Softcat LON:SCT the FTSE250-listed IT infrastructure company based in Marlow, Buckinghamshire published its final results to the end of July this morning (24th October). As previously reported Softcat has had a strong year despite some analysts questioning the IT company’s sustainability.
First the disappointing news. The company saw its revenues fall 8.6% to GBP985.3m year-on-year.
However, the company seems to have worked out how to get more bang for its buck, as gross profit reported has grown 14.2% year-on-year to GBP373.8m and its operating profit was up 3.5% year-on-year to GBP140.9m.
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Drilling down on the revenue figures, Softcat sells three things: Software, Hardware and Services. The revenues derived from Software were up 25.9% y-o-y to GBP188.8m. In Services, where the firm helps companies set-up, manage and maintain their IT infrastructure, Softcat was also in positive territory seeing a 42.9% y-o-y jump in revenue to GBP185.9m. What dragged the overall figure down was Hardware sales, where the IT company was 23.5% behind where it was this time last year, generating GBP610.6m revenue from Hardware compared to GBP797.9m in July 2022,
Katy Mecklenburgh, Softcat’s chief financial officer explained in a note to the results that the poor performance in the Hardware division was down to how the revenue figures were compiled. For Software and Services she said that the revenue figures are netted down y-o-y. However, in 2022, Softcat had an exceptional year in Hardware with significant one-off transactions which skewed the comparison with 2023.
Softcat accounts for significant one-off transactions
The one-off transactions were – well one-off – so created a big number in that division in 2022. In 2023, if those one-off transactions in 2022 weren’t accounted for, the Hardware division actually grew its gross invoiced income (GII) y-o-y.
She said: “GII growth of 2.2% was driven by strong growth in both software and services, up by 13.0% and 21.1% respectively, largely offset by the decline in hardware sales mentioned above. GII grew more slowly than Gross Profit (GP) in the period, with GP as a percentage of GII expanding by 1.5%. Margin expansion was driven by the FY2022 one-off transactions, which diluted the comparative gross margin and several positive mix effects, with the year-on- year decline in lower margin client devices, and strong growth in higher margin datacentre, networking and security solutions driving a positive margin impact.”
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All-in, it was another satisfactory year for Softcat. Dividends were up from 16.6p to 17p with a special dividend of 12.6p and EPS growth of 1.3% y-o-y to 56.2p/share. GII was GBP2.56bn, a 2.2% increase y-o-y. The company also became more savvy with its cash – increasing cash conversion to 93.2% from 76.2% compared to the year previous, The company also managed to extract more profit per customer in 2023, with gross profit per customer rising from GBP33,000 to GBP37,000. With an increase in customer base from 9,900 to 10,100, it was all gravy.
Graham Charlton, Softcat’s CEO said in a statement to the market this morning: “”I am pleased to report on our FY2023 results which represent another record year for Softcat. Our unique culture and relentless dedication to delivering the best customer service in the industry continue to serve us well. We once again made progress on both selling deeper into existing customers, with double-digit gross profit per customer growth, while also attracting new customers, delivering 1.9% growth in the customer base.”He continued: “The company is well positioned to continue to deliver double-digit gross profit growth through the year, driving further market share gains. We expect full year FY2024 operating profit to be in line with market expectations. We expect the operating profit growth to be second-half weighted, with modest growth in the first half of the year principally reflecting the strong gross profit performance in the comparative period in the first half. We see significant and expanding opportunity in our market and will continue to invest to capitalise on this exciting growth potential.”
Softcat opened at 1,342.95p, and was up to 1,384p on release of its results. Over the year-to-date the IT company’s shares are up 15.2% and over one-year have returned 24.9%. The company has a market capitalisation of GBP2.8bn.
