Softcat CEO talks Brexit, acquisitions, potential price hikes and unclouding
Martin Hellawell says reseller will aim to add £70m to top line every year as he talks to CRN about Softcat's first year as a public company and growth plans
Fresh from the release of Softcat's first full-year results as a public company, CRN caught up with its CEO, Martin Hellawell, to discuss growth plans, cloud overhype, potential acquisitions and whether he is bracing for a second round of vendor price hikes.
Firstly Martin, how would assess your first financial year as a public company?
The IPO itself was a huge event for us and we were very pleased with the way it went and the outcome of it. Most importantly, we are really pleased it hasn't changed the nature of the business, and who we are.
On top of that, we had all the Brexit and EU referendum stuff, and a change of prime minster. Despite all that, we still managed a record year in what has been a difficult market. You've seen all the results of our peers recently, which haven't been particularly great. It was a huge year for us and we've come out of it feeling pleased.
Your revenues rose 13 per cent to £672m. How does that break down?
The way we look at it is the SMB market, which is commercial customers with fewer than 2,000 users; enterprise, which is 2,000-plus; and then all the public sector. Public sector was the outperformer, so that has grown from 26 to 29 per cent of sales, SMB has grown to 55 per cent and enterprise is the remaining 16.
Is that level of growth sustainable?
As the numbers get bigger, it's harder to do the same percentage growth rate, so we do expect the percentage growth rate to ease down over time. But we think we can keep up about the same absolute growth in revenue and margin. We grew by about £70m last year, so we should be able to keep growing the business by that kind of order of magnitude. And we do that by sticking to our knitting, staying focused, not going off on wild tangents, listening to customers and what they're telling us and by continuing to grow the salesforce. That's our very simple recipe that we've followed for 10 years and it has worked for us, so there is no reason to change.
Click through to the next page to read Hellawell's views on Brexit, and whether he thinks more vendor price rises are on the way
Softcat CEO talks Brexit, acquisitions, potential price hikes and unclouding
Martin Hellawell says reseller will aim to add £70m to top line every year as he talks to CRN about Softcat's first year as a public company and growth plans
Your growth accelerated in the second half. Does that mean the referendum hasn't had any ill effects on your business?
I think net, net, that's probably true. In the two or three weeks leading up to Brexit we certainly saw decision making getting slower. Then Brexit happened and very quickly people realised that pricing was going to go up, so actually it had a bit of a stimulus on sales for a few weeks as people were getting orders in quickly before prices went up. Then we went through the summer period, where people thought 'actually, the world hasn't collapsed; this isn't quite as bad as we thought it would be'. And in the last four or five weeks, it's felt a bit more 'oh, this could get trickier again'. So we've gone through different waves. But no matter how bad the economy gets, we still think we can grow the business.
Sterling has crashed against the dollar again since the last round of vendor price rises in the summer. You sell a lot of hardware. How concerned are you that there will be a second wave of price rises from the likes of HP, Dell or Lenovo?
We are not overly concerned. Customers know what's going on with the currency markets, so they expect prices to go up and they expect us to pass on those price increases to them. Our margins are maintained, so it doesn't actually directly affect us. They might sacrifice some of the luxury items but the amount of available spend they have and the amount of available margins for us stay constant.
Are you expecting UK vendor prices to go up again?
Honestly, I don't know, and it doesn't really affect us, but probably, yes.
Click through to the next page to find out the two negatives of life as a public company, according to Hellawell
Softcat CEO talks Brexit, acquisitions, potential price hikes and unclouding
Martin Hellawell says reseller will aim to add £70m to top line every year as he talks to CRN about Softcat's first year as a public company and growth plans
It has been almost a year since you floated on the LSE. What have been the pros and cons, and would you recommend doing it?
I don't want to give a blanket recommendation, but it's worked for us. The downside for us is that I have to spend probably 25 per cent of my time doing things like results days, so that's less time to do the customer and employee thing. The other downside, which I think we've managed to overcome, is we are a very open organisation. I sit in the middle of the sales floor and don't have an office, and information has been completely transparent. But we can't share financial information with the company anymore because it could lead to insider trading and it breaks stock market regulations, so we have to be less transparent with the financial performance. We used to make the P&L available to all staff every month; that is no longer the case.
The upside is, it certainly improves your brand recognition. It gives you a certain shine and credibility. You phone up a prospect and say 'we're Softcat' and they say they've never heard of you. You then say 'we're a FTSE 250 company' and suddenly it puts you in a different category and they take you a bit more seriously. It's also been an interesting journey for staff. We've been transparent about the process with them and not many staff have the opportunity to go through that process.
Click through to the next page to find out what Hellawell really thinks of cloud and why he thinks more and more firms could 'uncloud'
Softcat CEO talks Brexit, acquisitions, potential price hikes and unclouding
Martin Hellawell says reseller will aim to add £70m to top line every year as he talks to CRN about Softcat's first year as a public company and growth plans
'Cloud, cloud, cloud' seems to be the message at every industry or vendor conference these days. To what extent is Softcat embracing cloud and do you feel it is being overhyped?
I do think it is overhyped but I think it's very real and, yes, we are absolutely in that world. We've been in that world since before the word 'cloud' existed. Mimecast is one of the best examples of cloud-based applications we have been selling for many years and we have been its partner of the year for the past nine years. We are the largest Office 365 reseller in the SMB market and we are the largest Azure reseller, so we are doing an awful lot in that cloud market. We've built our own private cloud and have datacentres in Manchester and London and a 24/7 NOC operating those operations. We sell AWS as well. So we are very much in that world and we believe in that world.
I think it's a lot more complex than people thought a few years ago and it complicates IT further. Most people won't be able to move their workloads into the public cloud, so it is going to be a hybrid environment, which means we may have to look after on-premise IT, private cloud IT and public cloud IT. The mid-market customers in particular need a lot of handholding and guidance through that complicated world and that's where we are positioning ourselves. We are ideally placed to benefit from that world but there are certainly threats in it as well, and we're taking that seriously.
People are starting to talk about 'unclouding'. We're hearing more examples of firms rejecting the economics of public cloud and moving back on-premise. Are you seeing that?
Absolutely. I can't give you a name, but last night we had a good customer win who's done just that. They moved into the cloud a few years ago but realised it is far too expensive for them and that they've lost control of their IT, so they're going back on-premise - actually a shared services-type environment. I think we will see more of that. We are a direct benefactor of the infrastructure they will be procuring and implementing to do that. And that's not the first one; we've seen a few of those recently.
Click through to the next stage to find out why Softcat is considering its first ever acquisition and why Hellawell thinks the firm is 'boring'
Softcat CEO talks Brexit, acquisitions, potential price hikes and unclouding
Martin Hellawell says reseller will aim to add £70m to top line every year as he talks to CRN about Softcat's first year as a public company and growth plans
Finally, what's in store for Softcat in your financial 2017? Are acquisitions on the agenda, for instance?
It's the same strategy as ever; boring old Softcat. That means just going out and winning new customers and selling more to them. We've never done any acquisitions but we're not against it. We are probably looking at more than we ever have done at the moment, and there are a lot of opportunities out there for acquisitions. We haven't got a plan to do it but we're looking at opportunities tactically, and if something fits us culturally and takes us somewhere faster, we will certainly consider those in the future. But I have not gone past a second meeting with any organisation for three years, so it's very early stages.