Top VARs Q&A: Neil Murphy, Bytes Technology Group

MD Neil Murphy assesses the most recent financial year of Bytes Software Services and the wider Bytes Technology Group

This Q&A originally appeared in CRN Top VARs 2019.

Totting up Bytes Software Services, Phoenix Software and Bytes Security Partnerships, Bytes Technology Group hit revenues of £535m in its fiscal 2019, up from £354m a year earlier. How much integration is there between the three brands, and might this change in the future?

We bought Phoenix precisely because of its culture, reputation and unique place in the market, and it's still operating completely independently. It has grown considerably since we acquired it, and it's in a market that shows great opportunity. So it wouldn't make sense for us to merge it into the rest of the organisation. We like its uniqueness.

From a supplier perspective we've been able to leverage improved discounts from distribution and software vendors. But other than that, there's been no need for any further integration.

How important are AWS and Azure to Bytes now, and how easy is it to actually build a profitable business around public cloud vendors?

We are utterly dependent on cloud revenues for our success. In Microsoft's last fiscal, Bytes Technology Group - including Phoenix - was Microsoft's largest UK Azure reseller. We're building a managed services capability around that this year for our clients.

From a Microsoft perspective, it's easy to build a profitable business around public cloud.

With regards to AWS it's much more difficult because we've only been at that programme now for about 18 months. But we are definitely getting there. For our clients who run multi-cloud requirements, we've got to be able to service both and give a cloud-agnostic view of the world.

Bytes Software Services won a £150m Windows 10 NHS deal at the start of its fiscal 2019. How has such a large deal affected its business?

Yes, that large-revenue, very low-margin deal reduced our gross margin slightly over the year. But it hasn't prevented us from growing our gross profit. What's interesting is that it cements our relationship with the NHS at a central level, but also at the Trust and hospital level.

The trick, once you win those large contracts, is to get closer to the client and try to add value wherever you can to augment the margins so that you can turn into a profitable business.

Publicly quoted resellers, such as Softcat, have started to ‘net down' some of their software revenues due to their adoption of the new IFRS 15 accounting standard. Will this affect Bytes in the future?

We are continuing to report under GAAP 102, but our parent company, which is South African, has to report under IFRS 15. So we've had to do two sets of results: one with the IFRS 15 amendments in it, and one without. In the former case, we've taken £200m out of group revenues as a result of our ‘agent' portion.