Softcat H1 indicates commercial market growth remains

Softcat’s investors will be relieved to see the channel player has delivered a promising set of half-year numbers.

The firm’s half year to 31 January delivered a 17.9% increase in gross profit, which the business uses as its primary measure of progress. Revenues decreased by 11.3% to £512.4m, largely as a result of making a comparison with a previous period that had benefited from a large customer deal.

Graham Charlton, chief financial officer at Softcat, said the business was in a strong position, and once comparisons with last year were explained, the figures showed the progress made in the first half of the fiscal year.

“If you take the impact of that largest customer out, we grew gross profit not by 18%, but by 27%, and revenue would have grown by 27% as well, and gross invoiced income would have grown by 26%. So [that one deal] has a distorting impact on that revenue number, but the underlying business, whichever way you look at income, is growing very strongly.”

The firm continued to expand headcount, up by 21.1% year-on-year, and Charlton said it was important to not only service the existing market, but also to invest in the future.

“We’d rather operate in benign conditions, and the volatility right now does present some challenges. You get price rises, and you have to communicate those to customers and so on, but it provides excellent hiring conditions, because a lot of other firms aren’t hiring,” he said.

“We know there is a long-term, very appealing, growth opportunity for us organically in the domestic market. It’s a great time to be building that team. And gaining and creating new expertise is around new emerging technology, listening to what customers need us to help them with. We’ll get ahead of that curve compared to the competition if we can keep that hiring rate growing going,” he added.

Graeme Watt, chief executive officer of Softcat, cheered the numbers and said the commercial channel remained solid, despite concerns about the macroeconomic environment.

“We’ve come in with a set of results that have beaten expectations. There’s only one outcome from that – to feel good and positive about it. The demand that’s driven that is still robust, and it’s across all segments and all technologies,” he added.

“Our customers continue to consume IT infrastructure as a priority to support their business and drive it forward, and that’s in the face of quite a few questions about what the macroeconomics are doing to demand. We’re taking share, which is good. We’re not overly exposed to the consumer market as we’re a business-to-business value-add reseller.”

Watt said it had seen gross profit per customer rise and had expanded its customer base during the six-month period. “We grew our customer base by 3.3% to 10,000, so there’s a lot of a lot to celebrate in the half-year results,” he enthused.

Watt said he remained optimistic about the business and the prospects for the wider channel as it moved deeper into its second half.

“There are always opportunities for Softcat. We’re growing at something like two to three times the market, and therefore we’re taking share, and if we’re the largest IT reseller in the UK and we’ve only got 5% share, the opportunity for growth is great. It’s not limited to one particular area either, when that opportunity is software, hardware, services, SMB, enterprise and public sector,” he said.

“The UK channel market has performed well again...there’s a lot of growth in the market. There’s room for a lot of players.”