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Edited Transcript of SCT.L earnings conference call or presentation 17-Mar-20 9:30am GMT

Half Year 2020 Softcat PLC Earnings Call

MARLOW Apr 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Softcat PLC earnings conference call or presentation Tuesday, March 17, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Graeme A. Watt

Softcat plc - CEO & Executive Director

* Graham L. Charlton

Softcat plc - CFO & Executive Director

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Conference Call Participants

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* Benjamin May

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Charles Brennan

Crédit Suisse AG, Research Division - Research Analyst

* Damindu Jayaweera

Peel Hunt LLP, Research Division - Analyst

* George Christopher O'Connor

Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Softcat Half Year Results Presentation. (Operator Instructions) I must advise you that this conference is being recorded today, 17th of March 2020.

I would like now to hand the conference over to Graeme Watt. Please go ahead.

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Graeme A. Watt, Softcat plc - CEO & Executive Director [2]

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Thank you. Good morning, and welcome, everybody. Graham Charlton and I would like to welcome you to this morning Softcat's briefing on H1 fiscal 2020, and thank you for your interest in Softcat. Thank you, too, for accommodating this WebEx format as we're all having to be a bit more flexible and agile in the current environment.

This is now my second half year results reporting. I continue to be pleased with our results and the progress that we've made. Before we go any further, I do want to make sure I call out each and every one of the Softcat team in a huge thanks for another impressive set of results where we once again delivered across the board.

Thank you all for being such a great team to work with.

Moving to Page 2. As with previous briefings, I'd just like to take a moment to describe our business for those of you less familiar than others.

On this slide, you can see our full year fiscal 2019 key numbers, just to give you a sense of the scale of the business, together with half year numbers on our headcount and customer base. Softcat is a leading reseller of infrastructure solutions and technology products and services in the U.K. and Ireland to both the business and public sector communities, serving a customer base of 9,500 customers at the half year-end.

We operate out of 9 regional offices in the U.K. and Ireland, focusing on the customer segments of enterprise, SMB and Public Sector. We work very closely with a strong portfolio of vendors, providing our customers with choice and solutions that are fit for their specific needs.

We continue to operate a simple model with a clear strategy effectively executed. We foster a culture that thrives on putting our people and our customers first and believe that by working hard to deliver the highest levels of employee engagement and commitment that this in turn delivers exceptional customer service. This is well captured, I think, in our purpose statement, we help customers use technology to succeed by putting our employees first.

Our culture is a key positive differentiator for us in what is a fragmented market. And we're pleased to have been recognized for several elements of our culture and other qualities in a number of awards throughout the year. Our growth continues to be wholly organic, and this is something we're very proud of. Our cash conversion is strong. We are debt-free, and we're strongly cost-conscious, but we balanced that with an eye on the future and the need to invest for midterm growth.

Moving to Page 3. And I just want to run through some of our first half fiscal 2020 summary results. I'm pleased to report on H1, a period where we're able to deliver strong growth and profitability.

And just to clarify here, all percentages I mentioned are reported against the same period in the prior year. So we reported gross profit up 18% to GBP 112 million, operating profit up 19.5% to GBP 40.5 million, revenue up 20.8% to GBP 524 million. Gross invoiced income up 19.7% to GBP 728 million. Gross profit per customer is up by 12.2% to GBP 24,100. Customer base increased by 4.2% to GBP 9,500. And we've now reported 29 consecutive 6-month periods of organic year-over-year income and profit growth. This is a great testament to the hard work, focus, and value created by the entire team of Softcat.

I'm also pleased to highlight significant cash generation and returns to shareholders in the period. Strong cash conversion of 100%, a strong balance sheet with GBP 49.4 million of cash and no debt. And we've announced an interim dividend to shareholders of 5.4p per share, up 20% on the prior year.

And turning to Slide 4, if I can, providing some business updates. We have a strong position in the IT channel because businesses in the Public Sector entities need advice on their IT. It's a complex field where there are a lot of technology and vendor options, and those options are changing all of the time. We've built a tremendous amount of experience and expertise to provide that help and advice. And I'm pleased to say that our industry is in good shape and continues to grow. That growth, driven by digital transformation, where businesses need to enhance customer and employee experiences as well as we continue to see moves from customers to adopt cloud and what is most often a hybrid multi-cloud environment. And our customers are increasingly embracing mobility and updating legacy systems. As the world is becoming increasingly connected, the demand for infrastructure will only grow and there's continual need for businesses to be secure. The growth we've reported is broad-based across our key technologies, customer segments, suppliers and customers and is well balanced with no dependencies.

We show particularly nice growth in our software category at 24% year-over-year, and software is now 56% of our total revenues. Security was our strongest growing technology division, delivering 30% year-over-year GP growth. And our multinational efforts were just one element that helped our enterprise segment grow by 24% year-over-year.

Turning to Page 5. I'd like to just provide an update on our strategy. Our strategy remains very consistent. As before, we're focused on broadening and growing our relationships with existing customers and acquiring additional customers. Despite our size, our growing market share is still low, so the headroom for future growth in the market is significant. We have one of the most comprehensive offerings of information technology and services in the U.K. And where we have gaps in that offering, we are more than ready to partner to bring our customers what they need. For a while now, we've been reducing the average number of customer accounts allocated to our longer tenure account managers. This shift has been designed to bring a greater focus to both driving share of wallet on the accounts that they have retained as well as to the accounts that have cascaded down to other account managers with lower tenure.

We're very pleased with the progress we've made here. So if we look first at the new customer acquisitions, there's been a short-term cascade of existing accounts to our more junior account managers, as I've just mentioned. And given that impact, we're delighted to have acquired 400 new customers in H1, which is a 4% year-over-year growth. Those customers have come from both the corporate and Public Sector segments.

This growth is driven primarily, but not exclusively from our new graduate and apprentice focus on potential customers to give them what they want, displacing competition in the process.

Turning to the second element of our strategy, selling more to existing customers, we're here -- we're focused on delivering a deeper and broader penetration of sales and success in this area is the primary factor in reporting a 12% increase in GP per customer on the same period in the prior year. Existing customer growth contributed 94% of the gross profit generated in the period. And the more focused approach where our experienced account managers have been responsible managing a reduced number of customers has worked well for us.

We continue to see a positive impact from investments made to broaden our portfolio over the last few years, together with a move by many businesses to deal with fewer technology partners. And in that respect, we're one of a small number of resellers in the U.K. that can offer a significant breadth of solution and services to take advantage of this trend.

Our straightforward sales strategy we have, as always, is supported by 3 key pillars. For people and culture, our focus on our people and our culture remains undiminished and is vital to our ongoing performance. In a reseller market, where it can be difficult to differentiate, our culture remains our biggest positive element, that perspective coming from our customers. It is also extremely important factor in allowing us to attract and retain some of the best talent in the industry. Our ethos of driving the highest levels of employee engagement, which in turn delivers a great customer experience is captured well in our purpose statement, as I covered earlier. And we were delighted to have achieved fifth place on Glassdoor's list of best places to work in the U.K. The feedback that Glassdoor gets is entirely from past and present employees and remains a very important influencer in attracting new talent to our company.

It remains a competitive market for the skills and the expertise we seek. We've made considerable progress by investing in new talent. And year-over-year, we've grown headcount by 166 heads or 13%. We put a lot of energy into recruitment to make sure we have the right focus on quality while keeping pace with the growth of our business. I'd like to say very well done, and thank you to the recruitment team for adding 278 new starters in the period. And we plan to continue to invest and add further talent in the second half.

Moving to the second pillar of operational excellence. It's important -- clearly important for us to have a clear strategy that is properly resourced and well understood by our team. It is also important that we consistently execute against our strategy, and the recognition we've received over the period has been a good indicator that we're doing just that. We noted several awards in our interim statement covering our graduate and apprentice schemes, our progress in Public Sector as well as our growth transformation and customer acquisition success.

Our success as a FTSE 250 company and our charitable achievements were also recognized. And we need to make sure that our own systems, processes, and controls keep pace with the strong growth we're delivering. And I'm pleased to tell you that our financial system transformation project is well underway. We've completed the scoping phase and expect implementation of our Oracle Netsuite solution in around 12 months from now.

And moving to expanding our addressable market, the third pillar, we've opened an office in Birmingham. We did that in September 2019, filling an obvious gap in our geographic coverage and providing more local resources for our existing customers. It also provides easier access as we look to add new customers in the Birmingham area. We now have over 20 mostly sales heads in this office, and we're pleased with progress here. As well as customer proximity, the Birmingham office also provides access to a new talent pool in the area and has created a career opportunities for several existing Softcat employees.

The development of our multinational program is progressing well. These multinational investments are an important part of our enterprise growth strategy.

We're increasingly able to support our U.K. and Irish enterprise customers with their overseas fulfillment needs and have now established 4 overseas entities to complement our existing export and local partnership capabilities. We're about to open a fifth entity in the Netherlands in quarter 3, the current quarter. And as a reminder, these entities are operational hubs that deliver local and vendor -- local vendor and distribution relationships and transaction management.

In other words, they help us to improve the processes and handling of supply chain to help us with local sales taxes and managing foreign exchange factors, amongst others. Two of those entities are staffed, so that we can work on the customers' time zones more easily. We have Morgan in Singapore servicing Asia Pac and Amanda in the U.S. Handling North America. And our local teams are supported by a dedicated team of around 6 people in the U.K.

And finally, our investments and focus on public sector continued to pay off in a period where we've been successful on a further 8 U.K. government frameworks. And we've added a further vertical in this segment to focus on defense and secure government. So if you can turn to Page 6 now, and let's take a look at the market share -- market size and our wallet share here. There's no doubt that under whatever measure one uses, the market is fragmented. And as the #2 player in the U.K. by gross to invoiced income, we have a very small market share and a considerable opportunity to grow into. We have, for a while now, been referencing our size to numbers from CRN, which are reported annually, but do not show the whole picture. CRN report the top 350 resellers and estimate there are over 5,000 resellers in total in the U.K. So we've done some further work using Gartner data. And as you can see from this slide, having eliminated elements that are not applicable to our model in our addressable market, we've concluded that the best estimate of our share of the addressable market is somewhere in the region of 3.1% in fiscal 2019.

If you look at our share by customer number, then we have a customer base of around 9,500 under our new definition of customers out of an addressable market estimated at 50,000, which puts us at approximately 20% share by number. We purchased customer data from a few sources and believe these numbers to be a reasonable estimate. And Graham will talk further about our revised customer base numbers in a few moments. So if you combine that view of the market and triangulate our share of customers and revenues, then our estimated average share of customer wallet is 15%. And what we're seeing with existing customers leads us to believe that a share of 60% or more is reasonably attainable. So with that, I'd like to hand over to Graham Charlton for the financial review for H1 2020.

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Graham L. Charlton, Softcat plc - CFO & Executive Director [3]

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Thank you, Graeme, and good morning, everyone. We will turn now to the summary income statement. This is on Page 8. And I'll walk you through our revenue and profit growth in the first half. As you can see at the top of the slide here, revenue grew by nearly 21% to GBP 524 million, while gross invoiced income was up by just under 20% to GBP 727 million. Both of these growth rates were slightly ahead of the 18% growth we saw in gross profit. And so whether you measure it against revenue or gross invoiced income, our gross margin was slightly down compared to the prior period. But I'd say -- I think many of you will know, we continue to regard gross profit as our primary measure of income, a movement in the gross margin tend to reflect shifts in business mix rather than like-for-like pricing pressure, and that was the case again during the first half. But in terms of income mix, we saw GII growth in excess of 15% across all customer segments, with enterprise business growing most strongly of all during the period. We also saw double-digit growth across all of software, hardware and services as well as different technologies, such as data center cloud, networking, security, and workplace. And that has been the case for us generally for a long time now. There was an absence of any material one-off large contracts or other events that particularly underpinned the strength of the results. What we did see was good steady growth across all areas of the business and which was well dispersed across the customer base as well.

Looking further down the income statement, you'll see that we are reporting 19.5% growth in operating profit for the period. This is slightly ahead of the 18% GP growth, which is reflected in a slight uptick in one of the metrics we follow, which is the OP to GP conversion ratio, and that was up to 36.2% from 35.8% in the prior period.

And that means that overheads were up by 17%. And the nature of our cost base is once again very stable period-on-period. The 17% growth in the first half comprises a 13% increase in average headcount, together with the impact of pay rises to existing staff and commission costs rising broadly in line with the growth in gross profit. And of course, our non-people costs continue to scale in similar terms to our head -- similar terms to our headcount, and they continue to account for around 15% of our cost base on an annualized basis. The growth in headcount is very much in line with the plans we set on entering the year and is across all departments of the business. And we've been pleased with both recruitment and retention during the period. The effective tax rate used in the half year calculation is 18.5%, down from 19.2%. And it's worth noting a slight oddity here for those of you running forecast models. The half year tax calculations are necessarily prepared using the legislation in place at the balance sheet date. In the budget last week, the planned reduction in the corporation tax rate from 19% to 17%, which was scheduled is coming for us on the 1st of April, has now been canceled, and that will be held at 19%.

So we, therefore, expect that the effective tax rate for the full year will be broadly in line with the 19.3% seen in 2019.

I want to conclude on this slide and summarize gross profit growth of 18% during the period is the key measure for us and the result we're very pleased with. We think it represents something like 2x to 3x market growth rate. And I'll now provide a bit more detail around the underlying drivers of that performance.

So we'll look now at our usual slide on sales force productivity. This is on Page 9. And I think this slide and the next one together really tell most of the story of what is driving our growth. For those of you familiar with our reporting, you'll get the gist of this very quickly indeed. But let me just remind everybody what we're looking at here. Across the bottom of the chart, we're plotting a cumulative experience of our sales force within Softcat, and how that has evolved from period to period. And all of that development is organic because we recruit graduates, and we're only counting experience within Softcat here. So this is all homegrown experience. And at the vertical axis, we're showing 12-month rolling gross profit reported by the company as a whole over these periods.

And what's very clear is that until the end of our 2017 financial year, that the relationship between these 2 was very linear. During financial year 2018, we began to see a separation from that historic norm. And we've been able to maintain what is beginning to look like a new norm since then. So why does the chart look like this? Well, firstly, the overall linear trend is a direct result of our growth model. We employ people with great attitude and talent, and they learn and develop their skills within the organization. And as they're doing that, they win and develop new customer relationships. And they grow commercially as we win the customers' trust and loyalty over the long term.

And next, while we've always had a strategy of reinvestment, we really accelerated that around the time of our IPO, lifting up not only the number of salespeople we were hiring, but also the technical and service resource to expand our offering at a faster rate as well. So between 2016 and 2017, our scale and especially our capability began to expand at a rate faster than the historic norm. And we've at least maintained that rate of investment ever since. And this coincided with an acceleration in our market, brought about by becoming of age of new digital technologies and the consequent transformation in IT infrastructure, which has been such a feature of the last 3 years or so.

So our positioning in the market was never better, just at the time customers needed our help most. And the combination of these 2 things, and our ongoing desire to build that capability relentlessly year-on-year is what I believe has created the step-up in productivity that you can see on this chart. And this view is further supported by the rise that we've seen during the period in other internal KPIs such as our business line penetration across the customer base.

And on that theme, if we turn to the next slide, we illustrate here the ongoing upward trend in both our customer base, but also very importantly, the growth we're seeing in gross profit generated per customer. The bars on this chart show the expansion of the customer base from July 2015 through to January 2020. And while the line represents the gross profit generated on an annualized basis divided by the size of our customer base. And these stats and trends are directionally very similar to that which we've prevented -- presented in the past, but we've updated these KPIs. And I'll just spend a minute or 2 explaining the changes that we've made.

Firstly, customer base as presented here is different from customer numbers we have presented in the past. Historically, we've reported periodic customer numbers defined very simply as the number of unique entities trading with Softcat during the period. This new measure, customer base, is now a 12-month rolling figure. This allows us to show a trend, which is with more data points over a period that's much more reflective of financial periods and therefore, the spending pattern of customers. In addition, to be counted in the customer base, the entity must have transacted with Softcat in both the current 12-month period but also the one before that as well. Why do we do this?

Well, as I think many of you appreciate, well, our model of hiring graduates and we experienced high attrition rates in the first few years of those graduates and their careers with Softcat, coupled with a very fragmented and competitive market we operate in, where most, if not all of our customers work with multiple providers as a matter of course.

All of that leads to many transient interactions during any one period. They do not necessarily turn into longer-term relationships. And I've often said that the vast majority of customers that we lose under the old method were never really customers. So this change creates what we regard as a much better reflection of our true customer base. It is aligned with how we view and report that internally and is a much better basis for understanding how our business is evolving. It's not perfect, but it's the best way to eliminate much of the noise inherent in that old customer number KPI.

So with that said, let's come back to what the chart is telling us. And as you can see, growth in the customer base has continued with a rise of 4.2% in the period. And for reference, if we have been reporting under the old periodic customer number measure, we would have been reporting very similar growth in customer numbers, and that would have been 4.0% for the period. But what really strikes you, of course, in this slide is the very rapid expansion of gross profit per customer shown by the line. And that really takes off at the same period, as you saw on the previous slide, when we broke away from the -- broke away upwards from that historic productivity norm.

And of course, remember that all of these trends are 100% organic. And it reflects the value derived from the investments we've made in our scale and particularly our capabilities over the last 4 to 5 years. And the great news as Graeme Watt touched on earlier is, of course, that we think there's lots and lots of headroom for us to continue to grow both of these metrics into the future as well.

Turning over to cash flow now. And a very familiar story on this front, in line with our performance over the last 5 years or so since IPO. In that time, our annual cash conversion has typically been in the range of 90% to 95%, usually slightly higher in the first half. And you can see here that we've maintained that kind of performance. Cash conversion is defined by us as operating cash flow after capital expenditure but before corporation tax payments as a percentage of operating profit and all of that without any adjustments.

So it's what I would say is a very pure and transparent measure of cash performance. And you can see on this slide that net working capital movements were very low, reflecting no significant changes to any element of our operating model. And you'll notice that capital expenditure is up slightly, and we flagged previously that this would be a feature of the year, driven by the investment we're making in our finance system and our buildings as well. I still expect that capital expenditure for the full year will be in the region of around about GBP 7 million, and so will accelerate in half 2. And the full year cash conversion for this year will, therefore, be slightly lower than our historic norm at 85% or thereabouts. You'll see that we closed the period with just under GBP 50 million in cash. We continue to hold a very conservative balance sheet philosophy. We've never had any debt, and that underpins our ability to continue to return value to shareholders. And most importantly, continue to invest in our future growth with confidence and assurance even in times such as these.

And that brings me to the dividend. We're announcing today a 20% increase in the interim dividend. That's a payment of 5.4p per share compared to 4.5p in the prior period. And that reflects an unchanged and progressive policy and the payment will be made on the 15th of May. That's it from me.

I'll now hand you back to Graeme Watt, who will summarize and wrap up.

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Graeme A. Watt, Softcat plc - CEO & Executive Director [4]

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Thank you, Graham. And if we can move to Page 14, please, for some summary and closing remarks. I think in closing, we've delivered well on our straightforward strategy with clarity and focus. The demand environment has been good, and our reported growth rates would suggest that we continue to take share. There's significant headroom for future growth based on the size and number of potential customers that we don't currently address as well as our focus on taking a larger proportion of our technology and services portfolio into existing customers. And we're encouraged by the fact that the demand and performance continues to be broad-based. And within our model, we have a good spread of contribution across vendors, customers, and technologies.

We continue to invest in bringing in more people into the company to deliver and service current and future growth. We focus on finding the right talent and the skills for Softcat, people who will thrive in our culture and benefit from the significant investment we put into developing their skills and career. As well as strong profit and loss and balance sheet performance, we were pleased to report that we've maintained our excellent cash conversion levels and our dividend policy is unchanged.

And we take nothing for granted. And we're very optimistic that we can continue to make progress. Our continued investment in our teams and discipline of strong execution with our employee motivation engagement at the core continues to be our focus. And whilst we continue to monitor EU trade and other negotiations with the U.K., these are likely to be much more of a focus in the second half of the calendar year. Everyone's focus for now, though, is on the impacts of the COVID-19 outbreak. And I wish everyone inside and outside our industry best wishes in addressing those challenges.

We're putting the health and well-being of our staff at the fore as well as operating responsibly and considering those around us. We have a strong focus on business continuity by maintaining service levels and securing products where there's some disruption to supply chain. And it's a challenging time for everyone. And we're here to help our customers with their business continuity and remote working needs. And we've seen a clear spike in demand for laptops and collaboration tools as travel restrictions and social distancing are starting to bite.

And if I can just turn to Slide 15 and our outlook. As we stated in the interim report, the second half has started well. And to date, we have not seen a material impact from the ongoing COVID-19 outbreak although this does create uncertainty for the remainder of our financial year. Given the strength of our business model, lack of any bank debt and strong cash position, we'll continue to invest in our business and are confident in our ability to continue to build market share and drive profitable growth over the longer-term.

So I'd like to close with just one last huge thank you to the team at Softcat. I can't thank them enough. And thank you to everyone on the call this morning for taking the time to listen to our H1 fiscal '20 results. Thank you.

I'd now like to turn the call back to Stefania, our operator for some questions to Graham and I.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now be taking our first question from the line of Charlie Brennan from Crédit Suisse.

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Charles Brennan, Crédit Suisse AG, Research Division - Research Analyst [2]

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Just a couple of questions from me, actually. Firstly, in the prepared remarks, you talked about the Enterprise segment being the fastest-growing area of the business. Can you just talk about that from a competitive standpoint? Is that bringing you against different competitors? And I guess, I'm thinking about computer center here, and is that changing the dynamics for you? And then secondly, as usual, there's a very heavy emphasis on people and culture through Softcat. Can you just give us some updated metrics around staff attrition. And I know I asked you this last time, but where you are losing people too? Where are they going? I'm hearing that Amazon are trying to recruit more and more people. Can you just shed some light there?

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Graeme A. Watt, Softcat plc - CEO & Executive Director [3]

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Yes. Charlie, it's Graeme Watt here. On your Enterprise question, I think our focus continues to be in the segments of Enterprise customers where it's been historically. So it can kind of trying to put a frame around it, although this isn't exact, it's in the kind of 2,000 to 10,000 seat range.

So we haven't had a change of policy around that. We're not going into even larger enterprises. So your point about bumping up against computer center is not something we particularly see or desire, frankly.

I think what we're seeing though is our capabilities and our credibilities have been continually growing in the market. So we are able to take on some larger, more complex projects within the Enterprise customers we already serve. So and my points on the multinational business, that's just one component part of an investment area that we need to make and have made, and it's going well that supports our enterprise growth strategy and many of our enterprises have branches and entities overseas. So I hope that answers your question on enterprise. With respect to staff attrition, staff attrition has remained at the same levels as we've experienced in the previous year. There haven't really been any dramatic changes and to your point about, are there any particular trends when people do leave, what they came for?

I think the biggest trend is that they don't typically go to other reseller competitors. They -- depending on who they are and at what stage of their life and the career they are, they may go traveling, they may go and start-up their own businesses, they may join vendors. In some cases, to your point, there have been some aggressive recruitment policies and requirements in play from people like Amazon that they played out across the whole market. We've -- we're being open, we've lost 1 or 2 people to Amazon, as indeed, the whole industry has, but I don't think we've been singled out in that respect.

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Operator [4]

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We will now take our next question from the line of Damindu Jayaweera from Peel Hunt.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [5]

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I just had 2 questions. Adobe last week basically talked about how in China and in Korea, they saw channel sales to larger businesses being disrupted during the height of the COVID issue in those countries, while there was no impact for the direct-to-consumer business. And so what I wanted to ask you was if you were to risk weight between your enterprise part of the business, and the public sector part of the business and the kind of the small, medium-size part of the business, do you think we are likely to see the impact first come from the enterprise? Or is it going to be the small-medium size organizations? And then just a follow-up question. Most people on the information worker side, are running into volume limits of licenses that they've acquired because lot more people are starting to work remotely, lot more people are actually making use of the licenses that they have. Are you set up to actively pursue or salespeople set up to actively pursue where you think people are running into software license volume limit and therefore, there's an upsell opportunity potentially? Just those two, please.

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Graeme A. Watt, Softcat plc - CEO & Executive Director [6]

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So maybe I'll take the first one, Damindu, and good morning. To your points on, if there are impacts, are they more likely to come from SMB enterprise or Public Sector? I'd say that's really not clear at this point. What I would say is that we think we're kind of fairly well-positioned to deal with the challenges that COVID-19 is putting out there. We remain very close with our distribution on vendor partners to maintain supply chain and make sure that we're getting the -- exactly what our customers need from that respect. We've got good diversity of technology and particularly diversity of customers and the verticals our customers then are going to play, play out well for us. So we're not exposed to any particular vertical that could be exposed to the impacts, particularly exposed to the impacts of COVID-19.

So that breadth of customer is going to serve us well. No debt and cash-rich balance sheet positives, too. I think the -- and we have seen a spike in demand, as we mentioned, in terms of meeting customers' needs for collaboration and remote working. So we're kind of working on all those things. So there's been no negative impact to demand in a short-term, positive spike in demand. So I think we're kind of managing our way through it. I think the other positive, because I think it's good to look for positives right now, is that obviously, a while ago, the government announced some quite significant investments in public sector.

And our understanding is those investments in public sector will move through to spending infrastructure and IT spending in public sector quite quickly. So it's not a clear picture. But I think there's a number of areas there where we can help our customers a number of positive areas we can see, that that will help us navigate through.

On your second question, I wasn't quite sure I fully understood the question. Did you get the second question?

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Graham L. Charlton, Softcat plc - CFO & Executive Director [7]

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I think Damindu -- it's Graham Charlton here, you're asking about license volume limits for customers and how if they run up against their limits in the working from home environment that everybody is going to be, and how we can help them manage that. And to that question, yes, absolutely, that is software is our heritage, managing software licensing agreements and providing asset management services around all of the different vendors' products that we provide is very much in our heritage. And we've got very well-developed operations around that. So absolutely, all of our salespeople and the specialist team supporting them will be working with customers to ensure that they are appropriately licensed for the operating model that everybody is going to have to move to as well. And clearly, there's an opportunity for us in that to make sure that our customers have the support they need and can keep their platforms running as well. So that will be one of the key topics for us as a business over the coming weeks and months.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [8]

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Just a follow-up, if I may. I mean, obviously, neither of you were there at Softcat and Softcat was a much smaller company during the 2008, 2009 financial crisis. But was there -- is there any internal KPIs that you've looked at to kind of understand how you weathered that period, especially given that you didn't have much public sector exposure back then?

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Graham L. Charlton, Softcat plc - CFO & Executive Director [9]

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Yes. We -- as you rightly pointed out, it was a long time ago, neither Graeme Watt nor I were here. But we've always had a very simple goal from our strategy, which is to win new customers and increase what we're doing with existing customers as well. So if you look at our reporting that we've done historically on customer numbers and GP per customer going back to that period, you'll see that we maintained and increased slightly our GP per customer over that time, but we were successful in winning new customers as well. Now our customer base was 2 or threefold smaller than compared to what it is now. So we're in a different stage as a business. And we have lots and lots of opportunity to support those existing customers and lots of headroom as well. But we will continue to seek opportunities in this period as we did back then to grow the customer numbers and to do more for existing customers. It's very simple, I would say.

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Graeme A. Watt, Softcat plc - CEO & Executive Director [10]

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Yes. And I -- maybe if I could just add to that, Graham. Damindu, I would say that we continue in this what will be a challenging period for sure.

We continue to make sure that we are a go-to partner for the customers, and make sure we're kind of business as usual wherever we can be. And we will continue to invest, too. So we see some opportunities coming out of any market tightening. We'll continue to invest in people continue with very much an eye on the midterm. So...

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [11]

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So is a market share gain focus essentially for you guys this downturn?

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Graeme A. Watt, Softcat plc - CEO & Executive Director [12]

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Yes. Well, that's always our focus. I mean, market share for the last 2 or 3 years has provided about 2/3 of our growth. So even if the market tightens would still very much be putting ourselves out there to take share in what could be a different market.

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Damindu Jayaweera, Peel Hunt LLP, Research Division - Analyst [13]

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And just very lastly from me. You mentioned that you can get that wallet share from 15% to 60% or reasonably get to 60%. Do you have any customers right now where it is actually around 60% mark?

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Graeme A. Watt, Softcat plc - CEO & Executive Director [14]

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Yes, we do. We've got many customers, and that's what's really giving us the belief that that's achievable. I think it would be unreasonable to expect customers to get over-indexed with a single technology partner they -- that they tend to go. There's 1 or 2 specialties in there or they tend to have another credible partner, at least one other credible partner to make sure that their kind of supply lines are always exactly where they want them. And they've got good options. But definitely, what we see in some of our stronger and most trusted relationship customers that we see that we're taking that sort of share of their wallet, yes. So that's what gives us that belief.

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Operator [15]

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Before going to our next question from the phone, I would like to ask Graham Charlton to read out a question from our webcast from Tintin Stormont. Please go ahead, Graham.

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Graham L. Charlton, Softcat plc - CFO & Executive Director [16]

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Yes. So thanks for the question, Tintin from Numis. Tintin is just asking, can we talk through the practicalities of how we, as a business will operate with increased working from home, and how we can support customers in that?

We, as a business move to a more flexible working pattern as a whole, quite some time ago. So it's a way of working that our people have got used to in recent times anyway. Our sales teams are very good at operating on a mobile basis as well. We often have people out of the business, visiting customers and working from home. So it's a pattern that though we would -- as I say, that we're used to, and we support our customers with the tools to do that as well. So it's -- there are tools that we have deployed across our business. And as you can imagine, we've been working on testing our business continuity planning. So for us, I would say it's a very business as usual footing. We've got a few days to settle down into a routine of doing that. But no significant changes planned at this stage to things like targets, and how we manage our operations. I don't know, Graeme, if you'd add anything else?

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Graeme A. Watt, Softcat plc - CEO & Executive Director [17]

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Well, I -- just to say that our Irish office are entirely working from home as of last week. And that this week, we're transitioning to the same status for our U.K. operation. We are very used to remote working. I think the one thing we're going to have to get our heads around as many companies are as having so many people remote working at the same time. That's not something where we've got great experience in. But I think that's part of the transition planning and conversations we're having this week to make sure that not only the people have the equipment and tools to connect that the whole management system adapts very quickly to make sure that we can keep our employees connected that we can mix up a new way of working and taking into account the remoteness of the environment, but as well keeping as much of business as usual activities in play as well.

So -- but I'm confident. I think what gives me confidence that we'll manage it in a strong way as the culture of the company. We've got a very -- a bunch of people who are incredibly enthusiastic about doing the right thing for the company and for our customers. They're already showing some great initiatives. And I think that they will stay positive. They'll take ownership of and take responsibility for the new challenges, they will support each other. And I'm feeling very positive about how we can manage out and navigate our way through this challenge.

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Graham L. Charlton, Softcat plc - CFO & Executive Director [18]

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And just to pick up on an additional point within that. Whilst face-to-face contact with our customers is important over the longer-term as we build our relationship with them over the short and medium-term, at either end of the spectrum, whether they're new customers or very seasoned customers that have worked with us for a long time, we don't see any downside in that reduced face-to-face contact. And of course, video conferencing is available. We do, on occasion, have engineers visiting customer sites to do implementation work. So we'll work with customers on a case-by-case basis is how we manage through that. But again, we see all of these challenges. As just, that there will be challenges, but we see them being manageable as well. And we'll leverage the strong relationships we have with customers to make sure that it works for both parties.

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Operator [19]

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We will now take our next question from the line of George O'Connor from Stifel.

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George Christopher O'Connor, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [20]

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Two very quick questions from me. Firstly, do you have any general comments about monthly sales cadence since the balance sheet date.

And then secondly, thinking about working capital. Have we seen any changes in vendor rebate programs of late? And also, have there been any sort of terms of changes to the terms of trade with SME customers?

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Graham L. Charlton, Softcat plc - CFO & Executive Director [21]

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Thanks, George. It's Graham Charlton here. I'll take both of those. And Graeme Watt will add anything additional. Monthly sales cadence since the balance sheet date, no. We've had strong momentum in the first half. And I would say, it's clearly very early days. And the periods after our quarter ends are kind of as you might imagine, in the sales environment that we operate, they're slightly lower than kind of quarter end periods as well. But I'd say we as we said in the statement, we haven't seen any discernible impact yet from COVID-19. We've seen some topical interest, as you'd imagine from customers in things like laptops and mobility tools. But in the ground scheme of things, I would say that's relatively insignificant.

So we've seen no discernible upward or downward movement in that demand environment. In terms of working capital, I think, particularly sort of referencing rebate programs and terms with customers. Again, no changes there. We've seen vendors as they do on an annual basis, they nudge and move around their rebate schemes and point them at different products and have different kickers and colors depending on what they're looking to achieve in the year, but nothing in response to COVID-19, and no kind of out of cycle changes there. In terms of customers, again, no changes. So if I look at our trends in debtors and debtor days and the terms we're offering, very much in line with historic norm, obviously, the kind of the current reporting period as well. So nothing unusual to know in the historic at this stage.

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Operator [22]

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Our final question comes from the line of Ben May from Berenberg Bank.

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Benjamin May, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [23]

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I have just a couple of questions. Firstly, do you have any actual data on how many resells or maybe at least some of the larger ones that exited the market in '08 and '09? And I know that you have a pure organic strategy. But if one of those was to get into difficulty and have to lay off their staff in the U.K. would that be sort of an opportunity that you look to exploit as a mechanism to quickly gain a lot more customers? And then just lastly, if recruitment can't get back on track by August or September, what would be impact next year? Or can you actually do recruitment virtually, as I already know that you use some video recruitment software as it stands?

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Graeme A. Watt, Softcat plc - CEO & Executive Director [24]

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I'll take that. I believe that -- I'll take the recruitment one, if that's okay. It's a good question. And we're still trying to figure that out. We can, to your point, we can recruit very effectively remotely. So we don't -- we think that our capability and ability to recruit and our appetite to recruit will still remain strong, importantly. So I'm not too concerned about that. If it came off a little bit because it's just more difficult to communicate and do what we would ordinarily do. I think the impact on next year would be almost indiscernible so much of our -- particularly, if I'm thinking about the recruitment of new salespeople. So much of our GP in a year comes from existing customers who are handled by existing account managers as we said in the half year, that was 94% of our total GP. So I think we wouldn't really expect any discernible impact from a -- if there was to be a slowdown in recruitment in any way. But I'm still confident that we can continue. We've actually -- even this morning, been swapping e-mails with the recruitment team, and they're already thinking about how they adapt to the new environment. So we're kind of figuring things out, but with some confidence.

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Graham L. Charlton, Softcat plc - CFO & Executive Director [25]

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Ben, it's Graham Charlton here -- I'll pick up on the question you asked about, do we have data about people exiting the market in '08 and '09? No, I don't. Actually, there's always been failures in our sector, and there was one -- not too many years ago with Misco. And whilst that didn't provide us with an inorganic opportunity, it certainly as whenever customers are looking for new support and new providers, we are out actively in the market organically trying to provide that support as well. I think it's important to say that we don't wish anybody in the industry, anything other than to come through this well. But as a large and very robust player with the strength of balance sheet we have with the breadth of offering we have with the natural recruitment of new customers that we're always looking to our younger people to be driving through as well in our model. If opportunities arise then we'll be well placed to try and exploit those as well and build Softcat as a result of it. But whether we look to do that inorganically, we've never made an acquisition in our history. We build scale organically as a matter, of course. So as we've always said, with kind of inorganic activity, never say never. But I think our natural business is usual process already lends itself well to that kind of environment.

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Operator [26]

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That does conclude our Q&A session. I would like now to hand the call back to Graeme Watt to sign off.

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Graeme A. Watt, Softcat plc - CEO & Executive Director [27]

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Just again, thanks very much indeed to everybody for attending the call today, and I appreciate your interest in Softcat. Thank you.