In the wake of Softcat’s full-year 2023 results this morning, we caught up with new CEO Graham Charlton.
Although its top-line grew by a muted 2.2% to £2.56bn, Softcat’s primary measure of income – gross profit – leapt 14.2%.
Charlton talked IT Channel Oxygen through what he made of the results and his thoughts on topics spanning Softcat’s omission from Lots 1 and 2 of the recent £12bn TePAS 2 framework, the AWS Marketplace, and the battle to be the UK’s largest VAR…
Hi Graham. Crowdstrike yesterday announced it has become the first cybersecurity vendor to sell over $1bn through the AWS Marketplace. Do you view AWS Marketplace as a competitor or a partner, and do you feel Softcat has sufficient access to this growing channel?
I definitely see them as a partner and not a competitor. It’s a new method of distributing software. But what marketplace doesn’t do is provide the advice around the solution and how to licence, manage and implement it, which we do. So if you think about AWS Marketplace as more akin to a distributor than a reseller, that’s the right way to think about it.
We are very keen to embrace not just AWS but also other marketplaces as they evolve, because that digital provisioning of software – compared with traditional license selling – is part of the future. It gives a way for a new wave of customers to interact with those propositions as well, so it’s an area we’re focused on investing in.
Softcat didn’t feature in Lots 1 or 2 (covering hardware/software/associated services and hardware, respectively) of the £12bn TePAS 2 framework, which surprised some people. Was this by design, and are you happy Softcat can serve that very important public sector market with your full portfolio after it goes live?
I think Computacenter missed out on those Lots too. These public sector frameworks are very competitive, and there are obviously lots of people trying to get on them. It’s part of the ups and downs of trading.
Our position on those public sector frameworks is as strong as anyone in the market, so we have a good chance of mitigating some of the impact of not being on those Lots.
Looking at Computacenter’s UK gross invoiced income in its fiscal first-half of 2023 (£1.27bn), it’s almost exactly half that of Softcat’s full-year 2023 GII. In other words, the ‘contest’ to be the UK’s largest VAR/services business is getting interesting again. Does this dynamic mean anything to you at all?
No not really. Like you say, it’s a point of interest, but we’ve never run our business for gross income, and we won’t do that either. What we won’t do is start buying big, commoditised deals at low margin just to get the GII number up, as that distracts our people from the real opportunity, and then the price of vanity is negative.
Computacenter is a terrific business, whether that’s in the UK or outside of it, so it’s lovely if we can be seen to be outperforming them. But they’re only 3% of the market and we’re only 4% or 5% of the market; so getting distracted by a competitor’s gross invoiced income number really doesn’t interest us. We’d rather keep selling the right things to customers when they need them and making a margin and a return on that. Genuinely, I don’t get distracted by that.
As the former CFO, you’re a numbers man. Did any numbers from your full-year performance really leap out at you?
The weakness in the client device market is a real problem for many of the vendors and disties, and some of our competition, and it was definitely a feature of our numbers. We saw client devices were reduced year on year.
But that doesn’t surprise or worry us because there are lots of other things we can sell. The strength we saw in other parts of our hardware portfolio – across datacentre and networking – more than offset that, which is why we ended up with the 14% gross profit growth.
With the breadth and depth of our proposition we don’t try and predict how that mix will play out – we just respond to what customers need from us. And that’s a luxury almost no one else in the industry has.
What’s your message to the market around these results and how they should be seen?
It was another year of strong growth that was ahead of the expectations we set coming into the year.
Our primary measure of income, gross profit, grew double digits in both halves. Growth was broad-based across all the customer segments and different areas of technology.
We increased headcount in line with our plans – up 20%. We’re really delighted with the levels of recruitment but also the levels of retention we are seeing, which has played into that strong growth. So we’re entering the new year in a terrific position with good momentum.
Our customer and employee net promoter scores went up strongly in the year and there are some really exciting innovations coming to market. AI will provide a source of new conversations and further innovation for customers and vendors to get their teeth into as you saw being talked about at Canalys.
You mentioned that headcount during your FY2023 rose 20%. At what rate will you increase headcount in 2024?
We’ll keep investing and keep growing it, but it will be at a slower rate. We had really strong recruitment and retention last year, and that puts us in a great position. But we’ve usually targeted headcount growth in the 10-15% range, and that will be the case again in the year ahead.
What are your investment priorities for the year ahead?
To keep expanding our proposition for customers in the way the market is moving. So that means focusing on hybrid cloud, cyber security and AI capabilities, but also maintaining our traditional capabilities as well.
And then investing in, modernising and seeking the value from our own systems and data capabilities. We’ve put a new financial system in and new data, storage and governance. That gives us lots of opportunity to embrace new ways of working and putting AI to work in our own operation.