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5 talking points from Bytes’ £1bn first half

LSE-listed software reseller sees "exceptional" 38% top-line growth thanks to big public sector wins

Doug Woodburn by Doug Woodburn
25 October 2023
in Partner
Neil Murphy, Bytes
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Bytes Technology Group saw an “exceptional level of growth” in the first half of its fiscal 2024, CEO Neil Murphy (pictured) proclaimed in its interim results this morning.

Here we round up 5 big talking points to come out of the software and cloud services specialist’s stock market update.

1) Public sector bonanza bolsters sales

Bytes’ gross invoiced income (GII) rocketed 38% to £1.082bn in the six months to 31 August 2024 as some meaty public sector contract wins with the likes of the NHS and HMRC swelled its top line.

To put that growth in context, that’s double the 19% GII rise Bytes recorded in its fiscal 2023, and almost treble the 13% software GII growth Softcat registered yesterday in its fiscal 2023.

Bytes’ success in winning these big deals resulted in its public sector GII increasing by 44%, CEO Neil Murphy said in his review.

“The exceptionally strong growth in GII primarily reflects the success of the business in winning large public sector Microsoft contracts, demonstrating our strength and credibility when bidding for substantial government software opportunities under the Crown Commercial Service framework agreements,” he said.

2)… But margins fall

The reduced margins associated with the initial year of these large agreements did, however, weigh on Bytes’ bottom line.

Bytes’ gross profit margin shrank from 8.3% to 7% year on year, while its operating profits improved at a slower rate than its top line, namely by 12% to £30.6m.

The LSE-listed outfit – whose headcount now tops 1,000 – has a track record of growing the profitability of these contracts over their typical three- or five-year terms, Murphy stressed, however.

3) Bytes betting on AI

Now styling itself as a “leading software, security, AI and cloud services specialist”, Bytes is betting on a “strong customer response” to Microsoft’s AI products, including Copilot.

Murphy predicted that the shift to AI products will be “one of the defining trends in the IT services sector in the coming years”,

Bytes is “well placed to capitalise on that opportunity”, he added.

“We stand to benefit from our long-standing relationship with Microsoft, whose Copilot product we are already trialling and will be available more widely in the near future. We are also looking forward to working with our other vendor partners that are developing AI software tools,” he said.

4) Stepping up on SBTi

Most of the world’s largest IT solutions providers have submitted net zero targets to the Science Based Targets initiative in recent months and years, with Softcat and Computacenter among those to have already had them validated.

Bytes said it expects to have its targets validated “during 2024”.

5) Joining the battle for number one

Bytes’ top line is now in the same ballpark as that of Softcat and Computacenter’s UK arm.

Its first-half GII of £1.08bn is less than £200m and £300m shy of Computacenter UK and Softcat’s £1.27bn and £1.35bn GIIs in their most recent halves, respectively.

With Murphy revealing that Bytes has made a “good start” to its second half, the Leatherhead-based firm is now firmly in the contest to be the UK’s largest VAR (a contest Softcat CEO has made plain he’s not concerned about).

Doug Woodburn
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Doug Woodburn is editor of IT Channel Oxygen

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