XMA is shifting its focus from revenue to profit growth as it looks to become a more services-driven "performance VAR", its top executives have told CRN.
In the interview, CEO Lee Hemani (pictured right) and commercial director Andy Wright (pictured left) also hinted that the Nottingham-based VAR is ready to rejoin the acquisition trail after narrowly opting against buying fallen rival Misco last year. They estimated that XMA has, nevertheless, been able to pocket upwards of a quarter of fallen rival Misco's £200m business since it went bust.
According to CRN Top VARs, Westcoast-owned XMA has grown consistently in recent years to become the UK's ninth-largest IT reseller, with revenues swelling from £222m in 2014 to nearly £400m in the year to 31 December 2017.
But in that time, its net profits have remained roughly flat at just under £5m, equating to a profit margin of roughly 1.25 per cent last year.
Hemani told CRN that services and profit growth are now the priority for the HP, Apple and Cisco partner.
"We are certainly ambitious enough to get beyond £500m revenues - and then some - but what you'll see is a really heavy focus on net return on that revenue," he explained.
Profit growth for this year will be in the region of 20 per cent, equating to more than double its expected eight to 10 per cent revenue growth, he said, but the ultimate goal is to more than double XMA's current profit margins.
"What are the returns of performance or value VARs in our industry?" said Hemani. "My feeling is that working towards - over time - three per cent of net revenue would for me say that we have a performance VAR criteria.
"That's about having a good blend of key vendor technologies to present to the market, but with the right value proposition and service wrap that sits around it.
"We now have a funnel of 35 prospects that are purely just services, and that's quite valuable. We have to be careful that our message isn't switching vendors off. We have some key vendor partnerships with HP and Apple, and Cisco are rising through the ranks with us, and vice versa, at a rapid rate of knots.
"We have delivered two software-defined networks for Cisco in the UK. That's bleeding-edge technology with services opportunity. It's those types of returns that are giving us our better margin returns. It's crafted with the right blend of product and services and after-care."
The 600-strong firm has created a service-led business unit so there is no need to "drop services into every part of the organisation", Hemani explained.
"We are trying to crack the nut from the inside rather than re-skilling all sales stakeholders in the art of services, which is a very different business," he said. "We want to preserve our sales stakeholders' business relationships and augment them with net new value propositions that will include Azure and include managed service delivery."
XMA has also tightened its criteria for the type of deals it takes on.
"We have had routes to market we've looked at and we've asked: is it sustainable?" Hemani said.
Filling Misco's void
XMA took on 20 employees from fallen rival Misco's Weybridge team in the wake of its collapse last October, and Hemani said the arrangement has enabled public sector specialist XMA to treble the size of its corporate business, with 900 customers added.
"There is north of £50m in revenue that I would attribute to the Misco demise," he said.
More broadly, staff development has been a key focus for XMA, Wright added, with 24 staff put through management training this year.
Wright claimed that XMA was becoming a more attractive destination for staff eyeing a career change, a reputation he admitted it didn't always have.
"We seem to have attracted and retained a lot of great people recently, which hasn't always been what we were known for. And that's showing up in our results," he said. "Don't get me wrong - we know it's a healthy market out there at the moment and we've seen good results from quite a few players, but we know what we've invested in has made a difference to how we're executing. That's not about top-line growth, but bottom-line growth, which is really important to us."
The firm is also taking on sandwich-year students from Hertfordshire University after extending its partnership with the institution.
"That's allowing us to invest in new areas such as AI and bots - the sort of stuff Lee and I don't understand but apparently is really easy if you're 21," Wright said. "They look at us like we've got two heads."
The VAR has also spent "the thick part of £1m" apiece on bolstering its CRM and ERP systems, respectively, the latter of which was historically franchised from Westcoast but is not a standalone system, according to Hemani.
"It's about making sure we keep ourselves relevant for the next seven to 10 years," he said.
"We are seeing the [staff] attrition rate reduce and are transacting business more efficiently."
XMA is no stranger to transformational acquisitions - take its 2014 acquisition of Viglen - and Hemani said further M&A manoeuvres are likely.
But any such deal is unlikely to occur in 2018, he admitted.
"We've been through a number of potentials and have got through to some fairly detailed rounds of due diligence," said Hemani. "But unless there's a drastic turn, it will be 2019 when you'll see something.
"In terms of profile, if a big fish swims by we would always take a look - always - for growth and stature and critical mass. But we're also looking at those smaller service-led deals - whether that's Office 365 or a security-focused business that has some really good core skills and when you match that to our size and scope, you've got an opportunity to accelerate their learnings into our organisation."
Despite these plans to expand its repertoire, XMA is taking a cautious stance when it comes to emerging vendors, especially in the wake of the demise of next-generation storage vendor Tintri, with which XMA had a "small handful of customers".
"We are doing quite a bit with Nutanix, and we're also making sure we look at all the technologies that are coming out of our existing vendor set," Wright said.
"We're being slightly careful with absolutely brand-new vendors just because of their financial instability. There's a lesson there with Tintri - because we are the prime contractor to the customer, it's important we establish a well-defined and managed supply chain."
DataDirect Networks (DDN) recently reached a deal to pick up the slack around services for Tintri, something Hemani said has offered "some sort of reassurance to the community".
"DDN are known to us as we have worked with them over the years in the high-performance compute part of our business," Wright added. "So fingers crossed for all the people left at Tintri and some of the people who will benefit if the deal gets over the line. Let's hope they pull off the deal in the next couple of weeks."
Hemani was almost audibly biting his tongue when the topic of Brexit came up, but insisted that XMA will "come out the other side no worse off than when we went in".
"Whatever happens with Brexit or currency will be. It will take a catastrophe for anything permanent to happen to our organisation. Brexit is going to hit the UK with a problem when it eventually happens, but XMA has ridden choppy waters continually," he said.
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