REG - Softcat PLC - Half-year Report
22/03/2022 07:00
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RNS Number : 5226F Softcat PLC 22 March 2022
22 March 2022
SOFTCAT plc
("Softcat", the "Company")
Half Year Results for the six months to 31 January 2022
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 2022 ("the period"). The results reflect a period of profit growth
ahead of expectations and strong cash generation.
Financial Summary Six months ended
31 January 31 January
2022 2021 Growth
£m £m %
Revenue1 770.9 577.0 33.6
Gross invoiced income2 1,158.3 870.8 33.0
Gross profit 150.2 134.5 11.7
Operating profit 64.1 57.1 12.4
Cash conversion3 85% 88% n/a
Interim dividend (p) 7.3p 6.4p 14.1
Earnings per share (p) 26.2p 23.3p 12.4
Diluted earnings per share (p) 26.0p 23.2p 12.1
1 Revenue is reported under IFRS 15, the international accounting standard for
revenue. IFRS 15 requires finely balanced 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 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.
2 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 the CFO Review on page
6.
3 Cash conversion is defined as cash flow from operations before tax but after
capital expenditure, as a percentage of operating profit. This is also an
Alternative Performance Measure.
Highlights for the six months to 31 January 2022
· The Company delivered strong growth across all key income and
profit measures, despite very strong comparatives for the prior period and
whilst maintaining a high level of investment in future growth.
· The drivers of income growth have been broad-based, with good
progress made in all customer segments and across each of software, hardware
and services. This has been achieved against the backdrop of ongoing supply
chain challenges which remain manageable but are contributing to a relatively
modest backlog of hardware orders. This backlog is expected to gradually
unwind over the course of the Company's next financial year.
· Operating profit performance, ahead of expectations, was enhanced
in the period by Omicron-related cost constraints. While travel and events
spend is returning to normal levels as Covid restrictions ease, this has
happened at a slower pace than initially expected.
· Average headcount was up 10% on the prior period, with
recruitment across all areas of the business continuing into the second half.
· Average gross profit per customer was up 12.4% to £30.2k and
there was further growth in the customer base.
· Cash generation continues to be strong and in line with
expectations.
· An interim dividend of 7.3p per share, up 14.1%, will be paid on
13 May 2022 with the shares trading ex-dividend on 7 April 2022.
· Outlook: Operating profit in the first six months of the
financial year has been ahead of the Board's initial expectations. While the
current geopolitical and macroeconomic volatility make it more difficult to
forecast performance, because of the outperformance in the first half the
Board now believes that the outturn for the full year will be ahead of
previous estimates.
Graeme Watt, Softcat CEO, commented:
Before addressing the Company's progress and performance, I'd like to express
how deeply saddened we are by the humanitarian crisis in Ukraine. We draw
great strength and comfort from the way our employees are responding to help
and assist those who have been impacted by this crisis, and in parallel we are
closely evaluating and managing any business risks that may arise as events
further unfold. This includes supporting our customers against cyber risk as
we re-double our own defences. In addition, we are fully compliant with UK
government sanctions and monitoring the impact of the conflict on supply
chains. Most of all, we remain hopeful that peace can be restored to Ukraine
at the earliest possible opportunity and the appalling human suffering being
felt in the country can be ended.
Turning now to Softcat's business performance, the Company continued to
perform well across all areas of the business in the first half. Transaction
numbers grew strongly as we saw more customers emerge from the impacts of the
pandemic, and this drove a 12.4% expansion in gross profit per customer. All
customer segments made good progress which included an acceleration in our
enterprise business. Various industry data and commentary suggest the overall
market has maintained a mid-single digit growth rate which indicates that we
have continued to gain share.
Notwithstanding the very high bar we set during last year's exceptional first
half performance, these results preserve a run that now extends to sixty-six
consecutive quarters of year-on-year growth in gross invoiced income and
profit.
Our key external challenges continued to be the impact of the pandemic as well
as supply chain constraints. Our staff continued to take the various changes
in government COVID guidance in their stride and I am delighted with the way
they have been able to operate so effectively. From February 2022 we reverted
to our hybrid working policy and our people are enjoying being back together
in the office.
Component shortages have not worsened but nor have they improved so our order
backlog is building somewhat. However, the situation remains manageable and to
put things into perspective, only a portion of our hardware portfolio is
impacted. Hardware in total typically comprises 30-40% of our annual gross
invoiced income, so most of our business is unaffected.
We have continued to invest in our team, internal systems and the tools to
support growth, and this puts us in a strong position to deliver on future
opportunities. As many industries are currently reporting, the labour market
is challenging and recruitment is not getting any easier. Nevertheless,
average headcount increased by 10% on the prior year as we continued to invest
across all functions. We have now grown the workforce by 20% since the start
of the pandemic.
In our annual employee engagement survey, undertaken in November 2021, our
employee net promoter score was 52 (2021: 58) and remains at the consistently
high levels we have reported in recent years. We were also delighted to be
ranked 3rd for Wellbeing by the Great Places to Work Institute, testament to
the work everyone in the Company has put in to keep one another informed,
connected and motivated throughout the pandemic. Our people are very much
looking forward to the full resumption of our incentive trips and other events
as this calendar year progresses.
Our focus on being people and customer-led remains at the highest level. I
would like to offer our sincere thanks to all our customers and partners for
being such a pleasure to work with. And a big thank you must go to the entire
team at Softcat for these results. They have all performed brilliantly and I
am very proud of how we continue to work together and support each other.
Outlook
Operating profit in the first six months of the financial year has been ahead
of the Board's initial expectations. While the current geopolitical and
macroeconomic volatility make it more difficult to forecast performance,
because of the outperformance in the first half the Board now believes that
the outturn for the full year will be ahead of previous estimates.
Analyst and Investor call
The management team will host an investor and analyst conference call at
9.30am UK time, on Tuesday, 22 March 2022. To participate in the conference
call, please use the following access details:
Dial in Details:
UK Toll Free: 0800 376 7922
UK Local: +44 (0)20 7192 8000
Conference ID: 1264443
A live webcast of the presentation will be available at:
https://edge.media-server.com/mmc/p/9ortworn
(https://edge.media-server.com/mmc/p/9ortworn)
Please register approximately 10 minutes prior to the start of the call.
The announcement and presentation will be available at www.softcat.com
(https://protect-eu.mimecast.com/s/1-n1CqjlxiRwJv7TQMT7A?domain=softcat.com)
from 7.00am and 9.00am respectively.
Enquiries
Softcat plc: +44 (0)1628 403 610
Graeme Watt, Chief Executive Officer
Graham Charlton, 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.
Chief Executive Officer's Review
The strong performance we are reporting for the first half of 2022 has
exceeded our original expectations. Despite very tough comparatives for the
prior period, we delivered gross invoiced income (GII) growth of 33.0% with
gross profit growth up 11.7%, generating in turn operating profit expansion of
12.4%. Revenue, which is GII netted down to just the margin element for
cloud-based software and some other income streams, was up 33.6%.
Growth across all segments
It was again the nature of our growth that was most pleasing, with substantial
progress made across all customer segments. GII from enterprise customers grew
by 32.8% and mid-market was up 44.0%, the latter comprising some further large
projects from a major customer as well as strong double-digit growth from the
rest of that segment. Public sector customers paused for breath over the
summer of 2021, but performance accelerated in Q2 to deliver 14.8% GII growth
for the six-month period.
Our key technology segments of hardware, software and services all made good
progress as well, demonstrating that organisations are continuing to
prioritise spend on digital infrastructure. Enhancing customer and employee
experiences, managing distributed workforces in hybrid working environments,
and delivering productivity gains all remain high on the agenda. Cloud
migration continues to be a driver of growth and our customers need to protect
and secure their data. Challenges of component shortages in the supply chain
have led to a relatively modest increase in order backlog for some elements of
hardware, although we anticipate this will gradually unwind over the course of
our next financial year.
Well positioned for further growth
We are well positioned to assist our customers with the choice, complexity and
pace of change they face in making their IT infrastructure investments. The
breadth of our customer base, technology offering, and services all continue
to serve us well. We were able to grow gross profit per customer by 12.4% in
the period as we also continued to expand the customer base. Consistent with
prior periods, 94% of the gross profit generated in the first half came from
existing customers as they continue to invest and we demonstrate our value,
build trust and strengthen relationships over time. Gartner's latest forecasts
predict high single-digit annual growth in our addressable market through to
2025. We still have relatively low share and so the opportunity to grow
market share remains as compelling as ever.
We continue to invest in future growth by adding to our workforce and
developing and implementing new systems, tools and platforms. The challenges
in the labour market have been well-documented, but we nonetheless managed to
grow average headcount by 10% in the period. We have also taken steps to adapt
to the times including a substantial expansion of our apprentice programme
going forward and a review of remuneration across all parts of the business.
In addition, we have made excellent progress with our sales development
programme for new joiners.
Our systems projects continue to progress, and we have a robust plan of
further investments lined up in the areas of our own financial systems, our
public cloud offering, customer digital experience and service management.
We have made progress in other areas too, for example in the US, where we are
building a small multi-national team based in Arlington, Virginia, which
comprises both sales and operational staff. Their principal goal is to drive
incremental fulfilment opportunities with our UK customers who have operations
and needs in North America.
Acting on Sustainability and Diversity
The sustainability actions in place to achieve our 2040 net zero target are
progressing well. Our plan of near and long-term targets has been submitted
to the Science Based Targets initiative and we plan to have all our UK&I
offices operating from renewable energy by the end of the calendar year. We
have recently established a committee of the Board focussed on this area and
have made a commitment to the Task Force on Climate-related Financial
Disclosures (TCFD) compliance in our next annual report. We are also
developing a platform to help our customers understand and quantify their own
emissions related to both their IT infrastructure and other operations. We
expect sustainability considerations to become an integral part of the IT
procurement process and are looking to develop the role we play in bringing
together those solutions with the needs of customers.
I am pleased to see our diversity focus has led to a steady increase in our
gender diversity where women now make up 33% of the workforce (compared to 28%
four years ago). We have also added "community" as a fifth Company value which
reflects our belief in the power of people and encouraging collaboration, and
the empowering disability and neurodiversity network, added to our thriving
set of internal communities during last year, is making good progress with its
work on raising awareness and providing support.
All this progress and our financial results could not have been delivered
without the enormous commitment, positive attitude and determination that our
people bring to Softcat every day, so I would like to close by saying a simple
thank you and very well done to each and every person in our team.
Board committee composition
The Board is pleased to announce the appointment of Lynne Weedall as an
independent non-executive Director of the Company and chair of the
Remuneration Committee with effect from 3 May 2022.
Chief Financial Officer's Review
Financial Summary H1 FY22 H1 FY21 Growth
Revenue split
Software £259.7m £240.1m 8.2%
Hardware £451.5m £289.2m 56.1%
Services £59.7m £47.7m 25.2%
Total revenue £770.9m £577.0m 33.6%
Gross invoiced income split
Software £552.2m £461.6m 19.6%
Hardware £459.6m £293.9m 56.4%
Services £146.5m £115.3m 27.1%
Total gross invoiced income £1,158.3m £870.8m 33.0%
Gross profit £150.2m £134.5m 11.7%
Operating profit £64.1m £57.1m 12.4%
OP:GP margin 42.7% 42.4% 0.3% pts
Cash conversion 85% 88% n/a
Gross profit, revenue and gross invoiced income (GII)
The prior period contained some of the largest deals in the Company's history,
but a combination of strong underlying trading and further development of a
key account delivered double-digit growth in gross profit, our key financial
metric, which rose by 11.7% to £150.2m.
Revenue growth of 33.6% was closely matched to the 33.0% expansion in gross
invoicing. This reflects the competing impacts of a shift in mix back
towards hardware during the period, offset by the ongoing trend within
software towards SaaS / cloud-based solutions. The increase in hardware mix
was driven mainly by significant datacentre projects with a major customer.
Cloud-based SaaS solutions as well as third party services are recognised net
of product costs under IFRS 15. The Company continues to report on GII as well
as GAAP revenue since the former is most closely linked to working capital
movements and also provides insight to the relative gross spend by different
customer segments and across different technology areas. The IFRS 15
reconciliation between revenue and gross invoiced income is included in note 3
of this interim statement.
Gross profit margin, when measured against GII, of 13.0% was down on the prior
period (H1 2021: 15.4%). This mainly reflects the impact of large,
lower-margin transactions with a major customer during the current period when
compared to a handful of large, high-margin projects in the prior period.
Customer Metrics(1) H1 FY22 H1 FY21 Growth
Customer base (rolling 12-month basis) 9.7k 9.6k 0.6%
Gross profit per customer (rolling 12-month basis) £30.2k £26.9k 12.4%
(1)Customer base and the GP per customer are calculated on a twelve-month
rolling basis. This reflects the development of the business over an annual
cycle which is more closely aligned to customer budget cycles than a six-month
view. Customer base is defined as the number of customers who have
transacted with Softcat in both of the preceding twelve-month periods.
During the period, gross profit per customer grew by 12.4% to an annualised
£30.2k (H1 2021: £26.9k) and the customer base expanded by 0.6% to 9.7k (H1
2021: 9.6k). The combination of these effects has driven the gross profit
growth of 11.7% seen during the period.
The customer base is a measure of customers trading with the Company in two
consecutive twelve-month periods. The growth reported in the current period
is therefore impacted by the difficult conditions in the early part of the
pandemic when new customer acquisition was significantly more challenging
(i.e., the twelve months from 1 February 2020). New customer acquisition in
the most recent 12 months (i.e., from 1 February 2021) has been stronger but
will not be reflected in the customer base until next financial year.
Company analysis, using data from a number of sources (including Gartner, CRN
and IDC), suggests our market share continues to expand but remains below
4%. We serve approximately 1 in 5 customers in our target market with an
average share of wallet of c.20%. These numbers indicate that both facets of
our simple strategy, to win new customers and sell more to existing, continue
to offer huge opportunities for future growth.
Operating costs and operating profit
Operating profit of £64.1m (H1 2021: £57.1m) grew by 12.4%, reflecting the
11.7% increase in gross profit and 11.2% rise in operating costs. Investment
in people continues to be the main driver of cost growth and average headcount
was up 10% period-on-period, reflecting ongoing recruitment across all areas
of the business, as well as the impact of pay reviews. In addition, we have
begun to see the return of travel and events costs as the pandemic
restrictions begins to ease, although this has happened at a slower rate than
previously anticipated. We do expect this to accelerate during the second half
back to pre-pandemic levels.
The conversion of gross profit to operating profit remained very strong at
42.7%.
Corporation tax charge
The interim tax charge of £12.2m reflects an effective tax rate (ETR) of
19.0% (2021: 19.2%). The ETR varies marginally from the statutory rate in
the prior period due mainly to the impact of non-deductible expenses. The
effective statutory rate of 19.0% (2021: 19.0%) is in line with government
legislation at the reporting date.
Cash flow and cash conversion
The Company entered the year with a cash balance of £101.7m and paid an
aggregate final and special dividend of £69.5m in December 2021. The
Company has no external bank borrowings and ended the period with a cash
balance of £74.3m.
Cash flow from operations before tax but after capital expenditure was strong
during the reporting period at £54.5m, representing a cash conversion rate of
85.0% of operating profit, in line with historic performance.
The Company continues to target sustainable full year operating cash
conversion (after capital expenditure) in the range of 85-95% of operating
profits.
Dividend
The Board is pleased to declare an interim dividend of 7.3p per share (2021:
6.4p), amounting in total to £14.5m. The interim dividend will be payable
on 13 May 2022 to shareholders on the register at the close of business on 8
April 2022. Shares in the Company will be quoted ex-dividend on 7 April
2022. The last day for dividend reinvestment plan ("DRIP") elections is 21
April 2022.
Principal Risks and Uncertainties
Like most businesses, there is a range of risks and uncertainties facing the
Company. A summary is given below detailing the specific risks and
uncertainties that the Directors believe could have a significant effect on
the Company's financial performance.
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 matters referred to regarding seasonality in note 16 to the
Condensed Interim Financial Statements, and the comments made under the
heading "outlook" in the Chief Executive Officer's Review.
Risk Potential impacts Management & mitigation
BUSINESS STRATEGY
Customer dissatisfaction · Reputational damage · Graduate training programme
(slight increase in net risk from prior year) · Loss of competitive advantage · Ongoing vendor training for sales staff
· Annual customer survey with detailed follow-up on negative
responses
· Process for escalating cases of dissatisfaction to MD & CEO
Failure to evolve our technology offering with changing customer needs · Loss of customers · Processes in place to act on customer feedback about new
technologies
(no change in net risk) · Reduced profit per customer
· Training and development programme for all technical staff
· Regular business reviews with all vendors
· Sales specialist teams aligned to emerging technologies to
support general account managers
· Regular specialist and service offering reviews with senior
management
OPERATIONAL
Cyber and data security, including GDPR compliance · Inability to deliver customer services · Company-wide information security policy
(slight increase in net risk from prior year) · Reputational damage · Appropriate induction and training procedures for all staff
· Financial loss · External penetration testing programme undertaken
· ISO 27001 accreditation
· In-house technical expertise
· All employees issued with corporate devices with standardised
access monitoring and controls
Business interruption · Customer dissatisfaction · Operation of back-up operations centre and data centre platforms
(no change in net risk) · Business interruption · Established processes to deal with incident management, change
control, etc.
· Reputational damage
· Continued investment in operations centre management and other
· Financial loss resources
· Ongoing upgrades to network
· Regular testing of disaster recovery plans and business
continuity plans
Macroeconomic factors including the impacts of the conflict in Ukraine and the · Short-term supply chain disruption · Close dialogue with supply-chain partners
pandemic
· Reduced margins · Customer-centric culture
(increase in net risk)
· Reduced customer demand · Breadth of proposition and customer base
· Reduced profit per customer · Additional customer credit review processes introduced
· Customer base is well diversified in terms of both revenue
concentration but also public and commercial sector exposure
FINANCIAL
Profit margin pressure including rebates · Reduced margins · Ongoing training to sales and operations team to keep pace with
new vendor programmes
(no change in net risk)
· Rebate programmes are industry standard and not specific to the
Company
· Rebates form an important but only minority element of total
operating profits
PEOPLE
Culture change · Reduced staff engagement · Culture embedded in the organisation over a long history
(slight increase in net risk from prior year) · Negative impact on customer service · Branch structure with empowered local management
· Loss of talent · Quarterly staff satisfaction survey with feedback acted upon
· Regular staff events and incentives
· Enhanced internal communication processes and events
Poor leadership · Lack of strategic direction · Succession planning process
(no change in net risk) · Deteriorating vendor relationships · Experienced and broad senior management team
· Reduced staff engagement
In our consideration of emerging risks, climate change is identified as an
area requiring greater analysis. This is already a component of the risk
'Failure to evolve our technology offering with changing customer needs',
particularly in respect of how customer demand might be affected by the drive
towards carbon neutrality. Further analysis of climate change will take into
account the potential impact on our business and its supply chain. Our
analysis will support more comprehensive future reporting in line with the
Task Force on Climate-related Financial Disclosures (TCFD).
These risks and uncertainties have not changed significantly since those
published in the 31 July 2021 Annual Report in October 2021. The Company
continues to monitor the impact of Covid-19, as discussed within the Chief
Executive Officer's Review, above. Further information on the risks can be
found on pages 30 to 35 of Softcat's 2021 Annual Report and Accounts, which is
available at
https://www.softcat.com/about-us/investor-centre/shareholder-information
(https://www.softcat.com/about-us/investor-centre/shareholder-information)
Going Concern
As stated in note 2 to the Condensed Interim Financial Statements, 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 2023.
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 2023; 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.
Softcat continues to monitor the operational effects of the Covid-19 pandemic
and update base case plans to reflect current circumstances for the going
concern period. In modelling the assumptions for going concern assessments,
the Directors remain positive about the market and the potential for Softcat
to continue to grow market share. Softcat operates in a resilient industry and
its customer base incorporates a large volume of non-discretionary spend from
UK corporates as IT has become vital to establish competitive advantage in an
increasingly digital age.
Softcat continues to model its base case and severe but plausible scenarios,
as well as stress testing the limits of Softcat.
Base case
The key assumptions in the base case going concern forecast model for the
period to 31 March 2023 and beyond are as follows:
- Revenue and GII growth to be in line with the first two quarters
of FY22, when removing the impact of large, one off deals;
- Gross margin, rebate income, debtor days, and bad debt continue
to be in line with the year so far, adjusted for seasonal variations;
- Payroll costs to increase as a result of continued investment in
headcount;
- Travel and staff costs to return to pre-pandemic levels in H2
and to be maintained for a full year in FY23;
- Other operating costs to broadly follow patterns experienced
over the last 12 months; and
- Dividend payments relating to FY22.
Severe but plausible
Although, at present, the impacts of Covid 19 are minimal, management continue
to be cautious with respect to the number of businesses which have received
government support and may not be able to continue trading in the medium term
following the removal of this support. Management also notes the recent
developments between Russia and Ukraine and the wider economic impacts this
may have on areas such as energy costs and upward pressure on inflation.
Softcat has modelled the possible downside of these scenarios and analysed
remedial action required to ensure that the Company can remain cash positive
without external debt. Mitigating action under all current models for a
short-term solution is to adjust the dividend paid out. This ensures Softcat
can continue operationally and maintain cash above minimum accepted levels
determined by the Board. Cost reduction initiatives would also be considered
if these modelled scenarios were to crystallise.
Reverse stress testing
A reverse stress test has also been performed and mitigating actions have been
analysed. These scenarios and tests do not give management or the Directors
cause for concern because the probability of them occurring is deemed to be
extremely remote and actions are available to the Directors to remedy.
Liquidity and financing position
As at 31 January 2022, the Company held instantly accessible cash and cash
equivalents of £74.3m, while net current assets were £143.8m. The Company
has been and anticipates to be debt free through the period under review. This
does not raise cause for concern, nor do management anticipate needing to
obtain external funding for at least 12 months post report date.
Going concern conclusion
The Directors consider that the Company has significant liquidity headroom to
continue in operational existence for the going concern period to 31 March
2023. Accordingly, at the March 2022 Board meeting, the Directors concluded
from this analysis it was appropriate to continue to adopt the going concern
basis in preparing the interim report. The macroeconomic environment continues
to be uncertain and will continue to be carefully monitored by management.
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.
Graeme Watt Graham Charlton
Chief Executive Officer Chief Financial Officer
21 March 2022 21 March 2022
Condensed Statement of profit or loss and other comprehensive income
For the six months ended 31 January 2022
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
Note
£'000 £'000 £'000
Revenue 3 770,933 576,988 1,156,667
Cost of sales (620,722) (442,524) (880,309)
Gross profit 150,211 134,464 276,358
Administrative expenses (86,078) (77,400) (156,942)
Operating profit 64,133 57,064 119,416
Finance income 6 24 28
Finance cost 66 (138) (477)
Profit before taxation 64,205 56,950 118,967
Income tax expense 4 (12,181) (10,716) (22,782)
Profit and total comprehensive income for the period 52,024 46,234 96,185
Profit attributable to:
Owners of the Company 52,024 46,234 96,185
Basic earnings per Ordinary Share (pence) 11 26.2 23.3 48.4
Diluted earnings per Ordinary Share (pence) 11 26.0 23.2 48.2
All results are derived from continuing operations.
Condensed Statement of Financial Position
As at 31 January 2022
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
Note
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 11,812 12,783 11,753
Right-of-use assets 6 6,550 7,572 7,022
Intangible assets 6,696 2,696 5,202
Deferred tax asset 2,511 2,516 3,149
27,569 25,567 27,126
Current assets
Inventories 44,367 13,583 38,411
Trade and other receivables 7 405,189 284,143 329,666
Cash and cash equivalents 74,283 71,245 101,724
Income tax receivable 459 148 432
524,298 369,119 470,233
Total assets 551,867 394,686 497,359
Current liabilities
Trade and other payables 8 (362,919) (230,348) (293,528)
Contract liabilities 9 (14,907) (11,509) (12,759)
Lease liabilities 6 (2,684) (2,480) (2,598)
(380,510) (244,337) (308,885)
Non-current liabilities
Contract liabilities 9 (3,088) (3,730) (3,626)
Lease liabilities 6 (5,145) (6,214) (5,704)
(8,233) (9,944) (9,330)
Net assets 163,124 140,405 179,144
Equity
Issued share capital 13 100 100 100
Share premium account 4,979 4,979 4,979
Reserves for own shares - - -
Retained earnings 158,045 135,326 174,065
Total equity 163,124 140,405 179,144
Condensed Statement of Changes in Equity (unaudited)
Share capital Share premium Reserves for own shares Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 1 August 2021 100 4,979 - 174,065 179,144
Total comprehensive income for the period - - - 52,024 52,024
Share-based payment transactions - - - 1,416 1,416
Dividends paid - - - (69,469) (69,469)
Dividend equivalents paid - - - (214) (214)
Tax adjustments - - - (84) (84)
Other - - - 307 307
Balance at 31 January 2022 100 4,979 - 158,045 163,124
Balance at 1 August 2020 100 4,979 - 135,668 140,747
Total comprehensive income for the period - - - 46,234 46,234
Share-based payment transactions - - - 1,113 1,113
Dividends paid - - - (48,081) (48,081)
Dividend equivalents paid - - - (81) (81)
Tax adjustments - - - 492 492
Other - - - (19) 1,594
Balance at 31 January 2021 100 4,979 - 135,326 140,405
Condensed Statement of Cash Flows
For the six months ended 31 January 2022
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
Note
£'000 £'000 £'000
Net cash generated from operating activities 12 46,168 44,076 91,252
Investing activities
Finance income 6 24 28
Purchase of property, plant and equipment (1,242) (2,060) (2,265)
Purchase of intangible assets (1,572) (1,569) (4,199)
Net cash used in investing activities (2,808) (3,605) (6,426)
Financing activities
Issue of share capital - - -
Dividends paid 5 (69,469) (48,081) (60,815)
Payment of principal portion of lease liabilities (1,206) (1,146) (2,125)
Payment of interest portion of lease liabilities (126) (138) (291)
Net cash used in financing activities (70,801) (49,365) (63,231)
Net (decrease)/increase in cash and cash equivalents (27,441) (8,894) 21,585
Cash and cash equivalents at beginning of period 101,724 80,139 80,139
Cash and cash equivalents at end of period 74,283 71,245 101,724
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 2022 ("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 21 March 2022. 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 2021, which have prepared in accordance with accounting
standards in conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European Union. The Annual Report and
Financial Statements for the year ended 31 July 2021 were approved by the
Board of Directors on 25 October 2021 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 2021.
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 2023.
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 2023; 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.
Softcat continues to monitor the operational effects of the Covid-19 pandemic
and update base case plans to reflect current circumstances for the going
concern period. In modelling the assumptions for going concern assessments,
the Directors remain positive about the market and the potential for Softcat
to continue to grow market share. Softcat operates in a resilient industry and
its customer base incorporates a large volume of non-discretionary spend from
UK corporates as IT has become vital to establish competitive advantage in an
increasingly digital age.
Softcat continues to model its base case and severe but plausible scenarios,
as well as stress testing the limits of Softcat.
Base case
The key assumptions in the base case going concern forecast model for the
period to 31 March 2023 and beyond are as follows:
- Revenue and GII growth to be in line with the first two quarters
of FY22, when removing the impact of large, one off deals;
- Gross margin, rebate income, debtor days, and bad debt continue
to be in line with the year so far, adjusted for seasonal variations;
- Payroll costs to increase as a result of continued investment in
headcount;
- Travel and staff costs to return to pre-pandemic levels in H2
and to be maintained for a full year in FY23;
- Other operating costs to broadly follow patterns experienced
over the last 12 months; and
- Dividend payments relating to FY22.
Severe but plausible
Although, at present, the impacts of Covid 19 are minimal, management continue
to be cautious with respect to the number of businesses which have received
government support and may not be able to continue trading in the medium term
following the removal of this support. Management also notes the recent
developments between Russia and Ukraine and the wider economic impacts this
may have on areas such as energy costs and upward pressure on inflation.
Softcat has modelled the possible downside of these scenarios and analysed
remedial action required to ensure that the Company can remain cash positive
without external debt. Mitigating action under all current models for a
short-term solution is to adjust the dividend paid out. This ensures Softcat
can continue operationally and maintain cash above minimum accepted levels
determined by the Board. Cost reduction initiatives would also be considered
if these modelled scenarios were to crystallise.
Reverse stress testing
A reverse stress test has also been performed and mitigating actions have been
analysed. These scenarios and tests do not give management or the Directors
cause for concern because the probability of them occurring is deemed to be
extremely remote and actions are available to the Directors to remedy.
Liquidity and financing position
As at 31 January 2022, the Company held instantly accessible cash and cash
equivalents of £74.3m, while net current assets were £143.8m. The Company
has been and anticipates to be debt free through the period under review. This
does not raise cause for concern, nor do management anticipate needing to
obtain external funding for at least 12 months post report date.
Going concern conclusion
The Directors consider that the Company has significant liquidity headroom to
continue in operational existence for the going concern period to 31 March
2023. Accordingly, at the March 2022 Board meeting, the Directors concluded
from this analysis it was appropriate to continue to adopt the going concern
basis in preparing the interim report. The macroeconomic environment continues
to be uncertain and will continue to be carefully monitored by management.
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 2021 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 6
months of the financial year to 31 July 2022, nor in the months to the date of
publication of this interim report, other than the below.
Changes to accounting standards
There have been no new standards effective in the period to 31 January 2022,
that materially affect Softcat. Outside of the recent Interpretations
Committee tentative decision discussed below, there are no further changes
that will materially affect Softcat based on existing standards.
IFRS 15 Interpretations Committee tentative decision
In November 2021, the IFRS Interpretation Committee (IC) responded to an
industry request to clarify whether a company should recognise revenue from
the resale of standard software licenses on a gross or net basis under IFRS
15.
In its initial tentative agenda decision, the IFRS IC did not provide a direct
clarification on the topic, as they stated that the specifics of each case may
vary and must be analysed in detail. However, the IFRS IC provided further
guidance on the "control" criteria which determine whether revenue is
recognised on a gross or net basis under IFRS 15. The staff paper, the
discussions within the IFRS IC and the tentative agenda decision indicate
support of revenue recognition on a net basis.
The IFRS IC tentative agenda decision was open for public comment with a
deadline of 8 February 2022 and a final decision is not expected to be issued
before second quarter of 2022. Softcat currently recognises cloud-hosted or
security software revenue on a "net" basis with the remaining software revenue
recorded on a "gross" basis. Softcat is waiting for final guidance from the
IFRS IC before determining whether to change its accounting policy on this
portion of revenue.
If Softcat were to change its accounting policy to recognise revenue from the
sale of standard software on a "net" basis, where it is currently recorded
"gross", our current best estimate of the impact on Softcat's financial
statements is:
• Revenue and cost of sales would decrease by a further £177.7m on top of
the current IFRS 15 software adjustment net down (an additional £165.8m in H1
2021 and £347.4m in FY21).
• Gross profit, operating profit, and profit before and after taxes will be
unchanged in all periods.
Gross invoiced income £'000 Income made net by IFRS 15 £'000 Revenue as reported IFRS 15 £'000 Estimated increase in net down £'000 Estimated revised revenue £'000
6 months to 31 January 2022 552,183 (292,462) 259,722 (177,672) 82,050
6 months to 31 January 2021 461,633 (221,539) 240,094 (165,775) 74,319
Year ended 31 July 2021 1,109,198 (608,140) 501,058 (347,444) 153,614
The estimates are preliminary and subject to further management review and
will be reconsidered following release of the final decision by the IFRS IC.
Adjusted 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, set out below, assist in
providing additional useful information on the underlying trends, sales
performance and position of the Company. 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.
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 of gross invoiced income and
cash conversion.
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.
Cash conversion ratio comprises of cash flows from operations net of capital
expenditure as a percentage of operating profit. A reconciliation to the
adjusted measure for cash conversion is provided below.
Six months ended Year ended
31 January 31 July
Cash generated from operations 2022 2021 2021
Unaudited Unaudited Audited £'000
£'000 £'000
Cash generated from operations 57,323 53,939 113,797
Purchase of property, plant and equipment (1,242) (2,060) (2,265)
Purchase of intangible assets (1,572) (1,569) (4,199)
Cash generated from operations, net of capital expenditure 54,509 50,310 107,233
Operating Profit 64,133 57,064 119,416
Cash conversion ratio 85.0% 88.2% 89.9%
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 Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue by type
Software 259,722 240,094 501,058
Hardware 451,510 289,170 556,472
Services 59,701 47,724 99,137
770,933 576,988 1,156,667
Gross invoiced income by type
Software 552,183 461,633 1,109,198
Hardware 459,627 293,909 566,305
Services 146,531 115,274 262,937
1,158,341 870,816 1,938,440
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue by type of business
Small and medium 503,110 348,106 635,511
Enterprise 146,624 111,928 237,649
Public sector 121,199 116,954 283,507
770,933 576,988 1,156,667
Gross invoiced income by type of business
Small and medium 643,312 446,680 839,398
Enterprise 206,495 155,481 336,013
Public sector 308,534 268,655 763,029
1,158,341 870,816 1,938,440
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 Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Gross invoiced income 1,158,341 870,816 1,938,440
Income recognised as agent under IFRS 15 (387,408) (293,828) (781,773)
Revenue 770,933 576,988 1,156,667
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.
During the period, there was one direct customer (H1 2021: none) that
individually accounted for greater than 10% of both the Company's total
revenue and gross invoiced income, and a considerably lower proportion of
Gross Profit. Gross invoiced income and revenue generated from this customer
in H1 2022 was £184.4m and £167.3m, respectively (H1 2021: £78.6m and
£72.5m).
4. Taxation
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Current Tax
Current period 12,232 10,849 22,909
Adjustment in respect of current income tax in previous years. - (138) 80
Deferred Tax
Temporary differences (51) 5 (207)
Total tax charge for the period 12,181 10,716 22,782
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 2022. On this
basis, the Company's tax charge was £12.2m (H1 2021: £10.7m). The
applicable statutory tax rate for the full year is 19.0% (H1 2021: 19.0%)
following enacted government legislation. Following adjusting items which
relate to client entertaining and non-qualifying depreciation, the effective
tax rate is 19.0% (H1 2021: 18.8%).
5. Dividends
Six months ended Year ended
31 January 31 July
2022 2021 2021
Declared and paid during the period Unaudited Unaudited Audited
£'000 £'000 £'000
Interim dividend - - 12,734
Final dividend 28,663 32,981 32,981
Special dividend 40,806 15,100 15,100
69,469 48,081 60,815
An interim dividend of 7.3p per share, amounting to a total dividend of
£14.5m, was declared post period end and is to be paid on 13 May 2022 to
those on the share register on 8 April 2022.
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 Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Property leases
Opening right-of-use asset 7,022 8,698 8,698
Additions 734 - 587
Depreciation (1,206) (1,126) (2,263)
Closing right-of-use asset 6,550 7,572 7,022
The weighted average incremental borrowing rate as used for the period is
2.7%.
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 Year ended
31 January 31 July
Property leases 2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Opening lease liability 8,302 9,839 9,839
Additions 734 - 588
Accretion of interest 126 138 291
Payments (1,333) (1,283) (2,416)
Closing lease liability 7,829 8,694 8,302
Current lease liability 2,684 2,480 2,598
Non-current lease liability 5,145 6,214 5,704
7,829 8,694 8,302
Softcat had no variable leases 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 2022 (unaudited) £'000 £'000 £'000
Termination options expected to be exercised 3,802 1,854 5,656
3,802 1,845 5,656
Within five years More than five years Total
As at 31 January 2021 (unaudited) £'000 £'000 £'000
Termination options expected to be exercised 2,833 3,051 5,884
2,833 3,051 5,884
Lease charges related to low value and short-term leases recognised in the
Statement of profit or loss and other comprehensive income for the period was
£Nil.
7. Trade and other receivables
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Trade receivables 365,826 260,705 300,058
Allowance for expected credit losses (3,514) (2,929) (3,415)
Net trade receivables 362,312 257,776 296,643
Unbilled receivables 18,951 6,561 10,500
Prepayments 4,540 2,534 3,584
Accrued income 8,641 8,238 8,171
Deferred costs 10,745 9,034 10,768
405,189 284,143 329,666
8. Trade and other payables
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Trade payables 232,550 164,068 220,305
Other taxes and social security 22,483 18,036 12,378
Accruals 107,886 48,244 60,845
362,919 230,348 293,528
9. Contract liabilities
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Deferred income 17,995 15,239 16,385
17,995 15,239 16,385
Deferred income is split as:
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Current deferred income 14,907 11,509 12,759
Non-current deferred income 3,088 3,730 3,626
17,995 15,239 16,385
Contract balances
Deferred income includes short-term and long-term 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 2022, £18.0m remains on the
Statement of Financial Position as a contract liability. Softcat expects that
£14.9m of the balance as at 31 January 2022 will be released in the following
12 months with the balance released within 2-5 years of the end of 31 January
2022. Of the existing balance as at 31 July 2021, £9.0m has been recognised
in FY22.
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 Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Financial assets
The financial assets of the Company were as follows:
Cash at bank and in hand 74,283 71,245 80,139
Trade receivables, other debtors and accrued income 389,904 272,575 304,478
464,187 343,820 384,617
Financial liabilities
The financial liabilities of the Company were as follows:
Trade payables (232,550) (164,068) (198,171)
Accruals (107,886) (48,244) (48,896)
Lease liabilities (7,829) (8,694) (9,839)
(348,265) (221,006) (252,906)
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 Year ended
31 January 31 July
2022 2021 2021
Earnings per share Unaudited Unaudited Audited
Pence Pence Pence
Basic 26.2 23.3 48.4
Diluted 26.0 23.2 48.2
The calculation of the earnings per share and diluted earnings per share is
based on the following data:
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Earnings
Earnings for the purposes of EPS being profit for the period 52,024 46,234 96,185
The weighted average number of shares is given below:
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
000's 000's 000's
Number of shares used for basic earnings per share 198,873 198,423 198,559
Number of shares deemed to be issued at nil consideration following exercise 844 978 884
of share options
Number of shares used for diluted earnings per share 199,717 199,401 199,443
12. Notes to the cash flow statement
Reconciliation of operating profit to net cash inflow from operating
activities
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Operating profit 64,133 57,064 119,416
Depreciation of property, plant and equipment 1,182 1,174 2,332
Depreciation of right-of-use assets 1,206 1,126 2,263
Amortisation of intangibles 78 175 297
Loss on disposal of fixed assets - - 76
Dividend equivalents paid (214) (81) (196)
Cost of equity-settled employee share schemes 1,416 1,113 2,267
Operating cash flow before movements in working capital 67,801 60,571 126,455
Increase in inventories (5,956) (1,839) (26,667)
(Increase)/Decrease in trade and other receivables (75,523) 29,979 (15,544)
Increase/(Decrease) in trade and other payables and contract liabilities 71,001 (34,772) 29,553
Cash generated from operations 57,323 53,939 113,797
Income taxes paid (11,155) (9,863) (22,545)
Net cash generated from operating activities 46,168 44,076 91,252
13. Share capital
Six months ended Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
Ordinary shares of 0.05p each 100 100 100
Deferred shares of 1p each - - -
100 100 100
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 Year ended
31 January 31 July
2022 2021 2021
Unaudited Unaudited Audited
£'000 £'000 £'000
M Hellawell 1,466 1,286 1,555
G Watt 12 - -
G Charlton 29 12 17
R Perriss 5 4 5
V Murria 58 40 51
K Slatford - - -
1,570 1,342 1,628
Except for the above, there were no other significant related party
transactions.
15. Post balance sheet events
Dividend
An interim dividend of 7.3p per share, amounting to a total dividend of
£14.5m was declared post period end and is to be paid on 13 May 2022 to those
on the share register on 8 April 2022.
16. Seasonality of operations
Historically, revenue and profits have been marginally higher in the second
half of the year than in the first six months. This is principally driven by
customer buying behaviour in the markets in which we operate. This increased
weighting in the second half of the year has traditionally resulted in higher
operating profit in the second half of the financial year. Customer buying
behaviour is again expected to follow these patterns in the current year.
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 2022 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 16. 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 2022 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 and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. 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 note 1 and 2, the annual financial statements of the Company
will be 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".
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.
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 is 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 and
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. 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
21 March 2022
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
M Hellawell
G Watt
G Charlton
R Perriss
V Murria
K Slatford
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
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