Softcat posted its 48th quarter of growth this morning as its full year sales rose by nearly a quarter to £832.5m.
CRN caught up with its outgoing CEO Martin Hellawell to find out what drove that growth, what Softcat has in store for 2018, and how close the Marlow-based outfit is to finding his successor.
You announced your intentions to step back into a non-executive chairman role in May. How close are you to finding a successor?
We appointed a head hunter in June and have done a very thorough search across the market. We didn't just look at people within our industry; we also looked at people outside the industry. And now we've got that down to a sensible list of potential candidates and continue to progress that. So I'm quite happy with where we are. We are in that luxurious position where I don't need to go anywhere, so there's no time scale on this at all - it will take the time it takes. I'm very happy to stay around until that person has their feet firmly under the desk.
You grew 24 per cent in your year to 31 July 2017. Is that level of growth sustainable?
Revenue is not the most important factor for us. But [24 per cent growth] is pretty exceptional. It's way above what we've guided you to in the past. In the past we've talked about absolute growth rates more in the region of £60m-£90m a year, so last year was a bit of a bumper year. Certainly in terms of revenue that kind of growth rate is probably not sustainable, but a good double-digit growth rate is probably sustainable.
You've indicated in the past that Softcat may break from tradition by making an acquisition or expanding outside the UK. How much of a priority are those two things right now?
On a list of 100 things, they're somewhere between 95 and 100. The strategy is about UK growth and about organic growth. Clearly we will look at opportunities outside of that through acquisitions and potential international growth, but it is certainly not a priority.
What was the highlight of the year?
The highlight was that everthing was positive. All the branches performed really well and all the business lines saw double-digit growth, so there was just no weakness across the board at all. In terms of particular highlights, I would say all things security were really strong, and we also enjoyed really strong progress in our IT services complementing our technology reselling business.
Your gross margins declined from 18 to 16.4 per cent during the year, and our own research suggests that margins across the UK reseller market have fallen over the last 12 months. To what extent are you feeling margin pressure right now?
I wouldn't say we've felt under any pressure. While I don't want to be glib about it, profit margins - in percentage terms - are really not important to me. If there is incremental, absolute profit in a deal where we are going to make money, but which will bring our margins down, I will happily take it. So if there's a £20m deal out there, where we are going to make £100,000 of profit - so a very small percentage margin - and it is going to cost us £5,000 to do it, I will absolutely take that bit of business. It's not something we are trying to manage. We are much more interested in gross profit growth, rather than gross margin percentages, so I haven't felt under any particular pressure.
[Our gross profits] have normalised again. Last year we pulled out this big one-off procurement benefit that gave us an extra £3m-£4m of margin that year, so our margins went up last year. They've come back down this year to pretty much where they were. We've taken one very large government deal, with very small margin in it, to get into that customer then win more business within it afterwards, which we were delighted about. We didn't take it at a loss but that reduced our margin as well. And then our public sector business, which is lower margin than our corporate business, is growing faster than our corporate business. And also this year you've seen a rebound in the client device market and that is clearly a lower-margin category. I'm delighted to be taking all that incremental business, and I'm really not losing any sleep about the gross margins going down from last year.
Click through to following page to find what Hellawell would change if he had his time at Softcat again, why he believes the reseller model has never been stronger, and what kind of successor CEO Softcat is searching for
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