Mammoth NHS deal sees Bytes on course for £550m annual revenue

MD Neil Murphy said Phoenix Software's contribution to the business has 'exceeded expectations'

Bytes Technology Group has doubled its H1 revenue to £305m, largely as a result of the huge NHS deal it agreed earlier this year.

The licensing solution provider's (LSP) H1 saw UK sales revenues jump 103 per cent from £105m in last year's H1, with operating profit increasing 86 per cent to £11.7m.

Bytes managing director Neil Murphy said the firm is on course to hit sales of £550m this year.

Phoenix Software, which was acquired by Bytes last year, contributed £88m to the group's overall revenue and £3.5m to its operating profit in the first half of its fiscal year.

Murphy attributed the revenue jump to the £150m contract it signed with NHS England earlier this year, which will see it roll out Windows 10 to the organisation's machines.

He added that this spike will recur for the duration of the five-year deal.

"We have had a very good year with the public sector, especially the NHS contract," he told CRN.

"We've also had a lot of growth with our security solutions business and a lot of growth with Microsoft Azure.

"We do about 55 per cent revenue in H1 and 45 per cent in H2, so we will probably finish on about £550m for the year."

Microsoft Azure was also a significant contributor to Bytes' revenue growth, according to Murphy, who said its Azure business has grown up to 80 per cent in the last year.

"That is a pretty steep growth curve and I can't see it continuing at the same rate, but it will be fairly high double digits for the foreseeable few years," he said.

"If we think about the fact that Microsoft only last year opened its datacentres that the public sector can use; a lot of early adoption is now creating greater revenues as deployment and consumption are increasing.

"Public sector clients weren't using Azure a couple of years ago because there was no datacentre established in the UK and they could only use datacentres that were based in the UK.

"Azure will definitely play a bigger part in revenue contribution and is without doubt the most important part of our business today."

Last year, overall services revenue generated between £15m and £17m for the LSP, and this year that figure is around £20m, including contributions from Phoenix.

Murphy expects this number to grow as it deploys more Azure-based solutions to customers.

Phoenix rising

This is the first H1 to include numbers from Phoenix, which Bytes acquired last year.

Murphy said that it has exceeded expectations in terms of generating business for the group, with the firm growing at about 15 per cent on the bottom line since the buyout.

"Phoenix is continuing to focus on the public sector space and there does seem to be an increased appetite for new technology across the whole of the public sector, particularly with the adoption of cloud," the MD said.

"We are seeing increased volumes of business in the public space with Azure and Office365 and Phoenix and Bytes are benefiting from that increased trend."

Beyond Brexit

Murphy remains optimistic for Bytes' H2, in spite of the looming Brexit deadline on 29 March, stating that the company will be focusing on organic growth across the UK for H2 and that there are no acquisitions on the horizon.

The LSP will also be expanding its small Irish office as it foresees increasing opportunities in Ireland as the UK prepares to exit the EU.

"The market is particularly buoyant at the moment, especially in H1," Murphy said.

"But with the onset of Brexit it is hard to tell how the economy will perform in the months ahead.

"I think either way, IT and software spend should remain pretty consistent because most organisations and public sector bodies need software to run their systems."