Softcat CEO Martin Hellawell (pictured) has just overseen his final set of financial results as CEO.
The Marlow-based reseller's revenue runrate is now nearing the £1bn rate following 25 per cent growth in its first half.
CRN caught up with Hellawell and Softcat CFO Graham Charlton to discuss the period's highlights and Softcat's plans for growth.
Your first-half revenues rose by 25 per cent to £472.8m. Was this ahead of expectations? Also, how close are you now to hitting a £1bn sales runrate?
GC: It was ahead of the expectations the analysts had as we entered the year. But we think primarily about gross profit growth, and that's what internally we are very focused on - and that grew by 22 per cent, which was also ahead of the analyst expectations as we entered the year.
MH: The analysts' [full year] revenue expectations are now around the £960m mark.
Do you know why Softcat's shares were down about 12 per cent this morning?
MH: No, and I don't know why they were up six per cent yesterday. There was all that Micro Focus stuff, where they had a massive drop earlier in the week, and Sophos went down badly yesterday, so I don't know if it's a jitter on the tech market. The whole thing is a mystery to me.
You've recorded 50 straight quarters of revenue and profit growth. Is that sustainable?
GC: We like to think so. We reckon we've got six to 6.5pc marketshare in the UK as it's a really fragmented market. Our formula has delivered consistent organic growth, and we see headroom for more growth.
What drove your first-half growth?
GC: We saw strong growth in the midmarket - which is our heritage - and public sector, and slightly faster growth in enterprise. When you look at where it came from in terms of technology, it's across the piece. We saw particularly strong demand in security and data management, and also datacentre, both on-premises and cloud - so it was a really broad base of growth drivers.
Michael Dell was recently quoted as saying on-premises is more cost effective for 85-90pc of solutions. What are you finding for your customers?
MH: Well, Michael would have a vested interest in that! We are seeing exactly what we said five years ago playing out completely. It's that hybrid model: existing workloads and legacy applications are really hard to shift, and people are questioning whether that's cost effective and necessary to do. So I think most legacy applications are staying on-premises or in a private cloud, and a lot of new applications are being put into the public cloud.
So the vast majority of organisations of any size are coming down on a hybrid infrastructure. Whether that's 50-50, 80-20 or 60-40, it depends, but if you went for 50-50 over the next few years, you probably wouldn't be far wrong for workloads and where they're going to sit. We're not there today, but will probably get there in time, and I think it's great that customers have that choice of where they put their workloads. But the demise of on-premises computing was much exaggerated. Our server business this year has been very stellar, as is our Azure business. So investments are being made in both areas.
Do you think the rise of 'video assistant referees' will spell the death of the term VAR?
MH: I did notice watching the football the other night that they called it the ‘VAR' and it though, ‘oh we're one of them'. I like being a reseller, and we make a thing about being a reseller when most people who are resellers are trying not to be resellers, for some reason that's not known to me. It's probably fair to say that most of us these days are infrastructure providers but that takes you into the ‘IP' world, and we're not IPs.
Your customer numbers were up by six per cent in the first half, compared with 8.7 per cent a year earlier. Does that mean that most of your revenue growth came from selling more to existing customers?
MH: No, that's not right. I was absolutely delighted with our new business growth. In terms of the customer count [the growth] was lower - 600 incremental customers year on year - but the amount of gross profit and revenues generated from those new customers was up 35 per cent year on year. This suggests the customer projects we won with new customers were big and/or the customers were bigger, so not I'm not disappointed at all with those numbers.
Graeme Watt will start as CEO on 3 April. Have you got any tips for your successor, Martin?
Stay focused and carry on being who you are. He is a great guy so let that personality shine through and do things his way. But also to respect the past and the winning formula.
You announced in your results that you're on course to launch a Dublin office within 12 months. How are plans progressing?
GC: It's not related to Brexit at all: we've been keen to open an Irish office for a while. I think there is a great opportunity for us to recruit good graduate talent there and also to address local customers that we probably struggle to execute on without an office there today. We've now found a team of six or seven people who want to go out and set up an office and who we will base the operation around. When they land we will start the local graduate intake. It's the same set up as in the UK and will therefore be a slow burn and organic build - we are not expecting explosive growth from this in our next financial year.
MH: It's gathering good momentum now. We were out there two weeks ago looking at premises. The recruitment adverts are out there already and we are talking to new graduates to join us this summer.
So is this a prelude to Softcat expanding internationally, or just another sales office?
MH: Just another sales office.
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