Four talking points from Softcat's first-half results
Adoption of IFRS 15 may have left a superficial hole in Softcat's revenues, but the Marlow-based reseller posted strong top and bottom-line growth in its first-half results
Softcat has reported another strong set of results for its first half ending 31 January 2019, despite its adoption of new accounting standards wreaking havoc with its revenues. Here we round up the key talking points.
- Growth shows little sign of slowing
Softcat's gross invoiced income - equivalent to revenue in previous periods - vaulted by 28.5 per cent year on year to hit £607.8m. This is despite Softcat warning the market that its growth could moderate at the time of its full-year 2018 results, when it posted 30 per cent growth.
First-half 2019 growth was "broad-based", with all offices, customer segments and technology lines chipping in, although Graeme Watt highlighted public cloud and security support services as particular areas of focus in his CEO review.
Softcat's board expects full-year results to come in "marginally ahead of previous expectations", Watt added.
- IFRS 15 leaves £174m superficial hole in revenues
Softcat's adoption of the new IFRS 15 had a major "presentational impact" on its top line numbers.
Under the international accounting standard for revenue, Softcat was forced to ‘net down' some revenue streams, namely around software and vendor services. This involves it recognising just the margin element of the transaction, as opposed to gross invoiced income.
The change meant that revenue came in at £434m, almost £174m behind what it would have been under previous standards.
Softcat stressed that changes to how it records revenue has no impact on profit or cash flow, and indeed Softcat's operating profit for the period leapt 40.4 per cent to £33.9m.
A comparison of Softcat's revenue lines confirms that the IFRS 15 change has had the biggest impact on its software and services revenues.
Gross invoiced income and revenues are fairly similar for its hardware business - at £201.7m and £195.0m, respectively. For software, however, gross invoiced income stood at £328.4m and revenue at just £200.9m, while services stood at £77.7m and £38.1m for the two categories.
- Further marketshare there for the taking
Softcat continues to grow at over 25 per cent annually, and without recourse to acquisitions, well above the 12 per cent growth recorded by the wider CRN VAR 300. It added 620 new customers during the period.
The Marlow-based reseller said the results illustrate "significant marketshare gains", but stressed that it still boasts a mere six per cent share of its addressable market.
"We operate in a large and fragmented industry which makes the opportunity for further growth in the years ahead just as strong as ever and we believe our business direction and execution are in good shape," said Watt.
- Coming to a town near you...
Softcat's growth model is based on hiring graduates and expanding its geographic footprint through new office openings, the latest being in Dublin and Glasgow.
It added a further 127 staff during its first half, relocating to larger premises in London and Leeds. Its Irish office now has 15 sales heads and is making "good progress in winning new customers and local vendor accreditations", according to Watt.
A further new UK office opening is planned by the end of the calendar year, he added.