Softcat Plc – Half-year Report

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.

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.