26 March
2024
SOFTCAT plc
("Softcat", the
"Company")
Half Year Results for the six
months to 31 January 2024
Softcat plc (LSE: SCT.L), a leading
UK provider of IT infrastructure products and services, today
publishes its half year results for the six months to 31 January
2024 ("the period"). These results reflect good performance in the
period across our key metrics of gross
profit and operating profit, coupled with strong
cash generation.
Financial Summary
|
Six months
ended
|
|
|
31 January
|
31 January
|
|
|
2024
|
2023
|
Change
|
|
£m
|
£m
|
%
|
|
|
|
|
Revenue1
|
467.2
|
512.4
|
(8.8%)
|
Gross invoiced income2
|
1,263.5
|
1,214.7
|
4.0%
|
Gross profit
|
196.5
|
177.1
|
11.0%
|
Operating profit
|
66.7
|
63.1
|
5.8%
|
Cash conversion3
|
101.1%
|
117.8%
|
(16.7% pts)
|
Interim dividend (p)
|
8.5p
|
8.0p
|
6.3%
|
Earnings per share (p)
|
25.6p
|
25.0p
|
2.4%
|
Diluted earnings per share (p)
|
25.5p
|
25.0p
|
2.0%
|
|
|
|
|
1 Revenue is
reported under IFRS 15, the international financial reporting
standard for revenue. IFRS 15 requires judgements be made to
determine whether Softcat acts as principal or agent in certain
trading transactions. These judgements, coupled with slight
variations of business model and contractual arrangements between
IT Solutions Providers, means the impact of IFRS 15 across the peer
group is not uniform. Income prior to the IFRS 15 adjustment is
referred to as gross invoiced income, which is an Alternative
Performance Measure (APM).
2 Gross
invoiced income (GII) reflects gross income billed to customers
adjusted for deferred and accrued revenue items. This is an
Alternative Performance Measure (APM). For further information on
this, please refer to page 22.
3 Cash
conversion is defined as net cash generated from operating
activities before tax but after capital expenditure, as a
percentage of operating profit. This is also an Alternative
Performance Measure. For further information on this, please refer
to page 22.
Highlights for the six months to 31 January
2024
·
Double digit growth in gross
profit, our primary measure of income, delivered against a
challenging set of comparative numbers.
·
Operating profit growth of 5.8%
was ahead of our expectations4
and sets a new record for first half operating
profit.
· Growth
was broad based across technologies and customer segments resulting
in increases in both gross profit per customer (+9.6%) and total
customer numbers (+1.3%), demonstrating continued progress against
our strategy.
·
Gross Invoiced Income (GII)
grew 4.0% driven by strong growth in software and services
partially offset by an anticipated decline in hardware. Revenue
declined by (8.8%) driven by the decline in hardware which
represents a higher proportion of this metric as software and some
of services are netted down under IFRS15.
·
Headcount grew 14.6%, reflecting our
continued investment in building capabilities and scale to enable
long-term market share gains in a growing sector.
·
Strong cash generation at 101.1%
conversion from operating profit. Closing cash was £112.5m and the
Company remains debt free.
·
An interim dividend of 8.5p per
share will be paid on 22 May 2024 with shares trading ex-dividend
on 11 April 2024.
4 Market
consensus FY2024 operating profit at 23 October 2023 was
£152.4m.
Outlook
Our positive
performance over the first six months of the financial year
reinforces our expectations to deliver on our full
year guidance of double-digit gross profit and high-single digit
operating profit growth.
We continue to see significant and
expanding opportunities in our market and will maintain our
investment approach to building the team, infrastructure and tools
to capitalise on this exciting and long-term growth
potential.
Graham Charlton, Softcat CEO, commented:
"We are delighted to report a strong
set of results and key performance indicators, delivering operating
profit ahead of our expectations and double-digit gross profit
growth from broad-based demand. The breadth, depth and progressive
nature of our offering, delivered via our exceptional people and
their relentless dedication to customer service, remains a
compelling proposition. We continue to execute against our key
objectives to win new customers and sell more to existing
customers.
The future opportunity in our
industry remains incredibly exciting. AI, data management and
cybersecurity, amongst other technologies, continue to drive rapid
transformation in technology, and this will generate growth across
all areas from the cloud and datacentre to the edge. These
incremental tailwinds to an already growing market play perfectly
into our comprehensive offering at a time when customers need
broader and more integrated support from their partners than ever
before. This is a great opportunity for us to further increase our
market share and we have therefore continued to invest for future
growth, increasing headcount by 14.6%.
This progress was only possible
because of the fantastic team at Softcat with our special culture
and the attitude of our people remaining key elements of our
competitive advantage. I can't thank our people enough for
everything they continue to do for each other and our
customers."
Analyst and Investor call
The management team will host an
investor and analyst conference call at 9.30am UK time, on Tuesday,
26 March 2024. To participate in the conference call, please use
the following access details:
Conference Call Details:
A live webcast of the presentation
will be available at:
https://www.investis-live.com/softcat/65df407fd0d5201200b403ba/bdow
Please register approximately 10
minutes prior to the start of the call.
The announcement and presentation
will be available at
www.softcat.com from 7.00am and
9.00am respectively.
Enquiries
|
|
|
|
Softcat plc:
|
+44 (0)1628 403 610
|
Graham Charlton, Chief Executive
Officer
|
|
Katy Mecklenburgh, Chief Financial
Officer
|
|
|
|
FTI
Consulting LLP:
|
+44 (0)20 3727 1000
|
Ed Bridges
|
|
Matt Dixon
|
|
Forward-looking statements
This announcement includes
statements that are, or may be deemed to be, forward-looking
statements. By their nature, such statements involve risk and
uncertainty since they relate to future events and circumstances.
Actual results may, and often do, differ materially from any
forward-looking statements.
Any forward-looking statements in
this announcement reflect management's view with respect to future
events as at the date of this announcement. Save as required by law
or by the Listing Rules of the Financial Conduct Authority, the
Company undertakes no obligation to publicly revise any
forward-looking statements in this announcement following any
change in its expectations or to reflect subsequent events or
circumstances following the date of this announcement.
This announcement has been
determined to contain inside information. The responsible
individual for insider information at Softcat plc is Luke Thomas
(Company Secretary).
Chief Executive Officer's Review
We continued to execute well against
our strategic goals of winning new customers and selling more to
existing customers. Gross profit (GP), our primary measure of
income, grew double-digit, up by 11.0%. This was driven by both an
increase in customer numbers (up 1.3% to 10.1k) and GP per customer
(up 9.6% to £38.9k).
Sustained
growth
We were able to demonstrate strong
GP growth across all customer segments, reflecting our high-quality
customer service and ability to deliver integrated technology
solutions comprising software, hardware and services. IT spend
continues to become less discretionary and increasingly critical in
delivering business outcomes and therefore attracts a larger
allocation of corporate and public sector budgets. Growth was
equally broad-based across technology areas with our core
technology groupings of datacentre and cloud,
networking and security, and workplace all performing
well and contributing double-digit GP growth in the period.
This growth was despite the currently challenging
client devices market, although this headwind should recede as the
year progresses and, notwithstanding this, hardware GP still grew
low single digit in the period.
We estimate that our share of the
addressable UK market is c.5%. The prospects for our industry are
stronger than ever and we have a clear opportunity, across all
segments of our customer base, to gain further wallet-share. We
have the largest commercial team in the UK market and will continue
to seek new customers and invest across all functions as we build
capacity and new capabilities, further enhancing our market-leading
proposition.
Demand
trends
During the period, there was growing
interest from customers in engaging with generative-AI ("Gen-AI")
and the possibilities it offers, over time, to transform their
operations. We have been able to offer advice and support via
workshops, webinars, podcasts and one-to-one meetings, and these
interactions mean we are well-placed to help our customers assess
their readiness for adoption as use cases and products start to
come to market. In many situations, customers are discovering
through their interactions with us that they first need to make
improvements to their foundational data governance and management
for Gen-AI as more and more use cases are established.
While it is still very early days,
we are already beginning to see the all-encompassing impact the
broader AI opportunity will have across both infrastructure and
applications. The early-stage adoption of tools such as Microsoft
Copilot will increase steadily over the medium term, but Gen-AI and
large language models are just one aspect of AI that will drive
both volume and innovation in IT over the coming decades. Our
market leading partnership with Microsoft positions us well to take
advantage of the Copilot opportunity, while the breadth of our
capabilities across all technology areas and vendors, comprising
hardware, software and services, and our capacity to invest in new
products and services, also gives us prime access to the revolution
coming to hybrid cloud datacentres, networks and the end user
device estate. Recent M&A activity by some of our top partners
demonstrates how they are thinking about embedding AI innovation
within infrastructure itself - this includes by creating more
efficient networks and management of compute workloads, for
example. We believe our ability to support customers in thinking
about how all these requirements overlap and interact will remain a
key advantage for many years to come.
Towards the end of the period, we
also began to see some revival in the challenging client devices
market. There are many ageing assets currently in use across
corporate and public sector organisations, and these are likely to
be refreshed in the near term. The Gen-AI impetus and Windows
update cycles will only add to this pressure as time goes
by.
In addition, our annual survey of
corporate and public sector customers' top IT priorities shows that
the increasing number and sophistication of threats continue to put
cyber security at the top of the agenda. As both the threat
landscape and attack surface expand, so does the complexity of
necessary solutions and this enables our team to demonstrate the
value we can add in safeguarding IT estates, which become ever more
mission critical to organisations.
We also continue to build our
multinational offering, supporting domestic customers in their
overseas operations. Our largest non-UK&I office is in the US,
but we have also established operations in the Netherlands,
Australia, Hong Kong and Singapore in recent years, and we are
evaluating additional opportunities to expand this network in both
North America and Europe.
Ease of doing business
We continue to invest in our own
data strategy, recognising the intrinsic importance of effective
data collection, management and governance in an efficient, modern
operating model and the exciting potential to accelerate growth
through automation and analytics. We are working with a UK partner
towards a unified data analytics platform that will capture and
cleanse internal and external data streams into a single,
well-structured and secure platform. We plan to have the first
iterations deployed during H2 FY2024 with potential to incorporate
AI techniques and enhancements over time.
Building on this data platform, we
are also investing in analytics and reporting tools as part of our
digital strategy. Existing internal tools and systems will be
consolidated over time into a single, enhanced view of customer
behaviour that will improve insights for our salespeople and drive
innovation in our technology offering. Similarly, we are moving
towards a unified platform for our customers to view and manage the
products and services they receive from us, making us more
responsive and easier to do business with. This customer platform
will accommodate new distribution models, notably marketplaces and
'as-a-service' software and hardware propositions, providing a
complete modern range of solutions.
Vendor marketplaces are another
aspect of IT Channel innovation that we are embracing, evolving to
remain highly relevant to both customers and vendors alike.
The breadth of our offering means we work with the very large,
established vendors through to newer, smaller players across the IT
stack. We invest significant resources into these relationships and
value the recognition we receive for the quality of our
partnerships, which in this period included:
· Reseller of the Year 2023, CRN Channel Awards
· UK
& Ireland Partner of the Year, Nutanix;
· Client
Partner of the Year, Dell;
· SMB
Partner of the Year, Cisco;
· Cloud
Innovation and Transformation, VMware;
· EMEA
Partner of the Year, CrowdStrike.
Our people and culture
We are continuing to invest in
people to underpin the sustainable and profitable growth pathway we
see ahead of us. The emergence of AI technology is just the most
recent example of why our confidence in the future of Softcat and
our industry is so high.
In H1 FY2024 we have added a net 314
employees, representing a 14.6% increase on the prior
period. As planned, we will slow our rate
of headcount growth a little in H2 and into FY2025 as we look to
embed and drive results from the significant growth of the past two
years.
H1 recruitment was again across all
areas of the business, with a particular focus on our specialist
and technical roles as we respond to demand from our customers to
help solve the increasingly complex problems they face. The
enhancements we made to the pay structure of our sales and other teams in FYs2022-23
have enabled us to be more competitive in the market and as a
result, salary increases have normalised in the current year to an
average rise of 4.3%.
Our growth continues to be fuelled
by the special Softcat culture, creating competitive advantage from
superior customer service. The manner with which we deliver the
advice and support our customers depend upon makes us stand out in
a fragmented market where it is difficult to differentiate. We will
continue to prioritise our people and the environment they work in,
recognising their commitment to the team and each other. It
was fantastic to see them all together at our largest ever company
Kick-Off event in September, and this year's full year incentive
trips to South Africa were also the biggest ever, mixing people
from all departments to celebrate their achievements, have fun and
meet new people.
Our continued strong performance is
down to the entire team at Softcat. The ownership, positivity,
commitment, and resilience they demonstrate to each other, our
customers, partners, and the business is outstanding, and I am
extremely grateful to be part of such an amazing team.
Diversity, Inclusion and
Sustainability
Promoting diversity, equality and
inclusion (DE&I) is intrinsic to the culture of Softcat.
Feeling accepted, listened to and valued is an integral part of why
people love working at Softcat and our most recent employee
engagement score of 90% shows that our efforts are well received.
We continue to promote our Allyship training programme to all
employees to support the centrality of inclusivity and fairness to
how we work. More informally, our numerous community groups are as
active as ever and play a big part in the life of Softcat and we
encourage staff who wish to participate in charitable events and
volunteering. From a gender diversity perspective, we're proud to
have 63% female representation on our Board and, across the
business, we've met our own goal of 35% female workforce mix ahead
of target, so we have raised the bar and are now pushing towards
40% by 2030.
DE&I is just one aspect of our
approach to ESG and sustainability. Environmental sustainability
remains central to our plans, from using 100% renewable energy in
our offices, hosting a Sustainable Partner Forum to facilitate
industry dialogue and attending COP28, to incorporating new
sustainable products and solutions into our technology offering. We
are playing a leading role in the push towards net zero in our
industry and 2023 saw a seven percent reduction in our GHG
emissions, despite continued growth in our business. During the
period, we were delighted to receive recognition for our actions,
winning three awards at the CRN Sustainability in Tech Awards,
including Sustainability Champion of the Year in the reseller
category, as well as ESG Partner of the Year from
Lenovo.
Board composition
Jacqui Ferguson joined the Board as
a Non-Executive Director in January 2024. The Company announced
last year that the role of Senior Independent Director (which is
currently undertaken by Lynne Weedall on an interim basis) will
transition to Jacqui on a permanent basis at some point in 2024.
The Board is pleased to confirm Jacqui's appointment as Senior
Independent Director with effect from 1 May 2024. Lynne Weedall
will remain as the chair of the Nomination Committee and of the
Remuneration Committee.
Chief Financial Officer's Review
Financial
Summary
|
H1 FY2024
|
H1 FY2023
|
Change
|
Revenue split
Software
Hardware
Services
|
£96.2m
£273.1m
£97.9m
|
£83.6m
£330.9m
£97.9m
|
15.0%
(17.5%)
0.1%
|
Total revenue
|
£467.2m
|
£512.4m
|
(8.8%)
|
Gross invoiced income
split
Software
Hardware
Services
|
£769.5m
£275.6m
£218.4m
|
£687.4m
£334.6m
£192.7m
|
11.9%
(17.6%)
13.3%
|
Total gross invoiced income1
|
£1,263.5m
|
£1,214.7m
|
4.0%
|
Gross profit
|
£196.5m
|
£177.1m
|
11.0%
|
Gross profit
margin2
|
15.6%
|
14.6%
|
1.0% pts
|
Operating profit
|
£66.7m
|
£63.1m
|
5.8%
|
Operating profit
margin2
|
5.3%
|
5.2%
|
0.1% pts
|
Gross profit per
customer3
|
£38.9k
|
£35.5k
|
9.6%
|
Customer base4
|
10.1k
|
10.0k
|
1.3%
|
Cash conversion5
|
101.1%
|
117.8%
|
(16.7%
pts)
|
1 Gross
invoiced income reflects gross income billed to customers adjusted
for deferred and accrued revenue items. This is an Alternative
Performance Measure (APM). For further information on this, please
refer to page 22.
2 Gross
profit margin and operating profit margin are both calculated as a
percentage of gross invoiced income.
3 Gross
profit per customer is defined as Gross profit divided by the
customer base.
4 Customer
base is defined as the number of customers who have transacted with
Softcat in both of the preceding twelve-month periods.
5 Cash
conversion is defined as net cash generated from operating
activities before tax but after capital expenditure, as a
percentage of operating profit. This is also an Alternative
Performance Measure. For further information on this, please refer
to page 22.
Gross profit, revenue, and gross
invoiced income (GII)
Our H1 FY2024 results reflect our
ability to continue to deliver our strategy of providing the UK
market's leading range of technology solutions (spanning workplace,
datacentre, cloud, networking and security solutions) across
software, hardware and services, delivered through highly engaged
employees who provide exceptional customer service, to attract new
customers and increase sales to our existing customer
base.
Gross profit (GP), our primary
measure of income, grew by 11.0% to £196.5m in line with guidance
of double-digit growth across FY2024 and despite a challenging H1
FY2023 comparator with base period GP growth of
17.9%.
GP growth
was broad based and consistent
across customer segments and technology groups, with
enterprise, mid-market and public sector,
datacentre and cloud, networking and security, and workplace
all demonstrating high single-digit or low double-digit growth rates.
GP growth across product types was
more divergent, with strong double-digit growth in software and
services and low single-digit growth in hardware.
Hardware GII
declined by (17.6%),
impacted by the continued, market driven, decline in client
device sales and a
reduction in low margin server and compute sales linked to a
handful of sizeable transactions in the base period, only partially
offset by an increase in margin rich datacentre infrastructure
solutions. The GII
hardware decline was more than offset by hardware gross margin
expansion.
These trends
were, as we expected, largely in line with H2 FY2023.
The interest from customers around
Gen-AI is resulting
in a lot of
very positive customer
engagement, which is laying strong foundations for when customers are ready to
start investing further in this technology.
The challenging conditions during the second half of FY2023, with
some customers adopting a more considered approach to buying
decisions continued into H1 FY2024. However, we have not seen any
additional lengthening of procurement decision making processes and
we were encouraged by the momentum at the end of the
period.
Hardware, software and services
revenues are reported under IFRS15 on a mix of gross (principal)
and net (agent) bases which can make this metric hard to
understand. Thus, we also have continued to report GII to help give
a clearer view of underlying growth. H1 FY2024 revenue declined by
(8.8%) driven by: (1) a (17.6%) decline in hardware GII. This
decline in hardware GII, which is reported on a gross basis within
the revenue number, was driven by a decline in client devices and
lower margin storage and compute as described above; and (2)
Services revenue which registered 0.1% growth compared to a GII
growth of 13.3%. Depending on the nature of the service delivery,
some services are reported on a gross basis and others on a net
basis, in this reporting period there was a mix shift towards
services reported net which thus impacted the services revenue
growth.
GII increased 4.0% to
£1,263.5m driven by
strong growth in software and services, up by
11.9% and
13.3% respectively,
partially offset by the decline in hardware sales mentioned
above. Following a similar pattern to
H2 FY2023, GII grew behind GP in the period, with GP as a
percentage of GII expanding by 98
bps to 15.6% (from 14.6% in H1
FY2023). The margin
increase was predominantly due to the
hardware mix changes as described above.
Customer KPIs
During the period, GP per customer
grew by 9.6% to an
annualised £38.9k (H1 FY2023: £35.5k) and the customer base
expanded by 1.3%, to 10.1k (H1 FY2023: 10.0k). Growth in GP per
customer was broad based driven by all three of our solution types
(datacentre infrastructure, networking and security and
workplace).
Company analysis, using data from
several sources (including Gartner, CRN and HG Insights), suggests
our market share remains c.5% in the UK and Ireland. We serve
approximately 1 in 5 customers in our target market with an average
share of wallet of c.20-25%. These numbers indicate that both
facets of our simple strategy, to win new customers and sell more
to existing customers, continue to offer significant opportunities
for future growth.
Operating costs and operating
profit
Operating profit (OP) of £66.7m (H1
FY2023: £63.1m) increased by 5.8%
year-on-year, this was ahead of expectations set
at the FY2023 results, reflecting a small over delivery on GP and
slightly lower costs in the period.
Operating cost growth of
13.9% vs. prior
year was driven by increased commissions, commensurate with growth
in GP, alongside
the impact of a 16.7% increase in average headcount, and an
average cost per head increase of 2.9%. These cost increases were partially offset by slightly lower
IT and bad debt costs in the period, due to year-on-year
phasing. The H1
FY2024 headcount growth reflects our consistent strategy to grow
our staff base ensuring we are well positioned to capitalise on
growth opportunities in the medium term, however,
this was at more
normalised levels of growth compared to the more significant
investment made in FY2023.
As a result of the cost investments
in headcount, our OP to GP margin decreased to
34.0% (H1 FY2023
35.6%), slightly better than expected.
Corporation tax charge
The half year tax charge of
£17.2m (H1 FY2023: £13.3m) reflects the increased
statutory rate of 25% (H1
FY2023: blended rate of 21%). The effective tax rate
of 25.2% (H1 FY2023: 21.0%) is marginally above
the statutory rate due to the impact of non-deductible
expenses. Our tax
strategy continues to be focussed on paying
the right amount of tax in the right jurisdiction, at the right
time.
Cash flow and cash
conversion
The Company entered the period with
£122.6m of cash and cash equivalents and then paid an aggregate
final and special dividend of £59.1m
in December 2023.
Cash flow from operations before tax
but after capital expenditure was strong during the period,
generating a positive net inflow of £67.5m and, representing a conversion
rate from OP of 101.1%
(FY2023: 117.8%),
this is slightly above our target range of 85-95% due to strong
receipts at the end of the period. Cash at
the end of the period totalled £112.5m.
The Company targets sustainable full
year operating cash conversion (after capital expenditure) in the
range of 85-95% of operating profits.
Finance Income
In the period income from cash and
cash equivalents held in interest bearing accounts totalled £1.7m
(H1 FY2023: £0.2m).
Dividend
The Board is pleased to declare an
interim dividend of 8.5p per share (H1 FY2023: 8.0p), amounting to £17.0m (H1
FY2023: £16.0m). The interim dividend will be payable on 22 May
2024 to shareholders on the register at the close of business on 12
April 2024. Shares in the Company will be quoted ex-dividend
on 11 April 2024. The last day for dividend reinvestment plan
("DRIP") elections is 30 April 2024.
Group consolidation
Softcat US LLC, a Limited Liability
Company (LLC) began trading on 1 February 2024 and is a wholly
owned subsidiary of Softcat plc. Prior to this, trade in the US was
recorded within a branch of Softcat plc. Consolidated full year
accounts for FY2024 will be prepared, as a result, on a Group
basis.
Principal Risks and Uncertainties
The principal and emerging risks
facing the Company have been identified and evaluated by the
Board.
In assessing the Company's likely
financial performance for the second half of the current financial
year, these risks and uncertainties should be considered in
addition to the comments made under the heading "outlook" in the
Chief Executive Officer's Review.
In summary, principal risks
include:
Risk
|
Potential impacts
|
Management and mitigation
|
BUSINESS
STRATEGY
|
|
Failure to respond to market changes
including technology offering, channel disintermediation,
competitor landscape and customer needs
(no change in net risk)
|
· Loss
of competitive advantage
· Reduced number of customers and profit per customer
|
· Insight from ongoing industry analysis and subscriptions input
into annual strategy process
· Regular insights into customer priorities including
climate-related through the annual customer experience survey
results and 'voice of the customer' surveys. Multi-layered
relationship with strategic vendors and executive sponsor
alignment
· Regular Quarterly Business Reviews with vendors
|
OPERATIONAL
|
|
Customer dissatisfaction
(no change in net risk)
|
· Reputational damage
· Loss
of customers
· Financial penalties
|
· Dedicated Customer experience team, who manage and escalate
customer dissatisfaction cases
· ISO20000-1 IT Service Management and ISO-9001 Quality
management certified
· Ongoing customer service excellence training
· 'Big-deal review' process
|
Cyber security risk & business
interruption risk
(no change in net risk)
|
· Inability to deliver customer services
· Reputational damage
· Financial loss
· Customer dissatisfaction
|
· ISO27001 accredited processes. Company-wide information
security policy and mandatory security-related training
· Regular testing of disaster recovery plans and business
continuity plans
· Established and documented processes for incident management,
change of control, etc.
· Ongoing upgrades to network.
· All
employees issued with corporate devices with standardised access
monitoring and control
· Key
software used is from large multi-national companies who have a
99.9% SLA and who also provide us with SOC2 reports that provide
assurance on their processes and controls
· Annual
penetration test by a third party
|
FINANCIAL
|
|
Macro-economic factors including
impact on customer sentiment, inflationary pressures, interest and
foreign currency volatility
(no change in net risk)
|
· Short-term supply chain disruption
· Reduced margins
· Reduced customer demand
· Reduced profit per customer
· Higher
operating costs
· Customer insolvencies and cash collection
challenges
|
· Customer base is well diversified in terms of both revenue
concentration but also public and commercial sector
exposure
· Close
dialogue with supply chain partners
· Annual
budget considers the operating profit growth expectations of the
markets
· Operating costs are budgeted and reviewed regularly
· Going
concern and viability statements are underpinned by robust analysis
of scenarios
|
Ineffective working capital
management
(no change in net risk)
|
· Increased bad debts
· Increased cost of operations
|
· Robust
credit assessment process including use of trade credit
insurance
· Regular review of the aged debt position by
management
· Defined treasury policy covering liquidity management
processes and thresholds
· Regular cash forecasting, actual reporting and variance
analysis to highlight any adverse trends and allow sufficient time
to respond
|
Failure to retain competitive terms
with our suppliers and/or right size our cost base compared to
gross profit generated
(no change in net risk)
|
· Uncompetitive pricing leading to loss of business
· Reduced profitability/margins
|
· Budgeting process and regular reviews ensure costs are managed
appropriately and in consideration of gross profit growth Any out
of budget spend needs management level approval
· Rebates form an important, but only minority, element of total
operating profit. In addition, Rebate programmes tend to be industry
standard and not specific to the Company, while vendor aligned teams
ensure we optimise available rebate structures
· Ongoing training to sales and operations teams to keep pace
with new vendor programmes
|
PEOPLE
|
|
Loss of culture
(no change in net risk)
|
· Reduced staff engagement
· Negative impact on customer service
· Loss
of talent
|
· Culture sits at the heart of all changes that are made in
Softcat. There is regular communication from Senior
Leadership Team members to employees at 'Kick off' and 'All Hands'
calls about the importance of culture
· Regional offices with empowered local management
· Quarterly management satisfaction survey with feedback acted
upon
· Regular staff events and incentives
· Enhanced internal communication processes and
events
|
Talent, Capability & Leadership
risk
(no change in net risk)
|
· Lack
of strategic direction
· Reduced staff engagement
· Loss
of talent
· Loss
of competitive advantage
|
· Succession planning process in place
· Experienced and broad senior management team
· Investment in robust recruitment and selection
processes
· Attrition tracked and action taken as necessary
|
REGULATORY AND COMPLIANCE
|
|
|
Compliance with existing
regulation/legislation and being prepared for emerging
regulation/legislation
(no change in net risk)
|
· Financial penalties
· Reputational damage
· Loss
of customers
|
· Presence of a second line function (Governance Risk &
Control, Information Security, Legal and Company
Secretarial)
· Management committee in place to review second line progress
and report to the Audit Committee
· Ongoing engagement with specialist third parties where
required
|
Climate change
In the prior year, in line with the
approach recommended by the Task Force on Climate-related Financial
Disclosures ('TCFD'), we conducted a formal assessment of the
potential impact of climate change to our business and supply
chain. Please see our 2023 Annual Report and Accounts, pages 50 to
71 for more information. Climate change is already a component of
the risk of failure to respond to market changes when considering
the needs of our customers and how products, services and solutions
might be affected by the drive towards carbon neutrality. We also
have robust business interruption plans in the event of a
disruption to our business. Our most recent analysis concluded that
no other climate change-related risk is a principal risk which
needs to be incorporated into the list of principal risks
shown.
These risks and uncertainties have
not changed significantly since those published in the 31 July 2023
Annual Report.
Going Concern
Please refer to note 2 under 'Basis
of preparation'.
Cautionary Statement
This report has been prepared solely
to provide additional information to shareholders to assess the
Company's strategies and the potential for those strategies to
succeed. The Interim Management Report should not be relied on by
any other party or for any other purpose.
In making this report, the Company
is not seeking to encourage any investor to either buy or sell
shares in the Company. Any investor in any doubt about what action
to take is recommended to seek financial advice from an independent
financial advisor authorised by the Financial Services and Markets
Act 2000.
Directors' Responsibility Statement
The Directors confirm that, to the
best of their knowledge:
·
the condensed set of financial
statements, which has been prepared in accordance with UK adopted
IAS 34 Interim Financial Reporting, has been prepared in accordance
with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company;
·
the Interim Management Report
includes a fair review of the information required by DTR 4.2.7R
(indication of important events during the first six months and
description of principal risks and uncertainties for the remaining
six months of the year); and
·
the Interim Management Report
includes a fair review of the information required by DTR 4.2.8R
(disclosure of relates parties' transactions and changes
therein).
Neither the Company nor the
Directors accept any liability to any person in relation to the
half-year financial report except to the extent that such liability
could arise under English law. Accordingly, any liability to a
person who has demonstrated reliance on any untrue or misleading
statement or omission shall be determined in accordance with
section 90A and schedule 10A of the Financial Services and Markets
Act 2000.
Graham
Charlton
|
Katy
Mecklenburgh
|
Chief
Executive Officer
|
Chief
Financial Officer
|
25 March
2024
|
25 March
2024
|
Condensed Statement of profit
or loss and other comprehensive income
For the six months ended 31
January 2024
|
|
Six months ended 31
January
|
Year ended
31 July
|
|
|
|
|
|
|
|
2024
|
2023
|
2023
|
|
|
Unaudited
|
Unaudited
|
Audited
|
|
Note
|
|
|
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
Revenue
|
3
|
467,152
|
512,405
|
985,300
|
Cost of sales
|
|
|
|
|
Gross profit
|
|
196,514
|
177,054
|
373,834
|
|
|
|
|
|
Administrative expenses
|
|
|
|
|
Operating profit
|
|
66,731
|
63,071
|
140,898
|
|
|
|
|
|
Finance income
|
|
1,650
|
151
|
1,171
|
Finance cost
|
|
(165)
|
(99)
|
(205)
|
|
|
|
|
|
Profit before taxation
|
|
68,216
|
63,123
|
141,864
|
Income tax expense
|
4
|
|
|
|
Profit for the period
|
|
|
|
|
Other comprehensive income
Other comprehensive income that may
be reclassified to profit or loss in subsequent periods:
|
|
|
|
|
Net gain/(loss) on cash flow
hedge
|
|
677
|
-
|
(799)
|
Foreign exchange differences on
translation of foreign branches
Total other comprehensive income/(loss)
|
|
2
|
(148)
|
(204)
|
Total comprehensive income for the period
|
|
|
|
|
|
|
|
|
|
Profit attributable to:
|
|
|
|
|
Owners of the Company
|
|
|
|
|
Total comprehensive income
attributable to:
|
|
|
|
|
Owners of the Company
|
|
|
|
|
|
|
|
|
|
Basic earnings per Ordinary Share
(pence)
|
11
|
25.6
|
25.0
|
56.2
|
Diluted earnings per Ordinary Share
(pence)
|
11
|
25.5
|
25.0
|
56.0
|
All results are derived from
continuing operations.
Condensed Statement of Financial Position
As
at 31 January 2024
|
|
Six months
ended
31
January
|
Year ended
31 July
|
|
|
2024
|
2023
|
2023
|
|
|
Unaudited
|
Unaudited
|
Audited
|
|
Note
|
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
Property, plant and
equipment
|
|
10,755
|
11,166
|
11,348
|
Right-of-use assets
|
6
|
8,779
|
5,849
|
9,969
|
Intangible assets
|
|
8,548
|
7,575
|
7,155
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
Inventories
|
|
3,992
|
7,157
|
3,591
|
Trade and other
receivables
|
7
|
496,822
|
545,501
|
490,041
|
Cash and cash equivalents
|
|
112,455
|
97,722
|
122,621
|
Income tax receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
8
|
(349,271)
|
(437,866)
|
(359,627)
|
Contract liabilities
|
9
|
(36,278)
|
(27,275)
|
(23,851)
|
Income tax payable
|
|
-
|
-
|
(6)
|
Lease liabilities
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Contract liabilities
|
9
|
(6,227)
|
(3,426)
|
(3,032)
|
Lease liabilities
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Issued share capital
|
13
|
100
|
100
|
100
|
Share premium account
|
|
4,979
|
4,979
|
4,979
|
Cash flow hedge reserve
|
|
(122)
|
-
|
(799)
|
Reserves for own shares
Foreign exchange revaluation
reserve
|
|
-
3,360
|
-
3,414
|
-
3,358
|
Retained earnings
|
|
|
|
|
Total equity
|
|
|
|
|
Condensed Statement of Changes in Equity
(unaudited)
|
|
|
|
|
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
|
|
|
|
|
|
Balance at 1 August 2022
|
100
|
4,979
|
3,562
|
-
|
202,459
|
211,100
|
|
|
|
|
|
|
|
Profit for the period
|
-
|
-
|
-
|
-
|
49,843
|
49,843
|
Impact of foreign exchange on
reserves
|
-
|
-
|
(148)
|
-
|
-
|
(148)
|
Total comprehensive income for the period
|
|
|
|
|
|
|
Share-based
payment transactions
|
-
|
-
|
-
|
-
|
1,591
|
1,591
|
Dividends paid
|
-
|
-
|
-
|
-
|
(58,220)
|
(58,220)
|
Dividend equivalents paid
|
-
|
-
|
-
|
-
|
(66)
|
(66)
|
Tax adjustments
|
-
|
-
|
-
|
-
|
(104)
|
(104)
|
Other
|
|
|
|
|
|
|
Balance at 31 January 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 August 2023
|
100
|
4,979
|
3,358
|
(799)
|
243,807
|
251,445
|
|
|
|
|
|
|
|
Profit for the period
|
-
|
-
|
-
|
-
|
51,047
|
51,047
|
Impact of foreign exchange on
reserves
|
-
|
-
|
2
|
-
|
-
|
2
|
Net gain on
cash flow hedge
|
-
|
-
|
-
|
677
|
-
|
677
|
Total comprehensive income
for the period
|
-
|
-
|
2
|
677
|
51,047
|
51,726
|
Share-based
payment transactions
|
-
|
-
|
-
|
-
|
1,699
|
1,699
|
Dividends paid
|
-
|
-
|
-
|
-
|
(59,069)
|
(59,069)
|
Dividend equivalents paid
|
-
|
-
|
-
|
-
|
(98)
|
(98)
|
Tax adjustments
|
-
|
-
|
-
|
-
|
(97)
|
(97)
|
|
|
|
|
|
|
|
Balance at 31 January 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statement of Cash Flows
For
the six months ended 31 January 2024
|
|
Six months
ended
31
January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
Unaudited
|
Audited
|
|
Note
|
|
|
|
|
|
£'000
|
£'000
|
£'000
|
|
|
|
Net
cash generated from operating activities
|
12
|
51,198
|
61,118
|
104,802
|
|
|
|
|
|
Investing activities
|
|
|
|
|
Finance income
|
|
1,650
|
151
|
1,171
|
Purchase of property, plant and
equipment
|
|
(682)
|
(1,052)
|
(2,544)
|
Purchase of intangible
assets
|
|
|
|
|
Net
cash used in investing activities
|
|
(1,147)
|
(1,262)
|
(2,074)
|
|
|
|
|
|
Financing activities
|
|
|
|
|
Issue of share capital
|
|
-
|
-
|
-
|
Dividends paid
|
5
|
(59,069)
|
(58,220)
|
(74,175)
|
Payment of principal portion of
lease liabilities
|
|
(985)
|
(983)
|
(2,839)
|
Payment of interest portion of lease
liabilities
|
|
|
|
|
Net
cash used in financing activities
|
|
(60,219)
|
(59,302)
|
(77,219)
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents
Exchange gains/(losses) on cash and
cash equivalents
|
|
(10,168)
2
|
554
(148)
|
25,509
(204)
|
Cash and cash equivalents at
beginning of period
|
|
|
97,316
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
Notes to the Financial Information
1.
General
information
The Directors of Softcat plc (the
"Company") present their Interim Report and the unaudited Condensed
Interim Financial Statements for the six months ended 31 January
2024 ("Condensed Interim Financial Statements").
The Company is a public limited
company, incorporated and domiciled in the UK. Its registered
address is Solar House, Fieldhouse Lane, Marlow, Buckinghamshire,
SL7 1LW.
The Condensed Interim Financial
Statements have been reviewed, but not audited, by Ernst &
Young LLP and were approved by the Board of Directors on 26 March
2024. The financial information contained in this report does not
constitute statutory accounts within the meaning of section 435 of
the Companies Act 2006. The Condensed Interim Financial Statements
should be read in conjunction with the Annual Report and Financial
Statements for the year ended 31 July 2023, which have been
prepared in accordance with UK-adopted international accounting
standards (IFRS) in accordance with the requirements of the
Companies Act 2006. The Annual Report and Financial Statements for
the year ended 31 July 2023 were approved by the Board of Directors
on 24 October 2023 and delivered to the Registrar of Companies. The
auditor's report on those financial statements was unqualified, did
not contain an emphasis of matter paragraph and did not contain any
statement under section 498(2) or (3) of the Companies Act
2006.
2.
Accounting
policies
Basis of preparation
These Condensed Interim Financial
Statements have been prepared in accordance with UK adopted
International Accounting Standard ("IAS") 34 Interim Financial
Reporting and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
The Condensed Interim Financial
Statements are presented in Pounds Sterling, rounded to the nearest
thousand ('£'000'), unless otherwise stated. They were prepared
under the historical cost convention.
The accounting policies adopted in
the preparation of the Condensed Interim Financial Statements are
consistent with those applied in the preparation of the Company's
Financial Statements for the year ended 31 July 2023.
Going Concern
The Directors are satisfied that the
Company has sufficient resources to continue in operation for the
foreseeable future, a period to at least 31 March 2025.
In preparing this financial
information, management has considered the circumstances impacting
Softcat during the period, as detailed in the Chief Financial
Officer's Review, and reviewed projected performance for the period
to at least 31 March 2025; being the going concern period. The
Directors also considered the Company's objectives and strategy,
its principal risks and uncertainties in achieving its objectives
and its review of business performance and financial
position.
Given the current macro-economic
environment and considering the relevant guidance issued by the FRC
the Directors have undertaken a comprehensive going concern
review.
The Company has modelled three
scenarios in its assessment of going concern. These are:
• the base
case;
• the
severe but plausible case; and
• the
reverse stress test case.
Further details, including the
analysis performed and conclusion reached, are set out
below.
The Directors have reviewed detailed
financial forecasts for a twelve-month period from the date of this
report until the end of the going concern period.
The Company operates in a resilient
industry. Our UK Corporate customer base spend is increasingly
non-discretionary as IT continues to be vital to remain competitive
in an increasingly digital age and a source of potential
competitive advantage to customers across industry verticals.
Public Sector, a large and growing area of the business, continues
to invest in technology to provide efficient services to the public
and this has continued apace despite the ongoing macro-economic
headwinds in the UK economy. The Company strategy remains unchanged
and will continue to focus on winning new customers and selling
more to existing customers during the going concern
period.
Liquidity and financing position
At 31 January 2024, the Company held
instantly accessible cash and cash equivalents of £112.5m, while
net current assets were £227.5m. Operational cash flow forecasts for
the going concern period are sufficient to support the business.
There is a sufficient level of liquidity headroom post mitigation
across the going concern forecast period in base and severe but
plausible scenarios considered and outlined in more detail
below.
Challenging economic environment
Management has, in all three
scenarios, considered the principal challenges to short term
business performance which are expected to be:
· continued low or negative growth in the UK economy;
· loss
of Softcat competitiveness versus competitors;
· elevated global economic and political risks, leading to
higher input prices and lower supplier rebates; and
· higher
risk of credit losses.
Despite the impact of these
challenges, the Company has traded well, delivering double-digit
gross profit growth. The Board continue to monitor the global and
national economic environment and organise operations
accordingly.
Base case
The base case, which was approved by
the Board in 2024, takes into account the FY2024 budget process
which includes estimated growth and increased costs across the
going concern period and is consistent with the actual trading
experience through to March 2024. The key inputs and assumptions in
the base case include:
•
continued revenue growth in line with historic
rates;
•
rebate income continues to be received in
proportion to cost of sales as in FY2023;
•
employee commission is incurred in line with the
gross margin; and
• increased
levels of cost to reflect continued investment in our people, the
businesses IT infrastructure.
The Company has taken a measured
approach to the base case and has balanced the expected trading
conditions with available opportunities in an increasingly
resilient area of customer spend, which is supported by the current
financial position. Year to date trading to the end of March 2024 is
consistent with the base case forecast.
Severe but plausible
Given the current conditions facing
our customer base and the UK economy, we have modelled a severe but
plausible scenario. In this case we have modelled a reduction in
gross invoiced income and gross profit margins versus the base
case, which is worse than any historic trend and more severe than
experienced during the height of the COVID-19 pandemic. Further
impacts of this scenario, such as reduced rebate income and greater
credit losses or other one-off impacts to the income statement,
have also been considered.
The key inputs and assumptions,
compared to the base case include:
• an
average 10% reduction in gross invoiced income;
• reduced
gross profit margins by 2.5%;
•
additional bad debt write offs of £10m across the going concern
period;
• extending
the debtor days by six from historic levels achieved and no change
to historic supplier payment days;
• paying a
reduced final dividend in line with lower profitability but still
within the range set out in the capital allocation
policy;
•
commission cost moves in line with reduced profitability;
and
•
proportion of cost of sales received as rebate reduced by 10% in
addition to the reduction caused by movement in gross
margin.
The purpose of this scenario was to
consider if there was a significant risk that the Company would move
to being cash negative in any of the months in the going concern
period. Even at these lower levels of activity, which the Directors
believe is a highly unlikely outcome, the Company continues to be
profitable, and maintains a positive cash balance at all times.
Despite this, management has modelled further cost savings and
working capital actions (see mitigating actions) that would enable
the Company to mitigate the impact of reduced cash generation
further and achieve the Board's desired minimum cash position,
should this scenario occur. The Directors are confident that they
can implement these actions if required.
Mitigating actions
The primary mitigating action
management could undertake would be the removal of the final
ordinary and special dividends that are modelled in late
2024.
In addition, there are several
potential management actions that have not been included in the
severe but plausible forecast and it is estimated that the total
cash impact of these actions is in excess of a £23m cost reduction
on an annualised basis and additional annual working capital
savings of approximately £20m, before considering the cost of
delivering them and the point in time at which they were
delivered.
The actions therefore, which, if
implemented, would offset the reduced activity:
• bonuses
scaled back in line with performance;
• savings
in discretionary areas of spend, such as salary increases,
recruitment, travel and entertainment costs;
• delayed
payment to suppliers foregoing early settlement discount;
and
• short
term supplier payment management to temporarily ease working
capital pressure.
The mitigations, whilst not being
required in the severe but plausible scenario, are nonetheless
deemed deliverable by management if required, and reasonable as the
Company benefits from a flexible business model with a high
proportion of costs linked to performance.
Reverse stress test
The Directors have assessed
individually the conditions required to cause a material negative
cash position in the going concern period. A combination of these
factors has been modelled as a reverse stress test (albeit to a
lesser extent than individually modelled) as a more credible,
whilst still extremely remote, possibility. These conditions
have been compared to the severe but plausible scenario and the
going concern statement is still deemed applicable. The five
combined stresses modelled are as follows:
• reduction
of 20% in gross invoiced income, compared to the base
case;
• reduced
gross margin by 5%;
•
additional bad debt write offs of £20m in total across the going
concern period;
• extending
the debtor days by eight days from historic levels achieved and no
change to historic supplier payment days; and
• reducing
rebate income by 20%.
The business has never experienced
any of the above inputs standalone, or in combination, in its
history. In the modelled scenario, prior to mitigations, the
business could become cash negative within twelve
months.
Whilst the Board considers such a
scenario to be remote, a programme of further actions to mitigate
the impact, in excess of those set out above, would be actioned
should the likelihood of such a scenario increase. The Board
considers the forecasts and assumptions used in the reverse stress
test, as well as the event that could lead to it, to be
remote.
Going concern conclusion
Based on the forecast and the
scenarios modelled, together with the performance of the Company to
date, the Directors consider that the Company has significant
liquidity headroom to continue in operational existence for the
twelve-month period from the date of this report (the going concern
period) until 31 March 2025. Accordingly, at the March 2024 Board
meeting, the Directors concluded from this analysis it was
appropriate to continue to adopt the going concern basis in
preparing the financial statements. Should the impact of these
conditions be even more prolonged or severe than currently forecast
by the Directors under the severe but plausible case scenario, the
Company would need to implement additional operational or financial
measures.
Critical accounting judgements and key sources of estimation
uncertainty
When applying the Company's
accounting policies, management must make several key judgements
involving estimates and assumptions concerning the future. Key
judgements management have made are those which have the most
significant effect on the amounts recognised in the financial
statements. Key sources of estimation uncertainty are those
assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial
year.
The key judgements and sources of
estimation uncertainty reported in the financial statements for the
year ended 31 July 2023 are still relevant. There have been no new
areas of significant accounting judgement or key sources of
estimation uncertainly arising from operations in the first six
months of the financial year to 31 July 2024, nor in the months to
the date of publication of this interim report.
Changes to accounting standards
No new standards or amendments became
effective in the period to 31 January 2024 which have had a
material effect on the financial statements.
Alternative Performance Measures
The Company uses two non-Generally
Accepted Accounting Practice (non-GAAP) financial measures in
addition to those reported in accordance with IFRS. The Directors
believe that these non-GAAP measures which are set out below,
assist in providing additional useful information on the underlying
trends, sales performance and position of the
Company.
Consequently, non-GAAP measures are
used by the Directors and management for performance analysis,
planning and reporting and have remained consistent with the prior
year. These non-GAAP measures comprise gross invoiced income (or
'GII') and cash conversion.
Gross invoiced income is a
measure which correlates closely to the cash received by the
business and therefore aids the users understanding of working
capital movements in the statement of financial position and the
relationship to sales performance and the mix of products sold.
Gross invoiced income reflects gross income billed to customers
adjusted for deferred and accrued revenue as reported in the IFRS
measure. A reconciliation of IFRS Revenue to gross invoiced income
is provided within Note 3 of the financial statements.
Cash conversion ratio is net
cash generated from operating activities before taxation, net of
capital expenditure, as a percentage of operating profit. Cash
conversion is an indicator of the Company's ability to convert
profits into available cash. A reconciliation to the adjusted
measure for cash conversion is provided below:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
£'000
|
|
|
|
|
Net
cash generated from operating activities
|
51,198
|
61,118
|
104,802
|
Income taxes paid
|
19,082
|
14,599
|
29,793
|
Cash generated from operations
|
70,280
|
75,717
|
134,595
|
Purchase of property, plant and
equipment
|
(682)
|
(1,052)
|
(2,544)
|
Purchase of intangible
assets
|
(2,115)
|
(361)
|
(701)
|
|
|
|
|
Cash generated from operations, net
of capital expenditure
|
|
|
|
Operating profit
|
66,731
|
63,071
|
140,898
|
Cash conversion ratio
|
|
|
|
3.
Segmental
information
The information reported to the
Company's Chief Executive Officer, who is considered to be the
chief operating decision maker for the purposes of resource
allocation and assessment of performance, is based wholly on the
overall activities of the Company. The Company has therefore
determined that it has only one reportable segment under IFRS 8,
which is that of "value-added IT reseller and IT infrastructure
solutions provider". The Company's revenue, results and assets for
this one reportable segment can be determined by reference to the
statement of comprehensive income and statement of financial
position. An analysis of revenues by product, which form one
reportable segment, is set out below:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Revenue by
type
|
|
|
|
Software
|
96,142
|
83,661
|
188,797
|
Hardware
|
273,102
|
330,891
|
610,638
|
Services
|
97,908
|
97,853
|
185,865
|
|
|
|
|
Gross invoiced income by
type
|
|
|
|
Software
|
769,509
|
687,462
|
1,543,501
|
Hardware
|
275,590
|
334,580
|
617,844
|
Services
|
218,371
|
192,686
|
401,963
|
|
|
|
|
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Revenue by type of
business
|
|
|
|
Small and
medium
|
264,634
|
313,891
|
555,541
|
Enterprise
|
120,234
|
129,712
|
253,229
|
Public
sector
|
82,284
|
68,802
|
176,530
|
|
|
|
|
Gross invoiced income by type
of business
|
|
|
|
Small and
medium
|
578,877
|
584,318
|
1,103,851
|
Enterprise
|
260,557
|
259,352
|
512,839
|
Public
sector
|
424,036
|
371,058
|
946,618
|
|
|
|
|
Gross invoiced income reflects gross
income billed to customers adjusted for deferred and accrued
revenue items. Softcat continues to report gross invoiced income as
an alternative financial KPI as this measure allows a consistent,
year on year, understanding of gross income billed, business
performance and position and correlates closely to working capital
movements. The impact of IFRS 15 and principal versus agent
consideration is an equal reduction to both revenue and cost of
sales.
Reconciliation of gross
invoiced income to revenue
|
|
|
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Gross invoiced income
|
1,263,470
|
1,214,728
|
2,563,308
|
Income recognised as agent under
IFRS 15
|
|
|
|
Revenue
|
|
|
|
The total revenue for the Company
has been derived from its principal activity as an IT
reseller. Substantially all this revenue relates to trading
undertaken in the United Kingdom.
4.
Taxation
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
2024
|
2023
|
2023
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Current Tax
|
|
|
|
Current
period
|
17,065
|
13,322
|
30,414
|
Adjustment
in respect of current income tax in previous years.
|
-
|
-
|
(160)
|
Foreign tax
effects
|
-
|
-
|
-
|
Deferred
Tax
|
|
|
|
Temporary
differences
|
104
|
(42)
|
(419)
|
Total tax charge for the
period
|
|
|
|
The income tax expense was
recognised based on management's best estimate of the annual income
tax rate expected for the full financial year, applied to the
profit before tax for the half year ended 31 January 2024. On
this basis, the Company's tax charge was £17.2m (H1 2023: £13.3m).
The half year effective tax charge being 25.2%
(2022: 21.0%).
5.
Dividends
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
Declared and paid during the period
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Interim dividend
|
-
|
-
|
15,955
|
Final dividend
|
33,956
|
33,098
|
33,098
|
Special dividend
|
|
|
|
|
59,069
|
58,220
|
74,175
|
An interim dividend of 8.5p per
share, amounting to a total dividend of £17.0m, was declared post
period end and is to be paid on 22 May 2024 to those on the share
register at the close of business on 12 April 2024.
6.
Right-of-use assets and lease
liabilities
Leases - as a lessee
Softcat has lease contracts for
various properties and offices across the country, used for its
operations. Property leases generally have lease terms of between 3
and 10 years. A number of these contracts include extension and
termination options which are discussed below.
Set out below are the carrying
amounts of right-of-use assets recognised and movements during the
period:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Property
leases
|
|
|
|
Opening
right-of-use asset
|
9,970
|
6,162
|
6,162
|
Additions
|
-
|
746
|
5,934
|
Depreciation
|
|
|
|
Closing
right-of-use asset
|
8,779
|
5,849
|
9,969
|
Set out below are the carrying
amounts of lease liabilities included under current and non-current
liabilities and the movements during the period:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
Property
leases
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Opening
lease liability
|
9,761
|
6,666
|
6,666
|
Additions
|
-
|
746
|
5,934
|
Accretion
of interest
|
165
|
99
|
205
|
Payments
|
(1,150)
|
(1,082)
|
(3,044)
|
Closing
lease liability
|
|
|
|
|
|
|
|
Current
lease liability
|
2,385
|
2,722
|
2,734
|
Non-current
lease liability
|
|
|
|
|
|
|
|
Softcat had no variable lease
expenses or income from sub-leases charged to the Statement of
profit or loss and other comprehensive income, nor any sale and
leaseback transactions.
Softcat has several lease contracts
that include termination options. These options are negotiated by
management to provide flexibility in managing the leased-asset
portfolio to align to business needs. Management exercise
significant judgement in determining whether these options are
reasonably certain to be exercised.
Set out below are the undiscounted
potential future rental payments relating to periods following the
exercise date of termination options that are not included in lease
term:
|
Within five
years
|
More than five
years
|
Total
|
As at 31 January 2024
(unaudited)
|
£'000
|
£'000
|
£'000
|
|
|
|
|
Termination options expected to be
exercised
|
|
|
|
|
|
|
|
|
Within five
years
|
More than five
years
|
Total
|
As at 31 January 2023
(unaudited)
|
£'000
|
£'000
|
£'000
|
|
|
|
|
Termination options expected to be
exercised
|
|
|
|
|
|
|
|
Following the lease modifications
above, the termination options on existing property leases were no
longer expected to be utilised.
Lease charges related to low value
and short-term leases recognised in the Statement of profit or loss
and Other comprehensive income was £nil in both periods.
7.
Trade and other
receivables
|
Six months
ended
31
January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Trade
receivables
|
432,161
|
486,326
|
429,569
|
Allowance
for expected credit losses
|
(3,718)
|
(5,767)
|
(3,920)
|
Net trade
receivables
|
|
|
|
Unbilled
receivables
|
37,476
|
35,132
|
34,508
|
Prepayments
|
4,147
|
3,910
|
6,344
|
Accrued
income
|
10,898
|
8,570
|
9,270
|
Deferred
costs
|
|
|
|
|
496,822
|
545,501
|
490,041
|
8.
Trade and other
payables
|
Six months
ended
31
January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Trade
payables
|
217,987
|
330,934
|
254,907
|
Other taxes
and social security
|
24,259
|
17,938
|
13,699
|
Accruals
|
107,025
|
88,994
|
90,222
|
Other
creditors
|
|
|
|
|
349,271
|
437,866
|
359,627
|
9.
Contract
liabilities
Deferred income is split
as:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Current
deferred income
|
36,278
|
27,275
|
23,851
|
Non-current
deferred income
|
|
|
|
|
42,505
|
30,701
|
26,883
|
Contract balances
Deferred income includes goods or
services to be delivered to customers by Softcat for which there is
a contractual obligation arising from receipt of consideration or
amounts due from the customer. The outstanding balances on these
accounts has moved in line with the activity of the business and
customer base. As at 31 January 2024, £42.5m remains on the
Statement of Financial Position as a contract liability. Softcat
expects that £36.3m of the balance as at 31 January 2024 will be
released in the following 12 months with the balance released
within 2-5 years. Of the £26.9m balance as at 31 July 2023, £12.0m
has been recognised in this period.
10.
Financial
instruments
The Company's principal financial
liabilities comprise trade and other payables including lease
liabilities. The primary purpose of these financial
liabilities is to finance the Company's operations. The Company has
trade and other receivables and cash that derive directly from its
operations.
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Financial
assets
|
|
|
|
The
financial assets of the Company were as follows:
|
|
|
|
|
|
|
|
Cash at
bank and in hand
|
112,455
|
97,722
|
122,621
|
Trade
receivables, other debtors and accrued income
|
|
|
|
|
589,273
|
621,983
|
592,048
|
Financial
liabilities
|
|
|
|
The
financial liabilities of the Company were as follows:
|
|
|
|
|
|
|
|
Trade
payables
|
(217,987)
|
(330,934)
|
(254,907)
|
Accruals
|
(107,025)
|
(88,994)
|
(90,222)
|
Lease
liabilities
|
(8,776)
|
(6,429)
|
(9,761)
|
|
|
|
|
The Directors consider that the
carrying amounts for all financial assets and liabilities
(excluding lease liabilities) approximate to their fair
value.
11.
Earnings per share
(EPS)
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
Earnings per
share
|
Unaudited
Pence
|
Unaudited
Pence
|
Audited
Pence
|
Basic
|
25.6
|
25.0
|
56.2
|
Diluted
|
25.5
|
25.0
|
56.0
|
The calculation of the earnings per
share and diluted earnings per share is based on the following
data:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Earnings
|
|
|
|
Earnings
for the purposes of EPS being profit for the period
|
51,047
|
49,843
|
112,029
|
The weighted average number of
shares is given below:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
000's
|
Unaudited
000's
|
Audited
000's
|
|
|
|
|
Number of
shares used for basic earnings per share
|
199,415
|
199,157
|
199,237
|
Number of
shares expected to be issued at nil consideration following
exercise of share options
|
1,127
|
499
|
922
|
Number of shares used for
diluted earnings per share
|
|
|
|
12.
Notes to the cash flow
statement
Reconciliation of operating
profit to net cash inflow from operating
activities
|
|
|
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
Operating
profit
|
66,731
|
63,071
|
140,898
|
Depreciation of property, plant and equipment
|
1,275
|
1,155
|
2,466
|
Depreciation of right-of-use assets
|
1,190
|
1,059
|
2,127
|
Amortisation of intangibles
|
722
|
763
|
1,525
|
Dividend
equivalents paid
|
(98)
|
(66)
|
(66)
|
Cost of
equity-settled employee share schemes
|
|
1,591
|
3,330
|
Operating cash flow before
movements in working capital
|
71,519
|
|
|
(Increase)/decrease in inventories
|
|
(2,053)
|
1,513
|
(Increase)/decrease in trade and other receivables
|
(6,781)
|
(4,077)
|
51,383
|
Increase/(decrease) in trade and other payables and contract
liabilities
|
|
|
|
Cash generated from
operations
|
70,280
|
75,718
|
134,595
|
Income
taxes paid
|
|
|
|
Net cash generated from
operating activities
|
|
|
|
13.
Share capital
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
Ordinary
shares of 0.05p each
|
100
|
100
|
100
|
Deferred
shares of 1p each
|
-
|
-
|
-
|
|
|
|
|
14.
Related party
transactions
Dividends to Directors
The following Directors, who served
as Directors for either the whole or part of the interim period,
were paid the following dividends:
|
Six months
ended
31 January
|
Year ended
31 July
|
|
|
|
|
|
|
|
|
Unaudited
£'000
|
Unaudited
£'000
|
Audited
£'000
|
|
|
|
|
M Hellawell
|
1,244
|
1,227
|
1,563
|
G Watt
|
32
|
23
|
32
|
G Charlton
|
40
|
33
|
44
|
K Mecklenburgh
|
-
|
-
|
-
|
R Perriss
|
4
|
4
|
6
|
V Murria
|
49
|
48
|
62
|
K Slatford
L Weedall
|
-
-
|
-
-
|
-
-
|
M
Prakash
J
Ferguson
|
-
-
|
-
-
|
-
-
|
|
|
|
|
Both Martin Hellawell and Karen
Slatford resigned in FY2023 but have been included in the above
table for completeness.
Mayank Prakash and Jacqui Ferguson
started their directorship during HY24 and therefore have been
included in the above table, they were not paid any dividends in
the period.
Except for the above, there were no
other significant related party transactions.
15.
Post balance sheet
events
Dividend
An interim dividend of 8.5p per
share, amounting to a total dividend of £17.0m was declared post
period end and is to be paid on 22 May 2024 to those on the share
register at the close of business on 12 April 2024.
INDEPENDENT REVIEW REPORT TO SOFTCAT
PLC
Conclusion
We have been engaged by the Company
to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 31 January
2024 which comprises the Condensed Statement of Profit or Loss and
Other Comprehensive Income, Condensed Statement of Financial
Position, Condensed Statement of Changes in Equity, Condensed
Statement of Cash Flows and Explanatory Notes 1 to 15. We have read
the other information contained in the half yearly financial report
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the six months ended 31 January 2024 is not prepared, in all
material respects, in accordance with UK adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct
Authority.
Basis for Conclusion
We conducted our review in
accordance with International Standard on Review Engagements 2410
(UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
As disclosed in notes 1 and 2, the
annual financial statements of the Company are prepared in
accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Conclusions Relating to Going Concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or
that management have identified material uncertainties relating to
going concern that are not appropriately disclosed.
This conclusion is based on the
review procedures performed in accordance with this ISRE, however
future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the directors
The directors are responsible for
preparing the half-yearly financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
In preparing the half-yearly
financial report, the directors are responsible for assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report,
we are responsible for expressing to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use
of our report
This report is made solely to the
Company in accordance with guidance contained in International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our work, for this report, or
for the conclusions we have formed.
Ernst & Young LLP
London
25 March 2024
Corporate Information
The Directors are responsible for
the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other
jurisdictions.
Directors
G Watt
G Charlton
K Mecklenburgh
R Perriss
V Murria
L Weedall
M Prakash
J Ferguson
Secretary
L Thomas
Company registration number
02174990
Softcat LEI
213800N42YZLR9GLVC42
Registered office
Solar House
Fieldhouse Lane
Marlow
Buckinghamshire
SL7 1LW
Auditor
Ernst & Young LLP
1 More London Place
London
SE1 2AF