There is still gold to be had in the world of Microsoft resellers

Profits up but margins down as Byte Software Services cast a wary eye to the future

Surrey-based reseller Bytes Software Services (BSS) has had a rather good year, despite some price hikes from its number one supplier Microsoft seemingly dampening margins.

In figures filed at the UK’s Companies House, BSS reported turnover of £277m for the year ended 28 February 2018, up 28.4 per cent on the prior fiscal. Did someone say software reselling was dead?

Operating profit for the year was reported at £7.9m, up by a healthy 16 per cent on 2017’s numbers, but storm clouds could be a-brewing as the gross margin percentage dropped to 12.3 per cent. BSS pointed the finger at Microsoft and the 22 per cent price increases it saw in January 2017, as exclusively revealed by El Reg.

The increases will have played a part in the cost of sales figure jumping by 29.9 per cent to £242.9m, although BSS kept the rise in its administration overheads down to 19.5 per cent at £26.2m. Staffing was similarly restrained, with only 20 employees added over the year, spread over all departments.

Cash in the business dropped by £20.6m, principally to fund the new group acquisition. In 2017, BSS snapped up rival reseller Phoenix Software for £35.9m.

BSS remains one of the largest Microsoft Licensing Solutions Providers in the UK, nestled behind the likes of Softcat, and so will be eyeing Redmond’s upcoming Modern Commerce platform with concern since the simplifications it introduces will result in more price increases and an opportunity for Microsoft to do more direct selling.

Since a “significant portion” of revenues come from the sale of Redmond’s wares and associated services, BSS is keen to continue developing its relationship with the software giant. That is, of course, not to say that it isn’t above a little something on the side as it seeks to cosy up with other suppliers and reduce its exposure to Microsoft’s whims.

94 per cent of gross profits in fiscal '18 came from existing clients, which isn’t ideal, and BSS plans to invest heavily in its sales teams to fuel further growth.

2018 has begun well for BSS as the company was exclusively selected by NHS Digital to provide NHS England with Windows 10 licences as part of a £150m project to bolster the defences of the NHS against cyber attacks following the 2017’s WannaCry ransomware fiasco.

Keeping that momentum going will be challenging thanks to “changing fee structures from key vendors” (aka “leave the pricing spreadsheet alone, Microsoft”), but BSS remains optimistic about its prospects for the year ahead. ®