Softcat H1 results: Profits up, revenue still down due to hardware sales

While hardware sales continued to struggle, the reselling giant still managed growth in gross and operating profits and in gross invoiced income

Softcat H1 results: Profits up, revenue still down due to hardware sales

British reseller Softcat reported an 11 per cent gross profit growth (to £196.5m) as well as a four per cent increase (£1.263bn) in gross invoiced income in its half-year results to 31 January 2024.

Operating profits grew 5.8 per cent to £66.7m, which Softcat said exceeded expectations.

The only spanner in the works was the reseller's revenue, declining eight per cent – similarly to its full year results last October when revenue was down 8.6 per cent.

The company explained this was "driven by the decline in hardware which represents a higher proportion of this metric as software and some of services are netted down under IFRS15".

But Softcat CEO, Graham Charlton, told CRN he was feeling very positive about these results with the double-digit gross profit growth coming from mid-market, enterprise, and public sector segments.

"All parts of our customer base grew strongly. The most challenging area of our business, like everyone else's, was client devices and networking hardware.

"Due to the post-pandemic supply chain issues, we couldn't get enough client devices and networking hardware, leading to many back orders. However, this pent-up demand was suddenly fulfilled during the latter half of 2022 and into 2023.

"As a result, networking hardware and client devices sales have been down, but we're seeing strong demand across all other areas."

He said the company is seeing growth in datacentre solutions, security software, as well as Microsoft's Copilot AI assistant generating significant interest.

AI's impact still forthcoming

However, when asked about AI, Charlton expressed caution around all the excitement.

"AI is a major conversation topic, but it hasn't had a significant impact yet.

"While some organisations are heavily implementing Microsoft's Copilot, most are still evaluating and understanding it before rolling it out at scale.

"We're doing some work related to AI in datacentres as well. Certain organisations have been using proprietary AI applications for years, and they are now gearing up datacentre capacity and capabilities.

"Specifically, we're seeing more demand for transitioning from CPUs to GPUs to support AI workloads.

"So, while there are lots of conversations about AI happening, and we're witnessing small but growing numbers across datacentres, software, and other parts of our operations, I think it will be in the coming years ahead where we really see AI translate into material financial performance.

"For now, the actual impact on our business is still relatively minimal, but the potential for future growth is promising as AI adoption increases."

Thriving despite economic headwinds

Speaking about the main challenges faced in the first half of the year, Charlton said the macroeconomic conditions were still the focal point of everyone's worries.

"However, we're fortunate to be operating in the IT infrastructure space with the broadest and deepest offering in the UK market. This means there isn't a better sector to be in during times like these.

"Nevertheless, some of our customers are under strain, and as has been widely reported, they are being cautious with their spending and procurement cycles have been lengthening as a result."

To cope with this challenge, Charlton explained the company's strategy was leveraging its broad offering to support customers in areas where they are still investing and moving ahead.

"Additionally, we've taken advantage of favourable hiring conditions to continue bringing talented people into the team, building for the long-term.

"We've always been clear that during any period of economic difficulty, we would continue investing for the longer term. That's exactly what we've done, and we're really excited about the position it puts us in as the market begins to recover."

Headcount grew 15 per cent in this period, a slight slowdown compared to the 21 per cent of last year, but still in line with the company's objective – which Charlton said is usually around 10 to 15 per cent per year.