Half Year Results for the six months to 31 January 2023
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 2023 (“the period”). The results reflect income and profit performance ahead of expectations, coupled with strong cash generation.
| Financial Summary | Six months ended | ||
| 31 January | 31 January | ||
| 2023 | 2022 4 | Growth | |
| £m | £m | % | |
| Revenue 1 | 512.4 | 577.8 | (11.3%) |
| Gross invoiced income 2 | 1,214.7 | 1,158.3 | 4.9% |
| Gross profit | 177.1 | 150.2 | 17.9% |
| Operating profit | 63.1 | 64.1 | (1.7%) |
| Cash conversion 3 | 117.8% | 85.0% | 32.8%pts |
| Interim dividend (p) | 8.0p | 7.3p | 9.6% |
| Earnings per share (p) | 25.0p | 26.2p | (4.5%) |
| Diluted earnings per share (p) | 25.0p | 26.0p | (4.0%) |
1 Revenue is reported under IFRS 15, the international accounting standard for revenue. IFRS 15 requires finely balanced judgements to be made to determine whether Softcat acts as principal or agent in certain trading transactions. These judgements, coupled with slight variations of business models 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.
4 The half year ended 31 January 2022 revenue and cost of sales have been restated where relevant in line with the change in accounting policy – IFRS 15 Revenue from Contracts with Customers, treatment of software revenue as agent revenue. Further information can be found in Note 2, Accounting policies, Change in Accounting Policies – IFRS 15.
Highlights for the six months to 31 January 2023
· Growth in gross profit (GP), our key measure of income, was very strong at 17.9% and ahead of expectations despite a very challenging set of comparative numbers which included several one-off, high value transactions with a major customer.
· Operating profit was also ahead of expectations due to the strong GP performance and, as a result, only marginally below the record achieved in H1 last year, despite the return of pre-pandemic travel and events costs and further significant investment in our people.
· Gross invoiced income (GII) was up 4.9%, reflecting the impact of the high value, low margin hardware business secured with a single customer in the prior period.
· Revenue, which is GII netted down to just the margin element of software and some service income streams (see Note 3 to the Condensed Interim Financial Statements), was below the prior year due also to the reduction in hardware income from the prior period’s largest customer.
· Performance and growth drivers have again been broad-based, with strong growth seen across all customer segments and areas of technology once the impact of the prior period’s largest customer is adjusted for.
· Closing headcount was up 21.1% on the prior period as we continue to invest in building the capabilities and scale of operations for long-term market share gains, in an industry which continues to grow despite a challenging macro environment.
· The customer base grew by 3.3%, the fastest rate since before the onset of the pandemic, and GP per customer was up by 17.4%, demonstrating continued progress against both key aims of our strategy.
· Cash generation was strong at 117.8% conversion from operating profit. Cash closed the period at £97.7m and the Company remains debt free.
· An interim dividend of 8.0p per share, up 9.6%, will be paid on 24 May 2023 with the shares trading ex-dividend on 13 April 2023.
Graeme Watt, Softcat CEO, commented:
I am pleased to be reporting positive numbers across a whole range of key performance indicators in a period that has exceeded expectations. We have reported strong GP growth of 17.9% on the prior year despite very tough comparative numbers, and we have again taken market share. We have increased our headcount by 21.1% on the prior period to meet this demand and underpin future growth, and we have grown our customer base by 3.3% which is the fastest rate for three years. We have reported strong cash conversion in the period, continue to be debt free, and are pleased to be declaring an interim dividend of 8.0p, up 9.6% on the prior year. All this has been achieved in an uncertain environment.
This performance would be impossible without the amazing team we have at Softcat. Everyone has played their part, supported by a strong leadership and management group. Our employee net promoter score rose from 52 to 63 in the period indicating the positive feelings they have towards Softcat and their optimism for what we can achieve in the future. A huge thank you to each and everyone of the team for another set of strong results.
Outlook
Operating profit in the first six months of the financial year is ahead of the Board’s initial expectations. While there is still a lot to do in the second half and the economic environment remains uncertain, due to the out performance in the first half the Board now expects that the outturn for the full year will be slightly ahead of previous estimates.