Softcat (LSE:SCT) Q4 2026 Earnings Call

0:00 okay good morning everyone and welcome to softcat's fy26 results presentation i'm graeme charlton softcat's ceo and i'm really pleased to be taking you through an exceptional set of annual results today joined as always by our cfo katie mecklenburg who you'll hear from shortly As you'll recall, a little under a month ago, we announced the acquisition of GDT. The response to that transaction from our customers, from vendors and employees has been very positive indeed. And the acquisition will add significantly to our offering, create new capabilities and growth pathways for our business. today our focus will mainly be on the progress that we've made in the uk and ireland business over the past year but i will touch on what gdt brings to the opportunity that we have looking forward towards the end of the presentation and we'll happily take questions across all of that at the end as well Before I hand to Katie I'll do the usual recap of who we are and how the business is evolving. This year we've again extended our position as the UK and Ireland's leading provider of IT infrastructure solutions.

1:10 We've delivered a year of exceptional growth across an increasingly broad and differentiated customer offering. so this slide shows that we are that we operate across the entirety of the modern infrastructure stack with the broadest offering and the largest and most diverse customer base in the uk increasingly we're being asked by customers to support their international operations we serve more than ten and a half thousand recurring customers across both the private and public sectors And it's the combination of those trusted relationships and the breadth of our offering combined as well with the outstanding customer service ethos that we've always had. Those are the things that drive the sustainable growth that we continue to see. And after Katie's financial review, I'll explain how I think we are uniquely positioned for the relentlessly expanding opportunity in front of us and how that acquisition of gdt material materially augments the existing strengths that we have and aside from the acquisition of gdt during the year we've continued as well to invest more than ever before in our own business to our technology our people and our workplaces at year end we have over 3 000 soft cutters now based across 12 offices in the uk ireland and internationally we've strengthened all teams across the business again this year added new capabilities more

2:41 capacity and equipped our people with the very best enterprise applications and tools as a result we've begun and will continue to deploy innovative ai functionality to transform over the coming years both our operations and our customer proposition we're not just seeking to extend the competitive advantage that we have with these investments we are looking to define what world leading value-added customer service looks like in our industry today and i'll come back to all of that in more detail later but first i'll pass you across to katie who will take you through the details behind the exceptionally strong year we've just closed

3:26 thank you graham and good morning everyone i am very pleased to share softcat's results for fy26 reflecting another year of successful execution and strong profitable growth alongside significant reinvestments to drive our future performance in summary we've delivered another very strong year of growth which was ahead of our expectations at the start of the year This growth is supported by the previous investments that we've made in our offering, our people and capabilities, and systems and office network, which have enabled further market share gains and improved our internal operations. Gross profit, our key measure of income, grew by 24.7%, primarily driven by the strength of our underlying business performance, supported by the contribution from larger solutions projects and the pull forward of some orders due to memory shortages.

4:17 Underlying operating profit growth increased by 19.4% to £215.1 million, reflecting strong growth in gross profit, partially offset by a significant increase in underlying operating costs, which includes both ongoing and one-off investments that we made in the year to support future growth. Underlying cash conversion of 93.6% for the year is towards the top end of our target range and we ended the year with 199.9 million of cash having returned 45 million to shareholders through our first ever share buyback during the year. board has proposed a final dividend of 21.6 p per share taking the total ordinary dividend for the year to 31.5 p this is an increase of seven and a half percent in line with our progressive policy and underlying basic earnings per share increased by 19.7 to 83.2 p so turning to the summary income statement and starting at the top. Gross invoice income grew by 30.5% to £4.7 billion. Hardware GII increased by 41.6%, supported by strong data centre and networking sales, including the contribution from larger solutions projects and pull forward of some customer orders due to memory shortages.

5:39 services grew by 30.1 percent driven by growing share of partner supported business while software increased by 25.3 percent with strength in cyber security licensing and microsoft csp Revenue grew by 35.4% ahead of GII largely due to hardware, which represents a higher share of revenue as it is reported on a gross basis under IFRS 15. Software revenue growth of 22.6% was slightly behind GII growth, primarily reflecting a mixed shift into lower margin products. Services revenue growth of 21.1% was also behind GII growth, reflecting a higher share of externally provided services which reported on a net basis.

6:25 Gross profit grew by 24.7% to £616.3 million, reflecting broad-based strength across our technology portfolio and customer segments. Gross profit growth was particularly strong across our corporate business, with both enterprise and small and medium customers delivering strong double-digit growth and public sector grew by high single digits. By technology, area growth was driven by data center infrastructure, networking, security, and client devices, while hardware, software, and services all grew double digit. overall gross profit as a percentage of gii declined by 60 basis points over year on year reflecting a mixed shift into lower margin products the impact of the microsoft ea changes and the dilutive impact of large solutions projects at lower margin the higher than planned gross profit growth and more moderate employee growth drove gross profit per employee to increase by 12.5 percent to almost 211 000 pounds Moving on to the next slide, underlying operating costs increased by 27.7% ahead of gross profit growth as we reinvested strongly back into the business.

7:35 Commissions grew in line with commissionable gross profit while wages and salaries increased by 16%. average head grant growth grew by 10.8 including oakland reflecting continued investment across technical specialist sales support and back office roles we also continue to invest in our internal i.t capabilities systems data and digital and office refurbishments which will support our future organic growth while we also built out our corporate development capability Cost growth included the annualized impact of higher employees at national insurance contributions. And thanks to our outstanding performance, we were also able to award all of our employees with a one-off share award. This recognizes the role our people play in delivering our consistent outperformance and gives them a way to share in Softcat's future success.

8:26 Other one-off costs included advisory costs relating to the GDT acquisition and outperform element of other variable pay. Underlying operating profit grew by 19.4% to 215.1 million. As operating costs grew ahead of gross profit, the underlying operating profit to gross profit ratio reduced to 34.9% from 36.4% last year. During the year, we incurred 18.7 million of non-underlying costs. These comprised of 15.6 million of development costs relating to the implementation of our new cloud-based sales and HR systems, which could not be capitalised. These systems projects were delivered in line with budget and are an important part of the foundational platform supporting Softcat's data, digital and AI transformation.

9:16 balance of 3.1 million related to oakland acquisition related contingent consideration and amortization of acquired intangibles after deducting these non-underlying costs statutory operating profit was 196.4 million an increase of 13.6 percent year on year Looking forward to FY27, non-underlying costs will increase by a factor of around 2 to 2.5 times, with lower costs relating to system developments, but including GDT acquisition and integration costs. Net interest income increased to £6.4 million from £5.3 million last year, reflecting higher interest income earned on cash and cash equivalents despite lower average interest rates. And finally, the effective tax rate increased to 25.8% from 25.4%, primarily reflecting the disallowable deferred consideration relating to Oakland and a small impact from other non-deductible expenses.

10:14 profit after tax increased by 13.0 to 150.3 million and now turning to our customer base and portfolio offering These charts illustrate the balance and breadth that underpin our performance across customers, products and technology areas. Our customer mix remains well diversified across corporate and public sector organisations, ranging from smaller businesses through to larger enterprise customers. This breadth reduces reliance on any individual segment and gives us multiple routes to growth. we also retain a balanced mix of software hardware and services supported by a technology proposition spanning public cloud and data center networking and security and the hybrid workplace together this diversification and breadth of capability strengthen our resilience deepen our relevance to customers support further sustainable growth and will be further enhanced by the gdt acquisition and moving slides and on to our customer metrics The chart on the left shows the continued growth in our total customer base and average gross profit per customer demonstrating our ability to acquire new customers and to deepen our existing relationships.

11:29 During the year our customer base grew by 3.4% to over 10,500, with net new customers added across all segments, led by small and medium. This is an acceleration over our last five year average growth, demonstrating the greater support customers need as the IT landscape becomes ever more complex. Gross profit per customer increased by 20.6% to £58,500, reflecting further progress in selling more to existing customers across our technology portfolio. The chart on the right focuses on customers with whom we have a more established trading relationship, measured as those generating at least £1,000 of gross profit in the year. These customers tend to buy across more technology areas and a broader range of vendors. The number of customers in this cohort grew by 7.1%, again above the five-year average, while gross profit per customer increased by 16.5% to £70,000.

12:28 The longer tail of transactional customers remains an important source of future growth, while customers generating at least £1,000 of gross profit account for approximately 99% of the group's gross profit. and now turning to cash underlying cash conversion was 93.6 percent towards the upper end of our target range of 85 to 95 reflecting continued good working capital management cash generated from operations before tax and after capital expenditure was 101.4 million pounds depreciation and amortization increased slightly year on year following our recent investments in offices and internal technology while capex more than halved primarily reflecting lower spend on new office fit outs compared with the prior year cash tax was 50.5 million broadly reflecting the growth in taxable profit during the year we returned 137.5 million pounds of cash to shareholders comprising of 92.5 million in dividends and 45 million through the share buyback program completed in february this year we ended the year with cash balances of just under 200 million an increase of 17.6 million year on year after funding the aforementioned shareholder returns and our continued investment in the business overall cash generation remains strong and provides a solid foundation as we continue to invest for growth both organically and through the acquisition of gdt

13:59 The next slide covers the ordinary dividend. The board has proposed a final ordinary dividend of 21.6 P per share based on the number of shares outstanding following our equity placing for the acquisition of GDT. Combined with the 9.9 P per share that we paid at the interim stage, this results in a total ordinary dividend for the year of 31.5 P, which is up 7.5% on last year and in line with our policy of paying out between 40 and 50% of profit after tax on an annual basis in the second half of the year we established a new revolving credit facility of 50 million pounds which remained undrawn after the year end and as part of the gdt transaction we have negotiated an extension of the rcf to 450 million together with a term loan of 100 million as well as supporting the acquisition of gdt the rcf reflects a maturation of our liquidity management approach providing the group with the flexibility to maintain our operating cash flow through a combination of cash on hand and available facilities the cash flow is currently 90 million pounds and unchanged from last year but will be reviewed after the gdt acquisition closes to take into consideration the requirement of the enlarged group and now turning to capital allocation have a disciplined approach to capital allocation our top priority remains unchanged and is to invest in future organic growth which supports our ambition to take further market share and enables us to continue to scale the business

15:31 delivering long-term shareholder value our second priority is to maintain a progressive ordinary dividend policy and any remaining excess capital is then either allocated to compelling inorganic investments or return to shareholders Moving forward outside of temporary requirements to support material strategic investments, the Group will target a net debt to EBITDA ratio of 0.5 to 1 times. Following completion of the GTT acquisition, estimated net debt leverage is forecast to be 1.3 times and expected to be below 1 times by July 2028. and finally moving to the outlook excluding the contribution from gdt the board expects to deliver high single digit underlying operating profit growth in fy27 slightly ahead of gross profit growth following very strong two-year growth across fy25 and fy26 of nearly 50 percent in terms of phasing we expect gp to be first half weighted given the strong second half performance in fy26 with underlying operating profit more balanced across the year reflecting one-off costs in the second half of the prior year and with that i'll now hand over to graham to run through the strategic update

16:50 thank you katie and i will talk about two main things now in this section firstly the growth and investment that softcat has achieved and made during the past year and we'll look at what's been driving the performance we'll also look at how we've been investing for the future in that time as well and we'll start by looking at why i think we performed so strongly this year and firstly our core strategy clearly continues to work well our focus on outstanding customer service and the breadth and quality of our offering differentiate softcat in the market and deepens trust with both our customers and vendors by sustaining investment across market and economic cycles we've continued to compound double-digit growth and we've expanded and modernized our capabilities relentlessly execution has remained strong as well which comes from our special culture the energy alignment and commitment of our people from the top to the bottom of the organization has been exceptional again over the past few years our market conditions have also been good for those with the right skills and offering procurement scrutiny remains high very high as prices have escalated but customers have continued to invest in their technology and in these conditions we've been able to use the quality of our proposition to add new customers at an accelerating rate and grow gp per

18:20 customer as you saw in katie's slides then we have the supply constraints around the memory chips which have been a net stimulus in the period as the year has gone on that situation has become more stable with price rises still happening but in a more controlled way supply of memory chips is highly likely to remain constrained across all of 2027 calendar year and probably well beyond that too whilst this isn't a great situation for customers it is something that we are particularly well placed to help them with due to the breadth and depth of our offering and vendor relationships and finally ai is benefiting our business in two very clear ways firstly it's beginning to transform how we operate and go to market the modern foundations of data and systems that we've implemented over the past five or six years have created an actionable platform for our own ai innovation a little more on which later but in addition it ai is also building demand across all five of our technology towers and i'll spend a few minutes now illustrating that point and how i think it will be a driving force in our industry for many years to come So turning the page, I'll start with a slide we've used before to show how the modern technology stack can be considered to exist in two distinct layers.

19:39 Firstly, the applications where AI innovation is starting to accelerate. And secondly, the infrastructure required to run those applications securely and at scale. Now we don't do too much in the application layer, although some of our largest vendors cross into that space with their product range, most notably Microsoft. but the infrastructure layer the software the hardware and the services in that infrastructure layer that's where we mainly work helping our customers design procure deploy and manage their operating environments and as the application layer becomes more demanding more data hungry the infrastructure required underneath to run it must respond and i'll illustrate now this in a little more detail with the next slide which gives a flavor of what i mean And while this is a busy slide, it really only shows the merest tip of the iceberg in terms of the scale and complexity of what's beginning to happen here. We start with the applications at the top.

20:37 AI functionality requires huge amounts of data, well-organized data to run effectively. That data has to be moved around networks and processed in the right way at the right time. And that data has to be secured through all of those movements and stages. It has to be accessed in different ways by different devices and it must be contained and updated and tagged within contemporary storage architecture. And AI is also creating new demands such as the provision of and management on consumption of the language models for bespoke applications and FinOps optimization of inference consumption. but as i say this is just to shine a light on the very tip of a very simplified iceberg the challenges that our customers face to evolve their infrastructure and and functionality of that are significant and the solutions to all of that will be a work in progress for years and years to come And in this environment, our role as a trusted advisor with broad capability has never been more valuable. We have deep customer intimacy.

21:43 We understand their business and their legacy architecture. We have access to the latest products and developments of hundreds of the leading vendors. We have top tier accreditations with those vendors and we co-invest with them in the skills and services needed to design and deliver the new technologies. so we augment the capability of both customers and vendors with the skills that they need to do all of this and in summary the more complex and rapid that pace of change becomes the stronger i think our proposition is as well and i'll try and show now where i think the market will provide a very sustainable source of growth for us as well And in fact, this isn't one investment cycle. I'll argue as well that it's not really a cycle at all.

22:28 This slide shows the three distinct but overlapping elements of what is generally being referred to as AI investment. Firstly, there are the huge build outs being done by the hyperscalers, and we're seeing massive infrastructure spending there, and the current forecast suggests it will continue to grow. At some stage, the pace of that investment may moderate, and there may be volatility along the way. at softgap we've got very little exposure to that hyperscale scaler investment we do of course resell the products of that investment such as copilot microsoft foundry azure open ai fabric amazon bedrock many others but we are not selling any hardware into the hyperscalers We are dealing with some of the neo clouds and that's an interesting market for us, but we're selective with who we target in that space.

23:14 And during the past year, we got less than 2% of our gross profit from that space. Our core market is the corporate and public sectors from the small to the large and complex. all of those organizations are at the very beginning of their investment in ai capable infrastructure and this isn't just my view it reflects what we hear every day from our customers and our vendors and it's supported too by the forecasts of both idc and gartner idc reckon that edge computing spend will grow at an annual rate of 15 over the next three years and i think gartner have it at 14 so at softcat I think it's clear that we have the skills and the momentum and we are in one of the most attractive parts of the market. The GDT acquisition augments this position by bringing complementary skills and services right at the heart of the data center and networking core of modern infrastructure.

24:11 So how do we plan to seize upon this massive opportunity ahead of us? Well, this next slide showcases the familiar flywheel that's driven Softcat's growth over many years. Our culture drives exceptional customer service. That service builds trust and loyalty, and the resulting performance allows us to reinvest in our people and the proposition. Over time, this cycle's created two enduring advantages. Firstly, market-leading customer engagement. and secondly the breadth and quality of the offering that we have performance over recent years and certainly as you've seen in fy26 shows that that model continues to work yet our share of a large and growing market remains relatively modest despite being the largest in the uk and ireland at only around five or maybe six percent this leaves enormous scope for us to grow to win new customers and to deepen existing relationships and sustain growth over decades to come and so this next slide is a reminder of the strategy that we have to build around the same four engines of growth that have been driving us over the past few years this structure remains unchanged but as well as with our organic investments the gdt acquisition and the oakland acquisition a few years ago has accelerated our progress across a number of these areas and i'll walk through each of these four engines in turn now and list the progress that we've made organically and then i'll come back to gdt at the end and explain how that fits within this and create

25:43 some exciting new synergies and opportunities for us So we'll start with sales and customer excellence. This pyramid illustrates one of the core strengths of our model, which is how our account managers build and nurture their customer relationships over many years. And as that trust develops, we can address more and more of their needs and gain a greater share of wallet. During FY26 we continue to strengthen this approach across every segment, from the SMB and mid-market customers in the corporate and public sectors through to large, more complex enterprise organisations. Our modernised systems, data and analytics are helping us to allocate accounts and resources much more effectively, while new tools such as CatNav are enabling our people Sorry, I've lost a page. Have you got slide 21?

26:43 Thank you. allowing our people to access our capabilities vendor relationships and pricing structures with greater speed and relevance alongside this we continue to build our multinational capability and even before the addition of gdt and develop more tailored go-to-market approaches in selected verticals including financial services and insurance These investments are supporting growth at every level of this pyramid and our total customer base, as Katie has already mentioned, which remember includes only those customers who have traded with us in two consecutive years, that customer base increased by 3.4% and gross profit per customer was up by 21% almost.

27:30 The number of customers who are generating more than £1,000 of gross profit increased by 7.1% and GP per customer in that group was up by 16.5%. And on the right hand side of this slide, you can see that the number of transactions generating more than half a million pounds of GP rose by 17% in FY26. So at every level, the strength of our relationship with the customer base continues to improve, delivering good outcomes for those customers and sustained growth and more future potential for Softcat. move on now to the broadest offering and on this slide you can see the interplay between the five technology towers within our proposition 10 the vendors we work with across those areas and the service disciplines which span all of that as well during the year we've seen broad-based growth again across the whole portfolio and we continue to invest in new skills and services within each of the towers working closely with the vendors to bring their innovations to market into practical outcomes for customers the acquisition of oakland has worked brilliantly for us over the past 18 months alongside this organic evolution and helped articulate accelerate our capabilities in data automation and in ai the integration of oakland's progressing very well and to plan and is enabling us to engage at an earlier point with customers as they access assess their data and the organization and governance

29:00 of that data to set the foundations required for ai adoption at scale we'll turn on now to operational excellence and as you know we've invested significantly in the systems the data and the processes needed to support our next stage of growth those foundations are pretty much in place now and we're moving from platform enablement into optimization with new analytics new automations beginning to improve the speed quality and scalability of how we operate we're bringing together cleaner internal data with external insight on customers markets and products microsoft copilot is providing an increasingly important access layer across all of these applications while the proprietary tools that we're creating within all of that allow us to innovate processes further cat nav and our cross-cell analytics are among the first examples of this they're helping people our people navigate the offering access our vendor relationships and pricing structures and identify relevant opportunities faster we've continued as well to enhance our customer portal ecap through direct integrations to internal and vendor systems providing an improved internal user and customer experience and during fy26 we also completed the rollout of our new hr platform while our new sales system as well is also now live for an initial group of users and ahead of a wider phased rollout together both of those new systems will enable

30:31 greater automation better experiences and more scalable processes across the group and we are at an early stage but the direction is really clear the combination of third-party ai functionality proprietary tools stronger end-to-end process ownership all of that is beginning to transform our operating model creating meaningful opportunities for us to improve productivity execution and most importantly customer service And finally, we'll consider our special culture. So the essential elements of this culture are shown here and remain the foundation of all of our success. As the business grows, we've continued to evolve how we preserve that culture, giving our people a genuine voice, trusting and empowering them and keeping leadership accessible, recognising great attitude and results and maintaining the straightforward and informal environment that makes Softcat distinctive.

31:28 during the year we invested in and developed local leadership teams in each of our offices giving them greater support and autonomy to shape the employee experience that we're developing in each location and maintaining our transparency of communication recognition and continuous feedback As a result our employee net promoter score increased to 56 from 55 last year and our employee engagement score was up from 88 to 91 percent. We also ranked fourth in the UK's best workplaces for 2026 in the super large category and we retained our great place to work certification in the UK and in Ireland and the US as well. We've continued to invest in workplaces that bring our people and our customers and vendors and other partners together alongside the relocations that we've done for Manchester and Dublin and the interim refresh of the Marlow headquarters.

32:24 We've also refurbed in Newcastle, South Coast and the Leeds offices during the year. and we are now bringing together the insight from our employee surveys and the extensional benchmarks that we have access to to shape the employee experience priorities and agenda for fy27 and now before i finish with a summary i'll come back to gdt and the acquisition there and explain why we are so excited about the com combination of the two businesses At its heart, we think this is a very complementary combination. Soft cap will be stronger as a result. GDT will be a better business too. And together, we will be able to offer customers something that neither business could provide in isolation.

33:12 For Softgat, our customers in the UK and Ireland gain access to GDT's fulfilment capability across the US and the wider Americas. GDT also brings deep expertise in infrastructure and networking, right at the heart of the market opportunity that I talked about earlier. their complementary skills and services and strong relationships make us a more valuable partner from day one for both customers and vendors in fact since we've announced the deal i've been on four or five customer calls and gdt has been a material factor in three of those conversations the latest of which actually was last night with a us procurement team from a global communications business. And I can tell you for a fact that as a direct result of the acquisition, we've already won new business with our UK and Ireland customers.

34:01 And for GDT, the opportunity is just as clear. They gain access to our broader portfolio and our experience of having built that organically over time. And what I think is the most comprehensive solutions business in our industry. gdt's made excellent progress already on this track over the past four years but i believe that we are the best possible owner now to accelerate that journey with our experience and know-how additionally us customers will benefit from our fulfillment capabilities across uk ireland europe and asia pacific and together we will be one of only a handful of providers able to support large and complex customers with truly global needs and most importantly all of this is founded upon a strong alignment of ethos between the two businesses businesses a shared people first culture and an absolute focus on customer service So we'll summarize now. FY26 was an exceptional year, as we've said, for Softcat. We delivered strong growth across the business.

35:04 We added new customers at a greater rate. We've deepened our existing relationships and continue to take market share. Just as importantly, we've kept investing in our people, the proposition that we have, our systems and our international capability. So the business exits this year stronger and with more momentum and opportunity ahead of it than ever before. ai is expanding the infrastructure opportunity significantly it's also giving us new tools and techniques to take our offering to market more efficiently and effectively and the four growth engines of our strategy have been enhanced as well both organically and through acquisition So as I say, we enter this new financial year with great momentum, a proven strategy, and real confidence in the long-term prospects for the enlarged group.

35:52 And I'll finish by thanking everyone at Softcat for the energy that they've brought. Again, the commitment and brilliance that they've shown. They are what makes Softcat a truly special business, and they have delivered a fantastic year of performance. But it is what they will do next and in the future that excites me most. that gets us to the end of the prepared remarks thanks again for your time and we will now move to take questions from the room and then we'll look at what we have coming in online and answer those as well thank you

36:29 Hi there. I got three questions, but I'll only ask one. I'll come back to the others later on. The first question is actually, if I look at consensus forecast from beginning of the calendar year, adjusted operating profit expectation was around 190. Obviously, you've come at 215. But if I use that 190 as my base and looking at the very low end of the guidance you're giving for the following year, the effective gross or adjusted operating profit growth rate is actually 20 plus percent so you are essentially adjusting out or it feels to me that you're adjusting out the large projects and the memory pull forward that you experienced mostly in the first half What I want to understand is if you kind of dig into the details in the Q4 numbers or H2 numbers, what's the trend you see there?

37:23 Because if I just look at the GIA numbers, software GIA is up 30 plus percent, services up 30 plus percent, hardware is only 25 percent because I guess the last project is in the kind of the second half. Is there anything in the second half that suggests to you things have slowed down or not?

37:43 no there's nothing in the second half that suggests things have slowed down we've seen customer behavior be consistent which is as we talked about they're very careful with what they're spending money on and where they're investing but they are investing and i think that their need to continue investing in infrastructure will remain as well so what we have here is an unchanged market dynamic customer demand our skills continue to build and i think are absolutely well positioned but we're just trying to create sensible guidance for the year ahead as well Hi, I'm Carla from Bank of America. I just wanted maybe to touch on the 27 guidance on gross profits. You're guiding to a small moderation.

38:34 How much of that is due to just tougher comps from 26? And what other factors are you seeing for this moderation? and just maybe a second question on underlying demand you've kind of touched a bit on that already but uh 2026 growth was you know broad across technology areas and customer groups going into 2027 are you seeing some areas where maybe you expect some normalization or on the contrary some areas accelerating

39:04 I mean, I think the first part of the question goes to where Damindi was. So it's not to do with overarching business momentum. In FY26, we've had these couple of sort of extraordinarily large deals, which we don't have sort of a comp for in the pipeline moving forward. h1 benefited from some pull forward because of ram we think that was neutral in h2 but overarching you know brilliant business performance as well so just overarching a tougher comp um we don't as i say as graham's just um outlined the base businesses performing really well

39:50 Thank you. Balaji Tirupati from Citi. Could you share color on implication of Microsoft's latest updates on their partner incentive program and how is that factored within your 2027 outlook? And the second question on something that you mentioned in the release this morning where you have while mentioning a conducive demand environment for iot infrastructure you have also cited a higher degree of scrutiny on discretionary projects so a question would be did you see that scrutiny increase in recent months and how is prioritization of spend towards iot infrastructure visible in demand that is not directly linked to ai and ai adoption thank you

40:35 okay thank you the microsoft changes microsoft fee structures are complex as befits their breadth and diversity of their product range the changes they've made this time are a continuation of the evolution in their schemes that they've been making over the past few years so they were expected they are factored in to our forward guidance and we see them as a slight net positive for our business in the year ahead they are moving an opportunity to earn towards solutions providers with capability to drive adoption of their technology and that is exactly what we have and have been building over many many years now performance with microsoft and our momentum with microsoft is is terrific so factored into our forward guidance and slight net positive the continued demand and high scrutiny scrutiny on infrastructure investments been building for years now and it's been building because the investment that organisations need to make there is significant and relentless and so making sure that they are putting the money in the right places to drive a return is something our customers have been increasingly focused on for the last two or three years um it increased again i would say that scrutiny 12 months ago when we got the price changes and we're now in a new normal as i mentioned around those price changes where i think we're particularly well positioned

42:08 to help them architect the right solutions be innovative around how to do that manage the affordability of the solutions that they're putting in place so it gives us a particularly rich vein to show the strengths that softcat has and i think that scrutiny is here to stay because i think the level of investment that they need to make is here to stay as well which is why we're continuing our investment in the skills to support that and i think our positioning is is very very strong to do so uh... yeah heights uh... charlie here from jeffries just a few questions for me actually uh... firstly when we look at the components of grace uh... most of the grades obviously comes from your existing customers uh...

42:55 implies uh... and i are all of one hundred twenty percent or something so you're growing with existing customers well ahead of that IT budget growth. Can you give us some color into where you're gaining share with those customers? Is it displacing other resellers? Is it taking spend that customers were doing internally themselves? Can you just give us some color on that? and then secondly you called out some one-off costs that you've incurred during 26 can you give us some quantification around the magnitude of those one-off costs and how we should think about that going into 27 and then i'll just sneak a very quick one in and broaden the conversation beyond Microsoft.

43:47 I think you call out in the statement a helpful benefit from vendor rebates. Was there anything unusual that happened in 26 that we need to think about for 27? Thank you.

43:59 okay shall i tackle growth with existing customers then i'll pass to katie for cost so the growth that we're seeing from existing customers is particularly strong we accelerated actually the growth in the new customer base as well which was really pleasing to see in the year and i think that reflects the resonance of the offering that we have in the market too but the growth with existing customers is coming from um both their increase in investment and infrastructure the lesser portion of that growth the bigger portion of the growth that we're getting is from mainly displacing competition so our model has always been to get a foot in the door with a customer in one part of their infrastructure and then over time we can prove our quality and we can prove out the breadth and we can displace other providers in the account over time and that is exactly what i think we've continued to do not just this year but over the last 20 years that's exactly how our business has grown and i think the particular strength of the performance we've seen over the past two years does reflect that fact that being able now not just to opera operate in narrow and isolated parts of the infrastructure but being able to see the whole help a customer think about a road map over three and five years manage the complex problems they've got in an affordable way is a rare and highly valuable skill set which i think is driving the growth that we've seen in share of wallet i'll cover off the rebate point quickly as well because it's not unrelated to that because what we've

45:29 seen microsoft but other vendors increasingly do as they've broadened their portfolio into the expanding advantage is make sure that they're rewarding partners with the right skills to take customers on that journey and not just sell them the kit but support it and evolve it over time as well So consumption and support is increasingly how vendors are rewarding partners. And as I've said, I think we have the skills to do a great job of that. And you can see it in that growth in the rebate income that we are earning as well. But Katie, I'll take past you for the cost.

46:05 yep fab and just to add on rebates we've also put more resource into making sure that we're managing them really well and um making sure that we leverage them and sort of bringing them through to the bottom line as well so um not one-offs um at all in terms of the one-off costs um all h2 so we talked about the free share award that we've given to employees um so it was the 10-year anniversary of our ipo we've had an extraordinary year and we wanted to find a way for the whole company to sort of participate in that um and you know we got an awful lot of benefit and goodwill from that um in the numbers as well are some advisory costs around the gdt acquisition that we closed so late um we didn't sort of strip them out and put them into non-underlying they will be non-underlying in fy27 and then um due to the performance as well um incentives were i'd say um sort of higher than they would normally be and higher than the going rate as well in terms of quantification um for all of those combined um sort of low teens millions in h2 if that's helpful and then graham can i just pick you up from share of wallet if we take your top If we take your top 10 customers, I think you said they were about 15% of GP.

47:28 So in aggregate, that's about 100 million, 10 million per customer. When you take those more successful relationships, where do you think you've got to with your share of wallet with those bigger accounts?

47:45 um well i don't think they're our necessarily actually our most successful relationships what those because the top 10 customers change year on year so absolutely they're they're strong relationships but what makes our business so strong and sustainable is the depth of those relationships too now customers at the very top end of our income each year we'll be carrying out some large projects and we'll be helping them with that too but i think our share of wallet with not just those top customers but with the broader range of customers where we are most entrenched and have built most um loyalty we're probably we can get as high as 80 90 share of infrastructure wallet And that's because of the skills we have. You don't jump straight to that.

48:34 You build that trust over many years by proving the quality as well. But we certainly have customers with whom we're doing 80, 90% and upwards of share of wallet. I'd say the average for a mature relationship is probably more in the 70 or 80% range. But yeah, the share of wallet we have on average across the customer base can go orders two, three fold higher than it is today for sure.

49:13 Two more questions, if I will. One is about Neo-Clouds and kind of non-enterprise data centers, let's call them. Obviously, we talked a lot about them with GDT. We understand the opportunity there. But I was wondering, Covi was building Neo-Clouds in Europe and UK. You hear NVIDIA supporting N-scale deploying. uh data centers here you also got uh uk's home to a lot of quant firms who actually like neoclouds in a way uh two things around here one is um you is am i right in thinking you have an opportunity just like you sell azure and aws to sell these neoclouds to your enterprise customers secondly outside of us which i think gets covered by gdt do you have an opportunity to sell into these new clouds if you have staging capability if you had staging capability like you do over here The second question I wanted to ask was about the systems implementations. I think you guys have taken it very seriously, de-risk it, run parallel systems.

50:19 Just an update as to where you are now and how people are using it. OK.

50:24 Thanks, Damindu. So the answer to your first question is yes and yes. um can we sell into the neo clouds and other similar organizations yes and do i think there's an opportunity for us to resell the capacity they're creating the future yes but let's see as well because i think what what that what the investment cycles i don't think they're cycles but the three elements of the ai investment that we are seeing hyperscalers neo clouds and in in public sector and private enterprise organizations shows you that technology is becoming more and more important to society and and economies ai is only one factor in that but that growth is sustainable and so we will continue to see huge innovation in how that technology gets to the end users the applications and how they're developed but then how they're hosted secured and moved to the end user devices all of that change gives us a fantastic opportunity so selling what some of those new providers will be taking to market yeah i think we've got an opportunity there equally i think the way the large language models are consumed and inferenced is a avenue of spend that we'll increasingly be looking after for our customers with our customers the finops capabilities we've created around public cloud consumption will directly apply into those models as well so there isn't just growth in because ai is driving growth in traditional infrastructure but it's also creating these

51:57 new revenue streams and the the offering that we have and the investment that we continue to put in the business i think positions as well to tap into all of that um the second question on systems um where we're at with that do you want to take that one where we are with um dynamics rollout

52:15 sure so i guess within the numbers we've got the hr systems that um went live months ago so um and with all of them we've taken the approach we'll do minimum viable products and then we will build on that as well so just to set expectations for ongoing sort of um non-online costs as well on the sales system um we i've done pilot and we're just in the process of we're going live in waves um and the first wave i think we've just gone live with so so far so good and we are very pleased because we are running to time and to budget so all good that looks like the end of questions in the room so we'll see what we've got coming through on the line please we have a question from george from jp morgan please go ahead your line is open yes hi guys uh thanks very much for taking my questions i've got two please uh one for katie and and one for graham katie just firstly on opex it looks like there was quite a big step up sequentially in h2 2026 versus h1 and i appreciate there's some one-offs in there but can you just talk about the evolution going forward in h1 27 is it possible that opex actually declines sequentially through h1 and that feels like it wouldn't be normal but i guess there are some one-offs in the h2 base so just any color on opex evolution

53:47 and seasonality through 2027 would be great please and then graham please just on gdt can you share any anecdotal evidence or even hard data just on why you think gdt has the right to win with customers beyond their their heritage telcos base and because i just i guess playing devil's advocate the gp growth has been quite flat the last few years except 2026 and it would be great to just get your view on why you think the gp growth can sustainably accelerate uh you know being supported by customers beyond the the legacy uh sort of telcos heritage please thank you

54:29 Hi, Jay. So just to answer your cost question. So yeah, we would expect the absolute cost to go down in HY27. But a marginal increase once you take out that sort of low teens, one off costs that we've talked about earlier, if that makes sense. Perhaps, I guess the other useful metric to help you think about the cost base moving forward is what we're thinking about for headcount growth for 27. and we grew on average accounts of 10.8 i think in fy 26 so there's probably sort of one to two percentage points increased growth in 27 somewhat just to compensate with the higher than planned growth that we had in 26.

55:20 and the second question on gdt and the rights to win they have beyond their heritage yes there is hard evidence over the past four years and particularly the last couple of years in their numbers that their diversification on top of networking into the telcos is is absolutely there in the numbers so they've been broadening their customer base into different segments and they've been diversifying the technology they sell into those customers you can see both of those trends clearly in their numbers and we recognize those trends because that's exactly what softcat has done over the last 20 or 30 years as well we grew out of specializing mid-market customers and microsoft solutions and have built a much broader business the broadest business i would argue in our industry over time as well so we know the motions of that development we recognize them in what they've been doing and this is why i think we're such an exciting owner for gdt because the know-how that we have to help accelerate that track that they're already on is something that we can we can bring very much to market the right to win in our industry revolves around two things it's customer service on the one hand and technical capability on the other when you put those two things together particularly around good customer service you earn the right to growth that earns you the right to further investment that gives you the ability to broaden the quality and deepen the quality of what you're offering and you get into this positive feedback loop that i think you've seen in our numbers over a long period of time gdt

56:51 are starting to experiencing that and we can accelerate it for them as well but they have got hard data in their numbers over the past two years that that's what's happening to their business as well great thank you and we have a question from andrew rupa from panmure liberum please go ahead your line is open

57:14 good morning yeah thanks very much indeed a couple from me one for katie one for graham um just quick one for katie wonder katie can you just give us uh what what's your guidance please for um share based payments charge for fy uh 27 and then um for graham just going back to gdt at the end of your section presentation you rattled off i think a couple of examples of where you've had customer interactions and interest already in the deal um i wonder if you've had a gone through an exercise in terms of trying to size the sort of the one plus one equals three opportunities in terms of customer synergies and in particular looking at softcats uk customers which could benefit from the enhanced offering in the us

58:05 have you got any sort of way that you could size that potential opportunity for us thank you that is a very specific question andrew um i don't think we've got specific guidance but i guess if you had to i'd go back and look at what fy25 was and i i'd use that as a proxy moving forward don't be exact but it'll probably give you a good idea

58:31 uh... on gdc yes so i've been in many calls not just over the last few weeks but over the last few years where uh... as i've said for a long time customers are really interested in how we can support them outside of the u k they tend to be larger more complex customers and our share of wallet in those large and complex customers is much smaller than our average customer base because this is an area of our offering that's developed more recently as i've already mentioned the previous question we our heritage is in the mid market microsoft but we've been a enterprise grade reseller now for the best part of a decade so our I think our large and complex or enterprise-grade customers are about 20% of our income today.

59:22 They've been growing at double-digit rates like the rest of the customer base. Today, I think we get somewhere between 3% and 5% of our income from our multinational business. But these are hot growth areas. And so it's very hard to put an exact number on it. But the other way of saying it as well is, as well as giving us new growth opportunity because we are credible for business that we weren't before we started to build our multinational business and before we bought GDT, more and more customers in our customer base will have to start to think about their it infrastructure in international terms when you look at where to place data centers how to access the right compute storage how to secure and connect things our customers are going to increasingly have to look at how they deploy that globally in order to get it in the most cost effective and secure way as well so i don't just think it gives us a new opportunity it maintains our relevance in the market over um what i think will happen to the industry over the next 10 or 20 years as well but very hard to put an exact number on it thanks thank you it appears there are currently no further questions with this i'd like to have a call back over to management team for any additional or closing remarks right well thank you really appreciate as i said before your time and attention today we are delighted

1:00:53 with the exceptional results we're able to put out to the market we're even more excited about the opportunity ahead so we will keep you posted on progress but thanks again for your time today