Softcat H2 Earnings Call Highlights

Key Points

• Strong fiscal 2026 performance: Softcat’s gross profit rose 24.7% to £616.3 million and underlying operating profit increased 19.4% to £215.1 million, supported by broad-based growth in hardware, services and software. Customer numbers exceeded 10,500, while cash conversion remained strong at 93.6%.
• Investment and acquisition will weigh on near-term margins: Higher spending on staff, systems and capabilities reduced the underlying operating margin to 34.9%, while non-underlying costs are expected to increase substantially in fiscal 2027. The GDT acquisition expands Softcat’s international reach and infrastructure capabilities, but will raise leverage to about 1.3 times EBITDA initially.
• Positive but more measured outlook: Management expects high-single-digit underlying operating profit growth in fiscal 2027, excluding GDT, despite tougher comparisons and some fiscal 2026 orders being pulled forward. AI-related demand for data centers, networking, security and storage remains a key growth opportunity.

Softcat LON: SCT reported fiscal 2026 growth ahead of its initial expectations, with gross profit rising 24.7% to £616.3 million and underlying operating profit increasing 19.4% to £215.1 million, as demand remained strong across its IT infrastructure portfolio.

Chief Executive Officer Graham Charlton described the results as “an exceptional set of annual results,” citing broad-based growth, market-share gains and continued investment in the company’s people, systems and capabilities. The company also highlighted its recently announced acquisition of GDT, which management said would expand its international offering and add infrastructure and networking capabilities.

Revenue Growth Supported by Hardware, Services and Software

Gross invoiced income rose 30.5% to £4.7 billion during the year. Hardware gross invoiced income increased 41.6%, supported by data center and networking sales, including larger solutions projects and customer orders brought forward amid memory shortages. Services grew 30.1%, while software increased 25.3%, aided by cybersecurity, licensing and Microsoft cloud service provider activity.

Revenue increased 35.4%, with hardware accounting for a greater proportion because it is reported on a gross basis under IFRS 15. Gross profit margin as a percentage of gross invoiced income declined by 60 basis points, reflecting a shift toward lower-margin products, changes to Microsoft enterprise agreements and the lower-margin effect of large projects.

Gross profit growth was strongest in the corporate business, where enterprise and small and medium-sized customers posted strong double-digit growth. Public-sector gross profit rose by high single digits. Data center infrastructure, networking, security and client devices were among the major technology contributors.

The company’s customer base grew 3.4% to more than 10,500 recurring customers. Gross profit per customer rose 20.6% to £58,500. Among customers generating at least £1,000 in annual gross profit, the number of customers increased 7.1% and gross profit per customer rose 16.5% to £70,000.

Charlton told analysts that growth from existing customers was driven primarily by Softcat displacing competing providers, rather than simply benefiting from larger customer IT budgets. He said the company’s approach has been to establish an initial presence with customers before expanding its share of their infrastructure spending over time.

Investment Raised Costs, While Cash Generation Remained Strong

Underlying operating costs increased 27.7%, exceeding gross profit growth as Softcat reinvested in technical, specialist sales support and back-office roles, as well as internal systems, data, digital capabilities and offices. Average headcount rose 10.8%, including the Oakland acquisition.

Underlying operating profit margin, measured as a percentage of gross profit, declined to 34.9% from 36.4% a year earlier. Statutory operating profit rose 13.6% to £196.4 million after £18.7 million in non-underlying costs. These included £15.6 million in development costs related to new cloud-based sales and human-resources systems that could not be capitalized, plus costs related to the Oakland acquisition.

Chief Financial Officer Katy Mecklenburgh said non-underlying costs are expected to rise by roughly two to two-and-a-half times in fiscal 2027, as lower systems-development expenses are offset by GDT acquisition and integration costs.

Profit after tax increased 13.0% to £150.3 million, while underlying basic earnings per share rose 19.7% to 83.2 pence. Underlying cash conversion was 93.6%, near the upper end of Softcat’s 85% to 95% target range. The company ended the year with £199.9 million of cash after returning £137.5 million to shareholders through dividends and a £45 million share buyback.

The board proposed a final dividend of 21.6 pence per share, bringing the full-year ordinary dividend to 31.5 pence, up 7.5% year over year.

GDT Acquisition Expands International Ambitions

Management said GDT will enhance Softcat’s ability to support customers with international operations, particularly in the U.S. and wider Americas. Charlton said the acquisition gives Softcat customers access to GDT’s fulfillment capabilities, while GDT gains access to Softcat’s broader portfolio and international capabilities across the U.K., Ireland, Europe and Asia-Pacific.

Charlton said the company had already won new business from U.K. and Ireland customers as a direct result of the acquisition announcement. He added that the combination could make the enlarged business one of a limited number of providers capable of supporting large, complex customers globally.

To fund the transaction and broaden its liquidity options, Softcat extended its revolving credit facility to £450 million and arranged a £100 million term loan after year-end. Following completion of the deal, the company expects net debt leverage of about 1.3 times EBITDA, falling below one times by July 2028. Outside temporary financing needs for major strategic investments, Softcat is targeting net debt of 0.5 to one times EBITDA.

AI and Infrastructure Demand Shape Outlook

Charlton said artificial intelligence is supporting demand across Softcat’s technology areas, as customers require more data infrastructure, networking, security, storage and related services. He said Softcat has limited exposure to hyperscaler hardware spending, deriving less than 2% of gross profit from the neocloud segment during the year, but sees substantial opportunity in corporate and public-sector investment in AI-capable infrastructure.

The company is also deploying AI internally through its data and systems investments. Its new HR platform has gone live, while a new sales system is being introduced in phases after an initial pilot. Management said the projects were being delivered on time and within budget.

For fiscal 2027, excluding GDT, Softcat expects high-single-digit underlying operating profit growth, slightly ahead of gross profit growth. Mecklenburgh said the outlook reflects a tougher comparison following unusually large projects in fiscal 2026 and some first-half order pull-forward related to memory supply constraints, rather than a weakening in the underlying business.

Management said Microsoft’s latest partner-incentive changes were included in guidance and are expected to be a slight net positive, as the changes favor partners with capabilities to support technology adoption.

About Softcat (LON:SCT)

Softcat plc operates as a value-added IT reseller and IT infrastructure solutions provider in the United Kingdom. The company advices, procures, designs, implements, and manages technology, such as software licensing, workplace technology, networking, security, and cloud and datacenter for businesses and public sector organizations. It also offers public cloud, collaboration, connectivity, data centre and private cloud, devices, and financial solution services. In addition, the company provides IT asset management, lifecycle solutions, modern management, security, software licensing, supply chain operation, and virtual desktop and application.

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