REG - Softcat PLC - Half-year Report
26/03/2024 07:00
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RNS Number : 2328I Softcat PLC 26 March 2024
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
(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
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 £96.2m £83.6m 15.0%
Hardware £273.1m £330.9m (17.5%)
Services £97.9m £97.9m 0.1%
Total revenue £467.2m £512.4m (8.8%)
Gross invoiced income split
Software £769.5m £687.4m 11.9%
Hardware £275.6m £334.6m (17.6%)
Services £218.4m £192.7m 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 · Loss of competitive advantage · Insight from ongoing industry analysis and subscriptions input
disintermediation, competitor landscape and customer needs
into annual strategy process
· Reduced number of customers and profit per customer
(no change in net risk)
· 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 · Reputational damage · Dedicated Customer experience team, who manage and escalate
customer dissatisfaction cases
(no change in net risk) · Loss of customers
· ISO20000-1 IT Service Management and ISO-9001 Quality management
· Financial penalties certified
· Ongoing customer service excellence training
· 'Big-deal review' process
Cyber security risk & business interruption risk · Inability to deliver customer services · ISO27001 accredited processes. Company-wide information security
policy and mandatory security-related training
(no change in net risk) · Reputational damage
· Regular testing of disaster recovery plans and business
· Financial loss continuity plans
· Customer dissatisfaction · 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 · Short-term supply chain disruption · Customer base is well diversified in terms of both revenue
pressures, interest and foreign currency volatility
concentration but also public and commercial sector exposure
· Reduced margins
(no change in net risk)
· Close dialogue with supply chain partners
· Reduced customer demand
· Annual budget considers the operating profit growth expectations
· Reduced profit per customer of the markets
· Higher operating costs · Operating costs are budgeted and reviewed regularly
· Customer insolvencies and cash collection challenges · Going concern and viability statements are underpinned by robust
analysis of scenarios
Ineffective working capital management · Increased bad debts · Robust credit assessment process including use of trade credit
insurance
(no change in net risk) · Increased cost of operations
· 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 · Uncompetitive pricing leading to loss of business · Budgeting process and regular reviews ensure costs are managed
cost base compared to gross profit generated
appropriately and in consideration of gross profit growth Any out of budget
· Reduced profitability/margins spend needs management level approval
(no change in net risk)
· 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 · Reduced staff engagement · Culture sits at the heart of all changes that are made in
Softcat. There is regular communication from Senior Leadership Team members
(no change in net risk) · Negative impact on customer service to employees at 'Kick off' and 'All Hands' calls about the importance of
culture
· Loss of talent
· 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 · Lack of strategic direction · Succession planning process in place
(no change in net risk) · Reduced staff engagement · Experienced and broad senior management team
· Loss of talent · Investment in robust recruitment and selection processes
· Loss of competitive advantage · Attrition tracked and action taken as necessary
REGULATORY AND COMPLIANCE
Compliance with existing regulation/legislation and being prepared for · Financial penalties · Presence of a second line function (Governance Risk &
emerging regulation/legislation
Control, Information Security, Legal and Company Secretarial)
· Reputational damage
(no change in net risk)
· Management committee in place to review second line progress and
· Loss of customers 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 (270,638) (335,351) (611,466)
Gross profit 196,514 177,054 373,834
Administrative expenses (129,783) (113,983) (232,936)
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 (17,169) (13,280) (29,835)
Profit for the period 51,047 49,843 112,029
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 2 (148) (204)
Total other comprehensive income/(loss)
679
(148)
(1,003)
Total comprehensive income for the period 51,726 49,695 111,026
Profit attributable to:
Owners of the Company 51,047 49,843 112,029
Total comprehensive income attributable to:
Owners of the Company 51,726 49,695 111,026
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 Year ended
31 January 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 2,623 2,306 2,997
30,705 26,896 31,469
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 2,184 1,415 -
615,453 651,795 616,253
Total assets 646,158 678,691 647,722
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 (2,385) (2,722) (2,734)
(387,934) (467,863) (386,218)
Non-current liabilities
Contract liabilities 9 (6,227) (3,426) (3,032)
Lease liabilities 6 (6,391) (3,707) (7,027)
(12,618) (7,133) (10,059)
Net assets 245,606 203,695 251,445
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 237,289 195,202 243,807
Total equity 245,606 203,695 251,445
Condensed Statement of Changes in Equity (unaudited)
Share capital Share premium Translation reserve Cash flow hedge reserve Retained earnings Total
£'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 - - (148) - 49,843 49,695
Share-based payment transactions - - - - 1,591 1,591
Dividends paid - - - - (58,220) (58,220)
Dividend equivalents paid - - - - (66) (66)
Tax adjustments - - - - (104) (104)
Other - - - - (301) (301)
Balance at 31 January 2023 100 4,979 3,414 - 195,202 203,695
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 100 4,979 3,360 (122) 237,289 245,606
Condensed Statement of Cash Flows
For the six months ended 31 January 2024
Six months ended Year ended
31 January 31 July
2024 2023 2023
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 (2,115) (361) (701)
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 (165) (99) (205)
Net cash used in financing activities (60,219) (59,302) (77,219)
Net (decrease)/increase in cash and cash equivalents (10,168) 554 25,509
Exchange gains/(losses) on cash and cash equivalents 2 (148) (204)
Cash and cash equivalents at beginning of period 122,621 97,316 97,316
Cash and cash equivalents at end of period 112,455 97,722 122,621
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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited
£'000 £'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 67,483 74,304 131,350
66,731 63,071 140,898
Operating profit
Cash conversion ratio 101.1% 117.8% 93.2%
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
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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
467,152 512,405 985,300
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
1,263,470 1,214,728 2,563,308
Six months ended Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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
467,152 512,405 985,300
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
1,263,470 1,214,728 2,563,308
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
2024 2023 2023
Unaudited Unaudited Audited £'000
£'000 £'000
Gross invoiced income 1,263,470 1,214,728 2,563,308
Income recognised as agent under IFRS 15 (796,318) (702,323) (1,578,008)
Revenue 467,152 512,405 985,300
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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 17,169 13,280 29,835
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 Year ended
31 January 31 July
2024 2023 2023
Declared and paid during the period Unaudited Unaudited Audited
£'000 £'000 £'000
Interim dividend - - 15,955
Final dividend 33,956 33,098 33,098
Special dividend 25,113 25,122 25,122
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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Property leases
Opening right-of-use asset 9,970 6,162 6,162
Additions - 746 5,934
Depreciation (1,191) (1,059) (2,127)
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 Year ended
31 January 31 July
Property leases 2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 8,776 6,429 9,761
Current lease liability 2,385 2,722 2,734
Non-current lease liability 6,391 3,707 7,027
8,776 6,429 9,761
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 4,951 704 5,655
4,951 704 5,655
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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Trade receivables 432,161 486,326 429,569
Allowance for expected credit losses (3,718) (5,767) (3,920)
Net trade receivables 428,443 480,559 425,649
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 15,858 17,330 14,270
496,822 545,501 490,041
8. Trade and other payables
Six months ended Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 - - 799
349,271 437,866 359,627
9. Contract liabilities
Deferred income is split as:
Six months ended Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'000
Current deferred income 36,278 27,275 23,851
Non-current deferred income 6,227 3,426 3,032
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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 476,818 524,261 469,427
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)
(333,788) (426,357) (354,890)
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
2024 2023 2023
Earnings per share Unaudited Unaudited Audited
Pence Pence 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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 Year ended
31 January 31 July
2024 2023 2023
Unaudited Unaudited Audited
000's 000's 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 1,127 499 922
of share options
Number of shares used for diluted earnings per share 200,542 199,656 200,159
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
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 1,699 1,591 3,330
Operating cash flow before movements in working capital 71,519 67,573 150,280
(Increase)/decrease in inventories (401) (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 5,943 14,275 (68,581)
Cash generated from operations 70,280 75,718 134,595
Income taxes paid (19,082) (14,600) (29,793)
Net cash generated from operating activities 51,198 61,118 104,802
13. Share capital
Six months ended Year ended
31 January 31 July
2024 2023 2023
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
2024 2023 2023
Unaudited Unaudited Audited
£'000 £'000 £'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 - - -
1,369 1,335 1,707
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
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