TOP VARs: Top of the world

As we publish our annual rundown of the UK's biggest resellers, CRN's Sam Trendall takes a look at the findings

When CRN returns with our first issue of the new year we will, of course, run a piece examining the channel's forecasts for what the 12 months ahead might hold.

I do not know yet what the leaders of the UK's IT VAR community will tell us, or where they intend to place their bets in 2016. But I have no doubt that they will do so soundly, and I am happy to make one prediction of my own: that the UK channel will grow next year. And the year after that. And the one after that, too.

This issue of CRN is published alongside this year's edition of Top VARs, our annual rundown centred on compiling a list of the UK's 100 biggest resellers, and profiling them. Top VARs 2015 also marks the fifth time we have published the report. As if we did not know before, one thing we have learned incontrovertibly is that - whatever the weather, and whatever predictions people make - resellers continue to prosper.

If you want to read Top VARs in full, you will have to visit our website, and look out early next year for a print edition. But - spoiler alert - in the past 12 months our top 100 have grown, just as they did last year, and in the three years before that. To try to explore how that growth has been achieved, we have gathered some of the key facts and stats from this year's top VARs.

Let's start at the top...

The big get smaller?

The big guns saw solid, if comparatively modest growth this year, with this year's top 10 VARs posting a cumulative top line of a shade under ￡5.53bn. This figure is about ￡265m higher than last year's leading dectet and represents annual growth of five per cent. However, this compares with the 7.9 per cent expansion last year's top 10 saw in comparison with their 2013 counterparts.

But perhaps the growth rate seen this time around appears more impressive when taking into account that, of the 2015 top 10, only two firms have given their turnover a significant boost via acquisition.

During the last half decade, we have invariably seen one maxim hold true: the big get bigger. And, on first inspection, the same thing applies this year - when compared with last time out, both this year's top 10 and top 20 show a combined sales tally of five per cent more than their 2014 counterparts. But scratch a little below the surface and the picture becomes a lot less clear cut, particularly once we move outside the leading 10 VARs.

The resellers ranked in the next tranche of 10 show a revenue increase of about ￡96m when compared with those placed from 11 to 20 in last year's list. In total, the top fifth of our list has a cumulative top line ￡356.1m higher than our top 20 last year.

However, it is worth bearing in mind that the four biggest growers by sales volume - Computacenter, Softcat, XMA, and Capita - collectively enjoyed an extra ￡384m in revenue this year. You do not need to be Carol Vorderman to swiftly realise that this means the remaining 16 actually saw their turnover go backwards, to the tune of ￡27.9m. As ever, acquisitions, disposals and other factors blur the picture somewhat - but it is fair to say that about a third of our top 20 are definitively smaller than they were 12 months ago.

One hallmark of this year's list - from top to bottom - is the willingness of VARs to sacrifice revenue at the altar of profit. Numerous players at all levels have seen turnover decrease, but profitability rise. And a number of our leading players have led the way here, with second-placed SCC chief among them. The Birmingham-based giant may have shed well over ￡100m in revenue in FY15, but that did not stop it growing its EBITDA number by a quarter.

Between them, Logicalis and Danwood have seen turnover decline by more than ￡50m - but both grew income by at least double digits and, in the latter's case, returned to profitability after several years of losses. Bytes appeared fairly flat after selling off its print reseller business, while Kcom endured a sales drop of 12 per cent as it distanced itself from lower-margin legacy activities.

A tale of two tiers in tier two

When we take an overarching view of what might be termed the tier-two players - those ranked from 11 to 50 - we see a similar picture to that which emerged of the market's biggest fish. The recurrent theme is steady growth - but reined in a little from last year's heights.

Comprising 40 firms of various specialisms with turnover ranging from about ￡50m to ￡200m, the resellers in positions 11 to 50 are surely the engine room of our top 100. Their performance over the last two years has certainly been a bellwether for the kind of year enjoyed - or in some cases endured - by the industry as a whole.

In 2013 these players saw their collective revenue drop by ￡300m compared with their prior-year counterparts as the effect of the 2e2 collapse trickled down the industry. Last year, though, they were back off the leash, and posted a cumulative growth figure of 13.1 per cent.

This year the combined sales figure for the VARs ranked from 11 to 50 stands at about ￡3.96bn - equating to an increase of some 7.9 per cent when compared with the occupants of those positions last year. Clearly this represents a fine performance, but it is also worth noting that - much like our top 10 - growth has slowed somewhat, to the tune of two fifths.

A number of players towards the lower reaches of the top 50 have seen their top line decline or stay put. This is evidenced by the fact that the reseller occupying 50th spot - ANS Group - has revenues of ￡500,000 less than in 2014, when it occupied exactly the same position.

Nevertheless, it has been a very good year by and large for our tier-two channel firms. We have 26 members of the ￡100m club this year, up from the 22 we had 12 months ago. Below them we also have two new players in what cricket fans might refer to as the nervous nineties - both of which have grown strongly in recent years and will be confident of passing the nine-figure mark in the next year or two.

Flat but sparkling

A recurring theme among this year's top VARs is growth levels coming in lower than they did when last we compiled the list, and nowhere is this more in evidence than in the latter half of our top 100.

This year the cumulative turnover of our VARs ranked from 51 to 100 comes in at ￡1.575bn. This represents a rise of just 1.6 per cent when compared with the sales of their counterparts from last year. In 2014 the lower 50 players on this list posted growth of a whopping 10.8 per cent.

The entry point for the top 100 has risen by more than ￡2m and now comfortably exceeds the ￡20m mark. But above that things seem to be a lot more congested, as evidenced by the fact that the bar to hit 90th place has actually declined by ￡100,000. This means that the bottom 13 names on our list are separated by less than ￡1.5m in sales.

Moving up through the 80s, 70s, 60s and 50s, comparing this year's occupants with their 2014 equivalents often reveals that the revenue bar has not moved much - in either direction.

Indeed, 18 of this year's lower 50 are within three places of their 2014 position. Eight have not moved more than one spot - and two have managed to land in exactly the same position.

But it would be wrong to characterise this as a year of stasis. Many of the players from this end of the list that we spoke to revealed that increasing profitability and investing in sustainable future growth had been a priority in the last couple of years, and they had taken a more relaxed attitude to whether the turnover ticker continued to rise. There are numerous examples of companies whose bottom line has already begun to see the benefits of their strategic tinkering, and others who have created new recurring revenue streams.

Perhaps the time has been right to invest for the future, with the UK now having been (at least technically) out of recession for a couple of years. During the worst of the economic downturn and the long, slow (sort of) recovery that has followed, many may have kept their heads down and not focused on anything much beyond ensuring they generated enough cashflow to stay on their feet. But those that have successfully remained upright may be able to walk a little taller after a year of rebuilding.

The bigger picture

If we look at our top 100 as a whole, we see a collective turnover of ￡11.08bn, a rise of 5.5 per cent on last year's leading ton, which clearly adds up to a pretty good year. However, as we have seen in every section of the list, the growth level achieved by the top 100 as a whole this time out is some way down on last year, when it stood at 10.1 per cent.

Total growth in the last two years is 16.1 per cent, equating to an extra ￡1.54bn in revenue across the top 100. That is ￡15.4m for every reseller on the list.

Visit www.channelweb.co.uk to find out which names are on that list this year. But whomever they are, it is safe to say that the year has been a successful one. And more of the same is predicted next year.

James Rigby, chief executive, SCC

On who he sees as the competition these days

We are all finding our place. Computacenter is strong around the desktop in large accounts. Kelway and Softcat are very good at what they do. We are very much more headed towards mid-market services, and in that space we are coming up against the SIs. Those guys are focused on mega-outsourcing deals. A mid-market customer of, say, 3,000 seats is a really, really important customer to us. That would not be the case for an SI, where they might feel a bit unloved or uncared for.

Rafi Razzak, chairman, Centerprise

On why system builders are back in vogue

The market seems to be right for bespoke manufacturing, and we are seeing far less competition there than ever. We see customers with a requirement for hardware and services with a tailored approach, rather than a corporate approach. Now the customer is much more careful in terms of specifying their exact requirements.

Alex Kaye, chief executive, Zones UK

On expanding into EMEA

It is very much part of our ambition for the business, and we in the UK are very much the driving factor in the whole piece. We have some global customers that would not be classed as enterprise, but they still have global presence. There is a niche there, and there are a large number of organisations that fit that bill. We are very focused on that area.

Sam Trendall is content editor of CRN and Channelnomics.eu