Strong growth and ‘meaningless’ hardware sales slump for Softcat

Softcat grows despite current macroeconomic conditions and revenue decline

Marlow-based reseller Softcat has reported strong growth, despite a continued decline in revenue and tough macroeconomic conditions.

Gross invoiced income increased by 11.3 per cent, from £2.56bn to £2.85bn year-on-year.

Gross profit saw 11.7 per cent growth, reaching £417.8m (previous year: £373.8m).

Operating profit growth also went up by almost ten per cent (9.3 per cent), culminating at £154.1m, compared to £140.9m last year.

Operating profit margin decreased by 0.1 per cent, from 5.5 per cent in 2023 to 5.4 per cent this year.

This growth comes as a result of the company expanding its position with existing customers while adding to its customer base.

They also said they are evolving their technology and service proposition, reframing and strengthening their offer to enable further strategic progress in the years to come.

The announcement comes after the company shared positive results in H1 FY24, when gross profit grew by 11 per cent.

Graham Charlton, CEO of Softcat, sat down with CRN to discuss these numbers.

Charlton said he is “delighted to report another record year for Softcat, delivering strong growth ahead of market expectations despite challenging market conditions.”

“We’ve done a lot of work on our strategy during the year, sharpening up our plans for investment for the future,” Charlton told CRN.

“We don't think there's ever been a more exciting time in our industry, as the age of data and AI, is beginning to dawn, and will benefit Softcat for the years ahead,” he added,

By “years ahead”, Charlton made it clear that he doesn’t intend for AI’s biggest impact to be in a year or two, but over the next decade.

Softcat vs hardware

Despite dazzling numbers, the little grey cloud of revenue decline appeared in the blue sky of growth.

The revenue for this year dipped 2.3 per cent.

But these numbers do not seem to keep Charlton up at night, as he described them as being “the most meaningless number in our set of results.”

The CEO told CRN that hardware was in decline, because of what's happening in the PC market, despite the PC market showing signs of recovery this year.

“This sector will go back into growth next year for us and AI PCs will be one factor that drives that, but not the only factor.”

Charlton says he expects Softcat’s future growth to continue to come from the whole range of IT infrastructure, including on premises, datacentres and laptops, as well as security software and Copilot.

The reseller expects to deliver double-digit gross profit growth and high single-digit operating profit growth in FY2025.

Making the best of the macro environment

After several years of stagnating growth of the UK economy, there are tentative signs of recovery.

According to the ONS, the economy grew by 0.6 per cent in September, with services being a bright spot – good news for companies like Softcat. This, of course, comes against a backdrop of stagnating growth over the past two years, with the economy yet to return to pre-pandemic levels.

Factors historically dragging performance in the channel – inflation and interest rates – are having less of an impact and Charlton is optimistic about the future.

Like a seaman successfully sailing through a stormy sea, Softcat’s soared despite turbulent waters.

“We've been lucky at Softcat,” says Charlton.

“For the last ten to 15 years, we’ve been able to grow two or three times the rate the market's been growing at.

“It does affect us because it makes customers a bit more cautious with their investments.”

The reseller also added sailors to its ship this year, by increasing its headcount.

Headcount grew by 30 per cent over a two-year period.

“We scaled the sales team aggressively, as we always do, but the bulk of our hiring goes into the technical and the service teams.

“We're not known for this because we're a big broadline reseller, but we have the biggest and most capable service division in the UK.

“If you look at the richness of our security service offering, it’s full.

“You look at the richness of our cloud migration, cloud management capability, we're the only partner in the UK that has both Azure expert MSP and the platinum service accreditation with AWS.

“If you want a partner, a reseller, to take you to the cloud, whether it's AWS or Azure, there isn't anybody more capable of advising you on that.

“We're building the richness and the capacity in that service division with the hiring we're doing across security, public cloud, Microsoft and so on.

“That’s why there is a lot of investment and headcount growth in the service and technical divisions.”