Softcat plc (SCT) Earnings Call Transcript & Summary

Good day, and welcome to today's Softcat results for the year ended 31st July 2021. [Operator Instructions] I also must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker today, Graeme Watt. Thank you. Please go ahead, sir.

Thank you very much. And good morning, everybody. And thanks for taking time to spend with us this morning as Graham Charlton and I review our results for the year ending 31st July 2021, as we announced earlier this morning. I want to start off by saying we didn't envisage a full fiscal year under the shadow of a global pandemic, so I would like to start by thanking everybody at Softcat and all those in the wider community, for your continued help and support in what has been the difficult time for many. It's fair to say that the results we've posted this year really did surpass our expectations. And I'm continually positively surprised by the level of support and care that our team is able to extend to each other and our partners on a continual basis. To our team: You've again produced another exceptional performance and, at the same time, delivered good in the community. And for that, I send you a huge thank you from both me and Graham, the leadership team and the Board. And it's important, I think, also to note that we count ourselves fortunate to be an industry that's growing and allows us to add value across a whole range of commercial and public sector entities as companies continue to look to improve their customer and employee experience, their productivity, their security and their agility whilst taking care of regulatory requirements too. If we move to the next slide now, please, I'll provide a brief explanation of who we are and where we sit in the technology space for those of you who are less familiar with Softcat and our operation. Softcat is a leading reseller of infrastructure technology solutions to customers in the U.K. and Ireland. We provide a broad portfolio of leading multi-vendor technologies and services to suit our customers' needs. And we help them deal with the difficulties of complexity, choice and pace of change around infrastructure technology by bringing our experience and expertise to bear on their behalf. Where we don't hold those resources internally, we are more than happy to partner with third parties to complete the solution for the customer. We work with over 200 leading vendors in the infrastructure space, where we represent their technology to a target market of somewhere in the region of 50,000 customers across the U.K. and Ireland. And you can see from the slide here that we serve an active base of around 9,700 customers who operate across a wide range of corporate and public sector entities and verticals. We closed the year with close to 1,700 staff covering the functions of sales, [ sales ] support, sales specialists, technical services and business operations. And our team operate out of 9 offices in the U.K. and Ireland; and we also have branches in Singapore, Hong Kong, Australia, the Netherlands and the U.S. Those branches form part of what we call our multinational business. And they allow us to fulfill the global needs of our customers in those countries, delivering local value. Our cash conversion remains high at 90% and has remained strong and predictable despite the pandemic. And our goal is simple: to be the leading IT infrastructure, products and services provider as measured by an employee engagement, by customer satisfaction and shareholder returns. Our track record of success is built around the ethos that a highly engaged and motivated team of employees will provide outstanding customer service. And that is the essence of our purpose statement, which says we help customers use technology to succeed by putting our employees first. Simply put, we are focused on growing our sales and gross profit faster than the market by taking share and being a great place to work. Can we now move to the next slide, please, just for a summary of our results? We are pleased to report a positive set of results where organic growth of income and profit has now been sustained across 64 consecutive quarters. You can see the gross profit growth in line with the gross invoiced income growth at around 17%, which indicates a stable margin performance; and drove a strong operating profit of GBP 119 million, up 27.4% on the prior year. Productivity and sales, as measured by gross profit per customer, grew nicely too by 14.6%. And we are pleased to see increased growth in our customer base as restrictions were increasingly lifted. The 11% increase in average head count demonstrates that, throughout the period, we continued to invest significantly in people, not just people in the company but also systems and capabilities at a time when others paused or reduced their investment. As always, that investment is designed to build skills and capacity to capture and capitalize on the enormous growth opportunity we see in the market. And it also helps us stay ahead of the game. And just a reminder, that we made no redundancies or furloughing or took any government support at any time throughout the pandemic. Cash generation remained strong. We have no bank debt. And our strong ability to generate cash has enabled us to propose a further dividend this year for our investors. Our performance and vendor partnerships were generously recognized again in a year where we received over 50 vendor awards, including a number that recognized our performance on both the EMEA and the global stage. We won the highly prestigious CRN reseller of the year award and the public sector reseller of the year award for -- the latter for the second year in a row. And these CRN awards are regarded as the Oscars of our industry, and these accolades really lit up the organization. If we move to the next slide, please. I'd like to just cover a -- the business update. Throughout the pandemic, we've continued to focus on leading the company in a carbon-pragmatic manner focusing on the well-being and safety of our people and the things that we can control. And as we said this time last year, our strong culture has been an enormous source of strength and comfort for us all. We've continued to be very active in making sure that, in a remote environment, our people feel connected. They feel valued and they feel supported. We have changed things so that our recruitment and onboarding processes work in a hybrid working environment. We've innovated too in order to make sure recognition and fun remained central to how we operate. Employee communication in all its shapes and forms have been constant, as have the acts of kindness and mental health support we've been able to offer throughout the year. What we have demonstrated again in our performance is that having a broad range of vendors, technologies, services and customers buffers us to a certain extent from specific challenges when they arise. We know that the pandemic threw out some sales demand challenges in some specific verticals and in those technology areas that relied on in-office working. Thankfully, those challenges are offset by strong demand in devices, in connectivity, in networking, security and cloud. And across the year, we grew in all areas of hardware, software and services. At the height of the pandemic, our ability to gain new customers was hampered, as customers seemed to prefer to hunker down with their existing trusted advisers, but as those -- the restrictions have eased [indiscernible] office in greater numbers and with greater frequency, we've seen new customer acquisition rebound together with a growing demand for on-premise infrastructure and some modest recovery in print. Our public sector and mid-market segments remained strong throughout the year, and we started to see enterprise recover as the year progressed. We have always said that we continue to invest in people almost regardless of market conditions, as long as we can continue to see a significant opportunity to grow in the market. And we did just that to the extent that our head count is now 26% up on our previous pre-pandemic close 2 years ago. And our employees and customers have continued to respond positively to how we've managed the pandemic, with healthy Net Promoter Scores recorded again for both customer and employee satisfaction, which sit at 59 and 58, respectively. We live in a hybrid working world where technology is no longer discretionary and is increasingly distributed. This drives opportunity to innovate and add value through the channel. And the demand environment has remained positive, and our customers are investing in work space while grappling with the challenges of managing remote and in-office workforces. And this in turn is driving strong demand for devices, accessories, security, networking and collaboration tools. Our customers are investing in hybrid multi-cloud environments too, and demand is growing for compute at the edge as enabled by the ongoing rollouts of 5G networks. The trend for businesses to be cloud ready, mobile ready and secure remained at the top of our customers' technology priorities, as reinforced by the insights we gained from our recent customer survey. It's been wonderful to see the team work so hard together to support each other and our business partners. And it's fantastic too to see that support extended into the wider community to support those less fortunate through company and individual charity initiatives and volunteering activities. And our industry is having to manage through a period of component shortages impacting some elements of our hardware and networking products. Our multi-vendor strategy and close relationships with our vendors and our distributors means we have multiple good options to source constrained product. Whilst the precise impact of the shortages are difficult to quantify and we are managing them well, we don't expect them to deteriorate further. To put it into perspective: The shortages impact only some elements of our hardware portfolio, which itself is only 30% of our business. We've continued to perform well throughout the period of constraints spanning last fiscal and the start to this fiscal year. Moving to the next slide, please, which is our strategy update. Our customers' appetite to use IT to gain competitive advantage while remaining secure and resilient is relentless. We've built an outstanding base of customers with whom we have a privileged and valued relationship. The opportunity to do more with those customers while continuing to win new ones is clearer than ever, and that is our strategy in a nutshell. We aim to grow the business and take market share by selling more to existing customers and, in parallel, acquire new customers. Our investments support this, and we're recruiting additional account managers to find new accounts for us as we speak. We aim to build strong relationships with our customers and grow trust and loyalty over time. And we were pleased to be able to grow the customer base by 2.3% after a period of lockdown when it was more difficult to engage with those new customers. New customer prospects tended to remain focused on their existing relationships whilst they waited to see things -- how things played out. And we trade with around 20% of the customers in our addressable market, so we believe we have a wonderful opportunity to keep growing that number. Our efforts to sell more to existing customers were rewarded with an increase in gross profit per customer of 14.6%. Market demand remained strong for the 3 areas of technology that we serve and support, namely cyber security, digital work space and hybrid infrastructure. And we believe we now have around 4% of the addressable market, which means we have an average estimated share of wallet of around 20%. We think we can grow that share of wallet by around threefold, as we have many customers already with a much higher-than-average share of wallet who use Softcat as their preferred and primary partner. We're continuing to invest in specialist salespeople, in services and technical resources to help enable our account managers and support our customers directly. And we're sure to keep listening to our customers so that we provide them with what they need. Some examples of this are our further investments in cloud and in the office of the CTO, the latter being a team of technical experts and specialists to ensure that we remain relevant and current in our supply of leading technology. And then if I can move -- stay on this slide, please, but move to the supporting pillars, starting with people and culture. Within these 3 key pillars that support our strategy, that huge focus on our people and our culture continues unabated and remains very important to us and the success of the company. I mentioned some awards earlier, but the ones that make us most proud relate to our people and the way we work together. So we were delighted to be ranked fifth in the U.K. by Glassdoor for the second year in a row and #1 U.K. tech workplace by great places to work. We've continued to invest for future growth without pause, with a large proportion of our new starts being graduate and apprentice recruits just beginning their working career. We've successfully bedded in a new leadership structure announced at the start of the fiscal year. We've welcomed a new head of cloud as well as a new sales director for public sector sales. And we've established an office of 10 people in West Virginia to focus on delivery into the North American market. Our staff engagement Net Promoter Score of 58 tells us that we continue to have a highly motivated and engaged workforce. And we believe that our special culture creates outstanding customer experience and is the key driver for our healthy customer Net Promoter Score of 59. It is perhaps worth highlighting that, at the start of the fiscal year, we thought it was prudent not to make the usual across-the-board pay rises, instead focusing only on those in the lower pay brackets. As the business continued to perform throughout the year and perform well, we took the decision in February to implement a pay review for all staff backdating them to the start of the year. I think this is just one good example of doing the right thing for our staff, which incidentally in this case gave us the opportunity to provide a second pay rise for those in the lower pay brackets. And our plans for hybrid working, I think, will clearly evolve; and we'll refine them over time. And we are very mindful of the challenges of home working for some, so we've introduced -- we're very mindful of the benefits of home working for some too, so we've introduced a flexible policy. And all employees can choose how they split their time between the office and other locations, within an expectation that on average we have a slight bias towards the office. We've asked our staff to use good judgment balancing their own needs with those of their teams and the wider business, and within this policy, we aim to keep the culture as vibrant as ever whilst being able to operate as effectively as before. In essence, we want everybody to enjoy the best of both worlds. And whilst getting it right is a significant challenge, we're confident of working things out by remaining close to our teams and ironing out any wrinkles as we go along. From an ease of doing business perspective, in the same way as our customers need to keep evolving and modernizing their IT infrastructure, we have the same needs at Softcat. We've increased the amount of time and money we're putting into improving the ease of doing business for our staff and our customers. And we have a road map of investment that includes our financial systems, our e-commerce portal eCat, our IT service management and our order processing tool, amongst others. Our financial systems and data project is progressing well and remains on track for delivery in this fiscal year. The -- that project is designed to create a platform that will support our future business needs and deliver process improvement and automation and at the same time create a data structure that will provide enhanced business insights and reporting. As noted in previous presentations, we've continued to work on bringing our public sector and corporate sales organizations closer together to improve best practice sharing and adoption, and that's worked well. We've made good progress in leveraging our sales development program and our customer [ bid ] management process across the entire sales team. And we are happy that we've got a really strong sales team, but we're always looking at ways to improve how we operate. And moving to the expansion, expanding of our addressable market. Our U.S. office in Arlington represents further investment in our multinational capability, through which we assist U.K. and Irish customers with their global needs, but it also enables us to begin to target local U.S. customers with their international needs outside the U.S. We now have 10 staff there, which combines local sales and operation capabilities. And as with our other multinational entities, this investment gives us the opportunity to build stronger in-country customer and supplier relationships where we can operate on local time zones and do business more effectively with local supply, in local currency, with local sales taxes. We continue to invest and build out our capabilities too. On devices, we've expanded our ability to deploy service and replace devices on a much larger scale than before by investing in heads, processes and third-party partnerships. Similarly, we've invested in the financial services vertical. This is a significant opportunity, we believe, and we expect this to grow substantially over time. And finally, we've seen the demand for financial solutions increase and further accelerate over the last year. We invested into here too, in skills and additional [indiscernible] able to accelerate further sales. For those of you who know Softcat well, you already know that the areas of sustainability and diversity and inclusion have become an increasingly important part of our strategy, so this year, we've split them out on the strategy slide just to highlight the high profile they already get within our business. We've enjoyed a particularly strong focus on diversity and inclusion initiatives this year with a raft of programs launched to support our network groups in driving awareness and celebration of the various minority groups. We now have 8 active networks, including the 2 network groups that we've added this year, a faith group and a disability and neurodiversity group. And we launched an allyship program, to which now around 700 members of staff have attended and contributed. In addition, we've joined some of our fellow companies from different parts of the channel as one of the founding members of TC4RE, the technology channel for racial equality. And we hope to make good progress here too. Although our female representation at Softcat has risen nicely to now 30%, we recognize that we still have some work to do on the ethnic and gender diversity in our leadership teams. And I am totally committed to changing this, but it will take time. These are long-term endeavors and not short-term fixes. And so that we maintain progress we've made -- so that we maintain progress, we've made several changes to the recruitment process, which is key, as talent is attracted to an employer like us who can demonstrate that everyone has a place in Softcat and an opportunity to deliver value regardless of their background. We aim for equality of opportunity and talk internally about widening the gate without lowering the bar. And it was wonderful to see our efforts recognized with 2 very recent awards, the CRN diversity employer of the year and the CRN ethnic diversity champion. And I think too that we would all recognize on this call that companies that balance the interests of the planet, our people and returns are clearly the most sustainable in the long term. And Graham Charlton will cover our focus on sustainability in a few moments. And in fact, that's a great point on which to bring in Graham Charlton, our CFO, for a more detailed review of the financials and our sustainability leadership and status, so I'll hand over to Graham.

Thank you, Graeme. And yes, we'll have a look at the numbers in a little more detail now, so if we can turn on, please, to the summary income statement, which I think is Slide 7. And I'll deal, firstly, quickly with revenue and the GAAP revenue growth rate this year of 7.4% compared to a much faster rate of growth in gross income as we continue to see a shift in the mix within the software line, particularly towards cloud-hosted and security products. We net down the gross income from cloud and security software to [ just a ] margin element when calculating GAAP revenue under IFRS 15, and that net-down is becoming a proportionately bigger number as those elements of our mix grow. And this trend for revenue growth to lag gross income growth is something we've seen before and we expect to see again in the coming years as well, but the best way to think about our income and profitability is with reference to gross income and gross profit. Gross invoiced income and GP both increased by a little over 17%, with the GP margin-to-gross income consistent year-on-year at 14.3%. And that consistent margin reflects a stable mix of business when split between corporate and public sector customers. Gross income from public sector customers comprised 39% of the total in both years and with corporate customers accounting for 61%. The enterprise segment returned to growth in half 2. And overall growth was strong at double-digit rates in both the first and second halves but slightly more weighted towards half 1 as a result of a few exceptionally large deals that we flagged in the half year report. And so this continued double-digit rate of organic growth in income is something, of course, we're very pleased with. And despite the fact we've delivered on our promise to maintain levels of investment throughout the pandemic at the same rate as we were at before COVID, the 17% growth in gross income has comfortably outstripped cost growth of 10.5%. That cost growth was driven predominantly, as it always is for us, by our investment in people. Average head count across the year was up by 11%. And in normal times, that would translate to around 15% to 17% cost growth when the impact of pay reviews and commission growth are factored in, but as we've been saying throughout the pandemic, the social restrictions that have been in place have prevented us from carrying out our usual range of travel and events. And as a result of that, we've been saving approximately GBP 1 million a month on a run rate basis. And that means the actual cost growth has been the 10.5% you see reported on the slide rather than more closely aligned to the GP growth of 17%. And so as a result of all of that, the operating profit grew by just over 27%. And conversion of GP to OP was up from 39.8% to 43.2%. We do hope and expect that we can get back on with traveling to see our customers and running staff events and particularly our incentive trips much more normally in the year ahead, and so we do anticipate that most of these cost savings will reverse in FY '22. So if we can turn over to the next slide, please. And I'll come back to some of the key drivers of our growth. And we'll take a look at how the productivity of our salespeople has again stepped forward in recent periods. And the chart on Slide 8 shows how the total gross profit delivered by the business correlates to the aggregate of our salespeople's tenure with the company. During FY '16, '17, we accelerated our rate of investment in the resources and skills within the business to support our account managers going deeper into their customer accounts. And over the period between then and now, we've continued to recruit hundreds of new account managers each year, but we've even more aggressively hired into the specialist and technical and service roles to support them. And the results of that strategy and long-term focus, I think, can be clearly seen by the pathway of increasing productivity we've been able to track since that time. And we think there's still huge further opportunity head -- ahead here as well. We estimate that the average share of wallet we have with customers today is around about 20%. And so we're going to continue to invest in the skills and capabilities that we need to support our customers in their journey to the cloud; to provide their employees with modern workplace technology, which is of course now suitable -- needs to be suitable for a hybrid working world; to help them connect their people and securely store their data. And in doing all of that, we think we can further enhance what we believe is already possibly the broadest and deepest technical offering in our industry, and that will allow us to continue to capture incremental wallet share. Turning on to the next slide, please, and I can show you on this next slide the customer side of that productivity coin. And this chart, on this chart, the line represents how gross profit per customer has expanded since 2015 up until the most recent period. And again here you can see a very clear inflection point. You can see a slight kink in the line at the end of the 2020 financial year. That reflects the onset of the pandemic, but notice then how we've resumed that upward trajectory since then. And do notice as well how we've been able to continue in growing the customer base throughout this period. The size of the customer base is represented by the bars. And I think just about visible to the naked eye here is not only that we grew customer numbers again in 2021 but that we saw, especially in the second half of the year as we came out of that third lockdown period and really for us from sort of April onwards, an acceleration in the growth of new customers as well. And we think today we have around 1 in 5 of the addressable customers in our customer base, so still lots and lots of opportunity on that front in the years ahead as well. And turning over to the next slide again, please, we can have a quick look at how that profit growth has converted into cash. And we have no news really to report here. The business model and the organic nature of our growth again this year means we've converted operating profits to cash in line with our historic rate of 90% even after deducting capital expenditure. Capital expenditure is down a bit year-on-year. Those of you that follow us will remember that we carried out some major refurbishments to our head office in Marlow and our second biggest office in Manchester during FY '20, but those works were substantially complete before we entered FY '21. We've continued throughout FY '21 with the development of our new finance system. And that expenditure forms part of the 6.5 -- GBP 6.4 million that you can see on the slide. And work on that system will complete within FY '22, but we plan to continue to work on other internal systems over the [indiscernible] expect capital expenditure will remain at similar levels in the next few years as well. The working capital model hasn't changed in any fundamental way. And so working capital balances continue to grow broadly in line with gross income and deliver cash conversion, as we said, in line with our historic cumulative average of 90%. And turning over again, please. I thought I'll take just a moment to reflect how this latest performance stands within the context of our long-term progress. And across all of the time period, you can see on this slide we've had a very simple strategy, and that strategy is essentially the same today as it was back at the start of this trend. And the good news is it's still working, and we don't intend to alter it. You can see the somewhat exceptional nature of the OP growth on this slide -- I'm on Slide 11 now, operator. I'm not sure if you've caught up, but hopefully, you can see that -- the slightly exceptional nature of the OP growth in the latest year, accentuated, as I mentioned, by the post-pandemic -- the pandemic-related cost savings that we've mentioned. And that's a very high hurdle for us to try and get over in the year ahead as we hope that those costs related, as I said, to incentive trips, internal events and traveling to see our customers become possible again, but of course, we do continue to target very strong gross profit growth ahead of market rate. And with a market share today, we think, of around about 4% despite all this progress, we think the years ahead offer us a similar opportunity again. And turning over to Slide 12, please. That growth and cash generation enable us once again to confirm a very substantial dividend, the details of which are shown on this slide. And you can see that the interim dividend of 6.4p already paid in May will be added to by a final dividend of 14.4p and a further special dividend of 20.5p, both of which will be paid in December. And the ex-dividend rate (sic) [ date ] will be the 11th of November. And before I hand you back to Graeme, as Graeme Watt did mention, I'll give you -- take a moment just to give you a view of some of the work we're doing on the sustainability of our business and within our industry. So if we can turn on to Slide 13, please. And you can see a framework on this slide that we've developed to enable us to concentrate our efforts into 3 key areas. These are, firstly, the sustainability of our own business and operations; secondly, working with our suppliers to find ways to reduce the carbon footprint of the logistic elements of our industry; and finally, how we work with customers and manufacturers to bring green product innovations to market and into use, fundamentally, we hope, driving down the ecological impact of IT infrastructure into the long-term future. And we've developed an action plan across each of these areas and you can see some details of this on Slide 14. And we've set 3 goals. The first 2 are focused very much on putting our immediate house in order and in short order at that, firstly, to offset our scope 1 and 2 carbon emissions by next year. And I'm pleased to say actually we've managed to achieve that one already. The next target is to get all of our offices switched across to renewable energy sources by 2024, and we're 7/10 of the way through that at the moment. And then finally, and of course, this is the really big one, is achieving a net 0 supply chain by 2040. And this is where the collaboration with our suppliers and the manufacturers of the technology will be so crucial, but we've started that process. We've started that dialogue. And we've begun to tap into the resources of things like the WRI's Science Based Targets initiative to build an understanding of the steps that we will need to take. And in time, this will create an action plan which we'll be able to share and report our progress against. In the meantime, we are pleased that our desire to try and take a lead in our industry on these matters has been recognized by both our partners and trade bodies in the industry as well as some external organizations that specialize in these matters. And you can see some of those awards at the bottom of the slide here. And you can expect us to continue to report on progress in future briefings as well. That's it for me. Now I'll hand you back to Graeme Watt for the conclusion of the presentation.

Thanks, Graham. And if -- operator, if you could move from the closing remarks slide and take us straight on to Slide 16, please, the summary. In summary, we're pleased to have delivered another strong set of results. The broad-based nature of our growth across all technologies, vendors and customer segments is a source of great comfort and provides resilience when certain areas of the market come under pressure. We saw some nice recovery in enterprise demand and new customer acquisition, which we expect to continue into the current fiscal year as businesses continue their pandemic-impacted journey. There are a number of key strengths in the company, our culture, the breadth of our offering by technology services and vendors, the breadth of the customer we serve and our graduate recruitment program, but another key strength I want to emphasize this morning is our appetite to keep investing today for tomorrow's growth [ and ] returns. Our strategy is largely unchanged and our focus on the execution of that strategy is as strong as ever. The market is still growing. And there's significant opportunity to get ahead of the market by taking share, and we're doubling down on delivering further growth this year. Our employee and customer satisfaction levels are high and a great reflection of our company executing on our purpose. And our culture is as strong and as impactful as ever and is a key differentiator for us in a fragmented market where it's not so easy to differentiate. Softcat is a great place to work, and remaining so is key to how we operate and our future success. So if I could take you to the next slide, please, the outlook. Here you can see you -- many of you will have read this already today, but here you can see our outlook statement in full. And I'd just like to highlight and summarize a few key elements for you and, in fact, very briefly. The new financial year has started well. We continue to target double-digit gross profit growth well ahead of market trend. We've got the utmost confidence in our people and the team at Softcat. And we'll continue strong levels of investment in future growth in an industry that we believe has a lot of opportunity for us. So with that and in conclusion, I'd just like to say that, as I've mentioned a couple of times already, our special culture has served us well over the last 18 months. And despite the sometimes relentless grind of the pandemic, the team have pulled together and maintained their boundless energy and spirit. They've shown great agility and resilience and retained a really positive attitude. We've put in place all sorts of initiatives to remain connected and to have some fun, and the care the team has shown for each other and our business partners has been really impressive. The team have responded positively every step of the way, so thank you to all of our partners for all the support you've provided us throughout the year. We couldn't have done it without you, but I'd like to close with a thank you to our team: Thank you to each and every one of you for hanging in there and performing so brilliantly. And thank you for coming together and making Softcat such a great place to work. We've dealt with the challenges and the opportunities together, and "together" was appropriately our word of the year for 2021. I love working for this company, alongside all my colleagues at Softcat. And I am extremely proud to be part of this team, and I'm very excited about the future. So thank you for listening. Operator, we'd like to now turn the call over for questions, if we can.

Yes, sir. [Operator Instructions] And we do have questions that came through. Your first question comes from the line of Alastair Nolan from Morgan Stanley.

Great. Just a couple for me. One, first would be around I think you called out kind of security as a bright spot. I'm just wondering if there's anything in particular on the supply chain issues given kind of hardware is a relatively important component of some of those solutions, if you're kind of seeing anything in particular there or any update you can provide. And then second is just on the outlook for fiscal year '22, just on the large deals you called out in the base in the first half. Can you remind us, have you kind of -- have you quantified them? Can you give us a bit of a feel for kind of how large that hurdle is? And then also just on the cost return. You mentioned GBP 1 million a month. Are we kind of, at this point in October and moving into November, at a point where those -- that GBP 1 million of costs has fully returned? Or are we still in a bit of a kind of in-between periods? So those will be the 2 questions.

Thank you, Alastair. This is Graeme Watt here. Why don't I take the first piece? And Graham will pick up on the large deal and cost return clarification. [ On the security side ], actually a lot of what we do on security is now software. And I think, from a product shortage point of view -- and this might be helpful to others who have similar questions. First of all, 30% of our business is hardware. And it's only really impacting hardware and it's not all of hardware. And I'd say that we've seen probably networking products in that sort of next set piece. We're seeing it impacting networking products most of all. It's still impacting and driving longer lead times on some server and device hardware too but maybe on the networking side. And I think we've been -- we -- I think I said in my commentary we find the impact difficult to quantify. And I think that's because we're actually still delivering the performance we plan to deliver both in last year, the latter half of last year when those constraints really kicked in, and year-to-date. And I think we're -- the way we're straight up -- set up, that resilience that I talked about, about having lots of options, whether it's technology or vendors or distributors, really works well when we've got product shortages as well. So we've got a good range of options. If people want to -- can't get exactly what they want, but they want to trade up or trade down in terms of complexity, we can do that for them. If they want something similar, but one of our vendors doesn't have it, we can go to another one of our vendors and get a similar model. If one of our distributors has had a run on a particular item and has run out of buffer stock, we can go to another distributor who perhaps may have it. So it's not perfect. I'll admit that, but I think we've got a way of managing it and a structure of managing it so that it has little impact. We're seeing customers order a little bit earlier. It seems like most of the manufacturers are delivering products to those who order first, so we're encouraging our customers to order early to secure allocation. We have built up a little bit of backlog as a result of the shortages but, again, nothing that's impacting our ability to hit our plans, so hopefully -- and then maybe just finishing off on your point: Again most of that security is more software these days than hardware. And we are seeing -- as we have done for many years now, we're seeing the demand for security as strong as ever. And it's somewhere where I think we enjoy a leadership position in the U.K., and we're doing lots of good business there. So let me hand over to Graham for the clarifications on the deals and the costs.

Yes. Alastair, thanks for the questions. On the large deals, it's -- I mean it's all subjective, but there were a couple of deals -- so we had a number, a handful of really strong large deals in the first half of last year. There was a couple of elements of a couple of those that were really prompted by some regulatory changes in the industries in question. And so we reckon about GBP 3 million of the gross profit we achieved in half 1 was really fueled and brought ahead of time by that. And in fact, I know some of the kit we sold there is not in use yet with those customers as well, but they have to spend the money by a certain date. So we think about GBP 3 million of gross profit in half 1 was truly exceptional. On the costs side, yes, it's a good, very fair question. And the outlook in terms of the pandemic seems to be a bit up and down. We so far in this financial year have been able to travel and see customers to a much greater extent than we have, so far, so we are seeing those costs return into the business. Some of them relate to our incentive trips. And whether or not we can go ahead with the incentive trips is a question, but we are looking for alternative ways to put that money to use. We can't [ lose ] the incentive trips, so a good element of that cost will come back into the business as well. And we do a lot of events for our staff end of year, Christmas parties, that kind of thing. I think you know well that our staff being able to spend time together is really important to us. And again, we will look for alternative ways maybe, in smaller groups, to put that money to use for them in that way. So if we can't do the large all-company or whole-office events that we would like to, we'll find a way to put on smaller-scale events as well. I'm sure. So the costs will certainly come back into the business to an extent. I think it remains to be seen exactly to what extent that is, but of course, we'll update you at the end of the first half with how that's going as well.

And the next question comes from the line of Ross Jobber from Citi.

2 questions, 1 about your year-end -- your current year-end expectations; and a second question which is a little bit more existential, if I may. So as far as your 2 -- your year-end expectations are concerned, a couple of things. First of all, how much head count growth do you think you or would you like to achieve year-on-year by the end of the current financial year? Obviously, trading, you're not so sure about, but of course, as you're investing for the longer term, I thought you might have a clearer view perhaps of how much head count growth by year-end you'd like to achieve. And secondly on that point, if you can comment on what your expectations are around inventory levels at the end of the current year. I'm wondering whether or not the bump up in inventory levels was again supply chain issue related. So that's one question. And then the second question. You talk about what -- feeling that you can grow your wallet share from 20% to 60% amongst your customers. Does that not imply a focus on the smaller and medium-size customers where such a huge wallet share may be more achievable than it would at your larger enterprise customers?

Maybe I can take that second question, first, Ross. This is Graeme Watt here. I don't think it does imply that we would -- I think -- in terms of magnitude to us, I think the opportunity is similar in the mid-market from an enterprise point of view. If your question is, is it more likely that you will get a higher share of wallet in a mid-market customer than you will in an enterprise or some of the big public sector entities, I'd say probably yes. I think some of the big enterprise companies tend not to put all of their eggs in one basket. Our aim for some of the larger customers is to be 1 of 2 leading infrastructure advisers to those customers. I think your point on the mid-market is well made, though. They would -- our mid-market customers will tend more to go much more all in with [ our ] partner, so I'd say that, that kind of tripling of -- or goal of tripling -- somewhere in the region of tripling our share of wallet -- I'd say we will have higher share of wallet in the mid-market customers than we will typically in enterprise customers, if that answers your question. I think -- in terms of year-end expectations on head count, I think we've -- we'll continue to invest and invest hard. And we've got plans to reach the 2,000-head mark in our internal plans. We are -- it's a frothy market at the moment, and so we are seeing we -- it's not quite so easy. I'd describe it as maybe a candidates market. It's not quite so easy to land candidates right now. And of course, the other impact we've seen then internally is that we've some -- we've seen -- in the same way as we saw a decrease in attrition rates in the midst of the pandemic, we're starting to see those attrition rates return to normal as well, so -- but I think no reason to believe that we can't hit those head count numbers. If I look at what we've done in the first 2 months of the year: We've already added 81 to that head count in the first 2 months of this fiscal year. And by the end of this quarter, which is this Friday, we'll have recruited over 200 people, so I'm still confident that we can do that, but it's not going to be quite as easy as it was, say, 6 to 12 months ago. And then there's a question on inventory...

Yes. You asked about the inventory. The growth in inventory that we've got in the balance sheet at the reported date, Ross, is related mainly to one specific very large deal we've got going on with a customer. It's a low-margin deal, but we've got a large amount of data center kit for a customer that's going in over a period of time. We don't recognize the revenue for that until it's installed and signed off by the customer, so it just captures at the balance sheet date that value, which we expect obviously to reverse. So the build there is not related to us buying and holding on shelf or anything to do with the shortages. It's just a deal in transit and the balance sheet date.

And the next question comes from the line of Tintin Stormont from Numis.

A few questions from me. Could you give us a comment on the performance of the sort of COVID cohort of recruits in terms of kind of compared to previous cohorts, where they are in terms of kind of their development? Have they been impacted from the time that was spent out of the office? In terms of U.S. staff, could you give us some view on sort of kind of your expectations on how big that office might grow? And then final question. I think one of you talked about 1 in 5 of available customers are currently in your customer base. If you look at sort of kind of that population, where do you think sort of kind of your greatest opportunity still is? Is it still in the mid-market or enterprise?

Okay. Thanks for your questions. If I take the first couple. And we'll kind of share the load here, and Graham will take the last one. I think your question on the COVID-impacted intakes is interesting. And maybe slightly counterintuitively, those COVID intakes have performed as well as intakes pre pandemic, so -- and I think what we see -- and albeit, we saw -- as we alluded to on the call, we've seen some toughening in our ability to gain new customers. What we have seen is that they have a limited number of existing customers. Some of those existing customers have been passed down to new cohorts because we continue to focus and concentrate our salespeople on the right number of customers, not too many. So they've benefited a little bit from that migration, but we've seen their performance be as good as previous pre-pandemic cohorts. And I think that's a great tribute to them, frankly, and our ability to kind of give them the tools that they need to be effective in a remote working environment. I think the other thing just to add, which is also perhaps maybe slightly counterintuitive -- I don't know. Maybe that's a bit unfair -- is we've also -- I think you've seen and heard us talk a little bit about expanding our apprentice recruits to supplement that graduate intake. And again those apprentice cohorts are as good and as effective as our previous graduate, just an additional bit of information. On the -- so hopefully, that helps answer that question. On the U.S. piece, I think you asked -- is your question about where it could go?

Yes.

Yes. I mean what we've done that's slightly different in the U.S. is that we've -- instead of just focusing, we've really taken that head count up from 2 to 10, which isn't very big, but we've taken it from pure fulfillment focus. And we've built that fulfillment focus there and we've built some sales heads in there as well. And those sales heads, we think, will be more effective by having local relationships with the subs and branches of U.K. customers who we already deal with in the U.K. And we think we'll be more effective in getting more of their business that sits in the U.S., so that's why we've put that resource in there. We also believe that, over time, we can do more. We do a small amount of business with U.S. resellers or partnering with them to take their customers into Europe and the rest of the world. So we think, over time, we can either work more closely with some of those resellers on the U.S. customers' rest-of-world business. Or we can maybe [ even start ] going direct to some of those customers and help them with their rest-of-world business. That's a secondary option, but the first option is to help U.K. and Irish customers with their U.S. needs. So that's really what it's all about. It's we deal with -- I'm just looking at some numbers here in front of me here. Whilst the vast majority of our multinational business is with customers in EMEA, we're dealing with somewhere in the region of 100 customers in the U.S. currently on a multinational basis. And I think we've said before it's very important for us to retain that business and retain relevance of capability with the customers, but we think there's more share of wallet we can go after as well. So hopefully, that gives you some color there. And then do you want to [ comment ] -- yes.

[indiscernible], yes. So your question of where is the best opportunity for us in terms of customer number growth. I think it's in all 3 segments. Of course, if we are very successful with enterprise, for example, where I think we have a brilliant opportunity going forward, that will probably manifest more in average gross profit per customer rather than customer numbers because there's a relatively small number of enterprise customers, but the ticket value is much higher. But for sure, we've got good but pretty similar levels of penetration now across enterprise, public sector and mid-market. And it's both making use of those relationships we've already got, but yes, there's probably between 60% and 80% of addressable customers in each of those segments that we don't have. And we're investing in all of those areas, so our public sector sales team is growing just as quick as the corporate sales team. And we are putting additional resources into the corporate sales team to specifically target larger enterprise customers. And we've also spent time working on how we develop the corporate sales team from the early years and creating a development plan that enables them to target new customers and probably smaller customers but then putting in provision for training at the other end and taking our more experienced people and upskilling them and particularly coaching them on the ways to break into but also support and develop enterprise customers with a slightly different sales and consultation process to those as well. So yes, all 3 areas. We'll target them all. And I think there's great opportunity in all of them as well.

I don't think we've got a bias in the organization. As you just said, we don't bias from an investment point of view. We don't bias in terms of how we value or how we recognize that business, so I think that's -- that reflects exactly what -- your answer there, Graham.

And the next question comes from the line of Charles Brennan from Jefferies.

I've got 2, if I can. The first one is just a question around the outlook for the public sector. It feels like we've been through a pretty buoyant period of public sector spend. I guess, if we look at the government finances, we must be getting closer to a period of austerity that's coming up. What's the message you're getting back from your salespeople on how the public sector is likely to look this year? [ I know you're ] assuming a significantly different performance between public sector and corporate this year. And then the second question is just a more detailed one. I'm traditionally a fan of profits matching cash flow. Can you just talk about what this customer financing option is and whether there are any implications for your working capital as a consequence of that?

Thanks for listening in and your questions. I think, on the public sector, I mean -- so we keep close to our salespeople. And Graham and I make sure that we keep doubly close to [ them around results ] and make sure we know what's going on and what all the various dynamics are. And there's no suggestion -- despite the way you answer the question, there's no suggestion to us that there's going to be a slowdown in spend. And I think there is in some segments of the government some kind of -- there was a kind of pause around the summer period, end of last financial year, start of this financial year, while public sector was kind of -- it's a general statement but reorganizing its finances and trying to decide how much [ you add to ] spend and where it was going to spend. But if you talk to our salespeople, they're confident that those budgets are in line with the growth that we've anticipated, which is in line with company growth, so we don't -- I think the short version is we don't see a precise reason why that spend is going to slow down. I think health and education are going to continue to be strong spenders. And I think the other thing to bear in mind is some of that investment that Graham was alluding to earlier on. We're taking share in public sector as well, so we're not only reliant on the rate at which public sectors grow. We're reliant on knocking down, getting on new tenders and knocking down new areas. So we would expect to penetrate harder on all the areas that we currently target. And I think we said in previous calls that our appetite and investment to go after central gov in particular is something that we think will deliver incremental sales as well. So I think we're feeling pretty positive about public sector.

On cash flow, [ Charlie ]. I'm a similar fan as you for cash flows matching profits. And the way that we do financing for customers at the moment is entirely through third parties. So whether it's a very clear handoff to a finance partner or whether we do an embedded lease contract effectively there, the finance partner is still fully at risk rather than those we act as a collecting agent, but if anything goes wrong, the finance partner would step in rather than us. So the financing that we do -- and it's growing and it is something that customers are interested in. We have sales resource particularly around that to help customers understand the options and transact, but then we're an agent for that finance deal. We don't take the delayed cash flows ourselves. We get paid upfront by the finance partner and hand the liability over, so it's not affecting our cash flows. And we've no plans to change that model at the moment.

And what sort of customer profile is opting for a financing arrangement? Is this one that's cash constrained and therefore there is risk around it, or is that not necessarily the case?

Well, not necessarily. That is the case sometimes. And often you can get smaller [indiscernible] ambitions don't have the credit limit. You know that we have very careful procedures around our own credit exposure. And in some cases, it becomes appropriate, for those reasons, that we get a finance partner involved. Often it's related to the nature of the project actually, so if the customer has got a big capital project that they're going to put into use over a long period of time, they might choose to finance that to match their cash flows with their use of the asset as well. So in fact, I'd say it's probably more often to do with the nature of the solution than the nature of the customer.

And the next question comes from the line of Jad Younes from UBS.

You mentioned that attrition rates were going up back to normalized levels. Are you also seeing salary pressure as well, so wage pressure going up as well? That's the first question. I have another question as well. Are you seeing any SMB deceleration in terms of the trading now, in terms of the customer purchasing? And in terms of the bad debt risk as well, is there any -- are you seeing any type of credit risk increasing from the SMB customers as well, or not?

Okay. Jad, this is Graeme Watt here. I'll pick up the first part of your question. And Graham, perhaps pick up on the second part. Thank you for listening in today and thanks for your question. So attrition rates, we have seen picking up and, again as I said, not really surprising. We saw them dip quite sharply during the pandemic, much like of the new customer piece that I talked about earlier on, about hunkering down. We found people hunkering down not just in Softcat -- across the industry. And I think that's started to loosen up now, people -- whilst they've put some of their kind of ambitions and changes and development desires on hold, that's opened up, so we're seeing the market a little bit more fluid now. And from a salary, wage inflation point, I'd make a couple of comments. One is that I don't think our salespeople or particularly -- well, all -- any of our salespeople but particularly our entry-level salespeople, they don't really join for salaries because we don't really pay high salaries. It's a very leveraged scheme that they're on. And they make their money by generating GP and the commission they earn from that GP, so it doesn't really make a difference to us on the sales side. I'd say something we've always dealt with and had to deal with, and it's quite tough now -- so where I think we are seeing some continued wage inflation is more in the technical areas, people with kind of niche and specialist skills. We've always found that a little bit difficult. We've always kind of -- and you just have to keep up with the market. You just -- if you need people and you have to pay a certain amount, then there's naturally some wage inflation with that, whether it's in your existing teams or the people that you're trying to recruit. That's something we've dealt with for a while, but I'd say it's definitely a feature of the current market too, yes.

On the mid-market, yes. The -- no, we're not seeing a deceleration. If you look at our reported figures: Gross income grew more strongly in the first half in mid-market, but it still grew by 20% in the second half. And the first half was really boosted by big deals actually too. If you adjust for that, actually we probably saw a step-up in run rate growth in the mid-market; and that definitely correlates with what we saw in terms of volumes and customer activity. And so we're not seeing a deceleration, and gross income grew in mid-market by 20%. The bad debt risk. I mean the bad debt risk across mid-market and enterprise is something obviously that we've been watching very carefully, well, in all our history but particularly since the pandemic as well. Obviously the support -- some of the support schemes are now being withdrawn by the government, but I think we have processes that are very mindful of that potential exposure that we do have. I was looking at some insolvency projections the other day, and whilst I think they are projected to come back, it's from a very low level as well. And the level of insolvencies that are being forecast is in no way out of line but, as far as I'm aware, we've -- kind of what we've seen over the broader sweep of history. So -- but yes, it's a risk that I think many businesses carry, but we are managing it very carefully. And we've got no lead indicators at all of any issues on that front yet. We monitor cash collection stats on a bimonthly basis, and they continue to be very healthy. And the processes we go through [ to a signed ] credit, we think, are very, very robust. We have a credit insurance partner and we spend a lot of time talking to them about how to manage that exposure as well, so we're quite confident that we're able to deal with that in -- over the coming year, but of course, it's something to watch, as you allude to.

And the next question comes from the line of James Zaremba from Barclays.

I just had a bit of a follow-up, I suppose, on kind of culture and attrition. And I think you were speaking last year and maybe the year before about stepping up the development programs for people across the levels of the business and the impact that's had. I was wondering if you can just talk about, I guess, other things that have come up in your customers or your staff survey; and I guess, the future improvements you're targeting to make an impact on things like attrition and, I guess, employee NPS.

Yes. It's Graeme Watt here. I think we're actually in the middle of an employee engagement survey right now and that which closes this week, so I haven't got the insights to give you on this survey. What we found -- but we have been pulsing the team throughout the pandemic on a regular basis. And I think, unsurprisingly, people felt quite kind of discombobulated by the pandemic; and didn't like the fact that it was more difficult to connect; didn't like the fact that perhaps they felt they were available 24/7, whether that was an internal pressure or a customer pressure. And in some cases, what we've got a few times recently -- and it's maybe slightly because we've got a relatively flat structure, but some people are increasingly asking, "Well, what's my development opportunities in the company?" I think what we've done is we've provided a lot of support for people who are just feeling not the way they'd like to during the pandemic. We've set up -- we've got -- we've already had a mental health service and employee assistance line that they could call. We extended that to the families of people in the pandemic as well in case they had family members that were struggling. We set up a buddy scheme where people could volunteer to be or could ask to be buddied by somebody in the company. And we had a number of, I think, about -- over 100 people who have also volunteered to be a buddy to somebody. I was a buddy to 2 people. I think they were quite horrified when they got the CEO, so maybe that one didn't work quite so well. Although, we did -- we learnt a lot about each other and how to deal with the pandemic, which I think was helpful. And so -- and just being connected with people was [ challenging ], so we did a lot of slightly different but more intimate, if that's the right word, communication with people. So Graham Charlton and myself and Rich Wynn Griffith, we did drop-ins around the company, what we called "a little more conversation," which was less us broadcasting what was on our minds, but it was more just giving people a quick update and then asking what that -- was on their minds and giving them a chance to ask us our opinions on things and what was working and what wasn't working. So I think we've done an awful lot to stay connected. And a lot of the fun and the recognition we did, we turned into things that we were able to do online rather than in person. I'm very pleased. And Graham mentioned this earlier on. I'm very pleased that, with the exception of incentive trips -- and that's only because the incentive trips, the latest ones, haven't come up on the schedule yet, but we've got all of the kind of pre-pandemic fun and recognition and connection mechanisms that we'd normally have. They're fully in place now. And in fact, this year's kickoff, which is probably the biggest event that we have in the company -- it's where people get a chance to look back. We get a chance to tell people about what's going on forward. We give out a ton of awards to people for various things. This year, we -- whereas the previous year it was 100% remote, this year, it was largely remote, but on the day 3 of a 3-day kickoff, each of the leadership team went to one of the offices. And we were able to hold that last day of kickoff together with our teams, enjoy a few local awards as well as the cross-company ones; and finished it off with a party as well. So I think we're -- you know what it's like. It's challenging. There's 1,700 people in the company and everybody's got a slightly different need and a slightly different challenge, so I think we've done pretty well in holding it together. I think they've done incredibly well holding it [ together. And ] we're rather hoping that the government don't go for plan B. I know they're under pressure to go for plan B. We're rather hoping that doesn't happen, mainly from "our people and how we manage the company" point of view but also what it may do to some of our customers too. So I don't know. Does that answer your question?

Yes, and that's very helpful. And I guess this is a bit of a follow-up: I suppose you've talked for quite a few years about the investment in the technical side. And I imagine those people are slightly skewed towards [ experience side, away ] from graduates. And so I guess, in kind of 5 years time we're looking out, how does that, I suppose, impact the kind of the culture and how hard you have to work to enforce it, if you're having a higher churn in that part of the population but also growing on average more experienced people there who have worked in other places?

Well, we've always had that to an extent, but I sort of understand your point. I'd answer that a couple of ways. One is that we only recruit people that we think will fit into the culture and have the cultural attributes that we think are important in the company. It was the same for me. I was recruited because they thought I would fit into the culture. The Board thought I'd fit into the culture. They thought I'd value the culture. And they'd thought I would evolve the culture, and that's what -- exactly what's happening. So there's certainly maturity building in the company, which means that, some of the things we do, we have to be a little bit more thoughtful about. We have to work out what appeals to different age groups and different job roles. There's more and more people with families these days. So we are very cognizant of that. And the way you get that right is you just keep talking to your people about what works for them, what excites them and what doesn't. I think, with your point back to the other point about recruiting in people with experience, with career tenure but not necessarily Softcat tenure: Yes, it's about getting the right fit of person during the interview process. That selection process is not just about what skills and expertise they're bringing to the operations. It's about their cultural attributes and whether they'll fit in and do a good job for us and our customers, and that's a key point. So that's been a -- something we work on, anyway. And we continue to work on it as we look to grow the head count.

And the next question comes from the line of Benjamin May from Berenberg.

I've -- I just have got 2 questions. One is on the software side of your business. We heard from a competitor recently that, ahead of sort of Microsoft price increases next year -- that that's bringing a pull forward in demand for software products. Just maybe some color on what you're seeing in that regard as well would be helpful. And then lastly is just on those 100 U.S. customers you spoke about that were more than -- well, beyond fulfillment only. How does the GP per those new customers look like? Is it similar to the maturities you would expect with your U.K. customers, or is it different in any way?

Thanks, Ben. It's Graham Charlton here. I will take the Microsoft price one, and then I think Graeme will talk about the U.S. customers. So the Microsoft price increases: I don't think there's anything unusual about these. It's obviously something they do from time to time. It can prompt some customers who are on multiyear deals to look at making an early commitment to the renewal. It almost never works for a customer to cancel and renew early because the amount they lose and the lost license more than offsets the price saving that they'll make. So we will execute early commit, but it doesn't pull our revenue forward because we don't recognize that revenue until the license renews. And I think some resellers, depending on how they're exposed to different weights of Microsoft's different licensing schemes, might have a slightly different experience to us. So it's a useful factor, a minor useful factor, for us in that it -- our salespeople tend to think in terms of percentage margin. And so if the price goes up, we can usually retain a slightly higher absolute margin because we work in the same percentages. And it can enable us to secure renewals ahead of time, but it doesn't pull forward the revenue recognition. If you've got new customers who don't already have whatever element of Microsoft licensing they are looking to bring in, then it can create an acceleration and an impetus to get that business over the line, but the vast majority of our software income is from renewals of licensing scheme rather than the new business as well. So yes, it's a positive but not a huge factor for us. And Microsoft, they're always changing the rebate schemes around this and so customers are moving from one scheme to another, and that's a challenge to manage as well. So it's just part of doing business for us. Graeme, do you want to take...

Yes. On your other question, Ben. If you look at our kind of 3 primary mechanisms of supporting customers with multinational business: It's export. It's partner with a reseller, and then it's doing -- it's an in-country engagement. And obviously in the U.S. we're favoring the latter, but if you go in that order, that -- in order, there's a very much bigger opportunity to drive more margin the further you go up the stack. So exports, it's pretty low margin; partnering with resellers, low but perhaps a little bit better. And then having an in-country capability enhances the margin. That said, typically our multinational business, because of the nature, it's very much more fulfillment, does tend to be lower-than-average margin. We're creating and supporting customers in projects where the bulk of the margin is still sitting in the U.K. And that fulfillment piece, it tends to be lower margin. Having said that, in the U.S., though, we -- as I said earlier on, we're adding some salespeople. And we hope that, by adding salespeople to have a little bit more of that selling motion in country and not confined to the U.K., we're hoping that will open up opportunities not just in sales but also in some sort of margin enhancement too, but that business generally runs at lower-than-average GP just because of the fulfillment nature of that business.

Thank you. And no further questions that came through, sir. You may continue.

Yes. I'm just going to close by thanking everybody on the call. Thanks for your interest in Softcat and for taking the time to dial in to the call this morning. And I wish you all a very good week. Thank you.

Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect. Speakers, please stand by.