Bytes Technology Group PLC (FRA:9NY) (H1 2025) Earnings Call Highlights: Strong Public Sector …

• Gross Invoiced Income (GII): GBP1.2 billion, up 13.7%.

• Gross Profit: GBP82.1 million, up 9%.

• Operating Profit: GBP35.6 million, up 16.3%.

• Adjusted Operating Profit: GBP38.5 million, up 13.6%.

• Efficiency Ratio: 43.4%, up from 40.6% last year.

• Cash Balance: GBP71.5 million at the end of August.

• Interim Dividend: 3.1p per share, a 14.8% increase.

• Headcount Increase: 7% growth, with 73 new employees.

• Public Sector Contribution: 70% of GII, 37% of Gross Profit.

• Software Sales Growth: 15.6% increase in sales, 11.3% increase in gross profit.

• Hardware Sales Decline: Over 40% decrease in both GII and gross profit.

• Services Gross Profit: GBP5.8 million, up 8.6%.

• Cash Conversion: 56% for the half, 112% rolling 12 months after tax.

• Tax Rate: Effective rate of 26.7%.

Release Date: October 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Bytes Technology Group PLC (FRA:9NY) reported a 16.3% increase in operating profit, driven by contributions from all areas of the business.

• The company expanded its client base in both the public and corporate sectors, increasing its share of wallet among existing customers.

• Gross income for the period was GBP1.2 billion, up 13.7%, reflecting strong performance in public sector contracts and Microsoft year-end activities.

• Bytes Technology Group PLC (FRA:9NY) continues to invest in new enterprise-grade systems and office environments to support future growth.

• The company has a strong focus on cybersecurity, which represents 25% of its gross profit, and continues to invest in expanding its security offerings.

Negative Points

• The trading environment remains challenging with elevated levels of uncertainty due to the snap general election in the UK.

• Gross profit over gross invoiced income decreased by 0.3% to 6.7%, reflecting a heavier weighting towards lower-margin public sector contracts.

• Hardware sales are down over 40%, indicating vulnerability to current market conditions.

• The company faces slower conversion rates in the corporate sector, attributed to economic and political uncertainties.

• There is a cautious outlook on achieving double-digit growth due to the challenging economic backdrop and slower corporate sector activity.

Q & A Highlights

Q: Can you provide a like-for-like GII growth excluding NHS contracts, and how is the demand environment in the UK commercial sector? A: The public sector spending was not interrupted by the snap election, and we have seen positive growth. Regarding vendor rebate changes, particularly with Microsoft, these are planned well in advance, and we have adapted accordingly. The overall incentive pot from Microsoft has grown, and we are aligned with their strategic areas.

Q: What is your expectation for GP growth in the second half, and do you see any improvement in corporate GP growth? A: We are pleased with the start of the second half and aim to deliver double-digit growth by the end of the fiscal year. The corporate sector has been slower to convert, but we expect normal procurement patterns to resume once the government settles.

Q: How has price inflation in software affected your growth, and do you expect more inflation next year? A: The significant price increases from April 2022 have played through, and we have not seen any recent inflationary assistance in growing the top line. We have not been informed of any upcoming significant price increases from vendors.

Q: Can you quantify the impact of Microsoft’s commission changes, and how is the corporate segment performing? A: We do not disclose specific details about incentive fees. The corporate segment has seen slower conversion, but we are confident in our pipeline and expect to achieve double-digit growth.

Q: Could Microsoft’s rebate changes be an opportunity to take market share, and is there pent-up demand in the corporate sector? A: We are well-prepared for Microsoft’s changes, which could potentially allow us to take market share. There is pent-up demand in the corporate sector, and we are working closely with customers to understand any procurement delays.

Q: How do Microsoft’s strategic priorities align with your GII, and what is the rationale for developing your own marketplace? A: We are aligned with Microsoft’s strategic growth areas like Azure and AI. The marketplace development is a long-term strategy to enhance customer experience and is not a direct response to recent incentive changes.

Q: What are the prospects for public sector growth, and how do you see services evolving with new hires? A: We see a healthy pipeline in the public sector with no pull-forward impact from the election. Investing in technical heads will continue, aligning with our strategy to enhance service offerings.

Q: How are you positioned to benefit from cybersecurity growth, and what are your key partnerships? A: Cybersecurity is embedded in our business, with key partnerships including Check Point, Microsoft, and emerging vendors like CyberArk. We offer a broad portfolio to meet diverse customer needs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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