Softcat (LON:SCT) reported what management described as an “exceptional” first-half performance for FY26, delivering strong growth across key financial metrics and raising its full-year profit outlook. Chief Executive Graham Charlton and CFO Katy Mecklenburgh said results were driven by broad-based underlying demand, contributions from larger solutions projects, and some pull-forward of customer orders linked to ongoing memory shortages.
Strong first-half financial performance
Mecklenburgh said Softcat delivered growth in gross invoiced income (GII), gross profit, and underlying operating profit that was “significantly ahead” of expectations at the start of the year. Gross profit, which the company described as its key measure of income, increased 22.6% to £269.9 million. Underlying operating profit rose 27.3% year-over-year to £93.8 million, supported by gross profit growth and operating leverage, even as the company continued investing in headcount, internal systems, and office moves.
Softcat also highlighted strong cash generation. Underlying cash conversion was 147.6%, boosted by working capital management and a timing benefit from a £42 million customer prepayment. Excluding that prepayment, underlying cash conversion would have been 102.4%, above the company’s target range of 85% to 95%. The company ended the half with £206 million in cash.
Product, segment, and margin trends
On profitability, Mecklenburgh said gross profit growth was broad-based across the portfolio and customer segments, with particularly strong performance in the corporate segment. She said both enterprise and small and medium business customers grew at strong double-digit rates on a gross profit basis, while public sector grew at a high single-digit rate.
By product category, hardware, software, and services all delivered double-digit gross profit growth, with demand driven by cybersecurity alongside significant growth in data center and networking. Workplace gross profit growth was described as more modest, reflecting improving demand for client devices and the impact of Microsoft incentive changes, which management said have now annualized.
Gross profit as a percentage of GII declined 120 basis points year-over-year, primarily due to the impact of larger solutions projects at lower margin. Gross profit per employee grew 15% year-over-year.
Investment, non-underlying costs, and capital returns
Operating costs increased at a slower pace than gross profit. Mecklenburgh said wages and salaries rose 15.4%, driven by average headcount growth of 10.5% during the period (7.7% excluding Oakland, the company’s acquired data engineering consultancy). She also pointed to a 4% annual pay increase, a continued shift toward specialist roles, higher employer national insurance contributions, investment in internal IT, data and digital capabilities, and increased costs related to office relocations.
Softcat recorded £8.5 million of non-underlying costs in the first half, including:
- £7.0 million of system implementation costs related to new cloud-based sales and HR systems, which the company said cannot be capitalized despite being one-off development costs.
- £1.5 million related to the acquisition of Oakland, including contingent consideration and amortization of acquired intangibles.
Mecklenburgh said Softcat now expects FY26 non-underlying charges to be at the bottom of its previously guided £20 million to £25 million range, with the majority tied to systems implementation as the company builds what it called a “foundational platform” for its data, digital, and AI transformation.
On shareholder returns, Softcat returned £95.4 million in the period, including £73 million via FY25 final ordinary and special dividends and £22.4 million under its £45 million share buyback program. The buyback, completed on February 13, reduced issued share capital by 1.7%. The board also approved an interim dividend of 9.9p per share, up 11.2% year-over-year, consistent with its policy of paying one-third of the prior year’s ordinary dividend as the interim payment.
After the period end, Softcat established a new £50 million revolving credit facility, which is currently undrawn, to provide additional liquidity management flexibility.
Outlook raised; H2 comparisons and memory shortages in focus
Based on the first-half performance, Softcat raised its FY26 outlook and now expects high single-digit growth in underlying operating profit, up from low single-digit guidance provided at the start of the year. Mecklenburgh cautioned that the company faces a tougher comparator in the second half due to the contribution from larger solutions projects in the second half of FY25, and said the net impact of ongoing memory shortages remains uncertain into the remainder of the year and into next year. Management also cited macroeconomic and geopolitical uncertainty.
In Q&A, Mecklenburgh provided additional color on drivers of outperformance. She estimated—while noting it is difficult to quantify precisely—that at the operating profit level, roughly 40% of year-over-year growth was attributable to the combination of RAM-related pull-forward and a large deal, with around 60% coming from the base business. At the gross profit level, she estimated 15% to 20% of growth came from RAM and big deals, with the balance from underlying performance—implying high-teens growth even excluding those factors.
She also said momentum had continued into the second half, but that the company viewed the fourth quarter as “more of the unknown” given uncertainties around memory shortages and the broader environment.
AI demand and internal transformation highlighted
Charlton emphasized AI as an emerging tailwind in two areas: demand for AI-capable infrastructure across Softcat’s five “tech towers,” and improvements in Softcat’s own operations as it deploys automation and AI-enabled tools. He said customers are increasingly moving ahead with projects—including preparedness for and implementation of AI—though scrutiny on return on investment remains intense.
On internal execution, Charlton said Softcat has been modernizing its data and systems for at least five years and is now moving from “readiness” into deployment. He highlighted a new “data lakehouse” developed with Oakland, which he said cleans and augments internal data with external sources and is searchable using AI tools. He also discussed a tool called “CatNav,” described as using proprietary data on skills, vendors, and customer environments to help staff more quickly match customer needs with Softcat solutions. Charlton said new Microsoft Dynamics 365 Sales and HR platforms are in user acceptance testing, with releases planned for the summer.
Management said it is difficult to quantify how much pipeline is directly attributable to AI, but Charlton characterized AI-driven infrastructure demand as “significant” and a “strong tailwind.” He also described ongoing memory-related supply and pricing dynamics as challenging to predict, but said Softcat’s scale and vendor relationships position it to support customers through allocation and pricing complexity.
About Softcat (LON:SCT)
Softcat plc operates as a value-added IT reseller and IT infrastructure solutions provider in the United Kingdom. The company advices, procures, designs, implements, and manages technology, such as software licensing, workplace technology, networking, security, and cloud and datacenter for businesses and public sector organizations. It also offers public cloud, collaboration, connectivity, data centre and private cloud, devices, and financial solution services. In addition, the company provides IT asset management, lifecycle solutions, modern management, security, software licensing, supply chain operation, and virtual desktop and application.
