Softcat plc (SCT) Earnings Call Transcript & Summary

Okay. Good morning, everybody, and welcome to the Softcat results presentation for the year ended 31st of July 2025. Thank you very much for your interest in the company. I'm Graham Charlton, Chief Exec. And I'm joined today by Katy Mecklenburgh, our CFO, who you'll hear from very shortly. And a special warm welcome to those of you in the room with us here in person. This is our new -- still relatively new London office, one of several new offices that we've created over the past year. And I hope it gives you a feel for the Softcat culture and energy as well as seeing some of the new styling and our new logo come to life, too. Before I pass to Katy, I'll begin, as we usually do, with a quick reminder of who we are and what we do because even for those of you familiar with our story, it is evolving at pace as we grow. And so it's a useful annual check-in, I think. Katy will then headline the annual results, and I'll come back later to give you an update on the strategic progress that we're making. So here we are. Then Softcat is the largest provider of technology solutions and services in the U.K. market. We operate across the full spectrum of modern infrastructure, encompassing security, hybrid cloud, compute and storage, data, AI, networking and workplace technologies. We offer a very rare capability in a highly fragmented market, the ability to help customers design, implement, manage and support increasingly complex and integrated environments through a single partner. We now have over 2,700 employees. And as well as in the U.K., we operate in Ireland and the U.S., and we've built a branch network, allowing us to procure and fulfill on a truly international basis these days. We combine -- we continue to work with all of the biggest and best-known and most relevant technology vendors globally, often as the largest or one of their largest partners in the U.K. market. And we have over 10,000 customers ranging from small and the mid-market through to large enterprises and from the corporate into the public sectors. And I'll talk more later about how we continue to expand this range and capabilities and to deliver on what is still an almost unlimited growth opportunity ahead of us. But for now, I will pass you to Katy for an overview of how we've done in the last 12 months.

Thank you, Graham, and good morning, everyone. So I'm very pleased to share with you Softcat's results for FY '25. In summary, our results for the year reflect the strength of our business model and ongoing success in strategic execution. Despite the continued backdrop of macroeconomic and geopolitical uncertainty, we've delivered strong double-digit growth in gross profit, which is our key measure of income and in underlying operating profit. Gross profit of just over 18% reflects a 1.6% increase in our customer base and a 16.5% increase in average gross profit per customer, demonstrating further good progress on both metrics. This growth reflects broad-based strong performance across the business and the delivery of some larger solutions projects during the second half. Underlying operating profit of GBP 180.1 million, which excludes the impact of GBP 7.2 million of non-underlying costs, and I'll run through these in more detail shortly, increased by 16.9% versus FY '24 and was ahead of our expectations at the beginning of the year. We have continued to invest in the business throughout the period. This includes, as usual, growing headcount, albeit this has been at a reduced rate compared to previous periods and significant investment in new offices alongside investments in our internal technology capabilities. We've also maintained a strong balance sheet with underlying cash conversion of 95.6%, which is at the top end of our guided range. We ended the year with more than GBP 182 million in cash, and therefore, alongside our normal policy of paying out between 40% and 50% of profit after tax as an ordinary dividend, we are also able to recommend the payment of a special dividend of 16.1p. And turning to the summary income statement and starting at the top. Gross invoiced income grew by 26.8% to GBP 3.6 billion, surpassing the GBP 3 billion mark for the first time in our history. This reflects particularly strong growth in hardware, up 74.5% with software up 14.8% and services up by 15.5%. Hardware performance was mainly driven by strength in data center and networking sales with also strong performance in server and compute, and this was augmented by the larger solutions projects we delivered in the second half of the year. These large deals were very large, low-margin data center solutions projects. Software growth was broad-based across technology towers, while services saw strong growth, both in internal and third-party support deals. Revenue grew by 51.5% ahead of GII, largely due to a higher share of hardware, which is reported on a gross basis under IFRS 15. Services revenue growth of 30.6% was ahead of GII growth, reflecting a higher share of internally delivered services, which are also reported growth. Software revenue grew behind GII due to a lower software gross margin, reflecting mix into low-margin public sector deals and the impact of Microsoft EA changes. Gross profit, which is our primary measure of income, grew by 18.3% to GBP 494.3 million. This exceeded our expectations at the beginning of the year and reflects strength across our broad portfolio of solutions alongside the benefit of the larger projects in the second half. Gross profit growth was broad-based across our customer segments of enterprise, mid-market and public sector and on a product basis of hardware, software and services with each growing at least high single digit. By technology area, growth was driven by security, reflecting the ongoing customer focus on cyber investments, alongside growth in data center and networking, where demand was broad-based and supplemented by the larger solutions projects. In workplace, GP growth was more muted year-on-year, reflecting the impact of Microsoft incentive changes and ongoing subdued demand for devices, particularly in the first half. Overall, gross margin declined by 90 basis points year-on-year, primarily reflecting the impact of the larger solutions projects at lower margin. Underlying operating profit grew by 16.9% to GBP 180.1 million with operating cost growth of 19.1%. Commissions and other variable pay grew broadly in line with commissionable gross profit, while wages and salaries grew by 11.2%, driven by a 7.3% growth in average headcount and a 3.7% increase in average cost per head. The cost uplift also reflects 4 months of national insurance increases, which came into effect in April. During the year, we've invested in our IT team capabilities and in our offices with 3 office moves to larger floor prints, including the London office where we're presenting from this morning. Included in the FY '25 operating cost is also an impairment charge for our Marlow office and some realized ForEx losses. Moving slides. As a result of the investments, the operating profit to gross profit ratio declined slightly from 36.9% to 36.4%. In the year, we incurred GBP 7.2 million of non-underlying costs. These included system development costs of GBP 5.3 million relating to the implementation of the new cloud-based sales and HR systems. Typically, we would capitalize these types of costs, but neither system meets the criteria for capitalization of cloud-hosted systems. In addition, there is a GBP 1.9 million charge relating to the acquisition of Oakland, which is made up of GBP 0.7 million in transaction costs, GBP 1 million in respect to the fair value of the deferred consideration and GBP 0.2 million amortization of acquired intangibles. We expect further non-underlying charges in the region of GBP 20 million to GBP 25 million in FY '26, primarily relating to the sales and HR system implementation. These multiyear projects with peak spend in FY '26 build a foundational platform to Softcat's data, digital and AI transformation journey, and Graham will give more color on this shortly. After deducting non-underlying costs, statutory operating profit was GBP 172.9 million, an increase of 12.2% year-on-year. Net interest income from the year was in line with the previous year of GBP 5.3 million, with an increase in interest costs from the new office lease liabilities, offset by increased interest earned from improved cash management in the period. And lastly, tax increased in line with gross profit, resulting in profit after tax growth of 11.7%. Touching now on our customer base and portfolio offering. Our growth is supported by the diversity of our customer base and breadth and depth of our customer offering. On the left, you can see the latest customer segmental view of our business, which remains very well balanced. The public sector and enterprise segments of our business together account for just over half of gross invoiced income with mid-market accounting for the balance. The middle chart shows the spread of our activity between our traditional technology resale business and our services offering. And on the right, you can see that we continue to generate well-balanced income across all areas of our technology portfolio, ranging from the cloud and data centers through networking, security and end-user compute. The diversity of our customer base and breadth and depth of our offering is a key strength of our business, and this underpins the sustainability of our growth model and our opportunity to further scale. Moving on to our customer metrics. The chart on the left shows the growth in our entire customer base and growth in average gross profit per customer, which demonstrates our ongoing ability to acquire new customers and sell more to existing customers. During the year, we have grown our customer base by 1.6% to almost 10,200 customers and growing GP per customer by 16.5% to GBP 48,500. The graph on the right shows a more detailed view of those customers with whom we have an established trading relationship and where we thus experienced lower churn rates. This view focuses on the more than 8,000 customers that deliver at least GBP 1,000 of gross profit each year. In this cohort, there is a more balanced profile of growth between customer growth of 3.7% and GP per customer growth of 14.1%. The longer tail of transactional customers continues to represent an important source of future growth for us, but our established customers generally account for at least 99% of the group's current gross profit. And now moving on to cash. This year, we have slightly amended the definition of cash conversion to reflect the introduction of the underlying operating metrics that exclude non-underlying items. This means that our new APM is underlying cash conversion, which is net cash generated from operating activities before taxation and any acquisition-related cash flows, including deferred consideration outflows, net of capital expenditure as a percentage of underlying operating profit. Underlying cash conversion in FY '25 was 95.6%, reflecting continued good working capital management as we continue to manage customer and vendor payment terms in our deals. You may have noted that we are carrying more inventory at the balance sheet date than normal. This relates to a large deal, which is still in progress. And while the inventory is elevated, it doesn't impact net working capital or year-end cash as we've been prepaid by the customer and we, in turn, have prepaid suppliers for the stock. Depreciation and amortization stepped up year-on-year due to the investment in offices and internal technology and CapEx more than doubled to GBP 15.2 million in the year, primarily reflecting the investment in new offices. The increase in other is due to the add-back of noncash impairments and ForEx movements. Higher cash tax reflects the growth in profits in line with the income statement. We've returned GBP 95.7 million of cash to shareholders during the year and the net cash paid for Oakland was GBP 7.4 million. Thus, we ended the year with a cash balance of GBP 182.3 million, an increase of GBP 23.8 million year-on-year. Looking forward to FY '26, we expect cash conversion to be towards the lower end of our guided range of 85% to 95% due to the cash outflows related to the sales and HR systems. This next slide covers the dividend. As a reminder, the interim dividend paid back in May was 8.9p. In line with our new policy of paying out 1/3 of the previous year's ordinary dividend as an interim in the current year, the Board is proposing a final ordinary dividend of 20.4p, reflecting our normal policy of paying out between 40% and 50% of profit after tax. This represents a total ordinary dividend for the year of 29.3p, an increase of 10.2% on FY '24. In addition, we're also proposing a special dividend of 16.1p. This is in line with our capital allocation policy to return excess cash to shareholders, subject to maintaining a cash flow, which we've raised this year to GBP 90 million from GBP 75 million, reflecting the operational needs of the business as we continue to grow. Turning now to capital allocation. We have a disciplined approach to capital allocation and our framework remains unchanged. Our top priority is to invest in future organic growth, which supports our ambition to take further share in expanding addressable market and enables us to scale our business over the long term. During the year, we've invested in the long-term growth potential of Softcat, increasing our office footprint, increasing headcount, developing our data and digital platforms and investing in core systems and IT capabilities. Our second priority is to maintain a progressive ordinary dividend policy. Any excess capital is then either allocated to compelling strategic investments or return to shareholders. In the year, we've made our first acquisition, buying Oakland, a data and AI services company, and we continue to explore further acquisition opportunities, which could include further capability bolt-on acquisitions to expand our portfolio offering or expansion in international markets. And finally, moving to the outlook. Looking ahead, Softcat remains well positioned to deliver significant growth and our guidance for FY '26 remains consistent with that provided at our FY '25 trading update in August. We transacted a couple of very large data center deals in FY '25, some of which are recognized in H2 FY '25 and some of which are currently anticipated to be recognized in H1 FY '26. Large deals are very much part of our underlying business, but these are exceptionally large. And given the cumulative size and phasing of the deals, there is an element in FY '25 that can't be replicated on a 1-year basis. And we've quantified this incremental contribution as a beneficial GBP 10 million impact on FY '25 operating profit. Excluding this incremental contribution from large projects in FY '25, we expect to deliver low double-digit gross profit growth and high single-digit underlying operating profit growth in FY '26, which is in line with our normal growth framework. When we include the significant incremental contribution from large deals in FY '25, this translates to high single-digit gross profit growth and low single-digit growth in underlying operating profit in FY '26. I think it's helpful to note that this gives a 2-year CAGR from FY '24 to FY '26 of circa 12% for gross profit and 9% for underlying operating profit, which effectively normalizes for that incremental contribution in FY '25. The FY '25 second half phasing of these large projects and the anticipated H1 phasing in FY '26, albeit noting that this is dependent on both vendor and customer time lines, means that the underlying operating profit growth for FY '26 will be first half weighted. And with that, I'll now hand back to Graham to run through the strategic update.

Thank you, Katy. And I will now talk about Softcat's future because although the market hasn't been easy over the past few years, it is still in long-term structural growth. And I can't think of a more exciting industry for us to be in. And to set the scene and remind us of that, I'm going to start with the momentum with which we enter this year. And it's not momentum that we've gained just over the last 12 months. It's momentum that we've developed over 32 years, and you can see it visually represented here. And as you can see, we've come a long way in that time, relentlessly scaling our business to become the biggest operator in the U.K. market, create the broadest and deepest offering. And yet despite that, as I said before, we still have almost unlimited room for future growth. Our industry is highly fragmented, and we estimate that at most, we've got a 4% or 5% share of the addressable market. And that is to say the market that we're equipped to directly address today. The breadth of our offering has served us very well through both upswings and periods of more challenging market conditions. And you can see that clearly through the consistency of our growth. And mainly through organic investment, but also now our acquisition of Oakland, we've extended that addressable market in relevance further each year. We've moved into new and exciting high-growth areas such as data services and AI. And over the past 5 years, we've also begun to expand internationally. We've established a strong foothold in Ireland and with more customers pulling us into overseas opportunities such as in the U.S., we've got the capacity and capability and reach now to accelerate further. So in terms of our future opportunity, I will come at it from a few different angles. But before I get into that, I'll pause just for a minute on something that we won't be changing and something that will be totally consistent about how we will grow in the future. And that's where we get our primary source of advantage from. And as you know, that is our culture and our people. And this simple illustration, which you've seen before, is still the driving force behind our success. The industry-leading customer service that our special culture delivers creates trust that enables outstanding performance and growth, which enables further investment in our proposition. So this flywheel is still the heart of everything we do. And you can see in the center of it, the 2 sources of advantage that I think we have. Firstly, the highly engaged employees that are the product of our culture. They will always be our #1 priority and the main source of advantage. But the second element of that advantage in the middle is the best-in-class proposition. And there is a lot going on within that to enhance the value that we can deliver for customers. And we've previously shared the different components of that proposition and described how we intend to develop each in turn. And we've refined that down now into 3 key themes and combine those with the culture to create what I now call our 4 big engines of growth to power us towards our future ambitions. And you can see them illustrated here, and I'll talk about each in turn about what we've done and about what we will do to build them and tune them up for the opportunity ahead. They encompass the special culture but also sales and customer excellence, the breadth and quality of our offering and operational excellence. Continued investment in all 4 of them will drive our strategy, and so I'll talk about each in turn. So firstly, our special culture. We are not a special place to work because we've been successful. Softcat has been successful because our people have made it a special place to work and the drive, the energy, the positivity of our people, it's a force of nature, creates a momentum and forward motion like nothing I saw before joining Softcat. We devote an enormous amount of time and effort to preserving the power that, that creates. And as we continue to grow, the empowerment and support that we give to the incredible people who lead our local office leadership teams, that becomes ever more important. Culture happens at a local level and in a physical environment. And this is one of the reasons that we've invested so significantly over such a long period of time in our workplaces and the training, coaching and support that we give our people. And we've stepped that up over the last 12 months. We've carried out 4 major moves and refits to some of the biggest offices that we have, and we've got more yet to come. So you can see Birmingham, Bristol, Manchester and obviously, the London office that we're in today on the slide there. But Dublin and Glasgow are next, and the new styling has been updated across the rest of the offices as well. But alongside that work on the fabric of our buildings, we are stepping up the recognition and support that those local leadership teams get as well. Each office has got a local identity and a way of doing things, but the ethos, the energy and the drive is the consistent theme based on a genuine care for people and a shared purpose and celebration of success as a team. We've continued to receive positive external recognition for the strength of the culture, including, for the first time, being certified a Great Place to Work in the U.S. alongside the existing accreditations that we have in the U.K. and Ireland. And we've just had the whole company together at the NEC in Birmingham for our annual kickoff to celebrate what we achieved last year and plot our route forward together. And we're now in the process of getting our people's feedback, whether from new apprentices or veterans of 30 years, and we do have some of those to hear what they feel that we're doing well and where we need to improve and evolve. And their feedback along with that, that we get from our customers, those are the 2 single biggest and most important inputs each year to our strategy. And so that leads us on to the second one of our engines, which is sales and customer excellence. And this is all about ensuring that our sales teams continue to lead the industry through the training, support that we give them, but it also extends beyond the sales teams to encompass what is truly an organizational approach to customer service. This pyramid, which is familiar to many of you, and we've used it before, shows a representation of how our salespeople shape that customer opportunity over time and deliver growth through outstanding service, building trust and loyalty. Each layer of this pyramid is defined by the amount of gross profit delivered by our customers. And as you move up the chart, you can see an increase in customer tenure as we form deeper relationships, we have more vendor presence in each account and the lower churn rates that result as we build that trust. In the bottom layer, the customer pool are customers with whom we've either not yet trading or have just made a transactional start. And these customers are generally with our -- and being targeted with our -- by our junior account managers and just beginning to work with us. But as you move up, through the layers, the relationship builds towards that trusted adviser status. And so at the top there, the pyramid at the top, it isn't simply a reflection of the size of the customers and IT budgets in that layer. You can see that only around 1/3 of the customers at the top there are the largest enterprise scale organizations that we work with. 2/3 there are still mid-market businesses. That shows the success that we are able to have in the mid-market space, but also that we've got very significant scope to do more in the enterprise segment as well. And on the right-hand side, we've outlined a number of large solutions that we are delivering each year, which is up by around 50% in the last 12 months. And as we keep growing our capabilities and our offering and deepen those relationships with more and more customers, we expect to continue to grow that large solutions element of our business as well. And turning the slide again now but staying on this topic. And as I alluded to earlier, feedback from our customers is a key input to how we build for the future. We formally survey all of our customers on an annual basis, and that feeds into the customer satisfaction report, some of the results of which you can see summarized here and they remain exceptionally high. We had a record number, far more than ever before, actually, customer contacts respond this year. And we've never had more people telling us so clearly how highly they rate the value of the service that we provide. Our NPS score increased by 1 to 64. But the survey results also give us insight into what our customers are focusing on and planning for their businesses, unsurprisingly, data security and AI feature prominently. And our acquisition of Oakland is helping us to drive more conversations across those areas. The desire in our customers to innovate their business models is also very clear. And having a single partner, as I mentioned before, that can collaborate on all these areas is a huge advantage. We can advise on integrated solutions that can be implemented part of long-term strategic road maps and our account managers. They can remain focused on working with the customer in the areas that are important to them and not banging a single self-interested drum. And that alignment of interest is an incredibly powerful force for performance, especially in more challenging conditions and for sustaining our long-term relevance to the customer. And turning now then to the third engine and the breadth and quality of our offering. And this slide is another one that should be familiar. I think it neatly captures the range of our portfolio, comprising the technical skills that we have, the services that we provide across all the technology areas, along with the vendor accreditations that we hold. And across the top, you can see how we segment our technology proposition into 5 key areas. And this gives us a very rare span across the entirety of modern infrastructure from the edge to the cloud from software to hardware to services from physical supply of devices to the rearchitecture and management of data. We work with all the largest and most established vendors. We're accredited to all of their top level programs, and we are the first port of call as well for exciting and emerging new technologies. Our services range from advisory and architecture through to implementation, support and management of solutions. And this gives our account managers the confidence and credibility to work with their customers knowing whatever issues or challenges that particular customer is currently facing, regardless of where it is in their technology stack, Softcat is best placed to help them in some way. And over the past year or so, we've been adding to and deepening those capabilities and services as we always do. That's been again through organic hiring, but also for the first time this year through acquisition. So we'll have a look at a brief overview now of that Oakland acquisition, which we completed back in April. And it has significantly enhanced our capability in the data and AI space. And among other technologies, it also supports perfectly our partnership with Microsoft. Now we originally worked with Oakland as a customer of theirs and to help us -- they were helping us with our own data transformation. And in working with them, we could see a number of things. Firstly, that they were a quality provider, they were capable, and they could execute. But we could also see a very clear affinity between their culture and ethos and ours. And we could see that the help that they were giving us was relevant across all of our customer base, too. Data engineering and governance is the key foundational layer to AI transformation and the creation of agentic AI systems. And as we say internally, the more that we looked at that -- on that previous slide that I showed you of our proposition, the more that we could see an Oakland shaped hole in it. They could see it as well. We brought the 2 businesses together. They were with us at the all-company kickoff event, which I just mentioned. And watching our 2 businesses come together has been really exciting because the pipeline that we're developing and the response of the vendors like Microsoft, but also like IBM, like NVIDIA, Intel and many, many others and the conversations we are having with customers about their data is really exciting. And this isn't just a benefit to Softcat for the consultancy and data engineering revenue stream that it will bring to us. The acquisition significantly expands our addressable market in other ways, too. And as you can see from some of the vendor names that I just mentioned there that play in that data and AI and high-performance compute space, but it also deepens our relevance to the expanding portfolio of many other traditional players that operate across our portfolio as well. So we're delighted with the progress we've made on the joint integration plan. It's been focused so far on very carefully and selectively linking up our sales motions. And that, as I said, has generated a terrific pipeline, both for Oakland and for the broader Softcat portfolio. And finally, now we'll turn to the fourth engine, operational excellence. And our vision is to build a business which is increasingly automated, smarter, easier to interact with for both customers and our supply chain and using data more intelligently. We will -- this will improve both the scalability and also the effectiveness of our business, but also enhance customer and employee experiences, helping amongst other things for us to get the right part of our service deployed for the right customer at the right time. And we've been investing for years now in our own internal processes and systems, and we'll continue to do that to modernize how we work. We've got a representation here on the slide of what we are doing. And we've indicated how as we get these base systems and the data governance and other foundational layers complete, then we'll be able to move into the optimization and innovation of how we deliver. And the timing of these investments starting as we did around 4 or 5 years ago to plan and develop some of this, starting with the implementation of a new finance system 3 or 4 years ago, a new database architecture and integration layers, now extending into service -- new service management system, which we implemented last year and now into our sales system and a new HR platform. All of this comes just as these core platforms are beginning to embed AI in the way that they work. And the creation of agents and agentic systems with the overlay of Copilot, which as you know, we fully deployed a while ago across the organization. I think this puts us in prime position to truly transform the ways that we, Softcat work in the years ahead. And as I said, during the year, we started work on the deployment of Microsoft Dynamics as a replacement for our existing sales system. The latter had been in place for more than 20 years. We expect user testing on the new system to begin next year in the early summer. And ultimately, all of this work and investment is designed to enhance about what I talked about before, an organizational approach to sales and customer excellence. The technology and tools that our salespeople, technical engineers, credit controllers, legal team, amongst many others, will have at their disposal will be contemporary and AI-enabled. And as we look to scale our business in the U.K., in Ireland, in the U.S. and beyond, these investments will provide us with the operating platform to do what we do best, fantastic customer service delivered by a special team of people. So those are the 4 aspects of our strategy going forward and a flavor of what we're doing within each to make Softcat an even better partner for our customers into the future. But I'll finish by talking about where we will begin, where we will be deploying this approach and what we're doing in the different geographies that we're now operating in. So this next slide shows the geographic range of our operations today. And despite having the largest share of the U.K. market and having created the presence that you can see on the page there, from the U.S. out to the Far East, despite all of that, we're not even yet in the top 10 globally in our industry today. And that's great news. Because while the U.K. is and will remain a core focus and a market with more than enough opportunity in and of itself to perpetuate the growth rates that we have been delivering, despite that, the U.K. is now only one of the markets that our customers are asking us to do work for them in. As I mentioned earlier, we've made a great start in Ireland. We have a local team there selling to local customers. We will keep investing in that team, and I believe that we can aim to be the biggest player in that market one day. And we also have an emerging presence in the U.S. with a team there now of around 20 growing in tenure. It's a mixture of new local hires and tenured Softcat U.K. [ exports ]. And in that market, we are not yet selling to local customers. We are just delivering for existing U.K. and Irish multinationals. But the culture in that team is already as strong and vibrant as in any of our U.K. offices, and we're developing some really good momentum. And we've got lots of good options through which to keep building in the U.S. chief amongst them. And the one certain way through which we will do it is by continuing to organically to invest in the team and office that we've already got there. But we also believe that Softcat could be a fantastic owner for an already established operation in the U.S. And the evaluation of inorganic options there is something that we've previously described before as a no-lose effort because just by doing that work, by looking and evaluating, we are learning more about the market and how to build the existing team. So our progress in the U.S. could continue to be a steady organic build or we could accelerate it through acquisition. Either way, we've made a great start there. We've got the capability, capacity and ambition to act if we see the right opportunity. But finding the right opportunity is the key phrase in that sentence. We've set a high bar and finding a management team with an ethos aligned to ours based around genuine care for their people and culture, like we did with Oakland, that's the nonnegotiable part of it. But also like with Oakland, I think we've shown that we can extend and accelerate our business through M&A. And so we will look for the chance to do that in the U.S. In addition to the plans we've got there in America, the U.K. and in Ireland, we'll also continue to build on the growing network of branches that we've established across the rest of the world, in Canada, Europe, Asia Pacific. We do now have an office of 3 people out in Singapore, but we'll keep developing the rest of world fulfillment capability, too. And so to summarize now, we've delivered, I think, this year, another year of very strong performance. We bring fantastic forward momentum into this new financial year. We've refined how we think about the strategic priorities that will power this next exciting phase of growth for Softcat, and we've got really well-defined plans to invest across all of those. We are expanding the horizons over which we can deploy our model for future success. But while we might enable new tools and new approaches in new markets, we will always have people and culture as our #1 priority and principal driving force. So thank you again for your time and interest in Softcat today. We're happy to start taking questions now. We'll begin in the room, and then we'll open it up for anything that comes in on the lines as well.

It's Andrew Ripper from Panmure Liberum. Well done on the results. A couple from me. Just on the numbers, you talked, Katy, in your section about FY '26 being H1 weighted. I wonder if you could give us a sense of degree. I appreciate you've been very clear about the full year, both inc and exc the exceptional deal in FY '25. But to what degree do you expect, for example, GP growth to be H1 weighted this year?

Sure. We don't give formal guidance, but to be helpful, happy to give a bit more color. So it doesn't seem this large data center deal is recognized in H1 and noting that there are dependencies on both the customer and the vendor. But we expect GP and OP, the 2-year growth rates, i.e., based on FY '24 to be roughly the same H1, H2. And that should give you for H1 OP growth, something in the range of mid- to high single digits and a slight OP decline in H2.

And Graham, as you finished on sort of international strategy, just picking up on the U.S. I mean you've had a fair amount of time looking at potential deals. What -- can you sort of elaborate on how close you are or what your perspective is on potentially doing a deal? Have you found companies which would fit culturally, but you've not been able to agree on price? Or are you not as close as that to potentially doing a deal? And on the organic front, you made the point there that you've done a great job with existing international customers. When do you get to the point organically that you start serving local businesses in the U.S.?

Yes. So we've not to date got to the point where everything was right apart from price. We've done a lot of work to understand the market, to develop our own, I guess, scale and capability to the point where it is the right step. And obviously, we've got closer to that over time. I think we're in a position now where if we find the right thing, it would be a good step for Softcat to take. The main or the most clear element of what it would take is around the people, the leadership team wanting to be part of Softcat, having a culture that's generally based around people. The rest of the criteria for what might work for us in the U.S., we're more open-minded about. The team that we have there to the second part of your question is I guess it's kind of operating between the 2. So it is just working with existing customers, but it is now developing local relationships with those customers and therefore, unearthing new opportunities in the local market, but we're not winning net new customers there. And so as I said, the one thing that we know we'll do is to keep investing in and building that team, and that will open more opportunities. When do you get to this crossover point of winning net new customers? Well, I don't think organically, we're at that point probably imminently. But you can see why, therefore, this makes sense because if there is an operation in the U.S., similar ethos to ours, would look at Softcat and think you'd be a great owner, you could accelerate us. Well, it works for everybody. That's exactly what we found with Oakland. And so if and only if we see that, then we've got the ability to act. But we don't need to. As I said, the U.K. and Ireland and the multinational aspects of the customers that we've got, there's more than enough for us to go out there, but we have the capacity. This is the right step if we find the right thing for us.

Just really quickly, just to finish off, Katy, back to you. Just in terms of the exceptional systems cost this year, GBP 20 million to GBP 25 million. I assume that's all cash. And if you could just confirm that? And then do you expect some residual costs to flow into FY '27?

So yes, happy to give a bit more color on those. So the GBP 20 million to GBP 25 million has got 2 parts to it. The largest part is the system development work, which I'll come back to. But there is also an element that's still Oakland. So that deferred consideration we accrue over the earn-out period, which is 3 years. And that -- and we've got intangible amortization over a similar time period, both of those sort of noncash. There are staged payments, but they're not always in cash within a year. The larger part is system costs. At the moment, we're focused on Phase 1 of the project, and that Phase 1 will run into FY '27. So we said that the peak spend is FY '26, but they're multiyear deals. And Phase 1 in FY '27, very roughly half of the spend in FY '26. Phase 1 focuses on the foundational elements of the system. So we're trying to keep the initial scope as tight as we possibly can to minimize delivery risk. We then directly follow on with a Phase 2 and then Phase 3 of the project and that will add in additional features. The exact scope and the spend will depend on the list of requirements and the return that these give. So we'll decide that sort of when we're at the end of Phase 1. And I guess, as long as they are costs that we could have capitalized had there not been this sort of nuance around SaaS-based licenses, then that's what we treat as non-underlying. So I hope that gives you a bit more flavor. But -- and you're right, the systems are largely cash...

Damindu Jayaweera from Peel Hunt. I mean it's incredible to see the growth in sort of the larger deals. I mean it's 46 deals above GBP 500,000. What I wanted to understand is that, obviously, when you talk about the exceptionally larger deals, the data center deals, I think there's an assumption, I think, rightly that they come initially at least lower margin. The deals that you're talking about here, broadly like those 46 deals, they come at more normative margins, I assume. Is that okay?

Yes. I mean there's a whole range, and it depends -- the scale of the deal is one aspect, but the role that we're playing in the deal, how much advisory architecture work are we doing, how long has the project been going on for, what role do we have in implementation and support management of the solution when it's up and running? So those larger solutions deals, they range across all 5 aspects of the tech proposition that we drew out can involve different levels of service. So the margin is a very broad range as well.

And Graham, tied to that, given that you have higher and higher CAGR basically as you go up the pyramid now, is there anything need to change from a sales motion perspective to upsell to some of these existing customers? And I guess it applies to these large data center deals as well if you have to make better profit from it? Or is that motion already there?

No. So the short answer is yes. We are developing our sales motions because they're different in public sector, different in large customers, different in different technology areas, different depending on what each customer has in terms of skill set internally. So our playbook of sales motions is always expanding. And as we've expanded it, it's developed into large complex customers, different areas, security assessments, data governance and engineering network now as well. So -- and that's a good point. I mean the sales motion around Oakland and the consultation they do extends our kit bag again, and it has benefits because we might learn that motion in that data center space, but then we can apply it in security and other spaces, too. So that, I think, is one of our -- has been one of our key strengths. And a lot of this comes from the bottom up from our people, seeing opportunities, saying, right, if we can do this, they create a best practice, they share it, and it develops across the business. So yes, new sales motions is definitely part of our growth.

Can I squeeze in one more question, please? So I guess you've added 180 people on average when you added to Oakland this kind of additional capability, and you just alluded to the fact that, that becomes quite important on a go-forward basis. So can we start to think of like tuck-in acquisitions as almost acquihires? And essentially, like 150 to 200 range that you normally hire can now be thought of as a slightly higher range potentially because of M&A?

Yes. I mean, capability acquisitions like Oakland, we will -- and again, it's hard to predict because you could foresee different situations as well. But we are looking to bring in capable people who want to be part of Softcat are energized by our culture. So yes, I think us thinking about M&A in that capability space as an acquihire is a reasonable mindset. But equally, in the -- if we bought something in the U.S., we'd be looking to retain and empower their people, not rip them out and replace it with Softcat people. We're not pretending that we can drop Softcat people in and engineer -- a complete change in culture. We need that cultural affinity and those people to be the anchor point in the first place.

Tintin Stormont from Deutsche Numis. I'll do 3, but they're really quick. In terms of the year just gone, if I adjust out the GBP 10 million in EBIT, but gross it up on a gross profit basis, it still looks like sort of like 15% GP growth for the year, 12% and then sort of 17%, 18% in the second half, if I take off sort of GBP 12.5 million in the GP in FY '25. So there's an acceleration still without the projects. Is there anything you would call out in terms of the environment and all of that?

So I think something to be minded of is even in H2, we've taken that incremental contribution, but still some of the remaining growth is still the large deals that we've taken. Those other smaller but still large deals of above GBP 500,000 gross profit also back half weighted as well. But the overarching performance on the base business is strong as well. So it's sort of a combination of all of those 3 things, too.

And so what was behind that kind of run rate organic build in the second half? I mean the device cycle certainly started to uptick in the second half, but it's still a relatively small part of our numbers, and it wasn't growing ahead of the rest of the business either. The -- so no, I think it's just -- I couldn't really call out a particular trend. I think it's just ebb and flow of when customer opportunities come up more than anything else.

And then just a couple of quick ones on M&A. When you're looking at the U.S., you're developing a bit of M&A muscle with Oakland. When you think about 20 people in the U.S. and you're thinking about who you could potentially add, assuming it ticks the boxes, is there still a comfort range in terms of how big you want to go in terms of managing that risk?

Well, I mentioned, we're more open-minded on some of the other criteria apart from the people-centric culture. So the right scale of operation that we could acquire, yes, I think there's a fairly broad range to that. I don't think we want it to be too small because we want a team that's established and that we can empower and support. But equally, to your point, you don't want that to be too big as well because it probably does, at some point, start to bring bigger execution risk. But -- so there's a sweet spot there, but it's in quite a broad range for us.

And then finally, one more. Finally, just in terms of the systems, obviously, quite a lot of work going into '26 and '27. If you look back at the NetSuite was quite a big change, too, a couple of years ago, what were the learnings from that in terms of operational risk, in terms of kind of how you're managing the rollout for the sales and HR systems?

Well, we -- sorry, do you want to start?...

So I mean, I wasn't here for NetSuite, so maybe you're a better place. But NetSuite was probably the first and largest program that we did. So we had lots of learnings from it. And large IT projects are not easy. So I think we've gone in to the project knowing that and we've put in the best team and governance that we possibly can, and we're being as sort of mindful as we can. Sales teams have been involved hugely in the design, the scope and that comes as well. So the sort of heart and mind piece is well underway as well. So I'm sure it's not going to be easy. I don't think they ever are, but I think we've done everything that we possibly can to set ourselves up in the right way to do it.

Yes. And as Katy said, I mean, the NetSuite project was a successful implementation. We've also done ServiceNow implementation for our own internal IT and also our service operations. We've done a lot of database work as we've mentioned, too. So I think we've built up good and very recent capability around systems. We've invested in the delivery of this. We're working in close partnership with Microsoft on it. We chose together to partner with Microsoft that would do the implementation with us. So the tightness of the 3 teams we brought together to do it. And again, learnings from NetSuite, getting our internal people pulled out and dedicated to the project, not as a side project, but we've got salespeople and specialists and people who use the existing system dedicated full time to the delivery and configuration of this. So when you get out of the textbook of how to do these things well, we have followed it, and we're doing it with people operating in that Softcat culture. So I think we're giving ourselves the very best chance. Equally, the way that the delivery will be managed, there's a huge amount of attention going into the derisking of that as well. So -- whereas -- we're feeling very confident, but it's a big systems project, as you rightly point out. But yes, I think our approach to it and the learnings we've had recently should stand us in very good stead to do a good job.

It's Charlie Brennan here from Jefferies. Can I ask a couple of questions on the guidance? It feels like there's a lot going on. There's some nonrecurring benefits from '25 with a large customer. It also sounds like there are some nonrecurring costs from the Marlow write-off and FX costs. So if I try and cut through all of the noise that I can't forecast particularly well, if you hadn't have won any big deals, I would have expected guidance to be low double-digit gross profit growth and high single-digit EBIT growth. Let's call it, 12% GP growth and 9% EBIT growth. But you have won some large deals. We've got some of them in the balance sheet. So why isn't the 2-year CAGR higher than 12% and 9%? That's question number one. And question number two is GBP 300 million still sounds like a big deal. Do we have to assume that you win one of those a year going forward? Or are we going to be sat here in 12 months' time with you talking about the nonrecurrence of a big deal and a growth normalization in 2027?

Okay. Let me answer the second one because it's, I guess, the easiest [indiscernible] maybe it goes combined. The rate that we've got, we've got, as you say, a very large deal in -- the majority falls into FY '26. Some of it was in FY '25. But it is more normalized and doesn't contribute as much as the element that was in FY '25. We consider FY '26 numbers to be sort of normal base than run rates that we'd be able to expect to apply our normal growth framework to say the double digit -- low double-digit gross profit and the high single digits. So no, we wouldn't expect to adjust that out. What we've tried to give you is the clarity of what we sort of deem incremental of those 2 large deals in the cumulative nature. And I guess I'll go back to that 2-year CAGR is 12% and 9%, and we're pretty confident in that as well.

But it would have been 12% and 9% without the big deals. So where is the conservatism coming from? Why don't we see a higher 2-year guide than 12% and 9%?

So I think those large deals have always played a part of us getting to the, let's call it, 12% and 9%. We've done even better than that in FY '25, which is what causes, I guess, the noise between the 2 years. And you're right, there are one-off costs in there as well. So hence, that 2-year CAGR. And the FY '26 run rate is much more normalized. So if you look at the 2 years, it gets rid of all of the noise that you've got in FY '25. But big deals are and always have been part of what we do. Now whether in FY '27, that will be lots more of above half, we'll have something really big, I don't know. But from a sort of probability point of view, that's how we sort of look at that forward growth rate.

Okay. And then I'll just sneak in a third one, just on competition dynamics. Were those 2 data center deals won in full competitive tender? Or were they preselected based on historic relationships? And then when I think about the competition for those larger deals, I guess it's against the more global, more national players, whether it's a CDW or WWT or Computacenter. I guess everyone would point to breadth of capability if we were to speak to those larger players. What do you think your differentiation is against that more sophisticated competitor set?

So I don't -- I can't really think of many deals where we're not in a competitive situation. There is always competitors in the accounts we're working with. So individual deals might be less or more of a tender situation, but absolutely, there's competition for those deals and those customers. When it comes to the confidence of a customer in a big solutions deal like that, there's many aspects to it. There's relationship and longevity of that relationship, human beings trusting each other. That's a huge factor. That's backed by technical skill and capability, which we've invested in chronically and have some amazing teams operating in great ways now to do that as well. There's geographic fulfillment reach. And so it's always an art form and a combination of those things. We never want for good competition. There is -- it's a highly fragmented market. There's always good people out there, whether it's the names that you mentioned or other players. So I think the progress we've made has shown that we, Softcat have been able to and have developed -- clearly, our culture and the customer service leads to good relationships. I've talked about the breadth and depth and quality of our offering. We've talked about the geographic reach and the investment we've put into that. And I think the combination of those things is what -- and how we can see to develop them further is what leads to the ambition that we're setting out to keep [indiscernible] as well. But we'll always have a good competition. You can't win them all, and we don't.

Oliver Tipping, Peel Hunt. I've just got a couple of quick questions. The first one is, given that you've got large multinationals pulling you into the U.S., will the U.S. client list lean towards larger enterprises? Or will the mix be more reflective of the U.K. mix?

I mean it will trend towards the larger end of our mix just by -- it tends to be larger organizations that have multinational operations. So yes, so slightly trending that way, but it does reflect the mix that we have as well, like we have a lot of good mid-market customers pulling us out into the U.S. as well. Obviously, public sector is different. But in the corporate space, I think it will be largely reflective of the U.K. Now if we take an inorganic step in the U.S., then depending on what we acquire, there'll be a slant there as well. But no, it's reflective of the mix that we've got.

Great. And then the second one is, I know you're expanding your internal services capabilities. But obviously, compared to sort of just selling a license where you can sort of increase GP per head infinitely, there's only a limited number of hours in a day you can provide a service to someone. So does that have any impact on your growth of GP per head in the medium to long term?

Well, you can look at the last 10 years for how this might pan out because we've been doing this for, well, 15, 20 years, building that service capability. And what we've always said is we're not pivoting to be a service operation. We don't see software, hardware, services as different things. We don't -- our customers don't come to us talking about software, hardware or services. They come to us talking about problems and solutions. So our service business has built at the same rate of the rest of our business. It's always been in that 14% to 16% range of gross income. I think you should expect to continue to see that be the case. Who knows? We don't know because we don't, like I say, think about it like that. We follow what customers need. And the P&L will end up being what it will be. But our margins and our margin profile has been pretty consistent over that time as well. So yes, I'd expect -- if you trend forward from what we've done over the last 10 years, you might see a similar path into the future as well.

Joe George, JPMorgan. Just one for me, please. Just on the U.K. backdrop, can you talk a little bit about customer spending patterns there, particularly with regards to any trepidation into the upcoming budget? And to what extent you've seen stable end market conditions there, please?

I mean, I think from the last couple of years or 2 years ago, we sort of said that we were seeing a bit of a change. And things haven't gotten easier. They haven't gotten harder either. And we obviously didn't have the easiest budget last time around in general for the economy. So I think it's fair to say we're just assuming it's the same kind of macroeconomic backdrop that we've seen over the last couple of years, and that's what we've planned against, which seems a sensible assumption.

Maybe just 2 for me. One really quickly on headcount growth. What are sort of your expectations for sort of next year or 2?

So I think we talked about this year was a moderation from what we've done over the last couple of years for multiple of reasons. And we, I think, next year will pick up a little bit, but generally stay more muted. We're hoping now as we scale, we're investing a lot into IT and technology and systems. And therefore, that should allow us to scale with a -- still we'll be growing headcount, but not as much. I think the other dynamic, though, is the cost per head will continue to go up as we automate sort of more transactional work, and we have to build out sort of core capabilities. So I think that trend is what we would expect to see continue.

Yes. Got it. And maybe just one more. On software revenue growth, it was 6%. So I was just wondering what the gross profit growth was for software.

So the overall software was double digits. So basically, the GII to revenue is somewhat to do with front margin and then depending on what you get in rebates can bolster that. And therefore, the overarching growth was in line with everything else.

It looks like we might have reached the end of the questions in the room. So I wonder if we've got any on the lines.

We have a question from Martin O'Sullivan from Shore Capital.

I just had a quick one, if I could, on your market share, the 5% market share in the U.K., just in terms of pushing on towards high single digits and beyond, what sort of operational or strategic changes, if any, would be required to support that level of scale? And given the fragmented nature of the IT services market, is your market share ambition better served by continued organic expansion or leaning more into acquisitions like Oakland?

Thank you. If we imagine a Softcat that has 10%, nor 5% market share, the operational changes we need to make are none other than that, which we've described in the presentation today about the things we're doing with our tooling, the further investment in new headcount, new offices and the fabric of the buildings that we occupy and that kind of thing. So we're doing everything already in the plans we've laid out to be able to build the business of that nature. And is it better -- can we get there through organic or inorganic? I mean, I think we've proven that we can do this, and increment market share organically, and we will continue to do that. I have high confidence in our ability to do that. Acquisitions like Oakland could be a helpful part of how we do that. Back to the question about is it an acquisition or is it at an acquihire? I mean it's semantics, it doesn't really matter. But when we get customers telling us what they need from us, we see where vendors are moving to, we create organic plans to do that. And if it's going to take a long time and we need to move faster, then we can consider acquisitions to help us on that route. So that's how we think about it. And I don't think it's one or the other. It's likely to be a combination of both going forward. But I'd reiterate that the high bar we've set on M&A and that beginning around ethos and culture is nonnegotiable.

And I'd add to that, what's also helpful is that actually probably our market share has gone down a little bit. We've added into our TAM because of Oakland, we now play in a slightly broader offering, and we've also added Ireland in as well that wasn't in there as well. And again, we've got a lower market share there, so even more runway to grow.

It appears there are currently no further questions. With this, I'd like to hand the call back over to management team for closing remarks.

Great. Thank you. Well, as I said at the start, we really appreciate your time and attention on Softcat today. Thank you for listening to the results. We are really pleased with the performance we've had. We're more excited than ever, as we said, by the opportunity, we've got clear plans to address it. So we look forward to keeping you posted on how we're doing. Thank you.