Half Year Results 2025 Press Release

SOFTCAT plc

('Softcat', the 'Group')

Half year results for the six months to 31 January 2025

Strong first half performance with positive momentum

Softcat plc (LSE: SCT.L), a leading UK provider of IT infrastructure products and services, today announces its half year results for the six months to 31 January 2025 ('the period').

These results demonstrate continued successful strategic execution, enabling the delivery of further strong growth in gross profit and operating profit, together with healthy cash generation. Our performance in the period, coupled with an encouraging second half pipeline, provides us with the confidence to upgrade full year operating profit guidance.

Highlights for the six months to 31 January 2025

• Continued double-digit growth of 12.1% in gross profit and 19.3% in gross invoiced income, reflecting broad-based success across technology areas and customers.
• Strong operating profit growth of 10.4%, delivering another record first half profit.
• Further targeted strategic investment to underpin future growth, with headcount up 6.0% on the prior period.
• Continually evolving technology and service proposition supports our ability to take market share and add further scale in a growing industry.
• Strong cash conversion of 110.9%, with closing cash of £141.0m.
• Interim ordinary dividend growth of 4.7% to 8.9p, in line with progressive policy.
• Outlook: operating profit growth in the first six months of the financial year is slightly ahead of the Board's expectations. We continue to expect to deliver another year of double-digit gross profit growth in FY2025, with operating profit growth now expected to be low double-digit, up from high single-digit previously.

• 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 Report on page 9.

• Revenue is reported under IFRS 15, the international accounting 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).

• 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 the CFO Report on page 9.

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Graham Charlton, Softcat CEO, commented,

"We have continued to successfully implement our strategy, resulting in a first half performance slightly above our initial expectations and an upgrade to full year guidance, despite the persistent backdrop of generally more challenging trading conditions. Our progress is attributable to the breadth of our offering and sustainability of our growth model, powered by Softcat's special culture and the differentiated customer service it delivers.

We are excited by the rapid pace of innovation across our industry, with more organisations embedding AI and automation into their systems and processes. Our existing capabilities and continued investment mean we are well positioned to support the evolving technological needs of our customers, enabling us to sustainably grow market share. Should a compelling opportunity arise, our financial strength also provides us with the flexibility to accelerate further through acquisitions.

As ever, these results are only possible thanks to the tremendous efforts of the entire Softcat team. I would like to thank all our people for their positive attitude, customer focus and outstanding support for each other. Reflecting the strength of collaboration between our people, customers and partners, we have an incredible opportunity to build on our current momentum and further improve our market-leading UK position."

Outlook

Operating profit growth in the first six months of the financial year is slightly ahead of the Board's expectations. We continue to expect to deliver another year of double-digit gross profit growth in FY2025, with operating profit growth now expected to be low double-digit, up from high single-digit previously, supported by an encouraging second half pipeline.

Softcat operates in a significant and growing market, and we continue to invest to capitalise on this exciting growth potential, to drive further market share gains.

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Analyst and investor call

The management team will host an investor and analyst conference call at 9.30am UK time, on Wednesday, 19 March 2025. To join the conference call, please use the following webcast link:

https://brrmedia.news/SCT_HY_25

Please register approximately 10 minutes prior to the start of the call.

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 Group 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).

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Chief Executive Officer's Review

Performance and market conditions

We have continued to successfully execute on our strategy, delivering another strong performance in the period, which was slightly ahead of our expectations. These results are particularly pleasing given the ongoing challenges within the UK economy and are testament to the quality of our business. Our success reflects the resilience and sustainability of our growth model, which is based upon the breadth of our product offering and the trust placed in us by a large and diverse customer base.

During the period we made further good progress against our two key strategic goals: winning new customers, up 1.4% year-on-year, and selling more to existing customers, with an increase of 10.7% in gross profit (GP) per customer. Growth was once again broad-based but especially strong in security, networking and data centre infrastructure, with a number of customers making significant investments in these technologies.

We continue to invest in the long-term relevance of our offering, building further depth in our data, AI and automation capabilities. In addition, we are bolstering our own internal data and systems to generate insights and analysis that can be leveraged by our sales teams, further enhancing the customer experience and improving collaboration with our vendor partners. While our growth to date has been entirely organic, the strength of our financial position means that we could also complement the development of our offering through acquisitions, should a compelling opportunity arise.

We are excited by the pace at which our industry is innovating, providing us with significant opportunities for growth in the years ahead, supported by our unique culture and the richness of our customer proposition. In the near term, we have a confident outlook for the remainder of this financial year, resulting in an upgrade to our operating profit growth guidance for the full year. This is based on the strength of our execution in the first half as well as an encouraging second half pipeline.

Customer priorities and technology trends

Technology plays a critical role in many organisations, to help drive growth, increase productivity and efficiency, and to improve customer experience. The rapid pace of technological innovation places huge demands on organisations to invest in the right IT solutions and services at the right time. Softcat helps customers to navigate this increasingly complex IT landscape, supporting their unique requirements by enabling them to harness the latest innovations, deploy effective solutions and achieve greater success. Softcat has done this successfully for years, and we believe we are better placed than ever given the investments we have continued to make through different economic and technology cycles.

Our annual customer experience survey highlighted cyber security as the most common customer priority, reflecting the relentless development of new cyber threats and the need to protect proliferating and increasingly sensitive data and operating systems. This means organisations must constantly adapt to emerging methods of attack, alongside implementing comprehensive monitoring to mitigate security risks. We are also seeing a significant increase in organisations embedding AI and automation into their systems and processes, either hosted in the cloud or deployed at the edge of the network, both within existing applications or through bespoke proprietary development. All this innovation is encouraging more organisations to promote a data-driven culture across their operations which in turn creates demand across multiple areas of our technology proposition.

The anticipated refresh cycle for end user devices is showing some signs of momentum but is not yet a significant driver of industry growth.

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Strategic developments

Our strategic framework, alongside further investment in our own data and digital strategies, enables us to deliver a highly relevant customer proposition, while also accommodating the rapid pace of vendor innovation. The five pillars of our technology proposition cover all aspects of modern IT infrastructure and, by framing our offering in this way, we make our services more easily accessible.

We have also established a service offering across each of these five technology towers, covering advisory, architecture, implementation, support and managed, and recently appointed a new Service Operations Director. This new role will ensure that what is now one of the UK's largest and most diverse infrastructure services offerings is continually enhanced and delivered to the right customers in an efficient manner at the right time.

As part of our investment in our data and digital strategy, and in common with many of our customers, we are investing in the Microsoft ecosystem as part of our own technology stack. We have rolled out Microsoft Copilot across our employee base, enabling new ways of working and improving both productivity and quality of work. We have also recently selected Microsoft Dynamics to replace our current sales system. This will enable us to improve our customer and employee experience by leveraging integrated AI functionality between core systems.

Work has taken place during the period on our evolved UK vendor management framework, which is due to be launched later this year. The framework will allow us to work more effectively with our strategic vendors and is clearly aligned with our growth strategy and technology proposition.

We have also continued to invest in our capabilities to serve large and complex customers, alongside growing our multinational customer base. We now have an extensive network of branches in Europe, APAC and an office in Virginia, USA. As we pursue further growth by serving more of our customers' operations outside the UK and Ireland, we expect to continue expanding our international footprint and recently established a presence in Germany.

People and culture

Nurturing Softcat's unique culture will always be at the centre of our strategy; it forms the foundation of our ongoing success in delivering exceptional customer service and sustainable growth. Our relentless efforts in maintaining Softcat's special culture create an environment where our people display enormous passion, working collaboratively and support each other as they strive to meet the needs of customers. This creates the cycle of trust that results in customers placing more of their requirements through us, fuelling further investment in our offering, and reinforcing our key competitive advantages. In our annual employee engagement survey, undertaken in October 2024, we achieved an employee net promoter score of 55 (FY2024: 59), which remains at a market-leading level.

We have continued to invest in our people and during the first half we increased total headcount by 6.0% year-on-year to 2,617 with new hires focused across our technical, specialist and sales support functions, as we build our capability to do more with existing customers. We anticipate net headcount expansion for the full year to be in the range of 6- 8%.

Softcat champions diversity, equity, and inclusion through employee community groups, inclusion training, and strategic partnerships. By fostering an inclusive culture, we create a workplace where all employees thrive. We are delighted to have received excellent recognition for our efforts, not only from our people, but also through external awards. Softcat won the Best Diversity Initiative Award at the CRN Channel Awards in October 2024,

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with our entry highlighting the work we have done to meet our ambition of reaching a 35% female gender balance (now raised to a new target of 40%). At the same event, we also won the Cultural Inclusion Company of the Year Award and were highly commended in the Equitable Place to Work and Championing Diversity Award. Elsewhere, Softcat has been recognised in the Fortune 100 Best Companies to Work for in Europe, which showcases the best large and multinational organisations successfully creating cultures that put people first.

Our continued fast pace of growth and our focus on creating vibrant and welcoming office environments, have necessitated moves to new locations across several of our office sites. In November 2024, we settled into our new Birmingham office, which has seen average daily attendance increase by a fifth since opening. In March 2025, we moved our London presence to one of the single largest floorplates in the City, and a new Bristol office will also open soon. These changes enable us to provide facilities to enhance wellbeing and collaboration between our people, vendors and customers, and ensure that we can continue to successfully scale across all our UK regions.

Sustainability

We are focused on making progress across all areas of sustainability in the IT industry. Our integrated approach to implementing innovative environmental strategies, impactful social initiatives, and robust governance, helps us deliver on our sustainability commitments, while our close collaboration with partners and customers empowers them to achieve their own sustainability goals, creating a ripple effect of positive change.

We remain committed to minimising our direct impact on the environment and supporting wider industry efforts to reduce emissions. Mandatory sustainability training ensures a Group-wide commitment to these goals. Our successful transition to renewable energy, where possible, across our office locations and the resulting decline in our Scope 2 carbon emissions, was recently recognised as Net Zero Project of the Year at the CRN Sustainability in Tech Awards.

Our "8 Steps to Sustainable Success" framework is helping our customers decarbonise through the adoption of sustainable solutions and services. We offer tailored pre-purchase guidance, asset optimisation and post-use recycling solutions, enabling customers to extend product lifecycles and generate measurable environmental benefits that support the circular economy.

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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 9.

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 9.

Gross profit, revenue and gross invoiced income

Our H1 FY2025 results reflect the resilience of our business model and consistent success in strategic execution. We continue to support the IT infrastructure needs of new and existing customers through our comprehensive range of technology solutions, served by highly engaged employees providing superior customer service.

Gross profit (GP), our primary measure of income, grew by 12.1% to £220.2m, consistent with full year guidance for low double-digit growth and slightly ahead of our expectations for the first half. Market conditions have remained relatively challenging with continued macroeconomic uncertainty, and our performance in these conditions highlights the resilience of our business model, including the benefit of having a very broad portfolio of solutions catering to a diverse customer base.

GP growth was broad based across enterprise, mid-market and public sector customer segments with all growing high single-digit or double-digit. By technology area GP growth was driven by security, reflecting the continued prioritisation by customers of investment in cyber, alongside growth in data centres and networking, where demand was broad-based and supplemented by some larger orders. Workplace growth was impacted by slower recovery in client devices and some margin dilution on certain products.

By product type, hardware, software and services GP also all grew high single-digit or double-digit. Hardware growth was supported by datacentre and networking infrastructure, server and compute sales. Software GP growth was broad-based across technologies and services growth was driven by some large, high margin support service deals in the period.

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Revenue is reported in accordance with IFRS 15 with some transactions (generally hardware and internally delivered services) reported gross (principal) and others (generally software and externally provided services) reported net (agent) which can make revenue trends hard to understand. We therefore continue to report GII to help provide a clearer view of underlying growth. H1 FY2025 revenue grew overall by 16.8% driven by: (1) an 18.5% increase in hardware GII due to strong datacentre, networking, server and compute sales;

1. software revenue growth of 10.1% was lower than GII growth of 22.5%, due to a lower software gross margin, reflecting product mix and a mix into high volume, low margin, transactions in the period; and (3) services revenue growth of 17.6%, reflecting a higher share of internally-delivered services, which are reported on a gross basis, and particular success in support services mentioned above.

GII increased 19.3% to £1,507.1m, driven by strong growth in software and hardware, as discussed above, while services grew by 8.8% supported by strong growth in high margin internal services. GII grew ahead of GP reflecting the impact of several higher volume, low margin sales in the period, together with the dilution in software margin described above, resulting in GP as a percentage of GII declining year-on year to 14.6% (H1 FY2024: 15.6%).

Customer KPIs

During the period, GP per customer grew by 10.7% to £43.1k (H1 FY2024: £38.9k) and the

customer base expanded by 1.4%, to 10.3k (H1 FY2024: 10.1k).

As the longevity of the relationship with our customers increases, the GP transacted with them also increases. Over time, customers buy across more technology areas and an increasing range of vendors. Loyalty, as measured by lower rate of customer churn, also significantly increases. We track this effect by measuring core KPIs among those customers transacting over £1k of GP with us each year, at which point average churn drops significantly. This number of customers in this more stable cohort, grew at 4.9% to over 8.0k during the period, with the average GP delivered from each of those customers expanding by 7.0% to £54.9k.

The long tail of customers with whom we interact less often, along with customers who have not purchased from Softcat in the last 12 months or at all, constitute future growth opportunities. The balance between winning new customers and doing more with existing customers is integral to our Account Manager model and strategic goals.

Internal analysis, incorporating data from multiple sources (Gartner, HG Insights, CRN and ICG), indicates that our market share remains around 5% in the UK. We serve approximately 20% of the customers in our target market in the UK, based on those who trade with us in two consecutive 12-month periods, which implies a 25% average share of wallet. This analysis suggests there remains a significant future growth opportunity and is supportive of our strategy to attract new customers and go deeper with our existing customers.

Operating profitability and investment in future growth

Operating profit of £73.7m (H1 FY2024: £66.7m) increased by 10.4% year-on-year, ahead of our expectations, driven by the over delivery of gross profit, with the GP growth of 12.1% partially offset by a 12.9% rise in operating costs.

Operating cost growth was driven by increased commissions broadly in line with GP growth and a 10.7% increase in wages and salaries, including average headcount growth of 6.6%, reflecting a more measured level of investment as we leverage the significant headcount growth in recent periods. Moves to new office sites also contributed to increased operating costs during the period. Our new London office was the main driver behind the increase in right-of-use assets, lease liabilities and property, plant and equipment.

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As a result of the ongoing investments we are making in the long-term future of our business, the ratio of operating profit to gross profit has marginally decreased to 33.5% (H1 FY2024: 34.0%).

Corporation tax charge

The effective tax rate for H1 FY2025 was 25.2% (H1 FY2024: 25.2%) and marginally higher than the UK statutory rate of 25.0% due to the impact of non-deductible expenses. Our tax strategy continues to be focused on paying the right amount of tax in the right jurisdiction, at the right time.

Cash flow and cash conversion

The Group entered the period with £158.5m of cash and cash equivalents before paying an aggregate final ordinary and special dividend of £77.9m in December 2024. This was largely offset by strong cash generation during the first half, resulting in cash and cash equivalents at the end of the period of £141.0m (H1 FY2024: £112.5m). The Group remains debt free.

Cash conversion, defined as net cash generated from operating activities before tax but after capital expenditure, as a percentage of operating profit, was 110.9% (H1 FY2024: 101.1%). This strong performance reflects continued good working capital management, alongside the timing impact of certain customer transactions, including £16.0m paid up front by a single customer. Excluding this advanced customer payment, cash conversion would have been 89.2%, within our target cash conversion range of 85%-95%.

Our capital allocation policy remains unchanged, prioritising long-term investment in organic growth to facilitate further share gains in our growing addressable market; secondly to maintain a progressive ordinary dividend. Remaining excess capital is then either allocated to compelling strategic investments, which could include bolt-on acquisitions to expand our portfolio offering, or is returned to shareholders. During the period, we have continued to invest in our key priority to drive the long-term growth potential of Softcat, by increasing headcount, investing in new office capacity and developing our data and digital platforms.

Finance net income

In the period, net interest income totalled £3.1m (H1 FY2024: £1.5m). The year-on-year increase was driven by improved management of cash and cash equivalents held in interest bearing accounts.

Dividend

An interim ordinary dividend of 8.9p per share (H1 FY2024: 8.5p), amounting to £17.8m (H1

FY2024: £17.0m), has been approved by the Board of Directors. This is in line with our updated approach to pay one-third of the previous year's ordinary dividend as an interim dividend in the current year. The interim dividend will be payable on 21 May 2025, to shareholders whose names are on the register at the close of business on 11 April 2025. Shares in the Group will be quoted ex-dividend on 10 April 2025. The last day for dividend reinvestment plan ('DRIP') elections is 29 April 2025.

Alternative Performance Measures

The Group uses two non-Generally Accepted Accounting Practice ('non-GAAP') financial measures in addition to those reported in accordance with IFRS. The Directors believe that

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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 Group.

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.

1. Gross invoiced income is a measure which correlates closely to the cash received by the business and therefore aids the user's 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 interim financial statements.
2. 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 Group's ability to convert profits into available cash. A reconciliation to the adjusted measure for cash conversion is provided below:

Excluding an advance customer payment, cash conversion in H1 FY2025 would have been 89.2%.

Principal Risks and Uncertainties

The principal and emerging risks facing the Group have been identified and evaluated by the Board.

In assessing the Group'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: