we strengthened our governance systems to ensure we are built on robust, long-lasting foundations. "Our people's enthusiasm for the business and their commitment to our continuing success is unmistakable." # Growing customer base reflects trust in our business This year's results reflect the quality of BTG's people, not least the skills of our executive team. Neil Murphy, our CEO, has a deep understanding of our market. His ability to relate to our customers and guide our business to meet their needs, and those of our vendors, has set the customer-focused pattern for our entire workforce. Our new CFO, Andrew Holden, is a good complement to Neil. His combined experience of operations, finance and executive leadership in a listed company, is already helping us become a more efficient and agile business. I would like to thank his predecessor, Keith Richardson, for his dedicated service over more than two decades. # Aligning our two distinctive brands The executive directors are ably supported by our MDs, Phoenix's Sam Mudd and Bytes's Jack Watson, and their teams. This year, in a positive move, Neil, Andrew, Sam and Jack began meeting monthly as a Group Executive Committee. This committee, which was constituted during the year at a plc level, provides a key link between the Board and the business. It helps to ensure that the management team makes the best strategic moves for the whole of BTG, while we continue to benefit from having two independent and distinctive brands. ![img-10.jpeg](img-10.jpeg) 8 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Phoenix and Bytes also aligned under BTG's environmental, social and governance framework. ESG issues are significant to our employees, investors and customers, and our framework underlines how important their effective management is to our success. It defines our key ESG issues, the measures we intend to take on each, and how we will monitor our progress. Alongside the framework, we published our carbon reduction plan, achieving an early milestone by reaching carbon neutral emissions through offsetting in March 2022. Building on our offsetting initiatives, we aim to cut our emissions in half by 2026 and, as we announced in April 2022, to be entirely net zero by 2040: we are confident we will achieve this. Alongside such strategic advances, I must commend the skilful way the senior team managed not only to operate, but to grow, during the Covid-19 restrictions that persisted for much of the year. In just one example, the recruitment and effective induction of scores of new employees during a period of remote working, was well achieved. ### Shareholder dividends As stated, BTG'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 proposed dividend is £10.1 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 shareholders with a special dividend of 6.2 pence per share, equating to £14.8 million. If approved by shareholders, the final and special dividend will be paid on 12 August 2022. ### Our focus areas An area of particular focus this year was the ongoing attraction and retention of good people, in a competitive job market. We continued to recruit talented employees, and our eNPS of 69 is very positive. To achieve our strategic growth ambitions, and to go on attracting the best possible employees, we will continue to invest in our people, our culture and our diversity. We also worked to protect our gross profit as a percentage of gross invoiced income which, in the public sector part of our business, can be affected by framework margin caps and competitive tendering for new and renewing contracts. Management is working to address this, in such ways as expanding our IT consulting and managed services offering using internal resources, which generates a higher return than transactional licence sales, and by attaining the highest and widest levels of vendor accreditations to maximise rebates and other available funds. The Board will be focusing closely on both these areas in the coming year. In staying close to our people, the Board benefits particularly from the insights of David Maw, our designated workforce engagement non-executive director. ### Strengthening corporate governance We made good progress in strengthening our governance this year. We welcomed a new non-executive director, Dr Erika Schraner, who brings a wealth of technology and corporate finance experience. Erika's appointment means that 29% of our Board are women. Her membership of the Audit Committee, after David Maw stepped down, also means that all our Audit Committee members are now independent. This makes BTG fully compliant with the UK Corporate Governance Code. We aspire to go beyond the code's requirements with, for example, the FTSE Women Leaders Review's recommendation of 40% female representation on boards by 2025 one of our new targets. Having carefully scrutinised our legacy risk management framework, and following a competitive tender, we appointed PwC to "The market is on our side; customers need the products and services we sell to help them become more efficient, secure and productive." deliver our internal audit function. PwC brings internal audit expertise and strengthens our assurance function. In a busy year for the Board, we also carried out our inaugural internal Board review, as discussed in the governance report. ### Our dedicated people and positive market trends support a confident outlook This year, with the relaxation of Covid-19 restrictions, I was able to meet more of our people. Their enthusiasm for the business and their commitment to our continuing success is unmistakable. I would like to thank all of them for their efforts during another challenging year. The 2022/23 financial year started amid geopolitical and economic turbulence with the grave humanitarian crisis arising from the conflict in Ukraine, and the tail of the pandemic and Brexit continuing to cause some uncertainty. However, I am confident that BTG will continue to grow on strong foundations. The market is on our side; customers need the products and services we sell to help them become more efficient, secure and productive. And, as our results, rising customer numbers and vendor awards show, we are increasingly the technology partner organisations want to service their requirements. **Patrick De Smedt** Chair 23 May 2022 Annual Report and Accounts 2021/22 9 --- CEO'S REVIEW # Another amazing year for our can-do business Our great people have done it again. Their skills, can-do attitude and drive have enabled us to deliver double-digit growth in all our key metrics again this year. "Our ability to keep growing year after year is rooted in the team spirit that – like our proven strategy and high performance – has been a feature of our business for many years." Neil Murphy CEO ![img-11.jpeg](img-11.jpeg) 10 Bytes Technology Group plc --- ### Strong organic growth, driven by robust customer demand BTG has delivered another record set of results, 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. ### Our customer numbers rise again, in line with our strategy As well as being a testimony to our people, our results validate our long-standing strategy and its focus on growing our customer numbers and increasing our share of their IT spend. Both these metrics grew this year: our customer numbers rose from 5,147 to 5,330, with new public sector contracts including City & Guilds, Kettering General Hospital, British Heart Foundation and University College London NHS Trust, and new private sector clients including Boden and Compare The Market. I believe that our ability to keep growing year after year is rooted in the team spirit that – like our proven strategy and high performance – has been a feature of our business for many years. It is a team spirit with several layers. As well as being members of the BTG family, our people feel a strong allegiance to the brand they are part of, be it Phoenix or Bytes. This year, we have brought our businesses closer together by creating more joint forums and standardising some systems and processes.$^{1}$ These initiatives will boost communications, collaboration and efficiency, but will not limit the autonomy of the two businesses. Bytes and Phoenix are – and will remain – two complementary parts of the one BTG team, with different customers, locations and identities. Our team spirit goes hand in hand with our customer focus. Our 100% commitment to equipping customers with the technology they need to succeed means we become part of their teams and they become part of ours. This virtuous circle explains why many organisations stay with us and why this year we again increased our customer net promoter score – from 63 to 64. As we build on our software heritage to offer a broader service offering, such client loyalty heralds huge potential for us to help our customers more and more. ### Leading vendors name us as their partner of the year We have similarly positive relationships with the IT vendors whose products we sell. We know their businesses, products and services inside out – and ranks of our people have the specialist qualifications to prove it. Reflecting these strengths, Phoenix was chosen – from among thousands of other resellers – as Microsoft’s 2021 UK Partner of the Year. This honour says a lot about our investment in our relationship with Microsoft, our largest vendor partner, over many years. But we were not only lauded by long-established vendors. In the rapidly expanding area of artificial intelligence and security, Bytes was named as cyber-defence company Darktrace’s Europe, Middle East and Africa partner of the year. As well as being a huge boost for our people, such recognition raises our profile, creates new sales opportunities and makes us the sort of company that exceptional people aspire to join. We can accept some credit for such successes, but must be more humble in the face of another factor driving our growth – market trends. We’re fortunate in having strengths and history in cloud-based services and security – areas which have become highly sought after as demand increases for efficient and secure remote working, sustainable commerce and protection from cyberattacks. We’re not complacent, however, as advances in technology come at lightning speed. To ensure we keep ahead of the pace of change, we are continuously learning, revising the way we operate and enhancing the solutions we offer. This ensures that we not only meet current market trends and customer needs, but are able to anticipate and satisfy new ones. $^{1}$ These include the new Executive Committee (see operational review); joint business sustainability targets (see Our planet, page 44); and standardised maternity and paternity policies (see Our people page 38). Adjusted operating profit **+23.6%** Cash **+223.7%** Annual Report and Accounts 2021/22 11 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- CEO'S REVIEW # Another amazing year for our can-do business # Growing our team to keep growing our business Constant investment in our own team is central to such market agility. In 2021/22, we increased our headcount by 88 to 773. Reflecting our intention to expand our services offering, we recruited a significant number of new technical specialists to complement our traditional sales intake. This has deepened our expertise in exciting areas of high demand. Phoenix, for example, launched a new security operations centre to drive our provision of managed security services, while Bytes's recruitment of additional Microsoft Azure specialists enabled us to strengthen our offering in this popular product area. # Investing in technology to enhance customer service We also invested in our infrastructure. As part of a significant outlay in new technology across BTG, Bytes expanded its use of Microsoft Dynamics' customer relationship management system to incorporate helpdesk ticketing. This will ensure customers who contact us with product or service issues will be dealt with more swiftly and efficiently. Meanwhile, as part of a planned regional expansion, Phoenix is now also working from shared offices in Salford's MediaCity. This will enable us to better serve new and existing customers in the North West and raises our profile with a wider, more ethnically diverse range of potential employees. An exuberant team culture like ours does not self-generate. Our entire management team focuses continuously on creating the type of positive working environment that inspires our people to deliver. As one of our five values says: 'Let's get business done and have fun doing it'. We worked particularly hard to keep spirits high in 2021/22, when many of our people – and customers – were again required to work remotely for long periods. To keep our people engaged – and to facilitate those 'lightbulb moments' that require collaboration – we made sure they had the tools and opportunities to keep interacting. From introducing Microsoft's Viva platform which – with features like effective meeting tools, ways to praise colleagues and an internal social network – helps replicate office life, to providing regular virtual quizzes and mental wellbeing events, we kept our team together, even when apart. # Making hybrid working work for our people As restrictions lifted, we welcomed our people back to the office – as social distancing allowed – with parties, team-building events and special treats, including a private cinema showing of a blockbuster premiere. That our efforts paid off is clear, not only in our financial results but, in just two examples, in BTG's high eNPS rating and in Phoenix being certified a 'Great Place to Work' after a large majority of employees took part in the qualifying survey. With hybrid working becoming commonplace, we will continue to invest in our culture and technology, to ensure that our employees continue to have a great working experience whether they are in our offices or at home. "Our entire management team focuses continuously on creating the type of positive working environment that inspires our people to deliver." Customer NPS = 64 Employee NPS = 69 12 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS ### The crisis in Ukraine Our entire team, like the rest of the population, has been shocked and saddened by the humanitarian crisis caused by the conflict in Ukraine. Typically, employees across both our operations have thrown themselves into raising money and dispatching supplies to help the Ukrainian people. From a business perspective, we are protecting our customers from the impact of the conflict by securing them against cyberattacks and staying ready to remedy any threats or security breaches that might occur. ### Looking ahead I would like to thank all of 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. **Neil Murphy** CEO 23 May 2022 I genuinely believe that our informal and friendly culture means that there is no sense of 'them and us' between our leadership and the wider workforce. In my own immediate team, I am lucky to work with extremely talented and inspiring colleagues, both in our small corporate centre and in our two businesses. I gained another great colleague this year when Andrew Holden joined us as CFO, after 27 years with our former parent Altron. As Patrick has said, Andrew brings a huge amount of invaluable experience from his time as a CFO and COO of a listed IT company. Andrew's arrival was bitter-sweet, however, as it accompanied the departure of our former CFO Keith Richardson, who I worked with closely for more than 20 years. On behalf of all our people, I'd like to thank Keith for his priceless contribution to our culture and success. "Our 100% commitment to equipping customers with the technology they need to succeed means we become part of their teams and they become part of ours." ![img-12.jpeg](img-12.jpeg) Annual Report and Accounts 2021/22 13 --- OUR MARKET ENVIRONMENT # Resilient technology market overrides economic challenges **The IT sector is set to continue growing strongly as technology becomes ever more crucial to maintaining robust operations across all sectors.** The pandemic reminded us all how dependent we are on technology – as videoconferencing took the place of face-to-face meetings, overdue digitalisation projects were fast-forwarded, and cybersecurity became as important at home as in the office. ## **Bullish medium-term forecasts for the IT industry** Analysts predict this reliance will only grow. “Enterprises are increasingly dependent on technology across all facets of their business and operating models. This is leading to accelerated investments in digital technologies. No sector is immune, and technology is growing in presence across all spheres of the economy, society and government,” say technology researchers Gartner.$^{1}$ While McKinsey declared in a recent report: “The time is now for companies to make bold investments in technology and capabilities that will equip their businesses to outperform others.”$^{2}$ Such sentiments are, unsurprisingly, generating bullish medium-term forecasts for the technology industry. The UK digital transformation market is predicted to be worth almost $69 billion by 2028, on the back of rising demand for cloud computing, artificial intelligence, and the internet of things.$^{3}$ The UK information and communications industry, meanwhile, is forecast to spend almost $5 billion on software in 2024, up by more than $1 billion on 2021.$^{4}$ ## **Agile technology companies poised for growth** This year alone, the global technology sector is tipped to grow 5.1%, outstripping its pre-pandemic high. While several other industries are addressing challenges from high energy price-induced inflation and rising interest rates, following the crisis in Ukraine and post-Covid turbulence, the IT market is remaining buoyant. The industry’s predicted growth reflects continuing demand for cybersecurity protection, digitalisation and cloud-based services.$^{5}$ These trends, which were boosted by the need for staff to work securely and efficiently from home during the pandemic, have remained in play as hybrid working becomes commonplace. The economic pressures affecting other sectors are, due to the nature of our industry, benefiting agile, well-run technology companies. Cost pressures are leading organisations to seek greater efficiency with better IT; the drive for sustainability is fuelling moves to the cloud, as cloud-backed software does not require organisations to power their own servers and leading cloud providers’ servers are more energy-efficient; the increasing complexity of technology is heightening demand for expert advice; and with even cybersecurity experts like Microsoft and Octa not immune from cyberattacks, businesses are prioritising IT security.$^{6}$ Even rising fuel costs are less injurious to IT companies like BTG, which deliver most of their products over the net rather than over land, air and sea. ## **Key trends shaping UK tech** **Digitalisation**, as customers increasingly choose digital technology to help them become more efficient and effective. **The move to the cloud**, as organisations move from physical to internet-based software due to its greater flexibility and more sustainable credentials. **Cybersecurity**, as customers seek to protect their organisations from cyberattacks and avoid breaking privacy laws, such as the Data Protection Act 2018. **Cost optimisation**, in a resurfacing trend, prompted by market pressures and inflation-linked vendor price rises, along with annual software licensing payments, customers are again paying more attention to their IT costs. These trends play to BTG’s strengths: particularly our strong track record in digital transformation, the cloud and cybersecurity and – through our software asset management teams – in helping customers manage their technology estates cost-effectively. 1 gartner.com/en/doc/tech-providers-2025-strategic-transformation-drives-growth 2 mckinsey.com/business-functions/mckinsey-digital/our-insights/the-top-trends-in-tech 3 grandviewresearch.com/press-release/uk-digital-transformation-market-analysis 4 statista.com/statistics/1275153/uk-software-spending-industry-information-communication 5 gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-point-1-percent-in-2022 6 bloomberg.com/news/articles/2022-03-23/teen-suspected-by-cyber-researchers-of-being-lapsus-mastermind 14 Bytes Technology Group plc --- ## Software and IT services lead growth All these factors create opportunities for the IT sector particularly, according to Gartner, the ‘enterprise software’ and ‘IT services’ segments. Its analysts predict that enterprise software, which is largely cloud-based, will grow by 11% in 2022 and that IT services, which include consulting and managed services, will expand by almost 8%.⁷ However, the technology industry isn’t having it all its own way. While most sectors are facing recruitment challenges post-Covid – following a global wave of job moves dubbed the ‘Great Resignation’ – given the ever-increasing specialisation of the sector, IT is facing particular challenges to recruit and retain good people. And while many customers are seeking better technology to become more efficient, other struggling businesses are delaying and reducing planned IT programmes. ## How we fit into the UK IT sector BTG is one of the UK’s leading value-added resellers (VARs). We sell IT products made by technology manufacturers (or vendors) to private and public sector organisations. Our potential market is vast; UK business-to-business customers buy around 63% of their technology products from VARs and other resellers and distributors. The total UK-wide value of our three focus areas – software (our main specialism), services and hardware – is around £79.2 billion.⁸ And as we currently have just a small proportion of UK VAR business – around 2% – and no one company dominates the market, we have great potential to expand. Selling through companies like ours, rather than directly to customers, offers vendors significant advantages. We can promote their products via our skilled salesforce; market to thousands of existing customers; train and advise vendors; and work with them on promotional campaigns. Such partnerships also benefit us – and our customers – since the discounts and rebates that vendors give us, in return for selling their products, mean we can pass on lower prices to our clients than they would pay themselves. This helps customers keep their IT costs low and deepens our relationships with them. “The time is now for companies to make bold investments in technology and capabilities that will equip their businesses to outperform others.” McKinsey⁹ ![img-13.jpeg](img-13.jpeg) ## Our target segments Software: we sell two types of software – public cloud software, which is acquired online, typically on a subscription basis, and traditional on-premises software, which is installed and runs on customers’ computers and is generally sold on a life-long licence. The cloud software market is now larger than the on-premises software sector, which it overtook in 2020. During the year, software made up 94% of our business. IT services: these include IT outsourcing, managed services, project-oriented IT consulting and support services, such as IT deployment assistance and training. As tech products become increasingly complex, more and more customers are seeking our services and support to help them manage their technology. IT services represented 4% of our business in 2021/22. Hardware: this covers a wide range of products, including desktop computers, monitors and keyboards, laptop computers, mobile phones, printers, and infrastructure such as network equipment, servers and storage. Hardware made up 2% of our business this year. 7 gartner.com/en/newsroom/press-releases/2022-01-18-gartner-forecasts-worldwide-it-spending-to-grow-five-point-1-percent-in-2022 8 IDC Worldwide ICT Spending Guide Industry and Company Size, June 2020: Bytes’ estimates based on IDC data 9 mckinsey.com/business-functions/mckinsey-digital/our-insights/the-top-trends-in-tech Annual Report and Accounts 2021/22 15 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- OUR BUSINESS MODEL # A business model that works for our stakeholders Our proven strategy and can-do culture, underpinned by our values and purpose, means our customers, employees and vendors find us easy to work with. ![img-14.jpeg](img-14.jpeg) 16 Bytes Technology Group plc --- ## Our agile organisation ### Bytes Technology Group Our lean corporate centre provides support and direction on finance, governance, legal, compliance and sustainability matters to our two independent and complementary operating companies, which both focus on software, IT services and hardware. ![img-15.jpeg](img-15.jpeg) ### Bytes Software Services serving enterprise, small- to medium-sized businesses and public sector customers. ![img-16.jpeg](img-16.jpeg) ### Phoenix Software serving public sector customers. ## Future expansion In considering acquisitions to complement our offering, we would prefer strategic bolt-on opportunities, rather than ones that need to be integrated into our existing operations. This would suit our existing Group structure and would align with Phoenix and Bytes, which operate largely autonomously. That said, if we identified a promising opportunity that would accelerate our growth aspirations, we would consider an acquisition that required integrating. ## Stakeholder benefits Strong financial performance that rewards all stakeholders. Satisfied customers, many of whom stay with BTG year on year. Fulfilled, engaged employees. Stronger communities. A healthier planet. ## Measured by key performance indicators Financial Strategic Sustainability Annual Report and Accounts 2021/22 17 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- OPERATIONAL REVIEW # Phoenix and Bytes power on # Investing in our people and our operations In line with BTG's strategy, both Phoenix and Bytes intend to keep on growing – and to do that, they need to continue increasing the size and skills of their workforce. During the year, both businesses invested strongly in recruiting and developing their people, with Phoenix growing headcount by 56 to 314 and Bytes increasing their people by 26 to 455. (For more about our investment in people see pages 38 to 41). Reflecting our growth ambitions, Phoenix began working from a shared-office environment in Salford's MediaCity to support and attract customers in the North West and to widen their recruitment footprint. The business plans to build on this regional expansion with the opening of our first Scottish office in the 2022/23 financial year. During the year, to get in the best shape for growth by making communication and collaboration easier, and reducing duplication, Bytes combined core teams. No roles were lost. Reflecting the demands of their growing organisation, both businesses grew their HR functions, with Bytes also expanding their marketing group. "Two areas where we have particularly benefited from our collaboration with Phoenix have been in environmental and social issues – where, by working together, we have been better able to reflect the value we bring – and in developing technology, where we can share expertise with each other." Jack Watson MD, Bytes The two businesses also invested significantly in IT, both the technology we use to serve our clients and that used by our people. Phoenix, for example, launched a security operations centre to help protect customers from the growing threat of cyberattacks. (See case study.) And, as part of an extensive upgrading of their office technology, Bytes began rolling out Windows 11, Microsoft's new operating system. As well as making the workplace more efficient, familiarity with Windows 11 will enable them to discuss the software knowledgeably with customers. Both businesses also continued to formalise and streamline their processes and systems, to support their expansion. "In line with BTG's strategy, both businesses intend to keep on growing – and to do that, they need to keep on growing the size and skills of their workforce." # Closer collaboration and expertise sharing While operating successfully as independent businesses, Bytes and Phoenix are finding new ways to collaborate. During the year, for example, Phoenix's sharing of their learnings from a six-month trial of Microsoft Viva, enabled Bytes to adopt the employee experience platform technology swiftly and efficiently. The MDs, Phoenix's Sam Mudd, and Bytes's Jack Watson meet formally every month and are part of a new BTG Executive Committee, alongside our CEO, Neil Murphy, and our CFO, Andrew Holden. Phoenix and Bytes are also united under the Group's new Sustainability and ESG framework (for more, see the sustainability review), and are standardising some of their internal policies, such as their maternity and paternity benefits (for more, see Our people, page 38). ![img-17.jpeg](img-17.jpeg) 26 Bytes Technology Group plc --- "I am truly inspired by what our teams have delivered this year. We have hired significant numbers and evolved our systems and processes to be prepared for our next stage of growth." Sam Mudd MD, Phoenix ## New Phoenix security operations centre helps fight cybercrime **Ben Rayner, Director of Managed Services and Solutions, talks about what Phoenix is doing to protect customers from cyberattacks.** "Throughout the country, there are an increasing number of security breaches, hacks and malware attempts, such as the NHS suffered a few years ago with the WannaCry ransomware attack. This is a growing worry for organisations. Even if they have cybersecurity systems, they often don't have the skills to manage them effectively in-house. This is such a fast-moving world that staying ahead is a real challenge. To give customers the confidence that they are effectively monitoring and fending off security threats, we launched a new security operations centre (SOC) in February 2022. This is staffed by expert security consultants who monitor client networks and identify suspicious activity. We recruited some of these skilled staff externally, while others received specialist training after being in other managed services roles. Our launch of the SOC coincides with – and enables – the launch of our new managed security service, which is built around Microsoft's Sentinel platform. We work with customers who subscribe to this service to monitor, detect and provide alerts about security incidents across their networks. The SOC is a significant investment, which we have been planning for 18 months. It will allow us to expand – and have greater control over – our range of managed security services, which are currently provided by third parties. With cyberthreats becoming ever more aggressive and sophisticated, we are expecting great demand for this new offering." ![img-18.jpeg](img-18.jpeg) ![img-19.jpeg](img-19.jpeg) ## Bytes equips public sector staff with the right IT tools – and helps the community **Richard Read, Bytes's Head of Public Sector, explains how the business put bespoke computers in the hands of Somerset County Council's multi-disciplinary team.** "Helping customers get exactly the right IT for their needs is central to our work. So, when Somerset County Council asked us to replace their employees' laptops, making sure staff were matched with exactly the right IT was a key part of the job. We had to really get under the skin of what the different jobs involved, finding out – for instance – that fieldworkers needed mobile equipment; social care workers had to have devices with pens that children could use to draw on; and office staff required desk-based machines. Having established which employees needed which machines, we then evaluated different devices for each type of work and piloted them with technology champions across the council. After we had selected the right equipment, as part of our device-as-a-service offering, we then used Microsoft's Windows Autopilot to set up individual employee profiles on each of the 3,500 computers, tagged and registered each one, and delivered them to the council's people across the region. By sending the devices directly to the staff, rather than via the council, we shortened the distribution supply chain and as a result saved the associated carbon emissions. We refurbished many of the laptops and returned them to the council who gave them to local charities, schools, adult social care projects and care leavers. Through our efforts we helped these deserving causes and in the process reduced landfill. This was a great project. It was very rewarding to know that, as well as helping the council's staff become more mobile, agile and productive, we had also helped to reduce their carbon footprint." Annual Report and Accounts 2021/22 27 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- FINANCIAL REVIEW # How we performed in 2021/22 | Income statement | 2021/22 £'m | 2020/21 £'m | Change % | | --- | --- | --- | --- | | **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% | | Gross profit/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. 28 Bytes Technology Group plc --- ## Overview of 2021/22 (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 last year. 2020/21 (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 this financial year. 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 adjusted operating profit (AOP) growing by 23.6% year on year from £37.5 million to £46.3 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 £42.2 million (FY21: £26.8 million), noting that FY21 included one-off IPO costs of £8.1 million. ## Gross invoiced income, revenue and gross profit ### 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 £191.0 million, up 36%, to £726.6 million (FY21: £535.6 million). Our corporate GII increased by £59.1 million to £481.5 million (FY21: £422.5 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 judgement 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 GP/GII% Gross profit increased by 19.9% to £107.4 million (FY21: £89.6 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 £70.0 million (FY21: £56.2 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 £37.4 million (FY21: £33.4 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. STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 29 --- FINANCIAL REVIEW # How we performed in 2021/22 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 £17,400 to £20,100. 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 £53.5 million (FY21: £45.4 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 £5.6 million to £11.7 million (FY21: £17.3 million) but after excluding the £8.1 million of IPO costs in FY21 there was an increase of £2.5 million year on year (FY21 adjusted: £9.2 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 £0.75 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 £46.3 million (FY21: £37.5 million), representing growth of 23.6%. Our operating profit increased from £26.8 million to £42.2 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 £8.1 million, partly offset by a £1.5 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. 30 Bytes Technology Group plc --- ## Balance sheet and cash flow | Summary balance sheet | As at 28 February 2022 £'m | As at 28 February 2021 £'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 £47.5 million (FY21: £16.7 million). While the balance sheet shows a small net current liability position at year end, a portion of the current liabilities, amounting to £28 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 cash flow. 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 debtors' 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 £40 million of funds available at 28 February 2022 which will reduce to £30 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: | Cash flow | 2021/22 £'m | 2020/21 £'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 | – | (8.1) | | Proceeds from issues of shares | – | 8.3 | | Deferred consideration payments | – | (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 £61.7 million and after outflows for taxation (£9.1 million), finance costs (£0.5 million), capital expenditure (£0.6 million), and the interim dividend (£4.8 million), the Group finished FY22 with a cash balance of £67.1 million (FY21: £20.7 million). The FY21 cash flow 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 £30 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 2 pence per share, paid in December 2021. Annual Report and Accounts 2021/22 31 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- FINANCIAL REVIEW ## How we performed in 2021/22 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 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. | Financial KPIs | 2021/22 £'m | 2020/21 £'m | Change £'m | | --- | --- | --- | --- | | **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. ### 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 £10.1 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 £14.8 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. ![img-20.jpeg](img-20.jpeg) 32 --- OUR PARTNERS # Working in partnership with our customers and vendors Our continuing success reflects the close, trust-based relationships we have with two core communities: our customers and our vendors. ## Our customers Our keen customer focus helped us strengthen three key measures this financial year – our number of customers, the share of their business and our customer net promoter (NPS) score. In 2021/22, in line with our strategy of winning new customers and growing our business with existing ones, we: - We transacted with 5,330 customers in 2021/22 against 5,147 in the prior year. Although some customers do not transact each year, we still had a net gain of 183. Our average gross profit per customer increased from £17,400 to £20,100. Our new customers included Boden (see case study below), British Heart Foundation, Compare the Market and Forestry Commission England. - Grew our renewal rate – which tracks the increase in our share of business with existing customers – from 107% to 112%.¹ In 2021/22, we did more for such established clients as The AA, BP, Zero Waste Scotland and City & Guilds. Overall, we saw a 15.5% increase in our average gross profit per customer - Increased our NPS score – which measures the ratio of organisations who would recommend us to others – from 63 to 64. ![img-21.jpeg](img-21.jpeg) ## Looking good with Boden **Bytes Account Manager Nick Tottenham-Smith discusses how the business worked with online fashion retailer Boden to keep their data, people and customers secure.** “Boden asked us to review their IT security and data strategy as they had upgraded their internal systems and wanted to be sure that the business was still protected effectively. We analysed their security systems, partly through holding workshops with the client, and assessed the robustness of their products. We then recommended solutions to strengthen the security of their network, email security, enhanced data classification and identity management. Because we partner with major security vendors, while not being tied to any one supplier, we were able to pass on significant price savings to Boden. Bytes has a great track record in security software, having worked for 25 years in its licensing, technical delivery, asset management and implementation. But it’s always very satisfying to work with – and please – a new client. The security and account management team were delighted with the customer’s positive feedback and that we will go on providing them with consultancy services and manage their enterprise software licensing.” 1 ‘Renewal rate’ is defined as gross profit from existing customers divided by total gross profit in the previous financial period. “Bytes have provided exceptional account management on all of our enterprise licensing products and delivered expert advice on a range of security tools. We will continue to work with them to develop our security strategy.” Lalit Mandalia Head of Technical Services, Boden Annual Report and Accounts 2021/22 33 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- OUR PARTNERS # Working in partnership with our customers and vendors "We continued to work hand-in-hand with our leading vendor partners to build our knowledge of their technologies and products and enable BTG, them – and our customers – to thrive." # A passion for helping customers use IT to improve their working lives The growth in these key metrics reflects the centrality of our customers to our purpose, our strategy and our business. We're passionate about helping them to use technology to make life better for themselves and their users; to save money; to stay secure and, increasingly, to help them run their organisations in a more sustainable way. Our growth also reflects our expertise in products and services in four areas of significant and growing demand: security, cloud, digitalisation and cost optimisation. Our knowledge of numerous products and services – and our strong partnerships with leading IT vendors – also means we can give our customers the best solutions and impartial advice to meet their specific needs. We also make it our job to keep up with changing preferences and new technologies and standards, by immersing our people in continuous learning and training. This means that we, and our customers, can stay ahead of the pace of change. We are not just suppliers to our customers; we are their partners. However, although a lot of our clients have been with us for years, we know they are not tied to us. The IT marketplace is extremely competitive and we are careful not to become too dependent on a specific organisation. No one customer represented more than 1.0% of our gross profit in 2021/22, with our top ten clients making up less than 10%. # Supporting customers beyond the office Reflecting our close relationships with our customers, our efforts extend beyond the main projects they sign up for. We support the wider communities of our public sector customers with social value offerings ranging from pro bono website support (see case study) to free digital security seminars. In 2021/22, 65% of our gross profit was from the corporate sector, which typically generates higher gross profit margins than the public sector. Alongside this sector split, we serve a great variety of organisations. Our corporate sector customers include a broad spectrum of small, medium and enterprise organisations, with our public sector base coming from such spheres as education, housing, charities, healthcare, housing, and central and local government. ![img-22.jpeg](img-22.jpeg) # Helping charities help others Keith Martin, Phoenix Sales Director, explains how the business is working with long-standing customer Hull City Council to develop an online hub that is helping local charities – and providing an innovative approach to the social value requirement of public sector contracts. "During the pandemic, the charity sector was hit hard, and in discussions with Hull City Council, it was clear that they wanted to support the charities in their region as they provide critical services. So, as part of their Microsoft contract renewal, we are working with the council to build a SharePoint site for charities in the region. The site includes a wealth of resources: from information about the discounted software deals that charities are entitled to through to bite-sized videos on topics such as LinkedIn profile writing training. The authority will also use the site to share news, provide access to non-IT resources, and act as an interface between themselves and the large number of local charities. Our next piece of work is to survey charities across the region to get a better understanding of their digital skills. Then we hope to provide free, custom workshops to help them make best use of the technology they have." 34 Bytes Technology Group plc --- # Our vendors We continued to work hand-in-hand with our leading vendor partners to build our knowledge of their technologies and products and enable BTG, them – and our customers – to thrive. We are independent of the vendors whose products we sell. This independence means our customers trust us to provide impartial advice when we make recommendations for products and services. However, in many ways, we work as partners with our vendors. Such as in sharing industry knowledge and working jointly with leading manufacturers, like Dell Technologies, to assess individual clients' needs and propose technology solutions to meet them. We also collaborate with vendors to strengthen our mutual understanding of the challenges facing customers and the technologies that can help. In 2021/22, for example, Bytes presented a series of virtual seminars for vendors around the themes of modern workplace, hybrid infrastructure and security, and kicked off the new financial year with Impact 22, a learning and networking event attended by representatives from 17 leading vendors. ## Vendor recognition of our service and abilities We continually invest in our people's training and development so they can promote our vendors' products knowledgeably and skilfully. This learning, and our sales prowess, has continuously garnered accreditations for us. In 2021/22 these included our combined businesses increasing their number of Microsoft advanced specifications to 11, in areas ranging from threat protection to adoption and change management, and Bytes being named data security company Varonis' first UK Platinum Partner. Phoenix continues to hold the the highest level of Microsoft accreditation, as an Azure Expert Managed Service Provider – the only such UK provider focused predominantly on the public sector. The value we bring to our vendor relationships was further demonstrated by the receipt of many coveted awards, including Phoenix being named UK Partner of the Year by Microsoft in 2021 (see case study) and Bitdefender UK Public Sector Partner of the Year, and Bytes becoming cybersecurity company Darktrace's EMEA Partner of the Year and scooping the Megabuyte Best Performing Company Value Added Reseller of the Year award. ## Our vendor partners: a snapshot BTG's vendors make or distribute the software, hardware and other IT products that we sell to our customers. We have more than 100 vendors, some of whom we've worked with since before the millennium, others in newly emerging areas, such as artificial intelligence, who are recent partners. To meet current customer demand, we focus on suppliers specialising in products for cloud computing, cybersecurity and IT infrastructure. Microsoft is our biggest vendor. We focus on their higher-growth product portfolio, including Azure, Microsoft 365, Dynamics 365 and Azure Sentinel and, in 2021/22, our resale of their products represented 50% of our gross profit. Our other vendor partners include Adobe, Citrix, Mimecast, Oracle, Palo Alto, Snow, Veritas and VMWare. "Phoenix Software really wowed the judges this year with how they stepped forward to support their public sector customers, delivering at speed when they needed it most." Microsoft announcing Phoenix's award as their UK Partner of the Year ## Being the 'best of the best' **Sam Mudd, Phoenix MD, discusses what it meant for the business to be named 2021 Partner of the Year by Microsoft.** "Winning this award was a pivotal moment for our business. Not only is it a testimony to our agility and the hard work of every member of our team, it's a clear reflection of the importance of what we've delivered for our customers. Given Microsoft's dominant role in the UK public sector, their recognition that we are the 'best of the best' has consolidated our own position. It has opened up many introductions to potential customers through the Microsoft team and is providing a foundation for us to grow further, build our offerings and solutions, and provide scale and capability as the UK continues to recover from Covid-19. And, in a really competitive job market, it has raised our profile with employees and helped us attract people with great technical, sales and marketing skills. The award has brought so many benefits to the entire business and we are incredibly proud to have received it." Annual Report and Accounts 2021/22 35 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- SUSTAINABILITY REVIEW – INTRODUCTION # Putting sustainability at the heart of our business Our focus on sustainability starts at the very top. As our Board members say in our new sustainability and ESG reporting manual: ‘Sustainability remains core to our strategy and is underpinned by our values’. ![img-23.jpeg](img-23.jpeg) ## HIGHLIGHTS FROM 2021/22 ### Sustainability - We published our sustainability and ESG reporting manual - We aim to direct up to the equivalent of 1% of profits after tax to corporate social responsibility activities. ### People - Our headcount rose from 685 to 773 - Our employee net promoter score reached 69. ### Communities - We brought together Phoenix and Bytes people in a social (community) steering committee - We made it easier for employees to support good causes by signing up with the onHand volunteering app. ### Planet - We published our low carbon action plan (LCAP), with the aim to halve our carbon emissions by 2025/26 - In April 2022, we announced our intention to be carbon net zero by 2040. We aim to halve our carbon emissions by 2025/26 Our stakeholders increasingly – and rightly – want to know we’re acting responsibly in the way we do business. This year, as well as continuing to do the right thing by our people, communities and the planet, we set out our new sustainability vision. ### What’s inside This sustainability review covers four main ESG areas: - Our new sustainability framework: which explains what drives our vision and how we monitor and measure our goals page 37 - Our people: how we strive to recruit, engage and retain outstanding employees and to make BTG the right place to build a career page 38 - Our communities: how we are formalising our giving to support others more effectively page 42 - Our planet: how our low carbon action plan (LCAP), along with the way we help customers to use IT more sustainably, is helping us build a healthier world page 44. Our seven primary UNSDGs ![img-24.jpeg](img-24.jpeg) 36 Bytes Technology Group plc --- SUSTAINABILITY REVIEW – OUR SUSTAINABILITY FRAMEWORK # Our sustainability framework ## Putting sustainability at our core In 2021/22, we launched our new sustainability and ESG reporting manual, which sets out our framework for both financial sustainability and ESG. The manual details: - Our Board’s commitment to sustainability - Our framework for both financial sustainability and ESG - How effective management of sustainability issues is central to our success - Which sustainability areas matter most to our stakeholders - The values that underpin our sustainability strategy - What our sustainability targets are - How we will monitor and measure our progress. As well as being rooted in our values, our framework reflects our commitment to the United Nations’ Sustainable Development Goals (UNSDGs). In 2021/22, we aligned ourselves to the seven UNSDGs on which we can have the greatest impact. In line with UNSDG goal 13, Climate action, the central pillar of our sustainability strategy is our LCAP. This sets out our intention to reduce our carbon emissions by 50% by 2025/26 – and entirely by 2040. (For more detail, see page 44) ## How we drive sustainability Our sustainability framework established two steering committees that will drive our actions and prioritise environment and social issues across the business (our Board and senior leadership lead the agenda for the ‘G’ of ESG – governance). Monitoring the achievement of our LCAP will be one of the environment steering committee’s key goals. The steering committees are made up of representatives from across BTG, including our CFO, Andrew Holden, and leaders and employees from our two businesses. Andrew reports on our progress against our social and environment goals to our Executive Committee and the Board. The committees are underpinned by staff-led groups which champion practical activity and raise awareness of social and environment issues on the ground: the Better Bytes team and Phoenix’s Sustainability network. Their activity this year ranged from environmental initiatives such as ‘eco quizzes’, with proceeds going to plant trees to combat deforestation in the Southern Hemisphere, and recycling programmes, where staff donated PVC items like lilos and armbands for repurposing, to community endeavours such as collections for Ukraine and the renovation of charity meeting rooms. Reflecting the efforts of our staff groups, all our people have a part to play in helping BTG create a more sustainable world. As the Board says in our sustainability framework: “This is not just the responsibility of leadership but is embedded at every level of the organisation, within our growth and social impact areas, our product and service segments, all stakeholder engagements and decision making”. Our framework reflects the expectations of international ESG rating agencies, when assessing our credentials as a responsible investment company, and builds on Phoenix’s and Bytes’s existing corporate social responsibility policies. The new sustainability and ESG reporting manual is published on our website. ## How we deliver sustainability ### THE BOARD - Overall responsibility for the effective delivery of our environmental targets • Oversees climate-related risks and opportunities - Considers climate change as part of our engagement with stakeholders • Our CFO is BTG’s executive director for sustainability - The Board, with senior leadership, also oversees governance aspects of ESG ### EXECUTIVE COMMITTEE AND MANAGEMENT - Operational management of environmental targets and stakeholder engagement - Reviews and monitors climate-related risks and opportunities ### ENVIRONMENTAL AND SOCIAL STEERING COMMITTEES - Environmental and social steering committees created in 2021/22 • Members drawn from senior leadership and across the business - Consider progress against targets and assess operations from a sustainability viewpoint • Meet quarterly ### OPERATIONAL TEAMS (Better Bytes team and Phoenix Sustainability network) - Champion practical environmental activity • Raise awareness of local social and environment issues - Meet regularly, online and in person STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 37 --- SUSTAINABILITY REVIEW – OUR PEOPLE # Our people: growing our outstanding team This year’s success and our ambitions for future growth are both built on one thing: our great people. In 2021/22, we worked even harder to recruit, engage and retain outstanding employees and to demonstrate that BTG is the right place for them to build their careers. ## Our complementary businesses Our two businesses, Bytes, which employs 455 people, and Phoenix, which has 314, are complementary halves of the BTG team. Although the autonomous businesses have their own identities, management teams and locations, they have much in common. They have comparable employment policies and the same values, industry-leading skills and ‘can-do’ culture. They also work closely together, sharing insights and good practice. In 2021/22, following a review of both businesses’ employee benefits, to ensure all BTG people receive equal rewards, we aligned benefits Group-wide. ## An innovative approach to recruiting the people we need This year, BTG recruited 195 new employees, 108 at Bytes and 87 at Phoenix. This took our total headcount to 773, up from 685 in 2020/21. Our combined Phoenix and Bytes attrition rate was significantly below the industry average. The new recruits ranged from sales and technical apprentices, to enable us to grow our own talent pipeline, to senior specialists, to help expand our expertise and business in high-margin IT services. We are always looking for new ways to approach recruitment, in the very competitive employee marketplace. In 2021/22, for example, Phoenix formed a recruitment taskforce to brainstorm how to attract and ‘home grow’ talent. Reflecting its importance, the team is headed by MD Sam Mudd. One of the outcomes has been the extension of our partnerships with local universities, colleges and schools, and a higher reward to employees who refer successful candidates. ## Fostering engagement with two-way communication Having recruited great people, we do all we can to keep them engaged. Two-way communication between leaders and employees is key, with our two MDs holding regular all-employee meetings, including, in 2021/22, town halls on their businesses’ five-year strategy. And during the year, Jack Watson, our Bytes MD began offering ‘listening sessions’ to small groups of employees, to hear their opinions on the business. David Maw, our designated workforce engagement non-executive director, also spent time with Bytes employees during the financial year, and with Phoenix people in spring 2022. Both businesses encourage employee feedback, with Phoenix having an All Ideas Matter suggestion scheme, and Bytes launching a new Microsoft Teams suggestion website, Insights, during the year. An impressive 90% of Phoenix people took part in a Great Place to Work survey, after which the business was certified as a ‘Great Place to Work’, with ratings exceeding the average large or IT company. Bytes people will do the survey in 2022/23. ## Great Place to Work Phoenix accredited as a Great Place to Work in 2021/22 ![img-25.jpeg](img-25.jpeg) 38 Bytes Technology Group plc --- # 195 # New BTG recruits this year Fun is central to our culture. Ensuring that our employees enjoy themselves at work is another way we aim to boost motivation. When continuing Covid-19 restrictions meant our people worked from home, we provided online social activities, including monthly bingo and weekly quizzes. We subsequently made a great effort to welcome everyone back. Bytes, for example, hired a local cinema and invited employees and their guests to a blockbuster premiere. New perks such as free hot drinks and the reintroduction of on-site massages and stretch sessions are also available. Our people – like those of the customers we serve – now routinely work outside the office. In recognition of this post-Covid-19 reality, Phoenix introduced a new hybrid working policy, with Bytes's own policy launching in 2022/23. This recognises the benefits of both working in the office – such as opportunities for socialising, collaborating and innovating – and from home – which can deliver greater flexibility and a more positive work/life balance. To get the best of both worlds, our policy allows employees who do not need to be office-based to work externally for around half their working hours. # Recognising our employees' achievements, whatever their roles Our focus on rewarding achievement also helps employees feel valued. This year's honours included skiing trips for top Bytes salespeople and holidays in Italy for Phoenix high performers, both sales and non-sales, and awards for long service, employee suggestions, salespeople of the quarter and employees of the month. Following a review of all benefits, both businesses also announced improved maternity and paternity provision. The June 2021 launch of our well-subscribed Sharesave scheme, which enables employees to save money to buy BTG shares at a discount in the future, also encouraged commitment. Such measures contributed to our high employee net promoter score (eNPS) – which tracks the likelihood of people recommending their employer to others – of 69. ![img-26.jpeg](img-26.jpeg) # 773 # BTG total headcount ![img-27.jpeg](img-27.jpeg) Annual Report and Accounts 2021/22 39 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- SUSTAINABILITY REVIEW – OUR PEOPLE # Growing our outstanding team ![img-28.jpeg](img-28.jpeg) "Having recruited great people, we do all we can to keep them engaged." # Supporting physical and mental wellbeing, in and out of work We do all we can to help our employees stay well. They can, for example, use free or subsidised gyms at or near our offices and buy reduced-price bicycles through the Cycle to Work scheme. During the year, Bytes challenged employees to collectively cover the 384,400-kilometre distance to the Moon using different physical activities, from running and skiing to swimming and cycling. Phoenix ran similar challenges, with employees walking the distance from Sydney to Perth and Land's End to John O'Groats in their combined steps. We also continue to provide healthy snack and meal options in our offices, along with fruit from local farmers which are free to employees. We encourage openness about, and provide support for, mental health. This was particularly important when our people had to work at home due to Covid-19. The rise in contacts to Bytes's 24/7 employee assistance programme is testimony to the challenges of that time. As part of their commitment to mental health, in 2021/22, Phoenix offered mental health first-aider training to all managers. They also began offering an extra daytime hour away from work every month. Employees have used their 'Wellbeing Wednesday' hour for everything from gardening and craft to lunch with friends. # Training and development that benefits our people and the business We want our people to keep learning and growing. Every employee has a personal development plan, which tracks their progress against set goals that reflect their ambitions and our strategic objectives. We invest strongly in training. Sales employees, for example, follow a continuous development programme which draws on input from our vendors and customers. This year, to develop the additional leaders necessary for our growth plans, Bytes extended its senior manager mentoring programme to include team leaders and new managers, and Phoenix put 50 managers through leadership training. Training is as essential for our business as it is enriching for our people. Public sector tender frameworks require us to have a set level of accreditations, and vendors pay us higher rebates if we are well accredited. We aim to be better qualified than any other reseller, and 2021/22 was a landmark year towards this goal. Phoenix continues to be the UK's predominantly public sector-focused reseller to hold Microsoft Azure Expert Managed Service Provider status – the vendor's highest accreditation level. Our combined businesses now have a total of 11 advanced specifications for Microsoft in areas ranging from threat protection to adoption and change management. ![img-29.jpeg](img-29.jpeg) --- “Our values are integral to who we are. They are among the first things new joiners learn about us, being core to employee inductions, and are displayed prominently around our sites.” 24/7 Employee programme Our values are integral to who we are. They are among the first things new joiners learn about us, being core to employee inductions, and are displayed prominently around our sites. In 2022, we took steps to embed them even further, with Bytes introducing a new training module to help employees interpret the values and Phoenix devising a competency-based career progression programme around them. In 2021/22, we spent almost £700,000 on training and development, up around £350,000 on last year. In the coming year, we will continue to invest in this area. Moving closer to gender parity, but with some way to go Equality of opportunity is intrinsic to our values. Evidence of our commitment to equal opportunity and diversity is also increasingly required from our customers. We are ahead of our industry in gender parity, with women representing 29% of our Board members, compared with 17% last year, one of our two MDs, 35% of Bytes’s and Phoenix’s combined managers, and 42% of our total employees. This compares favourably with the national picture where 22% of technology directors and 19% of IT employees are women.¹ We still have some way to go. As men hold more sales and senior roles, which are typically better paid than administrative and support positions, they still receive relatively higher rewards. In 2021/22, we took steps to recruit, promote and retain more women, including offering more structured succession planning and development. Bytes joined Phoenix in forming a Women in Technology group, which provides mentorship and ‘buddying’ to female colleagues across the business. Our new hybrid working policies, by making employment more flexible, also make it easier to manage childcare. Tracking ethnicity as a step towards greater diversity We have a predominantly white workforce, reflecting the demography around our two main sites – Bytes’s HQ in Surrey and Phoenix’s in East Yorkshire. However, we do not yet have detailed figures of our ethnic breakdown. We realise that this is an essential step to becoming more ethnically diverse. This year, both our businesses began encouraging employees to add their ethnicity and nationality data to our HR systems. We intend to have a full picture of the ethnicity of our people by the end of 2022/23. ![img-30.jpeg](img-30.jpeg) We are also focusing on ways we can recruit more employees with ethnic backgrounds. As we are now making use of shared office space in Salford, we can address a broader recruitment pool; we are targeting a wider range of UK universities; and we are advertising jobs in media outside our area. In 2021/22, Bytes held an equality, diversity and inclusion employee survey, to find out how our people felt we could do better. The outcomes included the establishment of the MD listening sessions, improved maternity and paternity provision and more mental health first aiders. Phoenix employees launched a diversity network to highlight issues of ethnicity in the year. Our policies on such fundamental issues as modern slavery, anti-bribery and equality and diversity are available at bytesplc.com/sustainability/governance. Equality, diversity & inclusion Employee survey 2021/22 1 https://technation.io/insights/diversity-and-inclusion-in-uk-tech-companies Annual Report and Accounts 2021/22 41 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- SUSTAINABILITY REVIEW – OUR COMMUNITIES # Our communities: working together to help society We're building on our great community track record to deliver more benefits to society and our customers. ![img-31.jpeg](img-31.jpeg) "This year, we brought new rigour to the way we support the community." Our businesses have always helped out in our communities: it's enjoyable, it increases pride in and respect for our company, and we can make a real difference. As part of this, we look to direct the equivalent of up to 1% of our profit after tax to corporate social responsibility activities – through our financial contributions, time and products. ## Strengthening our community teams This year, we brought new rigour to the way we support the community. As part of our BTG sustainability framework, we created a Group social steering committee which, for the first time, brings together employee representatives from both Phoenix and Bytes, and focuses on, among other things, our social (community) initiatives. This committee, which meets quarterly, takes a strategic view of our work for the community, while Phoenix and Bytes continue to lead activity on the ground. Both businesses also strengthened their own community teams, with Phoenix appointing a new sustainability manager to drive their activity, and Bytes creating a staff-led 'Better Bytes' group, to coordinate theirs. To get the most impact from their giving and to build deeper relationships with their chosen causes, Phoenix opted to concentrate its activity – and donations – on the York Special Care Baby Unit and St Leonard's Hospice for the coming two years. Despite pandemic restrictions, they raised £5,200 for the two organisations this year. Bytes, meanwhile, raised more than £5,000 for their local hospice, St Catherine's, via a football tournament and a sponsored walk, with the year's other beneficiaries including the Woodland Trust, Mind, and the Battersea Dogs & Cats Home. BTG matches a portion of all money raised by employees. ## Helping our people volunteer for good causes We are making it easier for our people to give their time to good causes by signing up with the onHand volunteering app. The app connects would-be volunteers with local people who need help in areas ranging from gardening and dry-cleaning collection to social contact and shopping. Volunteering 'missions' are flexible, with many taking less than an hour. Phoenix joined onHand after finding that many employees were not taking BTG's allocated day off per year to volunteer, as they didn't know the most effective way, or to which causes, to sign up. Within two weeks of joining the scheme employees had completed missions for such charities as the RSPB, Age UK and the Salvation Army. ![img-32.jpeg](img-32.jpeg) 42 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS “Our businesses have always helped out in our communities: it’s fun, it increases pride in and respect for our company, and we can make a real difference.” Phoenix are also delivering onHand volunteering missions to their customers as part of their commitment, common to most public sector contracts, to provide social value. The missions are delivered by a new social impact team, with far-flung customers being offered virtual support, such as teaching or befriending sessions. Bytes, meanwhile, are launching an innovative new process to enable them to deliver bespoke social value offerings to customers. The businesses are establishing a ‘charter’ system, where they engage formally with local authorities to identify exactly what type of social value offering they want, and how Bytes can complement other suppliers’ support. Bytes also plans to join onHand during 2022/23. ### Formalising our contribution To help quantify how much we give, and what social value it represents for clients, we are also formalising our record keeping. For example, Phoenix are recording their social impact team missions, which will be discussed with customers at quarterly business reviews, and have established an internal volunteering site, for employees to record their personal activity. We are also being more rigorous about recording the number of people that attend the free seminars we deliver to customers, on subjects such as sustainability and security, and the pro bono support, including career talks to schools, that we provide. ![img-33.jpeg](img-33.jpeg) ### IT is for girls (too) The assured young woman talking straight to camera is Poppy Angell, 24, a Phoenix data protection specialist. Poppy talks candidly about her first job in her mum’s pub; how being a “general nuisance, talking too much, too loud,” got her into scrapes at school; and how her job requires “thinking on your feet, critical thinking and people skills”. “There is the opportunity for women to debunk the myth that IT isn’t an industry for women, because it absolutely is.” Poppy, the 2021 winner of the CRN Women in Channel Rising Star Award, features in IT is for Girls, a video aimed at university students. She is one of a number of Phoenix people appearing in a suite of short films that we made to offer tangible social value to our customers and their clients. The 22 films each relate to finding employment and building digital skills, with the Phoenix ‘stars’ talking about how they overcame different challenges – from scooping an apprenticeship to spotting rogue phishing mails. The videos range from 30 seconds to eight minutes long and are unbranded so that customers can apply their own corporate identities. The first Phoenix customer to receive the suite was Liverpool City Council, which will use the films to support local job seekers. Annual Report and Accounts 2021/22 43 --- GOVERNANCE REPORT # Stakeholder engagement ## 3 Suppliers and vendors **We build close and mutually beneficial relationships with our suppliers and vendors to provide leading IT software offerings and solutions.** BTG has strategic relationships and trusted partnerships with some of the world's most successful software companies, in cloud, security and annuity software and services. The strength and depth of these partnerships is clear from our many accreditations and awards. In 2021/22 Bytes was named the 2021 partner of the year by Darktrace (EMEA), Proofpoint and Varonis (UK/Ireland); the channel partner of the year by Forcepoint; the top cloud partner by Check Point (EMEA); the customer excellence partner of the year by Mimecast UK/Ireland; the enterprise partner of the year by Sophos; the subscription partner of the year by Veeam, and the Megabuyte100 best value added reseller of the year. Phoenix also received awards such as BitDefender UK Public Sector Partner of the Year 2021; Dell's UK Technical Sales Person of the Year 2021; Sophos Education Partner of the Year UKI 2021; Veeam Fastest Growth Partner of the Year 2020, and Microsoft Partner of the Year 2021. Phoenix built on its Azure Expert Managed Service Provider status, the highest level of Microsoft Azure accreditation, and achieved Azure Migration and Modernization Program status, as well as advanced specialisations for Microsoft Windows Server and SQL Server Migration to Azure, Azure Virtual Desktop and for Adoption and Change Management – taking its total to nine. Phoenix also renewed its Dell Titanium status for the current year and attained Rubrik Select, Barracuda Preferred, CrowdStrike Elite and Proofpoint Platinum partner status. They also became a Check Point 3+ partner. The Board is kept informed about the major third parties with whom we do business, including our suppliers, banks and regulators. The integrity of our supplier arrangements – particularly robustness of supply – is a key consideration. We screen all our major third parties for reputational and financial risks to ensure that there are no apparent issues that could damage our reputation or finances. We clearly document terms and conditions, including service levels, payment terms and working practices. Our Board recognises that BTG strives to comply with all legal obligations in the territories in which we operate. ## 4 Investors **Creating value for shareholders is a key objective for the Board; our mission, purpose, values and strategy are focused on delivering long-term, sustainable growth.** Our investors provide a source of capital, enabling us to grow and invest for future success. They are interested in a wide range of issues about BTG, including the execution of our strategy, our financial and operational performance, governance, remuneration, acquisitions and capital allocation. Our CEO, CFO and, as required, members of our senior leadership team, regularly engaged with our larger shareholders, and potential investors, during the financial year. Our investor relations team continued to deliver regular market announcements, presentations, discussions with investors and an investor relations hub on BTG's website with relevant, up-to-date information for the market. Our executive directors also held virtual roadshows following key announcements, including our full-year and half-year results, complemented by follow-up one-to-one conversations with investors and analysts. Our Board Chair, senior independent director and committee chairs are also available to meet with shareholders as required. During the year, Alison Vincent, chair of our Remuneration Committee, led the committee's consideration of shareholder views on our remuneration policy, which was well-supported by shareholders. To keep in touch further with the market, the Board receives regular updates on shareholder and analyst sentiment and peer analysis. Our Annual General Meeting is a key way for shareholders to meet face-to-face with the Board to discuss our annual performance, strategy and any other matters they wish to raise. We look forward to welcoming shareholders to our coming meeting. Directors are aware of their duty to treat members as a whole fairly, with Board decisions taken with all members' long-term interests in mind. Further details on our approach to shareholder engagement is set out on page 76. 80 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS ## 5 Community and environment ### Doing the right thing for our community and our environment is a core part of our values. We aim to conduct business in an entirely ethical way. This means we take account of the social, economic and environmental impact of everything we do, and prioritise human rights. We encourage our employees to volunteer for charities and with people who need assistance. We support their efforts by making charitable donations and in giving them paid time off to volunteer. Employee welfare is one of our top priorities, with active and positive efforts to encourage diversity and inclusion at all levels within BTG being central to our philosophy. Our directors are increasingly aware of the need to ensure that our operations, products and services do not adversely affect the environment and that we positively contribute to the communities in which we operate. We enhance our social responsibility by employing additional people, developing a more diverse workforce and partnering with organisations who share our values. We provide engaging and well-paid local employment, minimise our impact on the environment in our responsible use of raw materials, natural resources and energy, and cut down on waste and harmful emissions, components and by-products. A corporate social responsibility programme, with clear objectives, is in place across both our operating companies. In 2021/22, we adopted our first sustainability and ESG reporting manual, in response to the views and expectations of our stakeholders, our own values and our aspirations to contribute more to our communities and the environment. We set up steering committees to ensure we meet our environmental and social goals. We are committed to delivering social value for our customers, employees and community. We have transformed our social value strategy, to become a more socially responsible business, and refined our UN Sustainable Development Goals to focus on a smaller number of goals, where we can make a more meaningful contribution. Our aim is to help shape the everyday practices of BTG and our people, so that everyone is involved in fulfilling our social purpose. Reflecting our expanded social value strategy, we implemented initiatives to manage our charity partnerships and fundraising activities in a more targeted way. We also engage with employees to select charities which we support with fundraising activities and form local and national charity partnerships where we can make a real difference. BTG continues to be an active partner of, and makes regular donations to, the World Land Trust, which protects threatened land and supports rainforest restoration efforts. To protect the environment, we participate in and encourage many forms of recycling and carbon reduction. We have taken further action to reduce BTG’s carbon footprint by engaging the services of a specialist third party to support our environmental management activities. During the year, we adopted carbon reduction targets, with actions to continuously reduce our carbon footprint, in line with our carbon reporting plan. For more on our carbon reduction targets, see pages 44 and 45, Our planet. ![img-34.jpeg](img-34.jpeg) Annual Report and Accounts 2021/22 81 --- GOVERNANCE REPORT # Audit Committee report I am pleased to present BTG's 2021/22 Audit Committee report, following the completion of our first full financial year as a listed company. ![img-35.jpeg](img-35.jpeg) "2021/22 was an active and fulfilling year for our committee and from 27 October 2021 we complied fully with the code with all three members being independent non-executive directors." **Mike Phillips** Audit Committee chair 2021/22 was an active and fulfilling year for our committee as we appointed PwC as our internal auditor, welcomed a new member and monitored the continuing impact of Covid-19 on our business. This report sets out how the committee discharged its duties during the year and highlights our areas of focus in 2021/22. As noted in our 2020/21 report, we identified a number of focus areas, such as risk management and assessing the review of supplier contracts. Progress on the material areas is noted in this report, as well as in our 'Managing risk and realising opportunities' section in our strategic report, and our Section 172 statement. Our committee's duties cover financial and narrative reporting, internal control and risk management systems, compliance and fraud, and internal and external audit. During recent months, we have also paid keen attention to wider economic conditions, as the economy recovered from the impact of Covid-19, and as the business weathered pressures around financial performance, new and emerging risks, crisis management, business continuity and resilience. ## Strengthening our internal control The committee focused on a number of significant areas of internal control (including financial, operational and compliance controls). During the year, we: - Monitored the business response to internal controls around, and impact on, BTG's financial performance and reporting of Covid-19 - Reviewed BTG's financial statements and assessed whether suitable accounting policies were adopted and whether management made appropriate estimates and judgements - Reviewed the detailed scenarios and assumptions behind the going concern basis of accounting, and longer-term viability - Assessed the effectiveness of the external audit process and considered the reappointment of EY as the external auditor for 2021/22 - Monitored the effectiveness of BTG's enterprise risk management and internal control systems and received detailed reports and presentations on principal risk tolerance levels and management - Oversaw the appointment of BTG's first internal auditor, PwC, and the approval of its charter, internal audit plan and initial review findings' reports - Continued to support the strong finance leadership team with insights from their own experience - Reviewed our terms of reference for 2022/23 - Together with the Board, considered the committee's own effectiveness. ## Aligning membership with the code Our membership changed during the year. Erika Schraner was appointed as an independent non-executive director with effect from 1 September 2021, and serves as a member of the committee. Following a review of the committee's composition, David Maw stepped down as a member with effect from 27 October 2021. This allows the committee to align with the UK Corporate Governance Code (the code), as our membership is made up of three independent, non-executive directors. We wish to again express our appreciation to David for his valued contribution to the committee while he was a member and for his ongoing contributions to the Board. As a Board non-executive director, David now attends our meetings by invitation. Taking into account this change in membership, during the year, the committee comprised three non-executive directors, with all members fully independent at our financial year end. 82 Bytes Technology Group plc --- As chair of the committee and senior independent non-executive director, I am satisfied that our membership includes directors with recent and relevant financial experience and competence in accounting, risk management and governance, and that as a whole it has competence relevant to the IT sector in which BTG operates. I am the committee’s designated financial expert, for the purposes of the code. This reflects my role as a qualified chartered accountant and my previous experience as CFO of a UK-listed company, with American depositary receipts listed on the New York Stock Exchange. Alison Vincent has considerable sector expertise, particularly around cybersecurity and enterprise risk management, and Erika has substantial financial knowledge in accounting and corporate actions and is a qualified accountant. ## Accounting judgements and estimates The committee receives strong support from the BTG finance team. This enables us to consider the approach to take on the key areas of judgement and estimates that impact the financial results, before the end of our reporting period. The critical judgements and estimates, including principal estimates, that we considered during the review of the 2021/22 Annual Report and Accounts included: | Accounting judgements and matters | | | --- | --- | | Area of focus | Issue or role of the committee | | Inappropriate revenue recognition: misstatement of revenue recognised at or near the year end | The committee reviewed the Group’s revenue recognition policy and discussed with management the processes applied to record revenue accurately at period end and concluded that the timing and disclosure is in line with current IFRS requirements. The management team gives the committee detailed monthly reports on business performance which include revenue recognition data and trends against budget and previous periods. | | Misstatement of rebate income | The committee reviewed the Group’s policy in relation to recognising supplier and vendor rebates, and discussed with the management team any significant changes to rebate schemes to ensure consistency of treatment. The committee concluded that there has been no material misstatement of rebate income during the year. | | Application of IFRS 15: presentation and disclosure in respect of principal vs agent | The committee is aware that inappropriate application of IFRS 15 may result in erroneous presentation and disclosure of revenue. In continuing to review the application adopted by the Group, the committee receives monthly management accounts showing the movement from gross invoiced income to revenue and the percentage netting adjustment which can be tracked through the year, along with management commentary for any unusual peaks or troughs. After its publication in November 2021, the committee also consulted with management in respect of the IFRS Interpretations Committee (IFRIC) consideration paper on Principal versus Agent. 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, and concluded that IFRS 15 provided an adequate basis for a reseller to determine whether 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 was discussed again at the International Accounting Standards Board (IASB) meeting held on 23 May 2022. Whilst awaiting the outcome the committee confirmed that the Group’s current approach remained appropriate at the present time in respect of the presentation of revenue under IFRS 15. The committee will consider the final agenda decision when issued and will work with management to assess its implications on the current accounting policy. | | Assessment of the ‘expected’ life of the company share option plan (CSOP) | The committee considered the appropriateness of the key assumptions underpinning the assessment of the CSOP expected life, being the average expected time for employees to exercise share options between the vesting date (three years from grant date) and the expiry date (ten years from grant date), to determine the share-based payment charge in the statement of profit or loss. | | Bytes Technology Holdco Limited (Holdco) restructuring | The committee considered the accounting and legal steps relating to the restructuring of the Holdco balance sheet in order to settle its intercompany balance with Bytes Technology Group plc. In consultation with its advisors on this matter, the committee confirmed the appropriateness of the steps including the issuance of new shares and reduction of capital leading to the creation of distributable reserves in Holdco, and satisfied itself that the directors of Holdco were able to make a statement of solvency confirming that the company would be able to meet its debts as they fell due over the next 12 months. The Holdco restructuring has not affected the Group consolidated financial statements for the year ended 28 February 2022. | | The going concern basis for the preparation and presentation of the financial statements of Bytes Technology Group plc | The committee considered the appropriateness of the key assumptions underpinning the Group’s going concern assessment, and the sensitivities modelled; the assessment continues to focus on any potential ongoing impact of Covid-19 on the Group as well as potential impact from general economic and geopolitical conditions affecting businesses in relation to rising inflation and the humanitarian crisis caused by the conflict in Ukraine. The committee reviewed the associated disclosures in the year-end financial statements and the outputs of the external auditor’s review to confirm the appropriateness of the going concern conclusion. | Annual Report and Accounts 2021/22 83 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- GOVERNANCE REPORT # Audit Committee report # Committee attendance | Committee member | Financial year ended 28 February 2022 | | --- | --- | | Mike Phillips | 8/8 | | Alison Vincent | 8/8 | | David Maw^{1} | 6/6 | | Erika Schraner^{2} | 3/3 | 1 David Maw stepped down as a member of the Committee, with effect from 27 October 2021. 2 Erika Schraner was appointed as an independent non-executive director on the Board and a member of the committee, with effect from 1 September 2021. The committee further approved the KPIs to be included in the strategic report, which we believe have been appropriately disclosed. EY also comments on many of the above key areas of judgement and estimates in its auditor's report on pages 120 to 129. The committee has carefully reviewed EY's opinion and considers that the auditor's views closely align with its own. All committee members were BTG directors during the year under review. We therefore had full access to the financial, governance and risk management processes and systems across BTG. We benefited from a series of meetings with key members of the management teams of Bytes and Phoenix, as part of Board engagement sessions during the year. During 2021/22, we met eight times. Additional meetings were held during the year to focus on the appointment of PwC as internal auditor, as set out in more detail below. Attendance at our meetings is shown above left. Our committee has reviewed and approved its terms of reference, which were set on 30 November 2020, as part of our IPO process. We have also agreed a schedule of items for each of our six planned meetings for the 2022/23 financial year, with two of these dedicated to risk management. # How the committee operates Our committee generally meets on the same day as Board meetings, to make interacting with the other directors as efficient as possible. Our external auditor, EY, and internal auditor, PwC, are invited to attend our meetings, as are the other members of the Board and the Group Company Secretary. Depending on the agenda, other members of senior management are also invited. Leading up to our year-end and interim financial results, our committee meets to consider the status of our financial reporting and risk and governance aspects linked to our results. At this meeting, we consider any areas of the financial results which require attention or revision, before they are formally recommended to the Board at a subsequent meeting. To enable open dialogue and assurance, time is set aside during the year for the committee to meet the external and internal auditors without executive management. The Board receives a monthly financial reporting pack for BTG, and at each Board meeting the CFO provides a written and verbal report on our financial performance and outlook. This gives members a good understanding of the Group's financial performance, with further information provided around financial reporting periods. # Responsibilities Our committee's principal responsibilities, as delegated by the Board, remained unchanged during the year. They include oversight, assessment and review of: # Financial statements and reporting - The integrity of BTG's financial reporting as a whole and any formal announcements relating to its financial performance, including any significant judgements contained in them - BTG's assessment of its going concern and longer-term prospects and viability. # External auditor - The effectiveness of the external audit process taking into consideration relevant UK professional and regulatory requirements - Developing and implementing policy on the supply of non-audit services by the external auditor and approving any such work. # Internal auditor - The relationship with the internal auditor, advising on its appointment and effectiveness, and considering and approving the internal audit review plan, the outcome of audit reviews and associated actions. # Risk management and internal controls - The effectiveness of BTG's internal financial controls, risk management and internal control systems, including the activities of the internal audit function, and driving an agenda of continuous improvement 84 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS - Reviewing BTG's finance and risk management policies for ensuring regulatory and legal compliance - Identifying and assessing principal and emerging risks and risk exposures - The effectiveness of anti-fraud and bribery systems, and whistleblowing arrangements where employees and contractors can raise concerns in confidence. In addition, the committee: - Supports the Board in discharging its responsibilities for UK Corporate Governance Code compliance - Advises the Board on proposed full-year, half-year and periodic reporting, and related announcements - Reviews the annual and half-year financial statements and accounting policies, internal and external audits and controls - Recommends to the Board the payment of final, interim and special dividends - Assesses the effectiveness of financial reporting procedures - Advises the Board on the outcome of the external audit and whether it considers the Annual Report and Accounts, when taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess BTG's position and performance, business model and strategy - Makes recommendations to the Board on the appointment, reappointment or removal of the external or internal auditor - Approves the external and internal auditors' fees and terms of engagement - Maintains strong relationships with the Board, executive management and the external and internal auditors, in the execution of their respective responsibilities - Reports to the Board on how the committee has discharged its responsibilities during the year. ## External auditor The committee has primary responsibility for overseeing the relationship between BTG and EY as the external auditor. This includes monitoring and reviewing the firm's objectivity and independence on an ongoing basis, recommending its appointment, reappointment and removal, and approving the scope of the statutory audit and fees. During the year, EY presented to the committee its detailed audit plan for the 2021/22 financial year, together with its engagement letter, which outlined its audit scope, planning materiality and assessment of key audit risks. The committee also received reports from EY on its assessment of the accounting and disclosures in the financial statements and financial controls and was comfortable that the audit work remained aligned to BTG's strategy. The committee aims to ensure that the auditor feels able to challenge management and that it has all the access it requires to report on matters that may not be part of the statutory audit but which, in the opinion of the auditor, should be brought to the attention of the committee. EY gains such access through attendance at each committee meeting, supported by other meetings held during the year with the committee chair, without management present. When carrying out its statutory audit work, EY also has access to a broader range of employees and different parts of the business. For this year's audit, EY's team was able to visit the main offices of Bytes and Phoenix, whereas last year's audit was done remotely, due to Covid-19-related restrictions. If, as part of this process, it identifies any information that it believes the committee should know it will report it to us in line with its duties and responsibilities. As EY audit partner, James Harris had direct access to the committee chair to raise any matter of concern. The audit fees paid to EY for the financial year to 28 February 2022 were £515,000 (2020/21: £425,000). EY's 2021/22 non-audit fees for the review of our financial half-year results at 31 August 2021 were £75,000. Our committee approved EY's fees, along with its engagement letter. The committee assesses the quality, effectiveness, objectivity and independence of the audit provided by EY each year, seeking the views of the Board. In doing so, it considers: - EY's confirmation that it maintains appropriate internal safeguards aligned with applicable professional standards - The fulfilment of the agreed external audit plan - The content, insights and value of EY's reports to the committee - The robustness and perceptiveness of EY in handling key accounting and audit judgements - The policies we have in place to safeguard EY's independent status, including our policy on non-audit services - The tenure of the audit engagement partner not being greater than five years. Based on this assessment, the committee concluded that EY had provided appropriate focus and challenge throughout the audit and had remained objective and independent. Following the most recent review, the committee recommended EY's reappointment as BTG's auditor, and EY expressed its willingness to continue. Resolutions to reappoint EY and to enable the directors to determine its remuneration will be proposed at the 2022 Annual General Meeting. The committee does not intend to put BTG's audit out to competitive tender until June 2030, ten years from the December 2020 IPO and audit work tenders. However, we will continue to review the auditor's appointment and the need to tender the audit, ensuring BTG's best interests are considered. In this regard, the committee will continue to monitor the implementation of recommendations from Sir Donald Brydon's Report of the Independent Review into the Quality and Effectiveness of Audit (the Brydon Review) and the complementary reviews by Sir John Kingman on the effectiveness of the UK audit regulator, the FRC (the Kingman Review), and by the Competition and Markets Authority on the audit market for large listed entities (the CMA Review). In particular, the Committee will review the impact of the upcoming Audit Reform Bill that was announced as part of the most recent Queen's Speech. Annual Report and Accounts 2021/22 85 --- GOVERNANCE REPORT # Audit Committee report # Audit risks and areas of focus As part of its audit planning process, EY advised our committee of the key audit risks and areas of audit focus. The key risks identified were: # Fraud risks - Misstatement of revenue recognised at or near year end - Misstatement of rebate income to overstate reported results - Management override of controls. # Significant risks - IFRS 15 revenue presentation and disclosure. # Other areas of audit focus - Accounting for share-based payments - Going concern and viability - Reorganisation of distributable reserves in BTG - Impairment of goodwill. Our committee has the authority to request that additional areas are reviewed should the need arise. # Working with the external auditor EY was invited to, and attended, all our meetings up to the date of this report and received all committee papers. Time is set aside at each meeting for us to meet EY without executive managers. Outside our formal meetings, the external auditor has direct access to the committee chair. # External audit process effectiveness and auditor independence Our committee approved EY's terms of engagement and reviewed the effectiveness of the external audit through the year-end reporting period. We considered the auditor's performance, based on our evaluation and the feedback of senior finance staff throughout BTG, across a range of factors relevant to audit quality. We concluded that the auditor showed appropriate focus, critical analysis and challenge on the key audit areas and applied robust challenge and scepticism throughout the audit. We recommended to the Board which, in turn will recommend to shareholders in a resolution at our 2022 Annual General Meeting, that EY should continue as external auditor. The external auditor reported to the committee on its independence from BTG, in line with all UK regulatory and professional requirements, and that the objectivity of the audit partner and staff is not impaired. Our committee further confirmed that BTG has adequate policies and safeguards to ensure EY remains objective and independent. # Non-audit services The Board has a policy on BTG's relationship with EY and non-audit work. All proposals for any non-audit services above £50,000 must be approved in advance by our committee and must not be prohibited by the FRC Revised Ethical Standard 2019. EY may only provide such services if its advice does not conflict with its statutory responsibilities and ethical guidance. The committee is aware of the requirements of the Statutory Auditors and Third Country Auditors Regulations 2016. The regulations cap non-audit services in any financial year at less than 70% of the average audit fees paid on a rolling three-year basis. As standard practice, our review of EY's performance during the year-end reporting period included non-audit services and the auditor's ability to maintain its independence while providing these services. EY did not perform any services during the year which the committee considers as non-audit related, with the exception of the half-year review which is permitted as a non-audit service. The ratio between audit and non-audit services performed by EY during the year was 6.9:1. # Internal controls and risk management systems The management of risk is treated as a critical and core aspect of our business activities. Although the Board has ultimate responsibility for establishing and maintaining BTG's internal control and risk management systems, ensuring the Group has robust risk identification and management procedures in place, certain risk management activities are delegated to the level that is most capable of overseeing and managing the risks. On behalf of the Board, our committee keeps the adequacy and effectiveness of the company's internal financial controls and risk management systems under review and assesses and approves the Annual Report statement concerning internal control and risk management, including the assessment of principal and emerging risks, and the viability statement. Risk management is inherent to our management thinking and business-planning process, as highlighted in the strategy and risk sections of our strategic report. For more on our risks and mitigation and our risk management framework, see the risk report on pages 52 to 57. To gain a comprehensive understanding of the risks facing the business and management, the committee periodically receives presentations from senior managers and external advisors. # Assessing our principal risks twice-yearly A robust assessment of the principal risks BTG faces is performed by the Board twice per year. This takes into account the risks that could threaten our business model, future performance, solvency or liquidity, and the Group's strategic objectives over the short-to-medium term. Our principal risks are documented in a schedule which includes a comprehensive overview of the key controls in place to mitigate the risk and the potential impact on our strategic objectives, KPIs and business model. Due to its importance, changes to BTG's risk register can only be formalised with approval from the committee or Board (changes to the principal risks during the year are on pages 52 to 57). Risks not deemed to be principal to BTG are documented within the risk registers of our primary subsidiaries, which are maintained by the Executive Committee. The committee received updates on material aspects relating to these risk registers and intervals during the year. In addition, risks deemed to be key indicators of changes in BTG's risk profile, or deviation from the Board's risk tolerance, are identified and reported to the committee. 86 Bytes Technology Group plc --- Following our reviews, the committee confirmed to the Board that it is satisfied that BTG's internal control and risk management procedures operated effectively throughout the period and are in accordance with the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. As part of a review of the company's approach to enterprise risk management (ERM), the committee adopted the Group's ERM policy and framework and our risk appetite framework. Our ERM approach determines our overall principles, requirements and responsibilities for a sound approach to risk management and an effective and continuous internal control assurance framework within the business. The committee also reviewed the Group risk register (which consolidated the risk registers of BTG, Bytes and Phoenix) during the year. This included the underlying methodologies, the inherent risk scores (IRS) of the identified risks and what mitigation, if any, could be applied to the IRS depending on the classification of red, amber or green. (Green (low) risks can be accepted without mitigation; amber (medium) risks should be mitigated where possible, and red (high) risks must be mitigated as much as possible.) Once mitigations are taken into account, management scrutinises the net red risks to determine if they are compatible with the Group's risk appetite. Our committee formally reviews the Group risk register twice a year, using a consistent process, to identify the likelihood and business impact of any material or emerging risk, as well as any mitigating factors or controls. A robust assessment of the principal and emerging risks facing the Group was carried out by management – and reviewed and incorporated into the register by the committee – during the year. The boards of directors of Bytes and Phoenix have implemented internal controls and processes to deliver financial control and reporting, including controls incorporated into their underlying systems. On a day-to-day basis, the Group system of internal control is managed and coordinated by our CFO. As reported in our previous Annual Report, EY provided our committee with feedback from the IPO process on improvements that the company and its subsidiaries could make. This feedback covered specific issues in the areas of governance and oversight, financial accounting and reporting, and the IT environment. These items have been captured by management in a workplan, together with associated actions, implementation timelines and accountabilities. Our committee monitors progress around these during the year. At our April 2021 meeting, the committee considered the process by which management evaluates internal controls across the business. Key themes included IT security risk in respect of data security breaches around the Group's own data and that held on behalf of third parties, and financial fraud, collusion, errors or omission risk in respect of receipts, payments and IT assets. Our management teams monitored the effects of the Covid-19 pandemic as it continued in 2021/22, to allow us to respond swiftly to developments and new guidance. Our business continuity plans (BCPs) for Bytes and Phoenix enabled us to respond to the specific scenario of a mandatory office closure. While partial flooding at our Phoenix offices during the year, and Covid-19, tested BTG's resilience and limits, we maintained operations throughout and learnt a great deal about business continuity. Beyond Covid-19, our focus for the financial year was on reviewing and refreshing our full suite of BCPs to improve resilience and robustness, incorporate Covid-19 learnings and improve our scenario-specific plans. We embedded an annual BCP management cycle as part of our overall risk management process, to continuously track, review and evolve our business continuity plans. Our committee is satisfied that BTG's risk management and internal controls systems operated effectively for the 2021/22 financial year, up to and including the date of this report. ## Going concern and viability statements The committee considered BTG's going concern and viability statements at our meeting in May 2022. We also challenged the nature, quantum and combination of the unlikely but significant risks to our business model, future performance, solvency and liquidity, which were modelled as part of the scenarios and stress-testing for our viability statement. As part of this review, we considered our financial forecasts position to the end of August 2023 for going concern and over the next three years for viability, conducted a principal risk assessment, and analysed the impact of sensitivities on cash and available funding, individually and collectively in a reasonable worst-case scenario. These scenarios considered the mitigating actions we could take. We are satisfied that our going concern statement, on page 117 of the directors' report, and our viability statement, on page 59 to 60 of the strategic report, have been prepared appropriately. ## Internal audit The primary role of our internal audit function is to support the Board in protecting BTG's assets, reputation and sustainability. The internal auditor provides independent assurance as to the adequacy and effectiveness of the Group's internal controls and risk management systems. PwC was appointed as BTG's outsourced internal audit function in August 2021 following a competitive process. The committee considers the firm to be independent. The internal audit charter was reviewed and approved by the committee. It provides the framework for the conduct of the internal audit function in BTG and has been created with the objective of formally establishing the purpose, authority and responsibilities of the internal audit function. The internal audit plan for 2021/22, which is driven by BTG's organisational objectives and priorities, and the risks that may prevent the Group from meeting those objectives, was approved by the committee and included a combination of risk-based audits and projects. Annual Report and Accounts 2021/22 87 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- GOVERNANCE REPORT # Audit Committee report During 2021/22, PwC completed two reviews, on company level controls and key financial controls (Phoenix), and began two others, on supplier and vendor management and cybersecurity maturity assessment. The outcomes of the completed audits presented to the committee, which was pleased with the level of assurance received, and reported to the Board. # Following up on internal audit reviews The committee receives a report on internal audit activity at each scheduled meeting and monitors the status of internal audit recommendations and management's responsiveness to their implementation. The other Board committees are kept updated on the outcome of any reviews which fall within their areas of responsibility. To ensure that actions arising from internal audit reviews are completed in a timely manner by management, PwC follows up on the completion and implementation of critical, high and medium findings after their nominated completion date. Follow-up reviews are performed through discussion with management and by examining supporting data to validate information provided. The internal audit plan for 2022/23 was approved by the committee at the end of the financial year. It includes audits on business continuity; data governance; key financial controls (Bytes and Phoenix) and cybersecurity. In drafting the audit plan, the committee took account of the methodology used to prioritise the respective audits. This includes defining the audit universe, assessing the inherent risk and the strength of the control environment. # Effectiveness review of the internal auditor A formal review of the effectiveness of the internal auditor and the internal audit process will be conducted in February 2023, following PwC's first completed year as our internal auditor. It will include the: - Qualifications and expertise of PwC's internal audit team - Relationship established and the extent to which PwC has built an understanding of our business and systems - Depth and breadth of internal audits - Quality of reporting, including that of the regular internal audit follow-up reports provided to the committee - Quality of planning and ability to meet deadlines. The committee will conclude on the internal audit process and the quality of audit and reporting, and provide a report in our 2023 Annual Report. # Financial reporting Our committee's primary responsibility, in relation to BTG's financial reporting, is to review the quality and appropriateness of the annual and half-yearly financial statements with management and the external auditor. For the period under review, we focused on: - The quality, appropriateness and completeness of our significant accounting policies and practices and any resulting revisions - The reliability of processes underlying the integrity of our financial reporting - The clarity, consistency and completeness of our disclosures, including compliance with relevant financial reporting standards and other reporting requirements - Significant issues where management judgements and/or estimates were material to our reporting, or where discussions took place with the external auditor to reach a judgement or estimate - Our advice to the Board on the long-term viability statement. We received reports from management on the identification of critical accounting judgements, significant accounting policies and the ongoing application of accounting standards in financial year-end reporting. Our committee paid specific attention to BTG's ERM framework, risk appetite and tolerance levels. We agreed that the following areas of risk remain relevant and should be reviewed and assessed in 2022/23: - The IT security risk of security breaches of BTG's own data and that held on behalf of third parties - Financial fraud, collusion, errors or omission risk in respect of receipts, payments and IT assets - The ongoing impacts of higher inflation, increasing interest rates, supply chain constraints and geopolitical uncertainty; given their significant impact on the global economy, customer behaviours and associated cash flows, and the carrying amount of assets and projected future cash flows in the context of going concern and impairment assessments. We reviewed the appropriateness of management's accounting in relation to each of these significant risks. 88 Bytes Technology Group plc --- ## Dividends and distributable reserves We declared our first dividend to shareholders since our December 2020 IPO, with an interim dividend of 2.0 pence per share paid on 3 December 2021. We are pleased to announce a proposed final dividend for the year ended 28 February 2022 of 4.2 pence per share and, reflecting our strong cash position at the year end, which is above the level required for the ongoing running of a business, a proposed special dividend of 6.2 pence per share. Both dividends are subject to shareholder approval at our AGM on 26 July 2022. If approved, these would both be payable on 12 August 2022 to shareholders on the register at 29 July 2022. During the year, we took steps to ensure that our distributable reserves within the Group and company are appropriate for the declaration of dividends. The committee reviewed BTG's dividend policy and confirmed in the interim results that 40% of post-tax but pre-exceptional earnings would be distributed to shareholders as normal dividends. ## Fair, balanced and understandable statement The committee considered this Annual Report as a whole, and the processes and controls underlying its production, in light of the requirement that it must be fair, balanced and understandable. This included making sure that we addressed the areas listed below. ### Process - All team members involved in the process were properly briefed on the fair, balanced and understandable requirement. - The core team responsible for the co-ordination of content submissions, verification, detailed review and challenge had the necessary experience to carry out their work well. - The committee received drafts early enough to review and comment in a timely manner. ### Content - The report includes accurate key messages, market and performance reviews, principal risks and all other disclosures required for good corporate governance. - The report is balanced in describing potential challenges and opportunities, and includes relevant forward-looking information. - Information in the different parts of the report is consistent. - The report is written concisely, without unnecessary verbiage, and avoids jargon as far as possible. - Senior management confirmed that they believe that the information included about their respective areas of responsibility is fair, balanced and understandable. On the basis of this review, we recommended to the Board that this Annual Report is indeed fair, balanced and understandable, and gives readers the information they need to assess the Group's position and performance, business model and strategy. ### Review of the committee's effectiveness This year's internal Board evaluation included the annual review of the committee's effectiveness. The committee is pleased with the positive outcome of that assessment, and its observations and recommendations. The committee improved its governance and annual planning cycle in the year and will continue to build on this in 2022/23. As chair, I regularly monitor and assess the effectiveness of the committee and invite input from the external and internal auditor. ### Looking forward During 2022/23, our committee will remain focused on the key areas of responsibility delegated to it by the Board, which include, among others: - Monitoring that appropriate assurance is obtained across all areas of the business, with a particular focus on BTG's principal risks, control environment and approach to financial reporting taking into account developments in reporting responsibilities and the ongoing consideration of climate risk in preparation of the financial statements. - Maintaining a strong relationship with our external auditor and engaging in the delivery of a robust, efficient and effective external audit. - Monitoring and reviewing the effectiveness of the internal audit function. - Ensuring that standards of good governance are maintained, including consideration to the impact of changes to corporate governance arising from the UK Department for Business, Energy & Industrial Strategy review *Strengthening Assurance* across the Group based on the Three Lines of Defence model (accountability, actions, assurance). I welcome questions from shareholders on the committee's activities. If you wish to discuss any aspect of this report, please contact me via our Group Company Secretary at WK.Groenewald@bytes.co.uk. **Mike Phillips** Audit Committee chair 23 May 2022 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 89 --- PARENT COMPANY FINANCIAL STATEMENTS # Parent company financial statements of Bytes Technology Group plc # Company balance sheet As at 28 February 2022 | | Note | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | --- | | **Assets** | | | | | **Non-current assets** | | | | | Investments | 5 | **641,998** | 46,630 | | **Total non-current assets** | | **641,998** | 46,630 | | **Current assets** | | | | | Trade and other receivables | 6 | **41,615** | 603,384 | | Cash and cash equivalents | | **3,718** | – | | **Total current assets** | | **45,333** | 603,384 | | **Total assets** | | **687,331** | 650,014 | | **Current liabilities** | | | | | Trade and other payables | 7 | **(14,665)** | (18,600) | | **Total current liabilities** | | **(14,665)** | (18,600) | | **Total liabilities** | | **(14,665)** | (18,600) | | **Net assets** | | **672,666** | 631,414 | | **Equity** | | | | | **Share capital** | 9 | **2,395** | 2,395 | | Share premium | 9 | **633,636** | 633,636 | | Other reserves | 10 | **2,864** | – | | Retained earnings^{1} | 11 | **33,771** | (4,617) | | **Total equity** | | **672,666** | 631,414 | 1 The profit for the company for the period was £43,178,000 (2021: £4,617,000 loss). The financial statements on pages 172 to 182 were approved by the Board of directors on 23 May 2022 and signed on its behalf by: **Neil Murphy** Chief Executive Officer **Andrew Holden** Chief Financial Officer 172 Bytes Technology Group plc --- ## Company statement of changes in equity For the year ended 28 February 2022 | | Note | Attributable to owners of the company | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Share capital £'000 | Redeemable preference shares £'000 | Share premium £'000 | Other reserves £'000 | Retained earnings £'000 | Total equity £'000 | | At the date of incorporation | 9 | – | 50 | – | – | – | 50 | | Shares issued during the period | 9 | 2,395 | – | 633,636 | – | – | 636,031 | | Redemption of preference shares | 9 | – | (50) | – | – | – | (50) | | Total comprehensive loss for the period | 11 | – | – | – | – | (4,617) | (4,617) | | Balance at 28 February 2021 | | 2,395 | – | 633,636 | – | (4,617) | 631,414 | | Total comprehensive loss for the period | 11 | – | – | – | – | 43,178 | 43,178 | | Share-based payment transactions | 10 | – | – | – | 2,864 | – | 2,864 | | Dividends paid | | – | – | – | – | (4,790) | (4,790) | | **Balance at 28 February 2022** | | **2,395** | **–** | **633,636** | **2,864** | **33,771** | **672,666** | STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 173 --- PARENT COMPANY FINANCIAL STATEMENTS # Notes to the financial statements 1 Accounting policies The principal accounting policies applied are summarised below. 1.1 Authorisation of financial statements and statement of compliance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) The financial statements of Bytes Technology Group plc for the period ended 28 February 2022 were approved by the Board of directors on 23 May 2022 and signed on its behalf by the Chief Executive Officer and the Chief Financial Officer. The company meets the definition of a qualifying entity under Financial Reporting Standard 100 Application of Financial Reporting Requirements (FRS 100) issued by the Financial Reporting Council. Accordingly, these financial statements have been prepared in accordance with FRS 101 and in accordance with the provisions of the UK Companies Act 2006. 1.2 Basis of preparation The financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the Companies Act 2006. The financial statements have been prepared under the historical cost convention. Bytes Technology Group plc is a company incorporated in the UK under the Companies Act. The address of the registered office is provided on page 185. The company is the ultimate parent company and provides management services to subsidiary undertakings in respect of certain head office functions and requirements, which are recharged as the costs are incurred by the company. The company's financial statements are included in the Bytes Technology Group plc consolidated financial statements for the period ended 28 February 2022. These financial statements are separate financial statements. The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 101: - The requirements of IFRS 7 Financial Instruments Disclosures - The requirements of paragraphs 91 to 99 of IFRS 13 Fair Value Measurement - The requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of paragraph 79(a)(iv) of IAS 1 - The requirement of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1 Presentation of Financial Statements - The requirements of IAS 7 Statement of Cash Flows - The requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - The requirements of paragraphs 17 and 18A of IAS 24 Related Party Disclosures - The requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member - The requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairment of Assets, provided that equivalent disclosures are included in the consolidated financial statements of the group in which the entity is consolidated - The requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129 of IFRS 15 Revenue from Contracts with Customers. Where required, equivalent disclosures are given in the consolidated financial statements of Bytes Technology Group plc. As permitted by Section 408 of the Companies Act 2006, the income statement of the company is not presented as part of these financial statements. 1.3 Going concern The ability of the company to continue as a going concern is contingent on the ongoing viability of the Group and its ability to continue as a going concern. The Group has prepared its going concern assessment and this is provided in note 1.4 in the notes to the financial statements included in the Bytes Technology Group plc consolidated financial statements. Having assessed the Group's overall assessment of going concern in relation to the company, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the company's financial statements. 1.4 Critical accounting estimates and judgements The preparation of the 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 company'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 financial statements. 174 Bytes Technology Group plc --- ### Significant estimates and judgements The areas involving significant estimates and judgements are: #### Impairment of investments The investments in subsidiaries are assessed annually to determine if there is any indication that any of the investments might be impaired. The recoverable amounts are determined based on a value-in-use calculation and compared to the carrying value of the investment. The value-in-use calculation is based on forecasts approved by management. The cash flows beyond the forecast period are extrapolated using estimated long-term growth rates. The forecast cash flows are discounted at the company's discount rate. The assumptions used are consistent with those disclosed in note 12 to the notes to the consolidated financial statements of the Group. ### 1.5 Changes in accounting policy and disclosures #### (a) New and amended standards adopted by the company The company has applied the following standards for the first time in the annual reporting period commencing 1 March 2021: - Proceeds before intended use – amendments to IAS 16 - Onerous contracts – amendments to IAS 37. For the annual reporting period commencing 7 October 2020 the company applied the following standards for the first time: - Definition of Material – amendments to IAS 1 and IAS 8; and - Revised Conceptual Framework for Financial Reporting. In the prior year the company also elected to adopt the following amendments early: - Annual Improvements to IFRS Standards 2018-2020 Cycle. The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to affect the current or 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 company. These standards are not expected to have a material impact on the company in the current or future reporting periods and on foreseeable future transactions. ### 1.6 Investments Investments in subsidiary undertakings are included in the balance sheet at cost less any provision for impairment in value. The company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication of impairment exists, the company makes an estimate of its recoverable amount. Where the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount. Where these circumstances have reversed, the impairment previously made is reversed to the extent of the original cost of the investment. ### 1.7 Functional and presentation currency The financial statements are presented in pounds sterling (£), which is the company's functional and presentation currency. All transactions undertaken by the company are denominated in pounds sterling. ### 1.8 Revenue recognition The company provides management services to subsidiary undertakings which are invoiced quarterly in arrears. Revenue from providing such services is recognised in the accounting period in which the services are rendered on an over time basis. In measuring its performance and the amount of revenue to be recognised, the company applies an inputs basis by reference to the costs incurred by the company and the hours expended by management for providing services to the measurement date. ### 1.9 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 on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the UK. 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, on the basis of 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 financial statements. 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 assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when 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. Annual Report and Accounts 2021/22 175 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- PARENT COMPANY FINANCIAL STATEMENTS # Notes to the financial statements # 1.9 Income tax continued 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. # 1.10 Trade and other receivables 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. # 1.11 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. # 1.12 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 company's balance sheet when the company becomes a party to the contractual provisions of the instruments. Financial assets are recognised on the date the company 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 company has an unconditional right to defer payment for more than 12 months from the reporting date. # Classification The company 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 company'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 company changes its business model. In rare circumstances where the company does change its business model, reclassifications are done prospectively from the date that the company changes its business model. Financial liabilities are classified and measured at amortised cost except for those derivative liabilities and contingent consideration 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 are subsequently measured at amortised cost using the effective interest method. # Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets have expired or have been transferred and the company 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. # Impairment The company assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. 176 Bytes Technology Group plc --- ### 1.13 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. Other payables are stated at their nominal values. ### 1.14 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. ### 1.15 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 company operates various defined contribution plans for its employees. Once the contributions have been paid, the company 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. #### *Share-based payments* ##### Equity settled share-based payment schemes Share-based compensation benefits are provided to particular employees of the Group through the Bytes Technology Group plc share option plans. ##### Employee options The fair values of options granted under the Bytes Technology Group plc share option plans are recognised as employee benefit expenses in the entities of the Group in which the employees are contracted and providing their services. 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. The Company has a recharge arrangement with its subsidiaries whereby the company recharges the amount equal to the share-based payment charge to its subsidiaries according to the vesting schedule. ### 1.16 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. ### 1.17 Dividends Dividends paid on ordinary shares are classified as equity and are recognised as distributions in equity. ### 1.18 Rounding of amounts All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand, unless otherwise stated. STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS Annual Report and Accounts 2021/22 177 --- PARENT COMPANY FINANCIAL STATEMENTS # Notes to the financial statements # **2 Directors' remuneration** | Remuneration of directors: | Period ended 28 February 2022 £'000 | Period ended 28 February 2021 £'000 | | --- | --- | --- | | Directors' remuneration^{1} | **1,577** | 153 | | Social security costs | **150** | 20 | | Pension costs | **11** | 1 | | | **1,738** | 174 | $^{1}$ Directors' remuneration The amounts in the prior year comprise fees paid to the non-executive directors and, for executive directors, salary and benefits earned for the period from 1 January 2021 to 28 February 2021. Prior to 1 January 2021, salary and benefits earned by the executive directors were paid by Bytes Software Services Limited, an indirect wholly owned subsidiary of the company. Further information is provided in the directors' remuneration report on pages 96 to 112. # **3 Employee costs and numbers** | Employee benefit expense: | Period ended 28 February 2022 £'000 | Period ended 28 February 2021 £'000 | | --- | --- | --- | | Employee remuneration | **461** | 36 | | Social security costs | **121** | 5 | | Pension costs | **13** | 1 | | | **595** | 42 | # **The average monthly number of employees during the period was:** | | Period ended 28 February 2022 Number | Period ended 28 February 2021 Number | | --- | --- | --- | | Administration | **4** | 2 | | | **4** | 2 | 178 Bytes Technology Group plc --- STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS #### 4 Income tax expense The major components of the company's income tax expense for the period was: | | Period ended 28 February 2022 £'000 | Period ended 28 February 2021 £'000 | | --- | --- | --- | | **Current tax expense** | | | | Current income tax charge in the period | – | – | | **Total current income tax charge** | – | – | | **Deferred tax credit/(expense)** | | | | Origination and reversal of timing differences | – | – | | **Deferred tax credit/(expense)** | – | – | | **Total tax charge** | – | – | ##### Reconciliation of total tax charge The tax assessed for the period differs from the standard rate of corporation tax in the UK applied to profit before tax: | | Period ended 28 February 2022 £'000 | Period ended 28 February 2021 £'000 | | --- | --- | --- | | Profit/(loss) before income tax | **43,178** | (4,617) | | Profit/(loss) before income tax at the standard rate of corporation tax in the UK of 19% for all periods | **8,204** | (877) | | Effects of: | | | | Non-deductible expenses | – | 777 | | Non-taxable income | **(8,479)** | – | | Group relief surrendered | **275** | 100 | | **Income tax charge reported in profit or loss** | – | – | ##### 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. The company does not have a deferred asset or liability to rebase. Annual Report and Accounts 2021/22 179 --- PARENT COMPANY FINANCIAL STATEMENTS Notes to the financial statements # 5 Investments in subsidiaries | | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | | Opening balance | 46,630 | – | | Acquisition of subsidiaries² | – | 641,998 | | Transfer to Bytes Technology Holdco Limited² | – | (595,368) | | Capital contribution¹ | 595,368 | – | | | 641,998 | 46,630 | 1 Capital contribution On 26 August 2021, Bytes Technology Holdco Limited issued ordinary shares to the company for a consideration of £595.4 million. The consideration resulted in the settlement of the intercompany receivable from Bytes Technology Holdco Limited. 2 Demerger Transactions – acquisition of Bytes Technology Limited On the Date of the Demerger, 17 December 2020, the company acquired the entire issued share capital, which included the A ordinary and B ordinary shares of Bytes Technology Limited from Altron for a total consideration of £642.0 million. Acquisition of Bytes Technology Limited A ordinary shares The company acquired the A ordinary shares for a total consideration of £595.4 million. 220,506,494 new ordinary shares were issued by the company at an issue price of £2.70 per share to acquire the A ordinary shares of Bytes Technology Limited. Bytes Technology Holdco Limited, a direct subsidiary of the company immediately acquired the Bytes Technology Limited A ordinary shares from the company at cost in exchange for an intercompany payable due to the company of £595.4 million. Acquisition of Bytes Technology Limited B ordinary shares The company acquired the B ordinary shares for a total consideration of £46.6 million. £32.3 million of the total consideration was satisfied by the issue of 11,974,117 new ordinary shares by the company at an issue price of £2.70 per share. The company paid a further £14.3 million cash consideration to acquire the B ordinary shares, which was satisfied on its behalf by Bytes Software Services Limited in exchange for the settlement of an intercompany receivable due by the company of £14.3 million. For further information on the Demerger Transactions, see note 1.3 in the notes to the financial information in the consolidated financial statements of the Group. 3 Subsidiary undertakings A detailed listing of the company's direct and indirect subsidiaries is set out in note 31 in the notes to the consolidated financial statements of the Group. # 6 Trade and other receivables | | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | | Amounts due from other Group companies¹ | 41,280 | 602,969 | | Prepayments | 335 | 415 | | | 41,615 | 603,384 | 1 During the year, Bytes Technology Holdco Limited issued ordinary shares to the company for a consideration of £595.4 million. The consideration resulted in the settlement of the intercompany receivable from Bytes Technology Holdco Limited that was outstanding at 28 February 2021. # 7 Trade and other payables | | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | | Trade and other payables | 1,015 | 410 | | Amounts due to other Group companies¹ | 13,650 | 18,190 | | | 14,665 | 18,600 | 1 Amounts due to other Group companies are unsecured, interest free and repayable on demand. 180 Bytes Technology Group plc --- ## 8 Borrowings On 17 December 2020 the company entered into a three-year committed Revolving Credit Facility (RCF). In December 2021 the RCF reduced to £40 million and in December 2022 will reduce to £30 million. The company incurred arrangement fees of £0.4 million representing 0.75% of the initial £50 million facility available. Neither the company, nor any of its subsidiaries, has drawn down any amount in this facility, 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. For further details on the RCF, see note 25(c) in the notes to the consolidated financial statements of the Group. ## 9 Share capital and share premium | Ordinary shares Authorised, allotted, called up and fully paid | Number of shares | Nominal value £'000 | Share premium £'000 | Total £'000 | | --- | --- | --- | --- | --- | | At the date of incorporation | 2 | – | – | – | | Shares issued during the period^{1} | 239,482,331 | 2,395 | 633,636 | 636,031 | | At 28 February 2021 and **28 February 2022**^{3} | **239,482,333** | **2,395** | **633,636** | **636,031** | | Redeemable preference shares of £1 each | Number of shares | Total £'000 | | --- | --- | --- | | At the date of incorporation | 50,000 | 50 | | Redemption of preference shares^{2} | (50,000) | (50) | | At 28 February 2021 and **28 February 2022** | – | – | ### 1 Shares issued during the period In the prior year on the Date of the Demerger, the company acquired the entire issued share capital of Bytes Technology Limited from Altron, for a total consideration of £642.0 million. £627.7 million of the total consideration was satisfied by the issue of new ordinary shares by the company. The company issued 220,506,494 new ordinary shares at an issue price of £2.70 per share, giving rise to a share premium of £593.2 million, in exchange for the Bytes Technology Limited A ordinary shares, see note 5. The company also issued 11,974,117 new ordinary shares at an issue price of £2.70 per share, giving rise to a share premium of £32.2 million, in exchange for the Bytes Technology Limited B ordinary shares, see note 5. The company issued a further 7,001,720 new ordinary shares at an issue price of £2.70 per share, giving rise to a share premium of £18.9 million which was offset by £10.6 million of commission costs paid on the issue of the above shares. No shares were issued during the current period. ### 2 Redemption of preference shares The company fully redeemed 50,000 redeemable preference shares from the subscriber at nominal value during the prior period. ### 3 Ordinary shares Ordinary shares have a nominal value of £0.01. 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 company. The company does not have a limited amount of authorised share capital. Annual Report and Accounts 2021/22 181 STRATEGIC REPORT GOVERNANCE REPORT FINANCIAL STATEMENTS --- PARENT COMPANY FINANCIAL STATEMENTS # Notes to the financial statements ## 10 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 per accounting policy note 1.15. Further details are also provided in note 29 in the notes to the consolidated financial statements of the Group. | | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | | Balance at 1 March | – | – | | Share-based payment charges | 2,864 | – | | | 2,864 | – | ## 11 Retained earnings | | As at 28 February 2022 £'000 | As at 28 February 2021 £'000 | | --- | --- | --- | | **Movements in retained earnings were as follows:** | | | | Balance at 1 March | (4,617) | – | | Net profit/(loss) for the period | 43,178 | (4,617) | | Dividends | (4,790) | – | | | 33,771 | (4,617) | ## 12 Information included in the notes to the consolidated financial statements Some of the information included in the notes to the consolidated financial statements is directly relevant to the financial statements of the company. Please refer to the following: Note 7 – Auditors' remuneration Note 28(a) – Transactions with key management personnel Note 29 – Share-based payments 182 Bytes Technology Group plc --- # Other information 184 Glossary 185 Company information and Financial calendar Annual Report and Accounts 2021/22 183 --- OTHER INFORMATION # Glossary **Admission:** the admission of BTG's shares to the premium listing segment of the Official List and to trading on the London Stock Exchange's Main Market and on the Main Board of the Johannesburg Stock Exchange via secondary inward listing **Altron:** Allied Electronics Corporation Limited, a public company incorporated and registered in accordance with South African law, with registration number 1947/024583/06 **Articles:** the articles of association of the company **Bytes:** Bytes Software Services Limited a private limited company incorporated under English and Welsh law, with registered number 01616977 **Cloud or cloud computing:** shared, remotely-accessible IT solutions **Company or BTG:** Bytes Technology Group plc, a public limited company incorporated under English and Welsh law, with registered number 12935776 **CSP:** the Microsoft Cloud Solutions Provider programme **Executive directors:** the executive directors of the company, being Neil Murphy and Andrew Holden **Existing customers:** customers with which the Group has previously transacted **FCA:** the Financial Conduct Authority **GDPR:** the General Data Protection Regulation 2016/679 **HMRC:** HM Revenue and Customs **IT channel:** the method by which the Group products are made available to its resellers **JSE:** as the context requires, either: JSE Limited (registration number 2005/022939/06), a limited liability public company incorporated in accordance with South African law and licensed as an exchange under the South African Financial Markets Act, No. 19 of 2012 (and amendments thereto), or the securities exchange operated by the aforementioned company **License Dashboard:** License Dashboard Limited, a private limited company incorporated under English and Welsh law, with registered number 06599902 **Listing Rules:** the listing rules of the FCA made under section 74(4) of the Financial Services and Markets Act 2000, as amended **London Stock Exchange:** London Stock Exchange plc **Main Market:** the London Stock Exchange's main market for listed securities **Microsoft certified professional:** a sales team member who has passed Microsoft's certified professional exam **Non-executive directors:** the non-executive directors of the company, being Patrick De Smedt, Mike Phillips, Alison Vincent, Erika Schraner and David Maw **Numis:** Numis Securities Limited **Official List:** the Official List of the FCA **Phoenix:** Phoenix Software Limited, a private limited company incorporated under English and Welsh law, with registered number 02548628 **Shareholders:** the holders of shares in the capital of the company **UK Corporate Governance Code:** the UK Corporate Governance Code published by the Financial Reporting Council in July 2018, as amended from time to time **United Kingdom or UK:** the United Kingdom of Great Britain and Northern Ireland **VAR:** value-added reseller **VAT:** value-added tax 184 Bytes Technology Group plc --- # Company information ## Bytes Technology Group plc A public limited company incorporated in England & Wales under the Companies Act 2006 with registered number 12935776 Registered Office Bytes House Randalls Way Leatherhead Surrey KT22 7TW ## Group Company Secretary WK Groenewald +44 (0)1372 418992 wk.groenewald@bytes.co.uk Bytes House Randalls Way Leatherhead Surrey KT22 7TW ## Investor relations WK Groenewald +44 (0)1372 418992 IR@bytes.co.uk Bytes House Randalls Way Leatherhead Surrey KT22 7TW ## Public relations Headland Consultancy Stephen Malthouse Henry Wallers Jack Gault +44 (0)20 3805 4822 bytes@headlandconsultancy.com Cannon Green 1 Suffolk Lane London EC4R 0AX ## 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 ## Financial calendar ### 24 May 2022 Release of results for the financial year ended 28 February 2022 ### 26 July 2022 9.30am (BST) Annual General Meeting ### October 2022 Interim results ## Legal advisers Travers Smith LLP 10 Snow Hill London EC1A 2AL ## Independent auditor Ernst & Young LLP 1 More London Place London SE1 2AF ## Registrar (UK) Computershare Investor Services The Pavilions Bridgwater Road Bristol BS99 6ZZ ## Transfer secretaries (SA) Computershare Investor Services Rosebank Towers 15 Biermann Avenue Rosebank 2196 South Africa ![img-36.jpeg](img-36.jpeg) Printed sustainably in the UK by Pureprint, a Carbon Neutral company with FSC® Chain of custody and an ISO 14001-certified environmental management system recycling over 100% of all dry waste. 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