Softcat CEO sounds note of caution over macro-economic and supply chain uncertainties

CEO Graeme Watt admits the trading climate is becoming a little more uncertain as he and CFO Graham Charlton reflect on the reseller's £1bn year

Results announced this morning showed Softcat's full-year revenues rising 30 per cent to £1.08bn.We caught up with CEO Graeme Watt and CFO Graham Charlton to discuss their plans for the year ahead.

You've broken the £1bn revenue barrier. At what point in the year did you know you'd do it?

Graeme Watt (GW): £80m before that!

Graham Charlton (GC): To be honest, until the auditors said we agree, you never know, because you have to get through that audit as well. We can monitor trading flow but there's quite a lot of revenue recognition cut-off adjustments to overlay, so it really is only in the final reckoning that we knew.

You mentioned that 2018 conditions were ‘exceptional'. Is that a hint that you think growth may slow this year?

GW: Some of the stuff we saw last year was exceptional. We had some exceptional growth in our server business, for example, which we wouldn't necessarily expect to see this year; server growth at Softcat was close to 50 per cent. So you have to look at that and be reasonable.

Some of the trends driving demand will continue - there's been some well-versed commentary around GDPR and Windows 10 and how that's still got some legs going into this year and next year. But there are some commentators - take Steve Brazier at Canalys last week - talking about channel growth in EMEA being less than half what it was this year, because of that uncertainty, and also because some areas of the industry were so hot this year.

The growth in your customer numbers slowed to 4.7 per cent, down from six per cent in 2017. Is that a concern at all?

GW: We need to look at ‘slower' in two ways - as a percentage and absolute. As our customer base grows, to deliver the same percentage growth of customers is going to be difficult. New customer growth was five per cent, but 530 net additional customers were delivered to the business, so to answer your question, it's not a concern. And what was particularly pleasing was that the net new business we drove from those customers was up sharply.

You opened an Irish office in August. Where next for Softcat?

GW: If we do open another office in the next 12 to 18 months, it will be in the UK and Ireland. I think there's probably room for at least one more regional office but exactly where is to be determined. When we open a new office we are opening up a new talent pool to recruit from. That is one of the key drivers, alongside getting closer to our customers and also creating some additional positions that our existing team can aspire to.

Softcat has never made an acquisition. How likely is it that you will acquire in the next year or two?

GW: Unlikely, unless something remarkable happened or changed. Our focus is on organic - we're not focused on any M&A targets right now. It's a strategy that has served us very well - I mean, look at the results we've just published. And we expect to expand and improve on them next year.

What kind of metrics would make it a successful 2019 for Softcat?

GW: Hitting the plans would be a big success. We've had an extraordinary year this year and we've projected growth on that extraordinary performance for this year, so frankly I'd be happy to hit that plan, particularly given some of the uncertainties in the market.

GC: We don't issue explicit guidance. We have conversations with analysts and they build their models. Some of those numbers are still filtering out but the analyst consensus for growth into [fiscal 2019] as we came into these results was low double digit on the topline and high single digit on the bottom line, so we'll see where they move those number onto. But clearly with the comparisons being very tough, next year those sorts of growth rates - slightly down on what we delivered this year - it's those kinds of things they're expecting from us.

You mentioned the slightly gloomier predictions coming out of Canalys EMEA Channels Forum about the market cooling. What are your personal views?

GW: I don't know, and I think that's what's driving some of the commentary. There is some macro-economic uncertainty, some supply chain uncertainties around Intel chipsets and whether AMD has got the capacity to make that up, and some potential price rises coming out of US-China trade wars. But how they will impact the demand environment is not clear. There's also a sense that the market was so good last year - we haven't really seen the market growing at those rates for quite a while - and there's just a question of whether they can continue growing at those rates.

Can you give maybe one or two specific examples of changes you've made to how Softcat operates since you came in?

GW: They've been small things really. I benefitted from the advantage of coming into a company that is operating very well and that was in the middle of an exceptional year. Some of the things I'm looking at is to understand what those critical success factors are and to make sure they continue at the same rate or even faster. We've hit the first billion. As we move to the second billion, how do we protect that culture that is so important to recruiting people, our existing team, and our customers? We're also looking at how to expand our addressable market. This year we've made some investments around cyber-security and cloud intelligence services, and have invested in Ireland. But the focus remains on the UK and Ireland for the foreseeable future, and on continuing organic growth. We talk about making white space purple, and will continue to do that.