Classic product reselling at privately-owned Midland tech dynasty SCC’s UK biz has crashed by a fifth but the company execs are still smiling. Why? The shift to services is paying off.
Hardware and software accounted for £503m of turnover (including £10m from M2), down 20 per cent year-on-year – but this was entirely expected, James Rigby, group CEO told El Chan:
“The numbers reflect us walking away from very low margin, 'empty calorie' business with SIs or public sector frameworks that gave us a revenue headline but were not profitable.”
He said SCC, traditionally among the largest resellers in the UK, continued to “hold position” with “partnership vendors” including HP, IBM, Microsoft, Cisco, Lenovo and NetApp. But this resulted in fewer transactions with “small ancillary vendors” – contained within this bracket were the likes to Fujitsu and Samsung, the CEO revealed.
Following the “clear out” of low margin sales, revenue SCC derives from product reselling is forecast to stabilise: “They won’t go down again but neither will they massively go up”.
All tech suppliers have moved or are in the process of moving to a services-based economy, and SCC made real progress in this area. Services went up 22 per cent to £159m. This included £17m in services from the M2 buy; the other £10m was product based.
This means that organically, services actually went up around nine per cent. Not too slouchy.
Managed services represented £114m (M2 £17m), up 13 per cent and including £26m from data centre services. The Fluid Data investment did not make an input to their sale ledger as it came in mid-March. The aim for DCS is to get to £40m in this fiscal year.
Big old bit barns
The data centre play – SCC has a total of 1,800 racks (up 145 per cent) spread across three bit barns, of which 67 per cent are utilised – is a big bet for the firm. It acquired SSE’s Fareham server farm during the autumn.
Rigby told us his firm is not competing with the likes of AWS, Google or Microsoft – which is lucky – because it is manages disparate cloud infrastructures for customers.
“Our job is to aggregate and manage that. Customers might have stuff in our data centre, with AWS or in their own. All these different clouds can be a headache for customers”.
SCC sells a public cloud and a private cloud service.
Professional services accounted for circa £39m of the top line, up eleven per cent on fiscal ’14. The Flexibile Services unit was launched in the year, giving customers access to techies for short or mid-term projects and it turned over £6m when rounded off.
For fiscal ’16, services turnover is forecast to reach £200m with cloud services expected to land at £55m and annual recurring revenues reaching £70m.
Controlling customer demand is tricky but containing costs is within SCC’s control – with this in mind, op-ex was largely flat at £80.8m in the UK.
Gross profit increased 15 per cent to £103m – the share of gross profit from services grew eleven per cent to 55 per cent of overall GP. Gross margin rate climbed 3.7 per cent to 15.5 per cent, indicating the actions undertaken are working.
EBITDA was up by a quarter to £19.4m and profit before tax crossed the line at £12.4m, up 20 per cent. EBITDA is estimated to grow 30 per cent to £25m in the current financial year.
The headcount in Blighty was stable at 1,800. M2 employs another 207.