SysGroup H1: Managed services up while VAR sales plummet almost 40 per cent

The mid-market MSP saw managed services go from strength to strength while its VAR revenues continue to shrink year-on-year

SysGroup saw growth in its managed services business but suffered a major slump in the reseller market in its half year results.

Group revenues dipped three per cent to £10.96m for the six months ended 30 September 2023.

The LSE-listed company said this reflects growth in its April 2022 acquisition, Truststream, counterbalancing a decrease in traditional SysGroup revenues.

Managed IT services revenues were up eight per cent to £9.22m.

SysGroup's managed services arm now makes up 84 per cent of its revenues, an increase from 75 per cent last year.

The SMB managed service provider explained this growth was driven by IT security, where it has seen more customers take up contracted managed service support in addition to the provision of security licences this year.

Meanwhile, SysGroup's Value Added Resale (VAR) revenue came to £1.74m, a dramatic drop of 37 per cent.

SysGroup explained that, in cases where managed services and licences are sold together the revenue is recognised as managed IT services uniformly across the contract term.

This also explains the reason for the reduction in VAR revenue since fewer "licence only" contracts are being sold, the MSP said.

The revenue mix in H1 FY24 is 84 per cent managed IT services and 16 per cent VAR sales (H1 FY23: 75 per cent:25 per cent) and this is expected to remain similar in H2 FY24.

SysGroup's targets AI in SMBs

The MSP's executive chair Heejae Chae noted SysGroup's strategy to position itself as the go‐to provider for SMBs eager to adopt AI and machine learning (ML).

"AI's prominence is undeniable with daily media coverage and increasing demand for AI strategies at the board level of every company," Chae said.

"It is clear from our conversations with our customers we recognise a significant market gap: while many SMBs are eager to adopt AI/ML, they often lack a clear strategy or implementation path.

"There is a great demand for a partner to support their development of an AI/ML strategy and transition from the current platform."

SysGroup says it has made "significant investments" in both technology and people to capitalise on this market gap, having recruited a team of ML engineers from AWS, JP Morgan, Validus and McLaren.