5 takeaways from Softcat's interim results
Reseller says 11% average pay rise awarded to staff has helped it attract and retain talent as its run of 68 straight quarters of profit growth comes to an end
Softcat's share price rose by over five per cent this morning as it unveiled its interim results. Here we round up the five key takeaway points.
1. Numbers much better than they appear
Having stood at close to 30 per cent in its fiscal 2022, Softcat's gross invoiced income (GII) growth slowed to 4.9 per cent in the six months to 31 January 2023.
Operating profit also dipped by two per cent to £63.1m, ending a run of 68 quarters of consecutive growth.
Both developments will have caused little alarm among investors, however.
The slowdown in GII growth was due almost entirely to the artificial impact of high-value, low-margin business it secured with a "major" customer the prior year.
And Softcat had already prepared the market for a possible profit dip as its travel and entertainment costs rebounded post-Covid.
As it happens, operating profits actually beat expectations, while Softcat's key profit measure of gross profit hiked by 17.9 per cent to £177.1m.
2. Staff get 11 per cent average pay award
Pay reviews that came into effect at the start of Softcat's financial year (1 August 2022) have had a "profoundly positive impact" on attrition rates and its ability to attract new talent, CEO Graeme Watt said.
The reseller handed existing staff an 11.1 per cent average pay award. That reflected a 6.8 per cent average award tied to inflation, together with a restructuring of sales salaries.
Softcat's net headcount has swelled by 375 employees since the start of its fiscal 2023, Watt (pictured below) said.
"This represents a 21.1 per cent increase on the prior period, achieved in a market where we are finding it easier to recruit again," he said.
3. Chip shortage ‘dissipating'
The chip shortage that has dogged the channel for the last 18 months is easing, various vendors including HPE have testified in recent weeks.
Watt concurred, remarking that the "external challenges of the pandemic and supply chain constraints largely dissipated".
4. International growth opportunity ‘substantial'
Softcat has grown to a £2.5bn top line over the last 30 years entirely through organic means, even when it has expanded abroad (it launched a Dublin office in 2018 and small US outpost - designed to "enable us to better understand that market" - last year).
But Watt emphasised that it "will continue to monitor inorganic expansion opportunities too".
This applies both to the possibility of entering a new market or to adding emerging capabilities in the UK, he said.
"We are delighted with the performance of our multinational business and our office in the US," Watt added.
"Although currently a small percentage of our overall business, the opportunity for further growth is substantial."
5. Softcat expects to purr in second half
Watt said he was "pleased to be reporting positive numbers across a whole range of key performance indicators in a period that has exceeded expectations".
Although Softcat's hardware GII fell 27.2 per cent to £334.6m during its 1H (due to the impact of the one-off deals done with a major customer in the prior year period), software GII grew by 24.5 per cent to £687.4m and services by 31.5 per cent to £192.7m.
Spending on the IT infrastructure Softcat specialises in has become "less and less discretionary", he added, arguing that the need to invest in cyber security, hybrid cloud environments and end-user devices has become an "operational imperative".
"While there is still a lot to do in the second half and the economic environment remains uncertain, due to the out performance in the first half the Board now expects that the outturn for the full year will be slightly ahead of previous estimates," Watt concluded.