Softcat Annual Report 2020

FY2020 Annual Report · Softcat

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Softcat plc
Annual Report and Accounts 2020

Taking care of our people
and customers

Our goal is simple:

To be the leading IT infrastructure product and services
provider in terms of employee engagement, customer
satisfaction and shareholder returns. We hope our success
will create opportunities for our people and deliver growth
for our customers and partners.

We don’t take ourselves too seriously and were founded
in 1993 to be, first and foremost, a fun place to work.

In a crowded field we stand out because of the vibrancy of
our culture and the passion, intelligence and attitude of our
people. Now more than, ever taking care of each other and
our customers is our top priority.

This approach has helped us deliver 15 consecutive years of
organic gross invoiced income and operating profit growth,
93% employee engagement and 97% customer satisfaction.

Contents

Strategic report
1
FY20 highlights
2 At a glance
4 COVID-19 response
6 Chair’s statement
10 Chief Executive Officer’s statement
13 Our strategy and purpose
14 Our market
16 Business model
18 Section 172
20 Our offering
22 Our customers
24 Our people
26 Our vendors
28 Chief Financial Officer’s review
30 KPIs
32 Risk management
38 Sustainability

Corporate governance
44 Introduction to corporate governance
46 Board of Directors
48 Governance report
55 Audit Committee report
63 Nomination Committee report
67 Remuneration Committee report
84 Directors’ report

Financial statements
94 Independent auditor’s report
102 Statement of profit or loss and

other comprehensive income
103 Statement of financial position
104 Statement of changes in equity
105 Statement of cash flows
106 Notes to the financial statements
IBC Company information and

contact details

Find out more at: softcat.com

Financial highlights

FY2020 operational highlights

Gross profit £m

Gross profit per customer £’0002

2020

2019

2018

2017

2016

235.7

211.1

175.2

136.3

120.7

2020

2019

2018

2017

2016

24.8

23.0

19.9

16.4

15.6

Operating profit £m

Revenue £m1

93.7

84.5

68.0

2020

2019

2018

1,077.1

991.8

797.2

2020

2019

2018

2017

2016

50.2

42.2

Customer base ’0002

Cash conversion %

2020

2019

2018

2017

2016

9.5

9.2

8.8

8.3

7.7

2020

2019

2018

2017

2016

• Revenue growth: 9%
• Gross profit growth: 12%
• Operating profit growth: 11%
• Cash conversion: 88%
• Operations resilient to challenges of COVID-19
• Employee engagement: 93%
• Customer satisfaction: 97%
• Customer base up by 300
• Gross profit per customer growth: 8%
Pages 1 to 43 form the Strategic Report of Softcat plc
for the financial year ended 31 July 2020. The Strategic
Report has been approved by the Board of Softcat
plc and signed on behalf of the Board by Graeme
Watt, CEO, and Graham Charlton, CFO.

Revenue has been restated due to the adoption
of IFRS 15 during 2019. As a result revenue is
only available on a comparable basis for 2019
and 2018.

2 Customer base is a new measure and differs

from previously disclosed ‘customer numbers’,
being defined as the number of customers who
have transacted with Softcat in both of the
preceding twelve-month periods. Customer
numbers were previously defined simply as the
number of unique entities transacting with
Softcat during the reporting period. Prior year
numbers (customer base and gross profit per
customer) have also been restated accordingly.
References in this Annual Report to the number
of customers refers to the customer base.

At a glance

A compelling
INVESTMENT CASE

We help commercial and public sector organisations design, procure,
implement and manage the right digital infrastructure for their needs.
In doing so, we provide the underpinnings to the modern, digital
economy. It’s a sector that has seen terrific growth, but there is so
much more to come. It’s an exciting place to be.

A dedicated and
passionate team

We believe that if people enjoy what they do, and care about
the company they work for, they will do it better. Our culture
is the vital ingredient to realising our ultimate goal: to provide
outstanding service to customers.

1,534

Number of employees at 31 July 2020

Read more on pages 26 and 27

Annual Report and Accounts 2020 Softcat plc

COVID-19 response

PLAYING OUR PART
during the COVID-19 pandemic

Softcat is a people business first and foremost and we believe our special culture has
always been the beating heart of our success. In this section, we set out some of the
ways in which our employees have responded to the impact of COVID-19.

People and culture
Each year we choose a word of the year to try and create
a focus for our culture in the twelve months ahead. In
September 2019 we chose the word ‘care’ for 2020 and with
the benefit of hindsight there couldn’t have made a more apt
selection. We want our people to care about our customers
and the partners we work with to support them. Caring for
customers starts with caring about each other and the
Company we work for. This is why our purpose statement is:
“we help customers use technology to succeed, by putting
our employees first”.

Since March, we have listened to advice from the Government
on COVID-19 and have put in place the protective measures
recommended by the NHS. We frequently relayed these
messages to employees so they understood what actions the
Company had taken and what we expected from employees
to keep themselves safe whilst working. Employees have settled
in quickly to working effectively from home and we are using
technology more than ever now to stay well connected.

To provide ongoing support, we created a one-stop online
resource for employees. This included:

• the latest Company news on our response to the pandemic;
• a list of the Company’s employee mental health first-aiders;
(employees who are specially-trained to provide help) and
mental health support available outside of the Company,
for example through our Employee Assistance Programme;

Softcat plc Annual Report and Accounts 2020

• support and guidance for employees juggling childcare,
home schooling with their working commitments; and

• a list of teams which had reduced workload during the

lockdown and offered to help our busier teams.

We have also taken surveys on how our employees are feeling
and what support they need. We have been humbled and are
grateful for the way they have responded and risen to the
challenge. Also during the lockdown Vin Murria, our
Designated Director for Workforce Engagement, held a virtual
engagement session with employee representatives from our
Dublin and Glasgow offices, with much of the discussion on
how employees were adjusting to remote working.

The employees were delighted that a member of the Board
had taken a direct interest to check-in on how they were
adjusting to the new way of working.

We take pride in making Softcat a fun place to work and have
gone to great lengths to preserve this during the pandemic.
Michelin-starred chef Thomas Kerridge hosted a virtual cookery
masterclass for our culinary-minded employees. Through
these and other events such as our own virtual talent show
and a quiz night, our employees keep making Softcat an
enjoyable place to work. The importance of the good physical
and mental wellbeing of our employees cannot be underestimated
and we recognise that the pandemic has brought additional
challenges. Some of our offices held exercise classes before
the time of the lockdown which were popular and we were
determined to carry that on, so we’ve held various virtual
fitness classes to keep us fit as a fiddle. In May we held a
virtual Mental Health Week with speakers and support on
topics such as mindfulness and managing anxiety.

Strategic report / Corporate governance / Financial statements

• Last year we launched our Love2Volunteer campaign.

Each employee can choose two free charitable days a year
at scheduled events focused on four areas: environment,
community, homelessness and animals. However, we
expanded the remit in response to COVID-19 by allowing
employees to use their two free days to provide support
to those in need. New ideas were suggested by employees
on ways we could help, including:

• helping support lines which provide regular calls to
elderly or lonely people that would like to have a
phone conversation; and

• supporting the NHS to help with activities such as

picking up and delivering medication, shopping, and
critical supplies for vulnerable or self-isolating people.

Read more about managing the impact of COVID-19 on page 35

Volunteering and the community
Softcat has a long track record of supporting charities and its
communities and the pandemic presented obstacles to
traditional ways of fundraising and supporting communities.
However, our employees were innovative in overcoming this
and we have not let the challenges posed by COVID-19 stop
our desire to do good. Here are some of our activities since
the lockdown started:

• We identified food poverty as a major concern during the
pandemic and backed Social Bites’ ‘Feed the Nation in
Isolation’, a campaign to reach out to those impacted by
food poverty. Those helped by the campaign include the
homeless, families that rely on free school meals, and those
who have been made redundant due to COVID-19. Together
with the generosity of many other supporters, Social Bite has
so far raised nearly £300,000 and produced and distributed
over 500,000 food packs.

• Softcat participated in the Tech for Good initiative where
we donated around £50,000 to buy tablets to enable
patients in care homes to stay in touch with loved ones.
We got some amazing feedback which emphasised the
important part technology plays to keep in contact
with family and friends.

A big thank you to everyone at Softcat for
the very kind use of the iPads helping our
residents at New Wycliffe Home keep in
touch with their loved ones in these very
challenging times. The immense joy and
comfort that being able to keep in contact
and see and speak to loved ones is
immeasurable and greatly appreciated.

New Wycliffe Home

Annual Report and Accounts 2020 Softcat plc

Chair’s statement

Our attitude is based around

This year the Company has shown
excellent leadership, exceptional
resilience, positive attitude, care for
one another and an incredible desire
to succeed.

Martin Hellawell
Chair

Introduction
I think it’s fair to say this financial year 2020 was anything but routine.
The number of external factors facing Softcat and all businesses
was unparalleled. Earlier in the financial year there were the
continued uncertainties around Brexit, the general election and
then the really big one, COVID-19.

I am absolutely delighted with the performance of the team and
the business through this period and on behalf of the Softcat
Board would like to wholeheartedly thank our CEO Graeme Watt
and his team and all our employees for the remarkable job they
have done throughout this year and for rising to the challenge.

I’d also like to thank and congratulate our customers and the IT
vendors we represent. I don’t think I’ve ever witnessed a period
where the importance of IT has been greater. Without robust,
agile IT platforms in place, I find it hard to imagine how much
worse our economy and lives would have been affected.

We, as well as many of our peers, have been working with IT
departments for many years to ensure companies can continue
to conduct their affairs no matter what is thrown at them. I have
never seen that tested in the way it has been this year. Our IT
vendors, the infrastructure providers such as Softcat and the IT
staff in our customers needed to be at the top of their game and
the infrastructure customers have invested in for years needed to
show its resilience and flexibility. I was so hugely impressed by
our customers’ ability to move largely very seamlessly and in a
matter of hours from one working environment to another.

Performance
We recorded yet another year of record performance.

Growth in gross profit, our primary measure of income, was
12% to £235.7m. Growth in operating profit was 11% to £93.7m.
Revenue growth was 9%.

Strategic report / Corporate governance / Financial statements

PLC Board matters
We have an excellent Board with a strong mix of skills, experience
and tenure. This makes for a well-functioning Board which is
always engaged and brings a range of views to the table. I was
particularly pleased with the amount of challenge, encouragement
and support the non-executive directors provided to the
executive directors during the lockdown period.

During the financial year Peter Ventress stepped down as a
Non-Executive Director and I thank him for his contributions. I was very
pleased to welcome Karen Slatford as Peter’s replacement. Karen
has significant experience in technology and business sectors,
which is very much welcome. Karen also has a wealth of experience
on remuneration and was therefore the best choice to succeed
Peter as Chair of the Remuneration Committee. Karen was also
appointed as Senior Independent Director.

The addition of Karen this year and Robyn Perriss last year means
that we have a complementary blend of new thinking, which provides
additional perspectives for some of the longer-standing Board
members. I would like to take this opportunity to thank Robyn,
Karen and our longest serving NED, Vin Murria as well as Graeme
our CEO and Graham our CFO for their excellent work and for
making the Board a highly productive, positive and
enjoyable experience.

A diverse composition on the Board makes sense from every
perspective. We now have 50% gender diversity, well ahead of
the recommended target of 33%. The Parker Review recommends
a target for FTSE 250 companies of at least one director from a
BAME background by 2024 and we also meet this criteria.

While we were impacted by the pandemic notably in the period
from April to July, we still grew top line and bottom line in each of
our four quarters. In Q4 we did see some customers pausing on
capital spend but this was at least partially offset by continuing
strong spend in areas such as security and software as
customers adapted to their new environments.

We continued to make high levels of investment in our people,
which will position us well for growth over the longer term. We
hired just under 400 recruits in the 2020 financial year. Given our
belief in the longer-term growth opportunity for our business and
continuing levels of strong activity, the leadership team took the
decision not to furlough any staff and to continue with plans for
further recruitment.

We have always put a lot of effort in getting our apprentices off to
a good start and I was delighted to see this recognised when we
were rated as the Best Apprenticeship Employer in the UK by
RateMyApprenticeship.

A lot of the business we do is triggered by digital transformation
projects in the companies and organisations we work with. While
on the downside there will be an impact from reducing headcount
in some of our customers’ organisations and a reassessment of
their IT spend, I think the positive long-term upside is far greater.
Recent events have only served to further demonstrate the
importance of IT and the criticality for organisations to continually
improve their digital capability at an even more accelerated pace.

This continues to be a great industry to be in and most of our listed
peers continue to perform well which we see as a real positive.

More information on how we performed can be found in the Chief Executive
Officer’s Statement on pages 10 to 12 and Chief Financial Officer’s Review
on pages 28 and 29

Employees
Softcat has always placed tremendous importance on our
workplace culture, our employee engagement and camaraderie
and how we think this results in motivated employees providing
outstanding levels of customer service. We have always seen that
as our key differentiator. We were concerned how this would be
impacted by all employees working from home during this period.
Yet again I can only commend the leadership team and the
employees for recognising its importance and ensuring we continue
what we are best known for in this very different environment.
Led by Graeme, I have been so impressed by the amount and
transparency of our Company communications throughout this
period. Online Zumba classes, culinary classes with expert chefs,
celebrity guest fireside chats, wellbeing sessions, quiz nights,
an abundance of charity activities and a very long list of other
Company-wide activities provided for our staff have all brought
a very big and much needed smile to my face.

That said, the teams have missed physically working together
and while we recognise certain working practices have probably
changed forever, we look forward to working together safely in
the office environment when the timing is right.

Chair’s statement continued

It is very important to us that all employees
can be proud of their gender, sexuality,
ethnic background, religion or other form
of diversity, within the organisation, and
jointly, we can celebrate and benefit from
this diversity within the Company.

PLC Board matters continued
I have continued an engagement programme on governance
with our largest shareholders. At the beginning of the calendar
year, I wrote to our top 50 shareholders and to the main proxy
voting agencies offering to meet or speak with them to discuss
anything they wish to outside of operational and performance
matters. I was pleased by the overall positive responses when I
met those who responded and I have taken on much of the
feedback. Partly in response to some of the feedback, the Board
agreed it would be better practice for an independent director to
chair the Nomination Committee and during the year we agreed
that Vin Murria should take on this additional duty.

Vin has taken on this additional role with her usual vigour. I thank
our shareholders for their continued support and engagement.

This year we conducted an internal Board effectiveness review,
the results of which were once again very positive. This reflects
on the strong composition and dedication of the Board, for which
I am ever grateful. We continue to work well together by leveraging
on our skills and experience, being supportive, asking the right
questions and debating the right topics. There will always be
ways we can be an even better Board and we will work on this.
More information on how the Board operates is in the Corporate
Governance Report on pages 48 to 54.

This is the second full year of my role as Chair and I consider my
role to be very clear to myself, the Board, our shareholders and
the employees of the organisation. We remain conscious that it
is not seen as best practice for a former CEO to be Chair of the
same Company. However, all of the Board has confirmed they
believe this is working well and there remains a clear separation
between the CEO and Chair. I am not involved in any operational
matters other than acting as an occasional sounding Board for
Graeme, a point I re-emphasise when I meet with the Company’s
shareholders on governance matters. Graeme is very clearly ‘the
boss’ of the Company – which is incredibly evident as he continues
to take the business forward. The Board considers that my position
continues to be very much supported by most of our larger
shareholders, as evidenced at the last AGM, where shareholders
voted 95.8% in favour for my reappointment.

We continued as a Board to check the pulse of the business even
during the lockdown, for example, each quarter we received
detailed employee feedback. The feedback showed the tremendous
support, understanding and leadership to make sure employees
could adjust to all aspects of working outside of the office during
the pandemic.

Softcat plc Annual Report and Accounts 2020

This was the first year of our employee engagement committee
on our Board led by Vin Murria which has been highly beneficial
and Vin has continued to run virtual employee feedback sessions
during this period.

The Board supports and very much encourages the desire for the
Company to consider its responsibilities to wider society. We
have made contributions to charities and other worthy causes
during the year, some of which is further explained on page 41.
We commend our employees for taking a wider view of the way
Softcat can add value, beyond financial measures.

We continue to encourage the executive team to do everything it
reasonably can to help the environment. The Company is exerting
greater influence on its supply chain where real gains can be
made as well as engaging more with our customers on IT sustainability
advice and guidance. We took advantage of various office
refurbishments to improve our internal energy efficiency.

The Board commends the team for the amount of time and
energy put into the wide-ranging topic of diversity this year. It is
very important to us that all employees can be proud of their
gender, sexuality, ethnic background, religion or other form of
diversity within the organisation and jointly we can celebrate and
benefit from this diversity within the Company. Many positive
steps have been made but we encourage a lot more progress
particularly in diversity in senior roles.

Dividend
The Board took the precautionary step in March to cancel the
FY2020 interim dividend. This was in response to the uncertainty
created by the pandemic and the Board’s prudent decision to
protect the Company’s cash position.

Following the decision to cancel the interim dividend, the Board
closely monitored the performance of the business, and we are
pleased to announce that as cash generation remains strong,
we resume our dividend policy.

Our dividend policy remains a progressive one which targets an
annual dividend of between 40% and 50% of the Company’s
profits after tax in each financial year before any exceptional
items. Subject to any cash requirements for ongoing investment,
the Board will consider returning excess cash to shareholders
over time.

We recommend a final dividend of 16.6p per ordinary share,
which includes the previously cancelled interim dividend of 5.4p
per ordinary share. In addition, we recommend a special dividend
of 7.6p per ordinary share is paid at the same time as the final
dividend. Shareholders will be asked to approve the final and
special dividends at the AGM on 10 December 2020.

Strategic report / Corporate governance / Financial statements

Looking ahead
The business is in very good shape as is the industry.

We are highly confident about the future prospects for the
industry and the opportunities it will continue to give us. The
appetite for competitive advantage through IT and digital
transformation has never been greater.

We see certain risks and opportunities coming from Brexit and
we are prepared for all eventualities.

The bigger imponderable is we simply don’t know how the
pandemic will play out and the ultimate impact it will have on
our lives and our economy.

While we can’t ignore that, we know whatever turn it may take,
there is still an abundance of IT infrastructure business out there
and we are extremely well positioned to continue to take market
share. We intend to continue to invest in the business to ensure
we fully capitalise on that opportunity.

This year the Company has shown excellent leadership,
exceptional resilience, positive attitude, care for one another
and an incredible desire to succeed.

For those reasons we have every confidence in the future.

Thank you to all our employees, customers and partners
particularly in recent months.

Martin Hellawell
Non-Executive Chair
19 October 2020

Annual Report and Accounts 2020 Softcat plc

Chief Executive Officer’s statement

Showing how much we

Following a very strong first half of the year we were able to
seamlessly transition to 100% home working when the need
arose and, despite impact on demand from corporate customers
during the last four months of our financial year, we continued
to deliver growth in both our third and fourth quarters. We also
made continued progress with both new and existing customers
and are pleased to report that our customer base grew by 3%
and gross profit per customer was up 8% on a full year basis.

The robust nature of our growth and the strength of our bank
debt-free balance sheet means we are well-positioned to seize
the long-term opportunities within our market. We were able to
deliver these results without the need for redundancies and our
plans for 2021 are to continue to invest in skills and talent to meet
our growth ambitions and further enhance our market share.

I’d like to thank the team for another record-breaking
performance and for making Softcat such a great place to work,
and also recognise the tremendous loyalty and support of our
customers and partners during these challenging times.

I am delighted with the outcome of this financial year given
the challenges we faced. We exceeded the performance
expectations we set at the start of the year and I would like to
thank everybody in the team for their outstanding individual and
collective contributions. It was another strong year in which we
grew year-on-year revenue, gross profit and operating profit in
each quarter despite the impact of the pandemic. I would like
to thank the leadership team too. They worked very hard and
successfully to secure the safety of our people and build financial
contingency plans very early in the crisis. As a team they remained
calm and pragmatic and dealt with realities, planning for the
worst while managing for better and using good judgement at
all times. I think that approach served us well and we continue
to be guided by our company purpose – helping customers to
use technology to succeed, by putting our employees first.

Gross profit, our most important measure of income, grew by
12% during 2020 to £235.7m, with operating profit up by 11%
to £93.7m. Cash generation was again very healthy, with no
discernible impact from COVID-19. Based on our confidence in
the business and a robust 2020 performance we are announcing
the resumption of our normal dividend policy, to include payment
of the interim dividend previously cancelled in March 2020.

I’d like to thank the team for another
record-breaking performance and
for making Softcat such a great
place to work.

Graeme Watt
Chief Executive Officer

Our focus on both new and existing customers remains at
the heart of our strategy and I am delighted to see our Net
Promoter Score (NPS) jump from 60 to 66 in our recent customer
satisfaction survey. During the year our customer base grew by
3%, similar to last year, and gross profit per customer was up a
healthy 8%.

Partner and industry recognition
We received many accolades for our performance during the
year including the CRN Public Sector Reseller of the year award,
a great testament to the investment and advances we made in
this segment over the last few years. I am always particularly
delighted with awards that recognise our team and culture at
Softcat so to rank 5th among great places to work from both
Glassdoor and the Great Place to Work organisation was
especially pleasing.

In addition, we were recognised by our vendors with some
highlights being Pure Storage Global Distribution Partner of the
Year, Palo Alto Customer Acquisition Partner of the Year, VMware
CloudHealth EMEA Partner of the Year, and becoming an 8x8
Platinum Partner.

Softcat people and culture
Our single biggest differentiator in this market is our culture
and the talent we have in our team. Our culture is an enormous
source of comfort and strength at all times and has undoubtedly
helped us to manage through the pandemic. The way the team
worked together and supported each other, our partners and our
customers has been inspiring but not surprising. At the start of
each new financial year we choose a word of the year. For 2020
we chose “care” and with hindsight we couldn’t have picked a
more appropriate sentiment. The team has demonstrated that
they care in so many ways and moved quickly to build new
means of staying in touch, recognising performance and having
fun in a remote working environment. Never before has the
power of having a strong team around us been more evident.

At Softcat we have created an environment where everyone
is naturally welcomed and valued, allowing people to express
themselves and play to their strengths. We have internal networking
groups that promote awareness and understanding to drive
positive change and these are well positioned to make further
advances in our diversity and inclusion efforts. During the year
we were delighted to launch the BAME network to sit alongside
existing groups such as Pride, Supporting Women in Business,
Family and Armed Forces.

Enhancing the diversity of our Company is both right thing and
the smart thing to do. I am determined to further increase the
diversity of the Company and in parallel work towards ensuring
that it is reflected it in our leadership teams.

Our people and sales culture are central to the way we operate
and we are fundamentally an office-based organisation. So, while
we are looking to return to our premises just as soon as we can
to optimise our induction, training, development and day to day
management of our teams, we will continue to place their safety
and well-being ahead of any other considerations. We will be
introducing further permanent flexibility to our working practices
so some of the positive changes from lockdown can be
maintained in the future.

Strategic report / Corporate governance / Financial statements

Growth drivers
Technology continues to develop to support our customers
evolving needs. They want to be agile, collaborative, productive,
efficient, competitive and gain further insights from their data.
They need to be secure and many are turning to consumption
models. They want current technology to help them deliver all
that and more.

Interestingly, we observed that the drivers for growth were much
the same both before and since the impact of COVID-19, but
with accelerating emphasis towards cloud computing and storage.
Customers wanting to be cloud-ready, mobile-ready and secure
is nothing new, but many have recognised the need to speed up
their digital transformation. They want to move increasingly to
consumption models where they pay for utilisation, or take advantage
of third party financial service products that help ease demands
on capital while enabling growth. Sustainability is also moving up
the agenda in both the corporate and public sector segments.
Office print, storage and datacentre were areas that, perhaps
understandably, slowed in the second half as budgets shifted to
new priorities.

9,500
customer base

(9,200 in FY19)

Annual Report and Accounts 2020 Softcat plc

Chief Executive Officer’s statement continued

Strategy and customer focus
Our strategy continues to be straightforward: to sell more to
our existing customers and win new customers by helping them
invest in technology and deliver their desired outcomes.
The value we bring is in helping them navigate the complexity
of available options and keeping up with the pace of change.
We bring thousands of customers together with the technologies
of hundreds of vendors on a daily basis. We build trust with our
customers that develops into loyalty over time. We invest in
talented and dedicated account managers who are supported by
a growing team of experts that cover a huge range of technologies.
Our large and growing service capability is among the largest in
the UK and is augmented by an extensive partner network, and
our distribution partners give the customer the best possible
access to solutions. Our offering continues to evolve primarily
based on what customers tell us they need.

We expect to see further growth from the areas we have invested
in recently including Defence and Central Government, and from
our newer offices in Ireland and Birmingham. We have continued
to expand our multi-national fulfilment capabilities in support of
our large enterprise customers, and we expect to deliver further
penetration and success from our market leading cloud and
cyber security offerings.

We have planned to invest once again in significant headcount
growth in the year ahead, alongside the ongoing development
of existing talent to build relevant skills and expertise for the
benefit of our customers. We are focused on delivering desired
outcomes for our customers whose overall satisfaction ratings
with our service have increased this year to 97% (from 96% in 2019).

We will continue to focus on growth and taking market share
and won’t be thrown off course. Our strategy is clear, our
business model simple and our purpose is unchanged.

Our strategy is clear, our business model
simple and our purpose is unchanged –
we will help customers use technology to
succeed, by putting our employees first.

Key challenges ahead
Many of our challenges remain the same. We operate in a fragmented
market where it is difficult to differentiate, but we have managed
to do so through our culture and the breadth of our expertise and
services. We will keep making our people our number one focus,
make sure there is no room for complacency, continue to look for
ways to improve in all that we do and ensure that Softcat remains
a great place to work. We will invest in talent and capabilities to
make sure we are meeting the current needs of customers and
building out our offering for the mid-term too. As customers embrace
home-working we will fine-tune our approach as appropriate –
something made possible by the breadth of our expertise.

Brexit is a potential challenge for the coming year but we have
robust mitigation plans in place and it may bring some opportunities
too. None of us can predict what further twists and turns lie ahead
as we continue to face the COVID-19 pandemic. What we do know
is that we must continue to be on our toes and be ready to react
quickly to anything that is thrown our way whilst prioritising the
health and safety of our employees and others.

Our view of the opportunity that exists in our market is undiminished,
and we are as excited as ever about our prospects in the medium
and long-term. As a result, we will continue to pursue our strategy
of organic investment in new capabilities and seek to take
advantage of our financial strength and scale.

Finally, how do you assess the outlook for the
year ahead?
During the last four months of our 2020 financial year our public
sector business performed strongly, but we did experience a
softening in demand from corporate customers.

This year has started well, however we do expect corporate
customers to continue to be circumspect with their spending
over the coming months. This may mean that market conditions
remain challenging for a time, but we remain confident in our
ability to gain market share and our view of the long-term
opportunity is undiminished.

As a result, we will continue to pursue our strategy of organic
investment in new capabilities and seek to take advantage of
our financial strength and scale. We have every confidence in
a bright future for our industry and Softcat in particular.

Softcat plc Annual Report and Accounts 2020

Graeme Watt
Chief Executive Officer
19 October 2020

Our strategy and purpose

Strategic report / Corporate governance / Financial statements

A simple purpose and
STRATEGY

Our purpose is to help customers use technology to succeed, by putting our employees first.
In seeking to do this, we set ourselves two simple goals each year: to win new customers and
to sell more to existing customers. If we can do that, we will be able to invest more in our
offering and continue to invest in our people, build scale and expand our reach.

Acquire more customers

In 2020 customer numbers grew organically for
the thirteenth year in succession, but we still only
serve around one in five from our target market.

Progress in 2020
A net 300 new customers were added during the year, with
success across each of our key segments: mid-market,
enterprise and public sector. Gross profit from new customers
grew 17% year on year.

Future focus
Our customer base of 9,500 in 2020 represents approximately
20% of the addressable market. We will continue to target
new accounts through further investment in our sales force.

KPIs
• Customer base increased by 300 to 9,500
• Gross profit from new customers up 17% year on year
• 97% customer satisfaction

Sell more to existing customers

Customers of all sizes and from all segments
must harness the power of new technology, but
are faced with greater choice and complexity
than ever before. That’s where we come in.

Progress in 2020
New capabilities such as cloud and security services have
continued to mature and place us front of mind with both
customers and vendors. Continued recruitment of technical
specialists to support our frontline sales people during 2020
has further deepened our average product line penetration.

Enabled by our...

Future focus
Future growth in business line penetration and gross profit
per customer is targeted for 2021 as we continue to leverage
investments in our offering and customers need to modernise
their infrastructure.

KPIs
• Gross profit per customer increased by 8% during the year
• 97% customer satisfaction

People and culture
• Average headcount up 13% year

Operational excellence
• Further vendor awards during

on year

the period

• 93% employee engagement
• Ongoing focus on diversity and

inclusion initiatives

• Ongoing investment in customer

e-commerce portal

• Significant back-office systems, data

and processes investment programme

Addressable market expansion
• Security and public cloud practices
gaining traction with customers

• Multinational sales capability expanded
with the addition of a new branch in
the Netherlands

Annual Report and Accounts 2020 Softcat plc

Our market

Opportunity and potential for
GROWTH

We work with a diverse customer base in the UK and Ireland across both domestic
and multinational operations. Whether SMB, large or public sector organisations,
we continue to evolve our offering, our resources and the skills, expertise and
capacity to continuously improve on ways to deliver on business needs. Our goal
is to provide the digital infrastructure and excellence in customer service that
today’s competitive commercial environment demands and that establishes us
as the foremost technology partner for our customers.

Hybrid infrastructure and multi-cloud perspectives

Hybrid infrastructure can be on-premise or hosted in the cloud
and considerations for our customers include how applications
are delivered, how they are operated, how they interact and how
the seamless integration of data can be achieved to make better
and faster business decisions to deliver effective outcomes. All of
this, as with any technology, needs to be secure, managed and
monitored within an organisation.

We are seeing that hybrid infrastructure is evolving and shifting
towards a multi-cloud world, which is quickly becoming a priority
for organisations. The emergence of multi-cloud focuses on a
drive to become cloud native through an application-first approach,
whereby seamless integration of data and workload mobility is
critical to that success. But there is also a shift towards incorporating
the expanding independent software vendor (ISV) market, whereby
software-as-a-service (SaaS) use is also accelerating as part
of organisations’ digital shift.

Overall, multi-cloud is a series of technology decisions but
has a big effect on an organisation’s people and business
outcomes and therefore we take risk, cost, security and
operational excellence as key considerations to deliver a
successful outcome when moving to a multi-cloud strategy.

Flexera’s ‘State of the Cloud’ survey
(2020) points out that

93%

of enterprises have a multi-cloud strategy;
87% have a hybrid cloud strategy

Millennials, who are already emerging as leaders
in technology and other industries, will comprise

Digital workspace

75%

of the global workforce by 2025 (Deloitte)

People deliver outcomes, so we believe in putting people first.
We recognise that ‘people’ are not just the employee, but also
the employer. By achieving a balance, we can enable both to
succeed with a superior mix of technology to optimise the digital
workspace. We improve experiences and enable outcomes by
securely connecting people, apps, data and devices putting key
aspects such as workstyle flexibility, employee and employer
choice, and collaborative workspaces at the core of our
customer solutions.

We do this by deploying technology that enables outcomes,
based on all, or some of the following: platform & OS, devices,
applications, collaboration tools, data and security and compliance.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Cyber security

As our customers become increasingly diverse in their delivery
and consumption of services, Softcat has never been in a better
position to address the increased requirement for security solutions,
from customer transformation to a hybrid cloud and workspace
model to augmenting internal capabilities with a managed service
that addresses the complexity of operating a modern cyber
security environment.

With security services predicted to account for 50% of
cyber security budgets in 2020 (Gartner), our Softcat
security team continues to be a key area of investment
and differentiation.

60%

of UK organisations say their security budgets had
risen in the last year. A quarter of organisations reported
that the increase over the previous 12 months had
been ‘significant’

Globally around 60% of organisations are reporting
increases in their IT security budget by an average of

13%

Source: IDG Security Priorities 2019

Good software asset management will cut
spending on software by as much as

Asset management

30%

(Source: Gartner)

Asset intelligence is the evolution of traditional IT asset
management, a term we use at Softcat to describe a collection
of services focused on the creation of ‘actionable recommendations’
that come from the information and data customers produce.
When events are likely to have a longer-term impact on the
economy, ensuring technology spend (e.g. software, SaaS,
IaaS, hardware, etc) is truly optimised is critical to save money
and remain compliant, all whilst ensuring remote workers
remain productive.

In order to address this point, Softcat Asset Intelligence Services
and assessments take complex information such as cloud
consumption data and software entitlement data and analyse
it to provide intelligence. These assessments and services help
organisations drive transformation and improvements in areas
such as IT asset management, public cloud optimisation, visibility
and software licensing, ultimately driving down costs and
improving end user experience.

Multinational coverage – Softcat offices/branches

Dublin

Netherlands

Washington

Hong Kong

Singapore

Sydney

Annual Report and Accounts 2020 Softcat plc

Business model

Our
COMPETITIVE EDGE

Our people are bright, motivated, driven and enthusiastic. Most importantly
they care about the Company they work for and the customers they serve.

What sets us apart

Strategy for delivery

Our market share and offerings
Despite more than a decade of unbroken organic growth, our market share of
just c.3% still affords us huge potential for growth. The investments we have
made in our product and service offering have created a comprehensive and,
we think, market-leading, technical proposition.

To read more see pages 20 and 21

Our people
Our people are the keystone of our competitive edge. Their passion,
intelligence, sense of fun and commitment to the long-term success
of our customers are what really makes us stand out from the crowd.

To read more see pages 24 and 25

Our customers
The foundation of our growth has always been the longevity of our customer
relationships. Softcat has delivered organic growth for 15 consecutive years
and during that time the number of customers we serve has more than
trebled. So alongside our people, the most precious asset we have is the
trust of our customers.

To read more see pages 22 and 23

Our vendor partnerships
Technology vendors face intense competition and need partners that can
accurately, reliably and credibly represent their value to tens of thousands of
target organisations in the UK and Ireland. With our scale and expertise, we
offer unrivalled access for both global and local partners to the UK and Irish
markets. This reach is being further expanded through investment in our
multinational branch network.

To read more see pages 26 and 27

Our financial strength
In a world of risk and leverage, we are proud to be a bit different. We have
never had any debt and maintain a strong balance sheet. We have a highly
liquid business model and can comfortably fund both a progressive dividend
policy and long-term organic business investment.

To read more see pages 28 and 29

Underpinned by our values:

RESPONSIBLE

INTELLIGENT

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Strategy for delivery

Creating value for our stakeholders

Customers

97%

Customer satisfaction

People

93%

Employee engagement

Shareholders

Years of consecutive
organic profit growth

We recruit and train great people with
high potential
We work with universities and schools across the country and see
thousands of candidates each year before selecting those that are
right for Softcat. We look for exceptional people with the right attitude.

We incentivise and engage our people
to perform
We create a great place to work where people are recognised
and rewarded for success. We are known for our unique culture
and it is without doubt the basis of our success.

We deliver outstanding customer service
Only great people who are highly motivated and care about the
business they work for can provide truly outstanding levels of
customer service over the long term. That, in a nutshell, is why
we come to work.

We win new customers and sell more to
existing customers
Our goal is to win new customers and nurture the relationship
over many years. In building trust by never letting our customers
down we create genuine loyalty. Everyone wins!

Addressable market expansion
We have a strong track record of developing new revenue
streams and are fast to move as the market evolves. Despite our
success to date it’s hard to imagine a time when there won’t still
be huge opportunity for growth.

FUN

PASSIONATE

Annual Report and Accounts 2020 Softcat plc

Section 172

Building strong
PARTNERSHIPS

Certain companies, such as Softcat, are required to
explain how the directors have discharged their
responsibilities by engaging with the Company’s key
stakeholders. We define our key stakeholders as
individuals or groups who have an interest in, or are
affected by, the activities of our business and the Board
believes a good understanding of our key stakeholders
and their needs will help to deliver sustainable value
and benefit to shareholders and stakeholders.

Engaging with our stakeholders
Our key stakeholders have an important role to play in the
successful operation of our business and our Directors
are fully aware of their responsibilities to the Company’s
stakeholders under Section 172 (1) of the Companies Act
2006 (the Act) and take their responsibilities seriously.
These responsibilities are rooted in our culture, values
and our Company purpose – helping enable customers
to use technology to succeed, by putting our employees
first. The Board considers that in its decisions and actions
taken, it has acted in a way that would promote the
success of the Company for the benefit of its members
as a whole, whilst having regard to stakeholders and
matters set out in Section172 (1) (a–f) of the Act. The Board
has identified Softcat’s key stakeholders to be our employees,
customers, suppliers, investors, and the communities we
operate in. The Board receives regular updates on each
matter so it is well-informed and the potential impact on our
stakeholders is a consideration as appropriate for the Board
when deciding Softcat’s strategy or other actions. The
following table sets out how our stakeholders have been
engaged with, and how their interests have influenced
decisions by the Board.

Read more in our governance section, see pages 48 to 54

Our key stakeholders:

Employees

How we have engaged
• Annual employee survey
• COVID-19 working from home survey
• Employee Q&A sessions with the Board
• Quarterly management team surveys
• Appointment of a Designated Non-Executive Director for Workforce

Engagement – employee engagement sessions

• Weekly email to all employees, updating on any major

developments and accomplishments

Key topics of engagement
• The Board’s response to the COVID-19 outbreak and how it has

considered the impact on employees

• Flexible working
• Employee remuneration
• Diversity and inclusion
Outcomes
The Board reviewed, approved or endorsed outcomes, including:
• Action plans following the annual survey to further increase

employee engagement

• Introduction of a more flexible working policy following

employee feedback

• Improvements for the South Coast, Marlow and Manchester offices
• More frequent Q&A sessions between employees and the Board
• Commitments to further improve employee diversity

Customers

How we have engaged
• Annual customer satisfaction survey
• Online and event engagements, for example case studies,
interactive blog posts, through our website and social media

Employees

• Our ‘Explain IT’ podcast

Communities/

environment

Customers

Investors

Suppliers/
vendors

Softcat plc Annual Report and Accounts 2020

Key topics of engagement
• Understanding of customer satisfaction and areas for improvement
• Customer wins
• Analysis of sales performance
• Focus on sales model

Outcomes

The Board reviewed, approved or endorsed outcomes, including:
• Action plans following the annual survey to further improve

customer satisfaction

• Changes in the Executive Leadership Team to increase the focus on sales
• Strategic review of sales model evolution

Strategic report / Corporate governance / Financial statements

Suppliers/vendors

Communities/environment

How we have engaged
• Our Charity Team’s work, and the connections it builds,
allow Softcat to understand how best we can help our
communities

• In building our sustainability strategy, employees helped to
prioritise proposed key goals for Softcat under the United
Nations Sustainable Development Goals

• Our Green Team is active in each of the office’s local
community, with relationships with local charities
and initiatives

Key topics of engagement
• How Softcat can help communities during the

COVID-19 lockdown

• Building a formal strategy for sustainability
• Local environment issues

Outcomes
The Board reviewed, approved or endorsed outcomes, including:
• Significant community support during the COVID-19

lockdown, such as the donation of computer tablets to
a local care home to help combat loneliness

• Adoption of a formal strategy and enhanced oversight on
sustainability, with commitments to reduce Softcat’s
carbon footprint

• Local community activities, such as clean-ups, which will

improve the environment and recognise our wider support
for corporate responsibilities

How we have engaged
• Frequent business reviews with our major vendors
• Internal dedicated Vendor Alliance Teams to manage

relationships with key vendors

• We maintain fair payment terms with our suppliers

Key topics of engagement
• Board reports provide vendor briefings
• Multiple vendor accreditations and awards

Outcomes
The Board reviewed, approved or endorsed outcomes, including:
• Monthly revenue performance of Softcat’s largest vendors to

deepen their understanding

• A better understanding of the market context/performance

for vendors

• Our payment practices to our trade suppliers in order to
ensure the Company’s reputation remained safeguarded

Investors

How we have engaged
• The CFO and CEO regularly engage with major shareholders

and analysts in respect of Company performance

• The Company Chair undertakes an annual engagement

programme with major shareholders on governance issues
• The Chair of the Remuneration Committee engages with major

shareholders on executive remuneration matters

Key topics of engagement
• Company performance
• Mutual understanding of views on governance

Outcomes
The Board reviewed, approved or endorsed outcomes, including:
• Feedback from investors/analysts on Company performance

and on our strategy

• Views on governance - this in part led to the Nomination
Committee agreeing the appointment of an independent
Director as the Committee’s Chair

• A new Remuneration Policy which received significant (98.6%)

GREEN TEAM

support from shareholders

Annual Report and Accounts 2020 Softcat plc

Our offering

Driving the
DIGITAL REVOLUTION

Today’s ever-changing IT-driven environment means that organisations must keep up to date with the
latest trends, technologies and threats. At Softcat, your priorities are our priorities. We help you tackle
the challenges in your IT environment and ensure you make the most of your IT assets, identify
opportunities to maximise and improve performance, and minimise your costs and risks. Softcat’s
four IT priorities are hybrid infrastructure, digital workspace, cyber security and IT intelligence.

Hybrid infrastructure
The combination of on-premise datacentre and public cloud
offering is a hot topic for most organisations. As businesses
start to move out of the age of physical machines holding
data, they enter a new era where everything is in the cloud.
Our hybrid infrastructure offering ensures that our customers
can look forward to efficient infrastructure and excellent user
experiences, while keeping business goals front of mind.

Whether a customer is starting at the beginning, with a need
for a full assessment of their existing infrastructure, through
one of our health assessment services or simply lacks the
bandwidth to manage their platform, we have the right solution
and resources to offer.

We know that it’s different from customer to customer. Some
will rely on their on-premise machines to do the leg work,
whilst others may whole-heartedly embrace the cloud. Finding
the right mix is where Softcat excels. Using gap analysis to
understand more about customer business goals and importantly,
where the opportunities are for infrastructure strategy evolution
to maintain longevity in investment, we can provide a customer
with complete control over their infrastructure at a cost that
works for them.

Digital workspace
With five generations in the workforce, organisations are
challenged more than ever to deliver the highest employee
productivity, attract the best talent, maximise collaboration
and embrace new ways of working. Softcat’s culture embraces
a ‘people first, technology second’ approach and we know
first-hand, that secure connections to each other, together
with reliable access to everything employees need, are imperative
to achieving a successful workspace environment.

We work closely with our customers to fully understand
desired outcomes and strategic goals in order to identify the
best course of action. Bespoke technology solutions can be
tailored to an organisation around their specific constraints or
our customers can choose from a range of services to get
them going.

Device as a service provides a flexible way to manage IT hardware,
reducing purchasing complexity and getting end users ready
to go, from the press of a power button, irrespective of location.
Where more complex digital workspace transformation is needed,
our teams step in with our tried and tested Define and Design
methodology, taking a customer from point A to Z, to help
deliver the most productive and agile workspace environment
that maximises potential on both employee and business levels.

Benefits we deliver

• Agility – adapt and change quickly.
• Scalability – scale up and down with cloud.
• Control – retain all critical internal operations.
• Cost – only pay for what you need in public cloud.

• Flexibility – users can work anywhere, from any device.
• Productivity – boosted due to ease of access.
• Collaboration – easy interaction and sharing across

the workforce.

• Security – data is secured centrally in a datacentre, not

on the device.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

5th place

(ranked by Great Place to Work)

Cyber security
We know that the one certainty is that each business day
presents an opportunity for a new cyber threat and our annual
customer satisfaction survey has endorsed this with 85% of
respondents highlighting cyber security as their number one
priority. That’s why we are committed to working with our
customers to deliver a 360-degree approach from strategic
consultation, assessment, identification of the right solutions
to implementation and management.

We work with our customers to understand the risks they face
in detail. The goal is to be in the best position to help protect
organisations by fully understanding what defences are in
place currently and where the gaps may be.

Whether customers need us to manage defences already in
place or help to redesign a new virtual fortress, we’re the
people to talk to.

IT intelligence
Data and IT assets are inherent to organisational value and
investment. To help customers understand the decisions that
need to be made to evolve and improve how an IT strategy can
better support business health and growth ambitions, our
specialist teams help unlock cost savings, identify ways to
increase agility in the workforce and boost efficiency across
the customer IT estate.

Softcat’s IT intelligence proposition identifies and translates
the right data, allowing customers to make informed decisions
about cloud, IT assets, software licencing and much, much
more. It’s about working together to build a greater picture of
what the right decisions might be when implementing a
long-term strategy for the most effective IT infrastructure.

IT intelligence can touch all areas of the IT landscape. Our vast
range of services and expertise means we aim to be the first
port of call for customers to help them navigate through the
complexity of data masses and help provide clarity on the right
course of action towards implementing technology infrastructures
that meet their business needs, now and into the future.

Benefits we deliver

• Protection – against attacks and breaches.
• Compliance – keeps you in line with regulatory requirements.
• Privacy – reassures users that their information is protected.
• Scalability – your solution adapts to your

changing requirements.

• Costs – reduction in costs due to efficiency savings.
• Efficiency – streamlining services with effective

management of assets.

• Agility – an intelligent IT estate allows increased flexibility.
• Risks managed – a clearer overview gives a better sight

of potential risk.

Annual Report and Accounts 2020 Softcat plc

Our customers

Creating competitive

ADVANTAGE

If there is a single reason why we have been able to deliver sustainable growth, then
the strength of our customer relationships and attention to delivering a positive customer
experience journey is it. We have tripled our customer count since 2007 and 95% of
our gross invoiced income in 2020 came from existing customers. But despite our
success, we are still only working with approximately one in five customers from our target
market in the UK and Ireland. Our strategy therefore continues to focus on both winning
new customers and providing more technology solutions to existing customers.

Case studies

Lincolnshire City Council (LCC)

Aberdeen Football Club

The challenge
Lincolnshire City Council faced a tight time schedule when the
end of their existing Microsoft Enterprise Agreement was due
within the year. They needed to find a cost-effective, ongoing
software management solution for their 5,000+ users without
incurring a considerable price increase due to Microsoft’s
changing licensing models.

The solution
Softcat worked closely with the LCC’s IT team to better
understand their current position and formulate a specific
solution for them, ensuring to provide optimal functionality
and the best value for all of their stakeholders. Through
workshops and close contact, our team was able to clarify
their questions, communicate what a licence is and how to
get the best out of it. In the end a complete remodel of their
licencing agreement was undertaken to ensure it fit LCC’s
needs, guiding them through new opportunities leading to
future investments.

The challenge
Most of Aberdeen Football Club’s users were still on desktop
computers, having a significant impact on the ability to introduce
flexible and remote working to their culture. Furthermore, the
computers were not up to scratch, incompatible with Windows 10
and suffering from poor performance. A significant hardware
refresh was required and with so many options out there, Softcat
was there to support and advise on what the best steps were.

The solution
Wanting solid, reliable hardware that allowed their users to
increase productivity and reduce the strain on their support
desk was a top priority. With so many locations to choose
from, flexibility for remote working was another one of their
key goals. Softcat introduced Device as a Service with HP.
Leasing options from HP combining software, hardware and
support allowed the club to upgrade their computers with a
flexible finance arrangement and upgrade plan. The final
solution provided them with greater insights than ever before,
enabling them to optimally plan and manage their devices
going forward. Combined with Softcat’s enhanced support
they are covered 24/7 should they need some assistance.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

97%

Customer satisfaction rating

The team at Softcat care, and although
business income is always a priority,
Softcat do not “make money” as the goal,
but instead provide the best solution for
the budget I work to. I have tried other
suppliers, and I didn’t get the same results
or working relationship. Softcat understands
the importance of our business and treat
it like their own. You do not get that from
other suppliers.

Egton Medical Information Systems Ltd

Our people

Putting our people

FIRST

Our people always come first at Softcat and we don’t just say that ourselves.
We recently ranked fifth in the UK’s Best Workplaces 2020 Super Large category.
It’s our commitment to our people that leads to the incredible customer
satisfaction that we pride ourselves on. Keeping our customers happy generates
the strong Company results that we keep producing year after year. People.
Customers. Results. It’s that simple.

At Softcat we have consistently achieved incredible employee
engagement results throughout our history. But how do we
maintain this? In our latest survey, our employees told us that
our open communication and transparency about the business
and how we make decisions make them feel valued, trusted
and respected. Despite the challenging external circumstances
caused by the pandemic, we continue to prioritise our employees
by keeping their jobs safe, supporting their wellbeing and
ensuring their mental health is looked after with a range of
care options.

Not only that, but it’s still business as usual at Softcat in many
ways. We’re continuing to grow our headcount as fast as ever,
with just under 400 new recruits joining us in the last financial
year. By continuing to focus on our employees’ learning,
personal development, career ambitions, reward and
recognition, we’re staying true to the Softcat spirit.

I couldn’t be prouder to work for
Softcat right now. We’re making
decisions every day that are right
for the business, and just as
importantly, are right for our
people too.

Rebecca Monk
HR Director

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

1,534

Employees as at 31 July 2020

Best Apprenticeship
Employer in the UK

I have learnt lots of new skills while
being at Softcat. Softcat are always
putting on new training sessions so
I have learnt lots about all the different
vendors that we work with and how
the products that they sell work.
Also, my customer service skills have
improved massively since being
at Softcat.

source: a review on www.ratemyapprenticeship.co.uk

Annual Report and Accounts 2020 Softcat plc
Annual Report and Accounts 2020 Softcat plc

Our vendors

Partnership is a key part of our

STRATEGY

We pride ourselves on working with the broadest network of top technology
vendors and partners, with whom we share a common goal to deliver nothing
less than the best solutions and services to our customers. We choose and
develop our partnerships by listening to our customers, understanding their IT
priorities and insights, to inform continuous improvement of our partner strategy.

Some of our awards:

EMEA Growth
Partner of the Year

M365 and Surface
Partner of the Year

Customer Acquisition
Partner of the Year

EMEA
Partner of the Year

Global Disruptor
Partner of the Year

Public Sector
Reseller of the Year

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Softcat is an established AWS Advanced
Consulting partner whose continued focus
on, and investment in, new services, training
and skills, is helping customers to innovate
faster, have lower IT costs, and to scale their
business. We’re excited to collaborate with
Softcat as they continue to guide businesses
on their cloud adoption journey.

Amanda Sleight
EMEA SI Partner Lead
Amazon Web Services (AWS)

200+

Vendors

Vendor partnerships:

Annual Report and Accounts 2020 Softcat plc

Chief Financial Officer’s review

Profitable organic growth
funding both investment and
CASH RETURNS

Financial summary

Revenue

Revenue split

Software
Hardware
Services

Gross invoiced income (‘GII’)

GII split

Software
Hardware
Services

Gross profit
Gross profit margin
Operating profit
Operating profit margin
Gross profit per customer
Customer base
Cash conversion

FY20

FY19

Growth

£1,077.1m £991.8m

8.6%

£519.5m £476.5m
£442.3m £430.9m
£84.4m
£115.3m

£1,646.2m £1,414.1m

£964.3m £788.9m
£458.3m £453.0m
£223.6m £172.2m

9.0%
2.6%
36.6%

16.4%

22.2%
1.2%
29.8%

£235.7m £211.1m
21.3%
£84.5m
8.5%
£23.0k
9.2k

21.9%
£93.7m
8.7%
£24.8k
9.5k
87.8%

11.6%
0.6% pts
10.9%
0.2% pts
7.8%
3.3%
92.2% (4.4)% pts

Our balance sheet strength, robust market
and compelling long-term opportunity put
us in a great position to thrive during the
years to come.

Graham Charlton
Chief Financial Officer

Gross profit, revenue and gross invoiced income
Gross profit, our primary measure of income grew by 11.6% to
£235.7m, reflecting strong growth of 18.0% in the first half to
January 2020, followed by robust growth of 6.5% during the
second half which was impacted by COVID-19. This impact was
most significant during our final quarter which nonetheless was
still slightly ahead of a very tough comparative. The slow-down
seen during the final quarter gives a good indication of the
general net downturn in customer demand seen in response to
the uncertainty created. The Company has a very broad product
offering, covering all key elements of digital infrastructure, and
experienced both increased and reduced demand in different
areas and at different times during H2. But the net effect was that
customers were generally more circumspect with expenditure
from April onwards. Within this, demand from Public Sector
customers was largely unaffected, indeed was stronger than
usual during the early part of the lockdown period between

Strategic report / Corporate governance / Financial statements

mid-March through to May. Demand from Corporate customers
overall was reduced and most severely impacted in those sectors
where income was significantly affected by COVID-19 restrictions.
The commercial sector or vertical in which a customer operates
was a far more significant determinant of activity than the customer’s
size, and demand did show signs of a gradual recovery as our
fourth quarter progressed.

Apart from the impact of Coronavirus, income growth drivers,
especially in the first half, showed similarities to previous years
and were broad-based. Performance across all customer segments
(public sector, mid-market and enterprise) and technology areas
was strong and well-diversified with no individual customer
accounting for more than 2% of gross profit.

Gross invoiced income (‘GII’) rose 16.4% to £1,646.2m (2019: £1,414.1m),
with growth strongest in Public Sector (growing by 26% and
comprising 39% of total GII) but mid-market (+10%) and Enterprise
(+12%) also performed well. When viewed by technology type, GII
grew strongly within both software and services. Hardware was
flat on prior year, being most significantly impacted by COVID-19
during the second half. While harder to assess due to the volatility
of the market in H2, we believe these results reflect further gains
in market share.

Revenue (GII netted down for cloud-based software and other
revenue streams in accordance with IFRS 15) was £1,077.1m, up
8.6% on 2019 (£991.8m).

Customer KPIs
The Company strategy continues to focus on winning new
customers and nurturing individual relationships over many
years to engender genuine trust and loyalty. This stems from our
special internal culture and the determination to provide the very
best customer service in our industry. As a result of this, we were
once again able to grow average revenue and gross profit per
customer, with the latter rising by 7.8% to £24.8k (2019: £23.0k),
and 95% of all gross profit was earned from existing customers
(2019: 94%). Notwithstanding the further progress made in these
metrics, we estimate that our average share of wallet from
existing customers is c.15%, and so increasing our penetration
within existing customer accounts continues to be a key,
long-term opportunity.

During the year the customer base expanded by 300 to a total
of 9.5k, up 3.3% from 9.2k in 2019, and total gross profit earned
from new customers grew by 17.3% year on year. While contributing
relatively modest levels of in-year income (accounting for 5% of
gross profit in both 2020 and 2019), the addition of new customers
remains a strategic aim and underpins our opportunity for
future growth.

Operating profitability and investment in future growth
Total cost growth for the year was 12.1%, which was in line with
GP growth and so our key internal operating margin, the ratio of
operating to gross profit, was relatively stable at 39.8% (2019: 40.0%).

During the latter part of the year, cost savings achieved as the
result of COVID-19 restrictions (for example travel, expenses and
establishment costs) were a helpful but only partial offset to
reduced spending by corporate customers.

People related costs, including commissions, continue to represent
c.85% of total operating costs and during the year average
headcount grew by 13%. Our ongoing investment in both new
and existing team members is something we will continue with
during the coming year despite external uncertainties, and
reflects our confidence in the long-term opportunity our market
continues to afford. As in previous years, we have continued to

recruit across all areas of the company, with a significant expansion
in capacity of the sales force, but also a continued focus on
progressively increasing the ratio of specialist and technical staff.
This commitment to investing in our skill base will continue
during 2021.

Commission costs grew broadly in line with gross profit,
reflecting the stability of the schemes and hence effective
commission rates year on year.

Non-people related costs, comprising c.15% of the cost base,
grew at a slightly lower rate than headcount at 12%.

Corporation tax charge
The effective tax rate for 2020 was 19.2% (2019: 19.3%), reflecting
a stable statutory rate of 19.0% in both years, together with the
relatively marginal 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 and balance sheet
Cash conversion, defined as operating cash flow net of capital
expenditure as a percentage of operating profit, was 88% (2019: 92%).
The slight reduction on prior year was expected and reflects the
capital investment in the major refurbishment of both the Marlow
and Manchester offices, which are now complete, partly offset by
disciplined management of working capital. It is worth noting
that across the period as a whole, the COVID-19 pandemic had
no discernible impact on our cash flow and closing working
capital balances contain no significant one-off impacts. Cumulative
cash conversion in the five years since IPO is 92%. This reflects
the unchanged and highly cash-generative nature of the business
model, with no significant stock holding, with the inventory value
at the balance sheet date mainly reflecting stock in transit between
distribution partners and customers, as well as a short working
capital cycle. Cash conversion for 2021 is expected to be slightly
below past trend (c.85%) due to planned capital expenditure on
the implementation of a new finance system.

The Company’s closing cash balance was £80.1m (2019: £79.3m),
reflecting the broadly offsetting impact of cash generated from
trading, net of corporation tax payments, and dividend payments
during the period which totalled £52.3m (2019: £56.2m). The
Company remains entirely bank debt free.

Dividend
A final ordinary dividend of 16.6p per share has been recommended
by the Directors and if approved by shareholders will be paid on
11 December 2020. This includes the 5.4p interim dividend that
was declared in March 2020 and subsequently cancelled due to
uncertainty created by Coronavirus. The final ordinary dividend will
be payable to shareholders whose names are on the register at the
close of business on 6 November 2020. Shares in the Company
will be quoted ex-dividend on 5 November 2020. The dividend
reinvestment plan (‘DRIP’) election date is 23 November 2020.

In line with the Company’s stated intention to return excess cash
to shareholders, a further special dividend payment of 7.6p has
been proposed. If approved this will also be paid on 11 December 2020
alongside the final ordinary dividend.

Graham Charlton
Chief Financial Officer
19 October 2020

Annual Report and Accounts 2020 Softcat plc

KPIs

Summary results and KPIs

The financial and non-financial key performance indicators, shown below, demonstrate
the Company’s progress against strategic goals and delivery of financial performance
and shareholder value. These metrics are referred to throughout this report and each
is discussed in more detail within the Chief Financial Officer’s Review on pages 28 and 29.

Financial

Revenue £m

Gross profit £m

Operating profit £m

2020

2019

2018

1,077.1

991.8

797.2

2020

2019

2018

235.7

211.1

175.2

2020

2019

2018

93.7

84.5

68.0

Strategic link

Comments
• Revenue includes all income from the
resale of third party software, hardware
and services, as well as the sale of the
Company’s own services.

Comments
• Gross profit comprises revenue net of

Comments
• Operating profit comprises gross profit

third party product costs, supplier rebates
and certain internal direct costs.

net of administrative expenses.

Link to Directors’ remuneration
• Operating profit is the sole KPI of

reference for the Executive Directors’
bonus, reflecting its central role in
measuring the delivery of in-year
shareholder value.

Gross invoiced income £m

Basic earnings per share p

Cash conversion %

2020

2019

2018

1,646.2

1,414.1

1,081.7

2020

2019

2018

38.2

34.6

27.9

2020

2019

2018

Comments
• Gross invoiced income reflects gross
income billed to customers adjusted
for deferred and accrued items and is
consistent with our previously applied
revenue policy.

Comments
• Basic earnings per share (‘EPS’) is

defined as profit after tax divided by
the number of shares in issue at the
balance sheet date.

Comments
• Cash conversion is defined as operating
cash flow before tax but after capital
expenditure, as a percentage of
operating profit.

Link to Directors’ remuneration
• Basic EPS forms 50% of the weighting
of the Executive Directors’ LTIP targets.

• Delivery of EPS growth will also contribute
indirectly to share price performance,
an important element in total shareholder
return (‘TSR’). TSR also forms 50% of the
weighting of the LTIP targets.

• The five-year average for cash
conversion is in excess of 90%,
reflecting the highly liquid nature
of the business operations and a
disciplined approach to working
capital management.

• Conversion was slightly lower in

2020 as planned due to extensive
refurbishment of the Marlow and
Manchester offices.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Non-financial

Link to strategy:

Employee engagement score %

Customer satisfaction %

Acquire more customers

Sell more to existing customers

People and culture

Operational excellence

Addressable market expansion

Read more in our Chief Financial
Officer’s Review; see
pages 28 and 29

2020

2019

2018

2020

2019

2018

Strategic link

Comments
• The employee engagement score is
derived from responses to an annual
survey of all staff.

• Enthusiastic and highly motivated
people form the very core of the
Softcat business model and
customer proposition.

Comments
• Customer satisfaction is defined as the
percentage of customers who rate
themselves as either ‘satisfied’ or ‘very
satisfied’ in response to an annual
survey (possible responses also include
‘dissatisfied’ and ‘very dissatisfied’). In
2020 the survey had 1,583 respondents
(2019: 1,526).

Gross profit per customer £’000

Customer base ’000

2020

2019

2018

24.8

23.0

19.9

2020

2019

2018

9.5

9.2

8.8

Strategic link

Comments
• Gross profit per customer is defined
as gross profit divided by the number
of customers.

• New customers are included in the

calculation and tend to create dilution
of the metric, but to a similar degree
from one financial year to another.

• The growth in this metric therefore
demonstrates the value created by
ever-deepening long-term relationships,
and the Company’s ability to sell an
increasing range of technologies
based upon genuine trust and loyalty.

Comments
• Customer base is defined as

the number of customers who have
transacted with Softcat in both of the
preceding twelve-month periods.

• Growth in this metric demonstrates
the ability of the sales force to win
new customers while also retaining
existing relationships.

• Important for both in-year performance

but also underpins future growth.

Annual Report and Accounts 2020 Softcat plc

Risk management

Risk management
AND SECURITY

The Board has established mechanisms to identify, evaluate and manage risks with
the aim of protecting its employees, customers and partners and safeguarding the
interests of the Company and its shareholders.

Our approach
The Board has overall responsibility for ensuring that risk is managed
and has identified the risks facing the Company and considered
the likely impact that each could have on the business. This has
enabled the Board to target risks on a prioritised basis.

Consideration of risks is set against a backdrop of a ‘risk appetite’,
which the Board considered during the year. The Company operates
a cautious approach to risk and in general its risk appetite is
relatively low. However, we also have a strong desire to grow our
technical capabilities, our customer base and our income. As a
result, we rely on our open culture to empower our employees
to develop the business and will review individual opportunities
as they arise. In situations where our financial and/or reputational
exposure is limited or can be mitigated, our appetite for risk in
order to achieve strategic growth may be higher.

Ownership for each risk has been assigned to a member of the
senior management team based upon alignment with operational
duties. Risk owners take responsibility for designing appropriate
internal controls and policies to mitigate the likelihood and
potential impact of the risk materialising.

A risk register is maintained which captures the assessment of each
risk together with existing controls and further actions in progress.
The risk register is reviewed periodically by both the Board and the
senior management team to ensure that it remains current as the
business and its markets evolve, and that controls remain effective
and actions are progressed. This process also identifies any
emerging risks.

Consideration of the risk profile is factored into strategic planning
and annual budgeting.

The Company’s internal control framework is based on a three lines
of defence model. The first line of defence comprises operational

Risk management framework

management, which is responsible for the direct management of
risk. This includes ensuring appropriate mitigating controls are in
place and that they are operating effectively. The second line of
defence is made up of the Company’s internal compliance and
oversight functions such as company secretariat, finance and legal.
The third line includes both internal and external audit reporting to
the Audit Committee.

As part of our second line of defence, the Company has also
established an Internal Controls Committee which meets twice a
year to review the findings of the internal audit function and ensure
follow-up on identified improvements, update key policies and
procedures and ensure internal training processes are adapting
designed provisioned. This Committee is led by the CFO and
includes representation from all key departments.

The Audit Committee receives reports from management and
the outsourced internal audit function on key areas of risk and
control and challenges management on the timelines and
effectiveness of corrective action. The Audit Committee also
considers the findings and recommendations of the external
auditor with regards to financial controls.

Set out below is the Board’s view of key risks currently facing the
Company, along with commentary on how this might impact us
and impact on our strategic goals and an explanation of how the
risks are managed or mitigated. We provide a view on the change
in risk compared to the prior year’s assessment. The Board confirms
that it has carried out a robust assessment of the Company’s emerging
and principal risks. There is a process in place to escalate promptly
any material emerging risk to the Chief Financial Officer so it may
be brought to the attention of the Board.

An explanation of how the Company manages financial risks
is also provided in note 21 to the financial statements.

STRATEGIC GOVERNANCE

BOARD

Remuneration
Committee

Audit
Committee

Nomination
Committee

Operational and
financial governance

First line
of defence

Second line
of defence

Third line
of defence

Senior management team

Operational management

Central support functions

Audit and risk function
(including internal audit,
risk management and
external advisers)

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Link to strategy:

Acquire more customers

Sell more to existing customers

People and culture

Operational Excellence

Addressable market expansion

Principal risks and uncertainties

Business strategy

Operational

Customer
dissatisfaction

Failure to evolve our
technology offering
with changing
customer needs

Cyber and data
security, including
GDPR compliance

Business
interruption

Change from 2019

No change

Slight increase

Slight decrease

Potential impacts
• Reputational damage
• Loss of competitive

advantage

Potential impacts
• Loss of customers
• Reduced profit per

customer

Management
and mitigation
• Graduate training

programme

• Ongoing vendor training

for sales staff

• Annual customer survey
with detailed follow-up
on negative responses

• Process for escalating
cases of dissatisfaction
to MD and CEO

COVID-19 consideration(s):
• Potential increase in the

rate of change in
customer needs

Management
and mitigation
• Processes in place to act
on customer feedback
about new technologies

• Training and development

programme for all
technical staff

• Regular business reviews

with all vendors

• Sales specialist teams
aligned to emerging
technologies to support
general account
managers

• Regular specialist and

service offering reviews
with senior management

Potential impacts
• Inability to deliver
customer services

• Reputational damage
• Financial loss

COVID-19 consideration(s):
• Increase in risk due to
number of employees
working remotely

Management
and mitigation
• Company-wide

information security policy

• Appropriate induction

and training procedures
for all staff

• External penetration
testing programme
undertaken

• ISO 27001 accreditation
• In-house technical

expertise

• Action plan to issue all

employees with corporate
devices and address
network access risks as
a result of increased
home working

Potential impacts
• Customer dissatisfaction
• Business interruption
• Reputational damage
• Financial loss

Management
and mitigation
• Operation of backup
operations centre and
datacentre platforms

• Established processes
to deal with incident
management, change
of control, etc.

• Continued investment
in operations centre
management and
other resources

• Ongoing upgrades

to network

• Regular testing of

disaster recovery plans

Link to strategy

Annual Report and Accounts 2020 Softcat plc

Risk management continued

Link to strategy:
Link to strategy:

Acquire more customers

Sell more to existing customers

People and culture

Operational Excellence

Addressable market expansion

Principal risks and uncertainties continued

Operational
continued

Financial

People

Macroeconomic
factors including
COVID-19 and Brexit

Profit margin
pressure including
rebates

Culture change

Poor leadership

Change from 2019

Increase

No change

Slight increase

No change

Potential impacts
• Short-term supply chain

Potential impacts
• Reduced margins

disruption

• Reduced margins
• Reduced customer demand
• Reduced profit per customer

COVID-19 consideration(s):
• Increase in risk due to the
uncertainty and economic
disruption

Management
and mitigation
• Close dialogue with supply
chain partners to ensure
all potential Brexit
scenarios are planned for

• Customer-centric culture
• Breadth of proposition
and customer base

• Additional customer
credit review process
introduced in response
to COVID-19

• No change in cash

receipts and conversion
to date

• Customer base is well
diversified in terms of
both revenue
concentration but also
public and commercial
sector exposure

Management
and mitigation
• Ongoing training for
sales and operations
teams to keep pace with
new vendor programmes

• Rebate programmes are
industry standard and
not specific to the
Company

• Rebates form an important,
albeit minority, element
of total operating profits

Potential impacts
• Lack of strategic direction
• Deteriorating vendor

relationships

• Reduced staff
engagement

Management
and mitigation
• Succession planning

process

• Experienced and broad
senior management team

Potential impacts
• Reduced staff
engagement

• Negative impact on
customer service

• Loss of talent

COVID-19 consideration(s):
• Slight increase in risk due
to remote working practices

Management
and mitigation
• Culture embedded in
the organisation over a
long history

• Branch structure with
empowered local
management

• Quarterly staff survey

with feedback acted upon

• Regular staff events and

incentives

• Enhanced internal
communication
processes and events
during the pandemic

Link to strategy

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Managing the impact of COVID-19
The COVID-19 pandemic took hold in the UK during the second
half of March 2020, midway through the third quarter of our
financial year. While, as discussed in other sections of this report,
the crisis has softened customer demand in some segments, it
has not fundamentally changed our industry and will indeed serve
as a catalyst for our market over the medium and long-term.

Softcat is a people business and our special culture is the beating
heart of our success. Each year we choose a word of the year to
try and create a focus for this culture in the twelve months ahead.
In September 2019 we chose the word ‘care’ for 2020, and with the
benefit of hindsight we couldn’t have made a more apt selection.

And we have found that our culture also creates a fantastic
support network in these challenging times. Since March, we
have focused on and increased our internal communications
even compared to our normal levels. We have also been able to
continue with much of our usual recruitment activity, and are
working hard to ensure new staff can be properly onboarded
and made to feel welcome.

Since the end of full lockdown we have been able to establish
very safe environments in our more than ample floorspace across
our nine locations in the UK and Ireland. We have operated a
voluntary return to office policy, giving people the flexibility to
choose an arrangement that is right for them, and carefully
controlled maximum occupancy to maintain an excellent ability
to socially distance. We expect this flexibility to continue for
some time and, while ultimately we will remain an office-based
organisation, we are carefully evaluating permanent alterations to
our flexible working model.

Softcat has a base of more than 9,000 recurring customers and
trades annually with in excess of 12,000 different entities. Our
normal processes to control our exposure to credit risk are carefully
calibrated and the business has a very low historic rate of bad debts.

So far during the pandemic we have not seen any change to this
outcome, but we have taken steps to prudently increase our
control and oversight in this area. This involves a bi-weekly review
of key credit exposures and metrics, and involves each of the
CEO, CFO and MD, as well as key members of the finance and
credit control team. The Company also operates a credit insurance
policy and closely collaborates with the insurer on risk management.
We also work closely with other expert third parties on the use of
data to map, monitor and control our risk in this area.

As well as not seeing any COVID-19 specific incidents of bad debt
so far, we have also continued to observe customer cash receipts
almost exactly in line with historic norms. And for this reason, our
cash generation has overall remained at our normal, very high levels.

Despite the lack of any adverse impact in working capital and
debt management to date, we will continue to operate with
increased scrutiny and control in these areas for the foreseeable
future, ensuring that the Company is as protected from risk as
possible. The business remains free of any bank or other
external borrowings.

While COVID-19 has created a short term impact on customer
spending patterns, there is nothing that we have seen so far to
suggest anything other than that our existing strategy remains
correctly calibrated for the times ahead. Our straight-forward
approach has always involved listening carefully to the needs of our
customers, and investing over the long-term to create a broad
and deep set of capabilities to support them. COVID-19 seems
to be accelerating the digital transformation of organisations, but
we have been investing to meet the needs of that transformation
for many years already.

Since our IPO in 2015, our business has approximately doubled in
size – both in terms of income but also in terms of people. All of
this growth has been organic, and the fastest area of growth
within our employee base has been in the technical areas. So our
skills as an organisation are well adapted to meet the challenges
that our customers now face, whether that be deploying cloud-based
software, or embracing hybrid models of datacentre infrastructure.
In fact, given our size, scale and financial strength, we intend to
continue with our inward, organic investment throughout these
challenging times and seek to enhance our competitive
advantage as a result.

Managing the impact of Brexit
The Company continues to monitor the progress of negotiations
with the EU and the evolving political situation in the UK. Management
is committed to maintaining robust plans to ensure the Company
is well prepared for any and all potential outcomes, including an
abrupt and disorderly no deal exit. Since the UK’s EU referendum
in 2016, the Directors do not believe the Company has suffered any
adverse effects from the Brexit process, but continue to assess the
changing severity of associated risks.

In particular, the Board has considered the following market and
competitive factors:

• Softcat operates in a highly fragmented but growing market.
Industry estimates place our market share to be c.3% with
market growth in recent years at 5–12%. As such, even in very
difficult market conditions our key strategic goals of winning new
customers and selling more to existing customers will remain
valid opportunities for growth.

• A significant proportion of Softcat’s revenue (c.30%) comes
from software renewals and subscriptions. In addition, much
of the income the Company earns from service and warranty
contracts is considered to be non-discretionary spend. These
factors may mitigate any downturn in customers’ IT budgets.

• Softcat competes in the UK labour market for graduate and
other new talent. Any downturn in the job market would
potentially increase our ability to recruit new team members.
We are committed to our long-term investment and growth
strategy and would not reduce our own recruitment efforts as
the result of macroeconomic shock.

Annual Report and Accounts 2020 Softcat plc

Risk management continued

Managing the impact of Brexit continued
The Company has also carried out a detailed review of
operational risks associated with Brexit. Overall the Board
considers the risk of operational disruption to be low as:

• We are a UK domiciled business with limited exposure to EU

customers or suppliers. Notwithstanding that limited exposure,
our office in Ireland, and our recently established base in the
Netherlands together with our continuing investment in multinational
fulfilment capabilities, further mitigates any risk in this area.

• While many of the products we sell have a cost price which

can fluctuate in relation to the strength of Sterling (especially
against the US Dollar), our customers are well used to accepting
such fluctuations being reflected by prices (i.e. costs can be
passed on by Softcat). This situation occurred in the aftermath
of the referendum vote in 2016 and the Company experienced
no reduction in either profit margin or customer demand as
a result.

• Our working assumption is that WTO tariffs will apply to UK

imports and exports with immediate effect from the end of the
Brexit transition period. The vast majority of the goods that we
supply will not be subject to tariffs but, where these do apply,
we anticipate that pricing changes will be passed down the
supply chain to customers.

• The risk of stock shortages resulting from customs delays is
being mitigated by the efforts of our suppliers to both secure
alternative import routes and build up additional inventory at key
distribution hubs in the UK. The response to the COVID-19
pandemic has demonstrated how we can work with our supply
chain to alleviate the impact of limited stock availability through
offering in-stock alternatives and expediting critical orders.

Our approach to managing the balance sheet has been conservative
and currently we have no bank debt. We therefore have no
refinancing or interest-related risks.

Viability statement
In accordance with the UK Corporate Governance Code, the
Directors have assessed the viability of the Group over a three-year
period to 31 July 2023, which is a longer period than the 12-month
outlook required in adopting the going concern basis of accounting.
This assessment period remains appropriate given the timescale of
the Company’s planning and investment cycle, including the impacts
in the short term caused by the COVID-19 pandemic. The Directors
confirm that they have performed a robust assessment of the principal
risks facing the Company as detailed on pages 32 to 34, including
those that will threaten its business model, future performance
and solvency or liquidity.

The Company’s revenue has grown on average 17% in the last
three years and GII has grown on average 25% in last three years.
This has been achieved by gaining market share through increasing
the number of customers as well as increasing spend per customer
year on year. The Directors note that the majority of Company’s
customers operate in sectors considered essential and which may
be less impacted by COVID-19. Against a backdrop of a global
response to COVID-19 the Company enjoys a large degree of
resilience to consequential downturns. The year to date trading
to the end of September 2020 shows growth in line with the base
case forecast.

The key factors supporting Softcat’s prospects, including
COVID-19, are included in the Strategic Report. Following the UK
outbreak of COVID-19 and subsequent lockdown period, the Board
reviewed and approved a recalibrated three-year forecast which
incorporated the expected impact of COVID-19 and this is the base
case for the viability assessment.

The assessment of the Company’s viability considers severe but
plausible scenarios aligned to the principal risks and uncertainties
set out on pages 32 to 34, and the assessment was based on
the severe but plausible scenario set out in our going concern
assessment, with modest growth forecast for FY22 and FY23.
The realisation of these risks is considered remote, considering
the effectiveness of the Company’s risk management and control
systems and current risk appetite. COVID-19 has been factored into
these risks and although the forecasted impact of the virus has not
changed the nature of the stresses applied to the base case, it has
increased their severity. The testing goes above and beyond the
impacts seen to date from COVID-19, including during the first
lockdown period.

The degree of severity applied in the viability scenarios was based
on management’s experience and knowledge of the industry to
determine plausible changes in assumptions. The most relevant
potential impact of the key risks on viability are:

• a substantial and sustained shortfall in revenue and gross
invoiced income compared to the budget and strategic
three-year plan resulting from, principally, a strong second
wave of COVID-19 in Q2/Q3 and thereafter a sustained
economic downturn;

• a substantial fall in achievable gross margins resulting from

margin pressure associated with an economic downturn and
increased competition for existing and new business;

• significantly increased levels of bad debt losses throughout the

modelled period; and

• an ongoing increase in the working capital cycle, specifically

driven by a delay in customer payments versus historical levels.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

The Company benefits from a flexible business model with a high
proportion of costs linked to performance, no warehousing of
unsold products and a low operating cost base, consisting of
mostly staff costs. The Company operates in a resilient industry
that incorporates an increasing level of non-discretionary spend
from UK corporates as IT has become vital to establish competitive
advantage in an increasingly digital age. In Public Sector, a fast-growing
area of the business, spending has also continued to be strong in
recent months and is expected to continue and be less sensitive to
COVID-19 in the short term than the Corporate market.

Financially, significant free cash flow generation and the strength
of the Company’s balance sheet provides comfort around the
ability to absorb the impact of the stress tests outlined above.

Confirmation of viability
Based on the analysis, the Directors have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
three-year period of their assessment.

The following stress testing over a three-year period has been
performed. (i) against the budget approved by the Board for the
2021 financial year; and (ii) against the remaining two financial
years (i.e. 2022 and 2022) of the three-year plan:

• an average 13% year-on-year reduction, compared to the

original budget and three-year strategic plan, in revenue and
gross invoiced income;

• reduced gross profit margins of between 1% and 2% year on year;
• bad debt writes offs of £35m across the forecast period; and
• extending the length of debtor days by three days for each of
the three years (thus negatively impacting on working capital).

The modelled stressed scenario above continues to include both
ordinary and special dividends in line with the dividend policy and
historical pay-out rates across the three-year period. Depending on
the severity of impact, if necessary, immediate mitigating actions
(for example, the ability to adjust the level of discretionary special
dividend) would be available for the Board’s consideration providing
opportunities for the business to make further decisions on the
cost base of the business.

Given the proximity of the December 2020 dividend payment, the
business also modelled mitigating actions that would be possible
to bring cash levels back in line with the desired minimum cash
level, following payment of both a final and special dividend. In this
scenario management could maintain the desired minimum cash
level for the 2021 financial year through the following:

• commission and bonus scaled back in line with performance;
• reduced salary costs, through recruitment restrictions on new

heads and replacing leavers;

• no interim dividend in H2 of FY21;
• savings in discretionary areas of spend;
• delay payments to suppliers foregoing early settlement

payments; and

• short term supplier payment management.

Annual Report and Accounts 2020 Softcat plc

Sustainability

Investing for our
SUSTAINABLE FUTURE

At Softcat we are taking more steps to ensure our business is a
sustainable one. This includes for the first time setting goals to
reduce the impact we have on the environment.

Gender breakdown (as at 31 July)

Ethnicity breakdown (as at 31 July)

BOARD OF DIRECTORS

TOTAL PERMANENT EMPLOYEES

2020

12+

Black, Asian and
Minority Ethnic: 12%

White British and
White Other: 88%

Softcat continues to take its
social responsibilities
seriously. We:
• strive to look after and develop
our employees, respecting and
celebrating our diversity;

• support a wide variety charitable
activities and are active in many
communities; and

• are committed to minimising our
environmental impact and have
set goals to achieve this.

2020 33+
50+

2019 17+

2018

Female: 33%

Female: 17%

Female: 50%

Male: 50%

Male: 67%

Male: 83%

EXECUTIVE LEADERSHIP TEAM

2020 8+
20+

2019 8+

2018

Female: 20%

Female: 8%

Male: 80%

Male: 92%

TOTAL PERMANENT EMPLOYEES

2020 30+
30+

2019 29+

2018

Female: 30%

Female: 29%

Female: 30%

Male: 70%

Male: 71%

Softcat plc Annual Report and Accounts 2020

50
+
H
67
+
H
83
+
H
88
+
H
80
+
H
92
+
H
92
+
H
70
+
H
70
+
H
71
+
H
Strategic report / Corporate governance / Financial statements

Our people
The last six months have been challenging for everyone and
throughout this time, we have tried to make sure that work is not
something that our people needed to worry about. We have focused
on ensuring that our word of the year, ‘Care’, has come through
loud and clear to our employees. When the COVID-19 ‘lockdown’
started, we quickly took the decision not to furlough anyone,
regardless of their role and responsibilities. By redeploying several
staff internally to help those teams that had increased workloads,
we were successfully able to balance the needs of each department.
Our new starters’ offers were honoured, albeit with some delays
to start dates. Everyone was enabled to work from home as soon
as possible with the practical support they needed for ensuring
they had the right equipment and IT resources. Managers were
encouraged to use the new tools available to them for regular
video calls with their teams and our day-to-day people processes
were quickly transformed, such as turning our selection methods
into virtual assessment centres and our new joiners receiving
online inductions.

Putting wellbeing at the forefront of our response, we increased
the mental health support offered to employees through our
mental health first aiders and additional external resources, whilst
also dramatically increasing our internal communications to
show our commitment to keeping everybody informed about the
business. We held all-hands calls with the Executive Leadership
Team to provide updates about topics such as pay rises and
return to office plans, and also transformed our annual Kick Off to
a virtual event so that we maintained business as usual as much
as possible. Furthermore, in order to reinforce our commitment
to the Softcat culture and demonstrate how important our
employees are to us, we have taken the opportunity to make the
office space in which we work as engaging and productive as it
can be, with three full refurbishments in Marlow, Manchester and
the South Coast taking place during the lockdown period.

Where possible, we have tried to maintain our regular cycle of
people activities over the course of the last financial year, starting
with a record number of hires in the first three quarters of the
year, totalling 393 new joiners. Our attrition rate is down 7% to
13% and we hope to sustain this going forward. We’ve seen another
fantastic set of results from our main employee engagement survey,
with our employee net promoter score rising 9 points to 53, with
scores over 50 being considered excellent by industry standards.

Despite having extremely positive employee satisfaction results
overall, one area that we wanted to develop in the last year has
been the skills of our line managers. Our employees have told us
that 121s and team meetings could be improved and combining
that with their desire to enjoy better personal development
opportunities, we have launched a new programme called
Management Essentials. Made up of several workshops aimed
at new and experienced managers, the course is providing our
managers with the foundation they need to offer the right level
of line management to their direct reports. Initial feedback on
the programme has been excellent, with further elements to be
launched in the coming months.

One of the things we’re most proud of is our Apprenticeship
scheme. The scheme continues to go from strength to strength
and we are increasing our hiring again this year with our biggest
ever intake of 45 new apprentices. To cement our status as a top
apprenticeship employer, we were delighted to be recognised
recently as the Best Apprenticeship Employer in the UK by
RateMyApprenticeship, climbing from sixth place last year.

Finally, we continue to build on the health and wellbeing strategy put
into place a few years ago, by recruiting more internal Mental Health
First Aiders and launching a new Employee Assistance Programme.

Annual Report and Accounts 2020 Softcat plc

Sustainability continued

Our people continued

Diversity
We have made significant progress with Softcat’s diversity and
inclusion strategy over the last 12 months. We are proud to say that
Softcat is an inclusive organisation and our employee networks have
worked hard to ensure that talking about gender imbalance,
sexual orientation and ethnicity is more normalised. However, despite
lots of activity, change in the make-up of our workforce remains slow.
We acknowledge that we need to continue to challenge our
recruitment processes, hiring decisions and retention strategies if we
are to meet our ambitions of becoming a more diverse employer.

Female representation across Softcat currently stands at 30.4%,
with females representing 24% of the management team. Our
‘Supporting Women in Business’ network has almost doubled in
size over the last year, with many members proactively working
on initiatives including a mentoring programme, female-only
recruitment events, gender-neutral job specifications and a
career returners programme.

This year we introduced our Black, Asian and Minority Ethnic
(BAME) network and the group has been active in shaping Softcat’s
views on the Black Lives Matter movement. Thanks to a 95%
response rate to an internal survey, we now have an improved
understanding of our ethnicity landscape. We are pleased to
report that 12.4% of Softcat’s employees identified themselves as
BAME, which is broadly the same as the UK-wide data produced
by the Office for National Statistics. We have signed the ‘Race at
Work Charter’ and have already met three of the five commitments,
as follows: Graeme Watt, CEO, has been appointed Executive
Sponsor for Race, we have captured our ethnicity data and will
be publishing progress on a regular basis, and we have committed
at board level to zero tolerance of harassment and bullying. The
two remaining commitments of making clear that supporting
equality in the workplace is responsibility of all leaders and managers
and taking action that supports ethnic minority career progression
are our focus areas going into the next financial year. In addition
to these commitments, this year for the first time, we will release our
gender pay gap in combination with our voluntary ethnicity pay gap.

Softcat plc Annual Report and Accounts 2020

New members of our Family Network in the last year

Our Pride Network has gone from strength to strength, with the
highlight of 2020 being Softcat’s Pride Week. This series of
events featured a #StrideForPride march, where we encouraged
Softcatters to get outside as they listened to our internal Pride
Panel, and also a Q&A with a family member of one of Softcat’s
employees talking about their transgender journey. Our Family
Network is also thriving, with over 50 new members in the last
year meeting regularly to discuss and debate topics that concern
working parents or those people who have caring responsibilities
outside of work.

We have achieved the Hampton-Alexander recommendation for
FTSE 350 companies to have 33% of their board made up of females
by 2020 by appointing two new female Board members, taking
our Board gender diversity to 50%. We have also achieved the
Parker Review target for FTSE 250 companies to have at least
one person of colour on their board by 2024. The Nomination
Committee of the Board regularly reviews progress and provides
feedback to management on diversity and inclusion. The CEO is
the executive sponsor for diversity and inclusion.

Looking ahead, our priorities are as follows: increase our
overall gender diversity, ensure that our Management team
(and subsequently Senior Management, Extended Leadership
and Senior Leadership teams) reflect our overall workforce diversity
in terms of gender and BAME employees, aim to ensure that female
and BAME candidates feature on shortlists for senior roles, and
insist that interview panels include diverse employees.

Strategic report / Corporate governance / Financial statements

Our responsibilities

Charity
Softcat strives to be an ethical and responsible workplace,
supporting all of our stakeholders. Our dedicated charity team
is responsible for managing corporate social responsibility at
Softcat with each office having at least two representatives. We
recognise the importance of giving back to the communities in
which we operate and strive to provide continuing support. This
financial year we raised just short of £60,000 (FY19: £400,000)
and our charity work has helped to raise over £2.4m to date.
Softcat’s annual Charity Ball was traditionally the major contributor
in our annual fundraising which was not possible given the
impacts and concerns around COVID-19 this year. To support the
COVID-19 crisis we launched our Tech for Good initiative and
rapidly delivered 200 4G enabled devices with an initial three-month
data plan to 50 care homes across the country enabling vulnerable
patients to stay in touch with their loved ones.

We continued to support an array of local, national and
international charities including: Mind, Bethesda Khankho
Foundation, Comic Relief, Macmillan Cancer Research, We
Love Manchester and Children in Need.

Next financial year, we plan to deliver some virtual fundraising
events to overcome the challenges caused by the COVID-19
restrictions of coming together in person.

Ethical behaviour
We do not operate a specific human rights policy at present. Our
policies and Code of Conduct already operate within a framework
to comply with relevant laws, to behave in an ethical manner and
to respect the rights of our employees and other stakeholders in
the business. Most of our business is focused in the UK and in
jurisdictions where human rights are generally observed.

We are conscious human rights risks exist within our business
and supply chain, including labour risk, unsafe workplace conditions
and bribery and corruption. We therefore continue to be compliant
with the annual reporting requirements contained within Section
54 of the Modern Slavery Act 2015, being a relevant commercial
organisation as defined by Section 54, and produced an updated
Modern Slavery Statement this year, which is available on our website.

Softcat operates a Supplier Code of Conduct (the ‘Supplier Code’),
used for all new major suppliers or in retendering, which addresses
ethical employment and labour rights issues associated with modern
slavery, and sets out the values and standards we expect of our
suppliers. The Supplier Code covers compliance with the Human
Rights Act 1998, Equality Act 2010, Bribery Act 2010, local health
and safety regulations, anti-bribery and corruption, anti-modern
slavery, and minimising environmental damage. Suppliers are
required to declare they support the Supplier Code or where they
have their own codes in place, confirm they are complying to a
similar standard.

We also operate a Speak Up hotline for all employees to widen
employees’ channels of raising any issues they may encounter.

This provides our employees with an externally provided, secure
and confidential channel to voice issues, in addition to internal
channels already available. We also operate an anti-bribery policy,
which was updated during the year along with a review of employee
training. The anti-bribery policy provides that we take a zero-tolerance
approach to bribery and corruption and that we are committed to
acting professionally, fairly and with integrity in all our dealings. The
policy also sets out the types of behaviour which are unacceptable
in the conduct of business and procedures to prevent bribery.
Underpinning our approach to ethical behaviour is our Code of
Conduct, which is applicable to all employees and to those who
work for or on behalf of Softcat. The Code of Conduct sets out the
expected standard of behaviour.

Softcat publishes twice-yearly details of its payment practices to
its trade suppliers. This is reviewed by the Board during the year
as part of the Directors’ wider responsibilities to consider how
Softcat impacts on its key stakeholders. We take a responsible
approach for these responsibilities and the vast majority of
invoices due are paid within the agreed terms.

The Company adopts an open and honest relationship when dealing
with government agencies. For example, during the year the Board
approved an update to Softcat’s tax strategy, which has been published
on our website (www.softcat.com/corporate-responsibility). The tax
strategy includes an outline of our approach to dealing with HMRC
and confirms that Softcat’s primary tax objective is to ensure that it
pays the right amount of tax, in the right jurisdiction, at the right
time, as dictated by legislation.

As a result of the hardship caused to many companies by the
COVID-19 outbreak, the Government announced a scheme
which would permit companies to defer VAT payments accrued
between March and June 2020 until March 2021. The Board
discussed the matter, considering its wider role as a corporate
citizen to pay taxes into the economy. As the Company had the
ability to pay, the Board approved that Softcat pay the deferred
VAT within the 2020 financial year.

Annual Report and Accounts 2020 Softcat plc

Sustainability continued

Environment and climate change

Introduction
Softcat recognises that it can be a better business by taking steps
to minimise its impact on the environment. The Board takes
ultimate responsibility for Softcat’s sustainability and the Chief
Executive Officer has the lead executive responsibility. During the
year the Company formalised its approach to sustainability and
this was reviewed and approved by the Board, as part of a wider
recognition of Softcat’s responsibilities to the environment.

The journey to formalising our approach began with a review to
identify and align Softcat to the most relevant areas of the United
Nations Sustainable Development Goals for our business. The review
concluded the goals shown opposite were most important
for Softcat:

Action on CO2
Softcat is making commitments and goals on its environmental
impact in the business and its supply chain. We have set a new target
over the longer term to become a net zero carbon business and
this will be achieved primarily by completing three key stages.

There will always be ways we can play our part towards a more
sustainable world and we are running a number of activities to
improve our environmental footprint, highlighted below. We are
pleased that some of these are now complete, whilst others are
still in progress.

GOAL

SUMMARY

ACTIVITY

PROGRESS

STAGE |
TIMING

Stage one
2022

Carbon net
zero

Stage two
2024

Stage three
2040

100%
renewable
energy

Carbon net
zero supply
chain

Softcat will use offsetting
schemes to offset its Scope 1
& Scope 2 emissions. We will
also offset selected Scope 3
emissions and will continue to
reduce GHG emissions produced.

Softcat will use where possible
green/renewable energy
across all office locations.

Softcat will work with its
supply chain to ensure that
they are committed to
becoming carbon net zero.

The Board also considered during the year the required
preparations for the Task Force on Climate-Related Financial
Disclosures, which will be mandatory from 2022. The Company
will be further enhancing its governance and risk management
on climate-related matters in the coming year.

Environmental initiatives
Softcat has had ‘Green Teams’ in place in its offices for several years.
The Green Teams are great at helping to drive awareness, innovative
ideas and co-ordinating events such as a Green Week. Some of
the activities which have had the support of Green Teams are
shown opposite. Softcat also embedded environmental matters
as part of a recent major refurbishment of its offices in Marlow,
Manchester and the South Coast. For example, we installed
motion-controlled lighting and increased the use of more energy
efficient hardware and items, all of which will drive down energy
usage across the Softcat office estate.

Softcat plc Annual Report and Accounts 2020

Reduce printing across all offices using
printing software solution

Reduce energy consumption through
new efficient lighting and technology

Electric vehicle chargers at Marlow HQ
for staff, visitors and pool cars

Two beehives installed on the roof of
Marlow HQ office

Zero plastic cups across all office locations

Upgrading of pool car fleet to
electric vehicles

Secure WEEE/Recycling of internal IT
once no longer required

Reduction in business travel

Reduction in the amount of
staff commuting

Renewable energy source across all
Softcat office locations

ISO 14001 Environmental Management/
ISO 50001 Energy Management

Science based targets pledging to
1.5 degrees

BAS 2060 – Carbon Neutral Accreditation

Supply chain review including all
vendors, suppliers and partners

Strategic report / Corporate governance / Financial statements

Solutions
Softcat leverages its expertise in IT through our solutions service
to help our customers be more sustainable. Solutions allow
customers to maximise the use of an asset and ensure that they
are supporting the circular economy through recycling, as well
ensuring their supply chain is as efficient as possible. Solutions
also support the key drivers of future sustainability – maintain,
refurbish and reuse. Softcat will continue to develop solutions in
line with vendor offerings and new sustainable developments.

SOFTCAT SOLUTIONS

Lifecycle Solutions

Logistics Solutions

Support Solutions

Lifecycle services consist of several
services that allow customers to manage
assets that are no longer required.

Logistics services enable efficient and
sustainable delivery of equipment through
a business as usual or project requirement.

Support services can enable the
support of equipment even if it has
become end of support with the
manufacturer. This can prolong the
life of equipment.

Regulatory disclosures

GHG emissions
Our emissions have been calculated using the GHG Protocol
Corporate Accounting and Reporting Standard (revised edition),
together with the latest emission factors from DEFRA and DECC.

• Scope 1 comprises emissions from our pool cars and natural

gas burnt in boilers we control.

• Scope 2 comprises our electricity consumption in leased and

owned buildings.

Softcat intensity measurements
We have chosen to present our total emissions relative to the
average number of employees, in order to represent how our
emissions are impacted by the growth of our business. We are
pleased to report a 43% reduction per employee.

tCO2e/£m
tCO2e/employee

GHG emissions

e
2
0
C

600

450

300

150

326

258

68
FY20

FY20

0.30
0.22

FY19

0.51
0.39

Scope 1

Scope 2

504

289

215

FY19

Softcat seem determined to take climate
action and make their business as sustainable
as possible. They are also inspiring their
suppliers, like Westcoast, to act and are
spearheading some excellent initiatives.
We are excited about what we can achieve
together and then take this to the wider
IT channel, inspired and led by Softcat.

Phil Bell
Sales Director, Westcoast Distribution

Energy consumption and energy efficiency
This disclosure is made in accordance with The Companies
(Directors’ Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018, which requires certain companies
to report on energy consumption and efficiency. This is the first
time Softcat has been required to make these disclosures
pursuant to the above regulations.

FY20 1.12m kilowatt hours
The above figure relates to Softcat plc, which is a single entity
company. It consists of the aggregate of the annual quantity of
energy: (i) consumed from activities; and (ii) consumed resulting
from the purchase of electricity or certain other energy products.
The figure was calculated following UK Government Environmental
Reporting guidelines including streamlined energy and carbon
reporting guidance (March 2019). The aggregate number includes
0.05m kilowatt hours in respect of the office in Ireland and the
remaining portion relates to energy consumed in the United
Kingdom. This Annual Report describes elsewhere measures
taken to increase energy efficiency.

GHG emissions are calculated using methods contained in the
GHG Protocol Corporate Accounting and Reporting Standard
using UK Government Greenhouse gas reporting: conversion
factors 2020.

Our offices were closed for some of the year in response to the
COVID-19 pandemic and during that time our employees worked
remotely from home. During this time there was also less use of
the pool cars. This has reduced the reportable level of emissions
and energy consumption in FY20, which is therefore not a
like-for-like comparison with the prior year and may impact
comparability for future years. Softcat plan to commit to
year-on-year reductions in emissions on a like-for-like basis.

Annual Report and Accounts 2020 Softcat plc

Introduction to corporate

In this section:

44 Introduction to corporate governance

46 Board of Directors

48 Governance report

55 Audit Committee report

63 Nomination Committee report

67 Remuneration Committee report

84 Directors’ report

Your Board continues to
demonstrate good governance
and oversight of its responsibilities
to its shareholders and
other stakeholders.

Martin Hellawell
Non-Executive Chair

Compliance with the UK
Corporate Governance Code

We have structured this year’s report in the following way,
based upon the principles set out in the 2018 UK Corporate
Governance Code, which is applicable for this financial year.

Board leadership and Company purpose

The Board is responsible for establishing Softcat’s purpose,
engaging and building strong relationships with our shareholders
and stakeholders and promoting the long-term success of Softcat.

Read more on pages 67 to 83

Executive leadership

Executive Leadership Team
• Focuses on strategy implementation, financial and competitive
performance, commercial developments, below Board-level
succession planning and organisational development.

Annual Report and Accounts 2020 Softcat plc

Governance report continued

What the Board did
THIS YEAR

Strategy

The development and implementation of Softcat’s strategy remained a key
focus for the Board. This has been covered in a number of ways including:
• general updates from the CEO;
• specific strategy review discussions with the Board in February 2020; and
• updates on critical items to support the growth of the business,

such as the implementation of a new finance system.

Stakeholder engagement

The Board knows the importance of being aware of the views of its
key stakeholders. These include our shareholders, employees,
customers and vendors. During the year we maintained our
engagement with stakeholders, which included the following:

• the Board discussed Sustainability with management, in particular

on the setting of longer-term environmental targets and the
responsibilities of the Board under the forthcoming Task Force
on Climate-related Financial Disclosures (‘TCFD’);

• we discussed feedback from investors’ and analysts’ meetings
following the release of our annual and half-year announcements.
We have an investor relations programme of meetings with existing
and potential shareholders;

• Vin Murria, as Softcat’s Designated Non-Executive Director for
Workforce Engagement, reported back to the Board on the
engagement sessions she had held with various staff in the business;
• the Board discussed the arrangements for remote working for

employees following the outbreak of the COVID-19 pandemic and
also the plans for a phased return to the office, compliant with
COVID-19 secure practices. The Board reviewed the highly positive
feedback from employee surveys on the support provided to
employees during the pandemic lockdown;

• the Chair undertook an investor engagement programme with our
top 50 shareholders and with the key proxy advisory agencies to
strengthen our mutual understanding of governance matters.
Martin updated the Board regularly;

• the Remuneration Committee Chair engaged with our top

shareholders on the Remuneration Policy which was proposed
and approved at the 2019 Annual General Meeting;

• the Board reviewed the outcomes of Softcat’s annual customer
satisfaction survey and the actions to further improve relations
with customers; and

• through the Audit Committee, we monitored Softcat’s performance
and disclosures on paying our trade creditors under the Payment
Practice legislation.

To see a full breakdown of our stakeholder engagements and the actions we
have taken from these, please see pages 18 and 19

• approval of an annual budget and forecast, followed by a report

each month comparing performance against budget and forecast;
• consideration of year-end and half year performance. Approval of

the publication of year-end and half year results;

• setting of a dividend policy. Determining whether an interim

dividend should be paid and proposals for a year-end dividend,
after taking into account performance, the Company’s financial
situation and the needs of the business and any other relevant
circumstances; and

• an update from the Company’s brokers on investor themes and

equity market matters.

Governance and risk

During the year the Board:
• considered potential downside scenarios on the performance of
the business at the beginning of the COVID-19 lockdown and the
prudent steps to mitigate business risk. This included securing
sources of additional financing should the need arise and agreeing
to cancel the interim dividend due to be paid in May 2020;
• reviewed reports on governance and legal issues, including

developments in corporate governance, succession planning
and executive remuneration;

• performed a review of Board effectiveness;
• approved the appointment of Karen Slatford as a Director;
• reviewed the Company’s risk appetite, principal risks and uncertainties;
• received updates on the potential impact of Brexit on the business

and our plans to prepare for it;

• considered changes to the delegation of authorities to

management; and

• received regular governance and regulatory updates. Approved

updates to policies reserved to the Board, such as the policy on
anti-bribery and corruption.

People, vision and values

During the year the Board:
• discussed with the CEO changes in the Executive Leadership Team;
• received regular updates on people and HR matters, including our

culture and diversity;

• considered the results of the annual employee survey and the

quarterly management team surveys;

• met management teams and employees in our Marlow, Bristol and

Manchester offices; and

• discussed the progress on refurbishments which have improved

the offices in the South Coast, Marlow and Manchester.

To read more see pages 24 and 25 and pages 38 to 40

Performance monitoring

Other

The Board has a robust process in place for setting expectations and
regular monitoring of business performance. During the year this included:

The Board has also:

• review and approval of a three-year plan at the same time as the strategy
review in order to provide a comprehensive longer-term outlook.
The three-year plan is subsequently refreshed as needed during
the year;

• approved the 2020 Annual Report and Accounts;
• approved the 2020 Notice of AGM; and
• received and reviewed monthly reports which analysed changes

in our key shareholder base.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Composition, succession and
EVALUATION

The Board is doing what it should do –
challenging where necessary but not nit
picking – and providing plenty of
encouragement and support.

Composition and succession
This is discussed in the report from the Nomination Committee
on pages 63 to 66.

Outcome
The outcome of the review was positive and concluded that the
Board and its Committees were functioning well, considering the
right issues and working in a transparent and constructive way.
Some of the points included:

• the Board was satisfied that there continued to be the right

level of focus on strategy, performance and culture;
• there has been a good additional effort and governance

demonstrated in the Board’s response to the COVID-19 outbreak;
• the Chair is performing well in his role and is working well with
the CEO. There is a clear separation of roles between the Chair
and CEO;

• the Non-Executive Directors who had joined most recently had

settled-in well and were making valuable contributions to
the Board;

• the regular interaction at Board meetings with other managers

across the business was very mutually beneficial; and
• good progress had been made in following up on the

recommendations arising from the Board evaluation in the
previous year.

There were no areas rated as poor in the review.

Recommendations
The Board was pleased with the outcome of the Board
evaluation, which reflects the Directors’ commitment to the
business and strong support processes for the Board. Some
minor areas for improvement were identified, which include:

• further increasing the Board’s focus on diversity;
• additional work on longer term succession planning and

composition on the Board;

• suggestions to maintain the focus on delivering growth over

the longer term;

• increasing the Board’s oversight on sustainability issues; and
• reviewing the format and content of certain Board/Committee
papers to improve the communication of key information.

The Company Secretary has prepared an action plan based on
the recommendations. Progress on the actions will be reviewed
by the Board during the coming year and an update will be
provided in next year’s Annual Report.

Process
Each year the performance of the Board is assessed through
an evaluation exercise. The process this year was conducted
internally (the Board having conducted an external evaluation
process in 2019). The key stages of the process were:

Stage 1

The Board agreed that the process for the year would be
conducted internally. The Company Secretary discussed
a process with the Chair and it was agreed to circulate a
questionnaire for completion by each member of the Board.

Stage 2

The Company Secretary circulated a draft questionnaire to
the Board to make sure it captured all the relevant issues
for the Board to consider. A final version was circulated and
each director completed and returned the questionnaire.
The questionnaire asked each director to rate various
topics using a four point rating system (poor, adequate,
good, excellent). Directors were also asked to provide
additional comments to each question to give a more
qualitative view.

Stage 3

The Company Secretary collated the responses and
presented with the Chair the results to the Board. Individual
responses were anonymised. The Board discussed the key
points and conclusions from the review.

Stage 4

An action plan was prepared to address points of improvement
recommended in the review. Progress will be tracked
during the year.

Annual Report and Accounts 2020 Softcat plc

Governance report continued

Good governance
OPERATION OF THE BOARD

Dividend and distributions policy
The Board is responsible for:

• setting Softcat’s dividend policy;
• deciding on the Company’s capital structure; and
• approving any key decisions in respect of capital allocation.

In respect of dividends, the Board approves the interim dividend
and recommends the final and any special dividend for shareholders’
approval. Softcat’s dividend policy remains a progressive one
which targets an annual dividend of between 40% and 50% of
the Company’s profits after tax in each financial year before any
exceptional items. Subject to any cash requirements for ongoing
investment, the Board will consider returning excess cash to
shareholders over time. In determining the level of dividend in
any year in accordance with the policy, the Board also considers
a number of other factors that influence the proposed dividend,
which include but are not limited to:

• the level of available distributable reserves in the Company;
• future cash commitments and investment needed to sustain

the long-term growth prospects of the business; and

• potential strategic opportunities.

Softcat’s constitution does not limit or oblige the Company to any
minimum or maximum dividend payments. However, no dividend
may exceed the amount recommended by the Directors and all
dividends shall be paid in accordance with any relevant legislation.

The Audit Committee on behalf of the Board reviews the distributable
reserves of the Company as part of its half-year and full-year
reviews. The Board then considers the Audit Committee’s review as
part of its process to approve or recommend dividends. Consideration
is also made of the balance on the retained earnings reserve, which
as at 31 July 2020 amounted to £135.7m (as disclosed in the
Statement of Financial Position).

In March 2020, the Board considered it prudent that given the
highly unusual economic circumstances presented by the COVID-19
outbreak, the 2020 interim dividend (due for payment in May
2020) should be cancelled. The decision was made foremost
with the long-term success of the Company in mind, to protect
the Company’s cash position and to maintain flexibility around
the timing of dividend payments in relation to the financial year.
The Board continued to monitor the performance of the business
and announced in August that the Company continued to trade
satisfactorily during the final three months of the financial year
and had delivered operating profit for the full year slightly ahead
of the Board’s expectations. As cash generation had remained
strong, the Company confirmed its intention to resume its normal
dividend policy and timetable. This included payment of the
interim dividend previously cancelled.

A special dividend is also proposed and has been calculated to
increase the approximate minimum cash holding of the business
from £30m to £45m. This change partly reflects the increase in
the size and scale of the business since IPO and is considered
prudent in light of the uncertainty created by COVID-19.

Further information in respect of the proposed dividends can be
found on page 29.

Softcat plc Annual Report and Accounts 2020

Softcat is well positioned to continue to fund its dividend which
is well covered by the cash generated by the business. Details of
the Company’s continuing viability and going concern can be
found on pages 36 and 37 and pages 90 and 91 respectively.
Details of total dividend distributions for the financial year can be
found in note 6 to the financial statements.

The Company intends to seek shareholders’ approval at the 2020
AGM to permit the Directors, should they consider exercising the
authority, to repurchase up to 10% of the ordinary issued share
capital. The Directors have no current intention of exercising this
authority, which is sought in the best interest of shareholders to
allow the flexibility to react promptly where such market
purchases may be desirable.

Board development and support
The Chair is responsible for ensuring that all Non-Executive
Directors receive ongoing training and development, with the
assistance of the Company Secretary. All Directors are provided
with frequent briefings of current and relevant issues. Topics
during the year included changes in UK corporate governance
reform, audit reform, sustainability and environmental reporting
and regulatory updates, diversity, Brexit and changes in narrative
reporting and in accounting regulations which may affect our
published financial statements. The Board also receives updates
on our public reporting commitments, such as gender pay gap
reporting, creditor payment practices and risks of modern slavery.

Where a new Director has been appointed, it is important to
accelerate their learning of the business so the Director can
contribute more effectively to the Board and can undertake their
responsibilities successfully. An extensive induction programme
was prepared and tailored following the appointment of
Karen Slatford. The programme included meetings with the
Chair, Chief Executive, Chief Financial Officer, members of the
Executive Leadership Team, members of the Human Resources
Team and the Remuneration Committee’s external adviser.

In addition, all Directors have the opportunity to approach the
Company Secretary (who acts as Secretary to the Board and all
its Committees) for advice. The Company Secretary is appropriately
qualified and highly experienced and is responsible for advising
the Board on certain regulatory, legislative and governance
matters and other ad hoc issues when required. Each Board
meeting includes an update from the Company Secretary on
any major developments of which the Board should be aware.
The role of the Company Secretary also includes:

• assisting the Chair by organising induction and training

programmes and ensuring that all Directors have full and
timely access to all relevant information;

• working with the Directors to develop the long-term agenda

for the Board and its Committees to enable them to discharge
their responsibilities effectively; and

• ensuring that the correct Board procedures are followed.

The removal of the Company Secretary is a matter for the Board
as a whole.

Strategic report / Corporate governance / Financial statements

• A summary of the actions arising at Board and Committee
meetings is circulated by the Company Secretary following
each meeting. The Company Secretary then ensures progress
is made in respect of each action.

• Financial updates with commentary are distributed to the
Board monthly. This gives the Directors the opportunity to
review performance and any emerging issues in ‘real time’.

• The development of strategy is led by the executives with

input, challenge, examination and ongoing testing from the
Non-Executive Directors.

• Board discussions are held in an open and collaborative

atmosphere of mutual respect allowing for questions, scrutiny
and constructive challenge. This supports decisions on which
the Board seeks a consensus.

Independence and conflicts
The Board, excluding the Chair, is currently comprised of
three Independent Non-Executive Directors and two Executive
Directors and therefore complies with the independence
requirements of the 2018 UK Corporate Governance Code.
Martin Hellawell was formerly the Chief Executive Officer before
being appointed as Chair in April 2018. The Board considers for
the purposes of the Code that he was not independent when he
was appointed Chair and that he remains not independent.

The independence of the Non-Executive Directors is reviewed
annually by the Nomination Committee (described in the
Nomination Committee Report on pages 63 to 66). Their
independence could be impinged where a Director has a conflict
of interest, and the Board therefore operates procedures to
identify and manage situations where such a conflict could arise.
An element of the procedure operates to restrict a Director from
voting on any matter in which they have a material personal
interest unless the Board unanimously decides otherwise and,
where necessary, Directors are required to absent themselves
from a meeting of the Board while such matters are being discussed.

During the year, all Directors confirmed that they are able to
allocate sufficient time to discharge their responsibilities effectively
and all Directors continue to devote adequate time to their duties
at Softcat. Directors are also required to notify the Board of any
major changes to their external commitments that arise during
the year with an indication of the time commitment involved.

Annual Report and Accounts 2020 Softcat plc

Role of the Non-Executive Directors
All of Softcat’s Non-Executive Directors, including the Chair and
SID, are required by their role to perform certain functions to
improve the effectiveness of the Board. In particular they:

• constructively challenge and contribute to the development

of strategy;

• offer additional perspectives, advice and strategic guidance;
• scrutinise the performance of management in meeting agreed

goals and objectives;

• have oversight to ensure compliance with key listed

company requirements;

• through the Audit Committee, satisfy themselves that financial
information is accurate, and that internal controls and systems
of risk management are robust;

• through the Remuneration Committee, take responsibility for
determining appropriate levels of remuneration for senior
executives; and

• through the Nomination Committee, undertake the role of
recommending the appointment and, where necessary, the
removal, of positions on the Board and on diversity and
succession planning.

Organisation of Board meetings
The following are key features of how our Board and Committee
meetings are organised to support the good governance of
the business:

• Board meetings are scheduled to consider issues requiring
Board oversight and adequate time for discussion of each
agenda item is provided. Agendas are set to provide the
Directors with opportunities to discuss the longer-term outlook
of the business. Additional meetings are arranged when the
need arises.

• An annual calendar of scheduled Board and Committee
meetings is structured to allow the Board/Committees to
review cyclical and ad hoc items, such as key projects.

• Non-Executive Board members make themselves available
outside of the usual calendar of scheduled meetings should
the need occur. In particular, the Chairs of the standing
committees often hold preliminary planning discussions
with the Company Secretary, management or external
advisers to a committee prior to a meeting.

• Reporting packs are provided for each Board/Committee
meeting, which are designed to be clear, analytical and
concise. Papers are distributed and retained in an electronic
system which is managed by the Company Secretary and this
provides Directors with instant access to papers at any time.

• Reporting packs are normally prepared and presented by the
Executive Directors and other senior managers. Packs are
distributed by the Company Secretary to the Board around five
days in advance of Board meetings. This enables the reporting
packs to be as up to date as possible whilst allowing sufficient
time for their review in advance of the meeting. Verbal updates
cover any subsequent material developments.

Governance report continued

Relations with
SHAREHOLDERS

The Board ensures that it has a proactive and constructive
programme of engagement with its stakeholders and recognises
within this the important and valuable role that shareholders play.
Further information on the Board’s engagement with its stakeholders
is provided on pages 18 and 19. In respect of shareholders, the
Chair undertook an extensive engagement programme with the
Company’s largest shareholders during the year on governance
matters. Feedback from these sessions was reported back to the
Board to make sure the Board fully understood their views and
had discussed whether any actions should be taken as a result.

As part of an ongoing investor relations programme, there was
extensive interaction with institutional shareholders and market
analysts across the year. The Chief Financial Officer provides the
Board with briefings and reports on these interactions and on any
material changes in the shareholder base of the Company.

In the event that shareholders have any concerns, which the normal
channels of communication to the Chair or Chief Executive have
failed to resolve or for which contact is inappropriate, our Senior
Independent Director or any independent Non-Executive Director
is available to address such issues. The Board continues to make
itself available, when requested, for meetings with shareholders
on issues relating to the Company’s governance and strategy.

Annual General Meeting
The 2020 Annual General Meeting will be held on 10 December
2020 at Softcat plc, Fieldhouse Lane, Marlow SL7 1LW. Details of
the meeting and the resolutions to be proposed are set out in the
Notice of AGM which is available to download on our website
(www.softcat.com/investors). Please see the Directors’ Report
(page 92) in respect of important information prohibiting the
attendance of shareholders at the 2020 AGM.

The Board ensures that it has a proactive
and constructive programme of engagement
with its stakeholders and recognises within
this the important and valuable role that
shareholders play.

Shareholder meetings
Throughout the year, numerous meetings and conference
calls were held with existing and potential shareholders. These
meetings were attended by either the Chief Executive or the
Chief Financial Officer or sometimes both. The meetings focus
primarily on trading operations and the implementation of our
business strategy. Any significant views expressed are recorded
and reported to the Board to keep them up to date with shareholder
and investor sentiment. Strict protocols are observed to make
sure that no unpublished price sensitive information is discussed
during these meetings.

Results roadshows
Following the release of our full-year preliminary results announcement
and our half-year results, the Chief Executive and Chief Financial
Officer undertake extensive investor engagement roadshows
(which may be virtual, due to social distancing requirements
under arrangements to prevent the spread of COVID-19). Analyst
presentations from our announcements are available on our website.

Softcat plc Annual Report and Accounts 2020

Audit Committee report

Strategic report / Corporate governance / Financial statements

ACCOUNTABILITY

Members

R Perriss (Chair)

K Slatford

V Murria

Attendance of the Audit Committee

Committee attendance 2020

Name

R Perriss

V Murria

K Slatford

Total meetings held

Attended

Did not attend

N/A

Peter Ventress stepped down from the Board on
31 December 2019. He attended all Audit Committee
meetings during the year before he stepped down.
Karen joined the Board on 5 December 2019 and she
has attended all Audit Committee meetings to date.

The Committee fulfils a vital role in the
Company’s governance framework,
providing valuable independent
challenge and oversight.

Introduction
As Chair of the Audit Committee (the ‘Committee’), I am pleased
to present the Committee’s report for the year ended 31 July 2020.

The Committee fulfils a vital role in the Company’s governance
framework, providing valuable independent challenge and
oversight of the accounting, financial reporting and internal
control processes, risk management, the outsourced internal
audit function and the relationship with the external auditor.
These pages outline how the Committee discharged the
responsibilities delegated to it by the Board over the course
of the year, and the key topics it considered in doing so.

Areas of focus in 2020 included:
• reviewing the appropriateness of our published half year and

full-year results;

• reviewing the application of financial reporting and

governance standards including management’s approach to
key areas of financial judgement and the use of Alternative
Performance Measures relating to the reporting of revenue;

• assessing the Company’s going concern and viability

statements, including the impact of COVID-19;
• confirming that the Annual Report is fair, balanced

and understandable;

• receiving regular updates in relation to the implementation
of a new finance system to support greater automation and
further strengthen the financial control environment as the
Company continues to scale and grow;

• reviewing the effectiveness of internal audit, internal controls

and risk management;

• evaluating the effectiveness and independence of the

external auditor;

• receiving and discussing detailed internal audit reports on
order fulfilment, legal compliance and anti-bribery and

corruption compliance; and

• reviewing the detailed audit risk universe developed by our

internal auditor in conjunction with management, which was
used as a basis to help develop the 2021 internal audit plan.

Annual Report and Accounts 2020 Softcat plc

Audit Committee report continued

Accountability continued

Focus areas for 2021
• giving consideration to the recommendations of Brydon’s

independent review of the quality and effectiveness of audit
published in December 2019 and any changes to the external
audit approach required; and

• ongoing monitoring of the progress and costs to date versus
the detailed project plan associated with the implementation
of the new finance system.

The Committee has reviewed the content in the Annual Report
and believes that this explains our strategic objectives and is fair,
balanced and understandable. We have considered the impact of
COVID-19 on our business and you will find important detail on
this in other sections of the Annual Report (see page 35).

Whilst this Report of the Audit Committee contains some of the
matters addressed during the year, it should be read in

conjunction with the external auditor’s report starting on page 94
and indeed the Softcat plc financial statements in general. At the
2019 AGM, shareholders approved the Board’s recommendation
to reappoint Ernst & Young LLP (‘EY’) as our external auditor.
The Committee has carried out a review of the effectiveness
and independence of EY and has recommended to the Board
that they are reappointed at the 2020 AGM.

I will be happy to answer any questions about the work of the
Committee at the forthcoming AGM.

Robyn Perriss
Chair of the Audit Committee
19 October 2020

Responsibilities

The Board has approved terms of reference for the
Committee which are available at softcat.com/investors and
in hard copy form from the Company Secretary. These
provide the framework for the Committee’s work and can be
summarised as providing oversight of the:

• appropriateness of the Company’s external financial reporting;
• relationship with, and performance of, the external auditor;
• Company’s system of internal control, including the risk

management framework, key and emerging risks and the
work of the internal audit function; and

• Company’s system of compliance activities.

The terms of reference were reviewed and refreshed during the
year to ensure that they continue to reflect good governance.

A whistleblowing policy and procedure for
colleagues to raise issues regarding possible improprieties in
matters of financial reporting or other matters is in place and
operated throughout the year.

The Company operates anti-bribery procedures which
support compliance with the UK Bribery Act. During the year
the Board reviewed and approved an updated anti-bribery and
corruption policy, which reflected changes in recent legislation
and the current training provided to selected employees.

The Committee also reviews the Company’s published tax
strategy and during the year considered and approved an
updated version. The tax strategy is available on the Company’s
website at www.softcat.com/corporate-responsibility.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Membership
The membership of the Committee has been selected with the
aim of providing the range of financial and commercial expertise
necessary to meet its responsibilities and the membership meets
the requirements of the UK Corporate Governance Code 2018
(the ‘Code’), which is applicable for the financial year ended
31 July 2020. Given my experience as a qualified Chartered
Accountant and as a recent finance director of a listed UK
company, I have been designated as the financial expert on
the Committee for the purposes of the Code.

Financial reporting
The Committee’s primary responsibility in relation to the Company’s
financial reporting is to review with both management and the
external auditor the appropriateness of the half-year and annual
financial statements concentrating on, amongst other matters:

• the quality and acceptability of accounting policies and practices;
• material areas in which significant judgements have been

applied or where significant issues have been discussed with
the external auditor;

• the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance
reporting requirements, including the UK Corporate
Governance Code;

• any correspondence from regulators in relation to our financial

reporting; and

• assisting the Board in an assessment of whether the Annual

Report, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Company’s position and prospects, performance,
business model and strategy. This assessment forms the basis
of the advice given to the Board to assist it in making the
statement required by the UK Corporate Governance Code.

Accounting policies and practices
The Committee received reports from management in relation
to the identification of critical accounting judgements and key
sources of estimation uncertainty, significant accounting policies
and proposed disclosure of these in the 2020 Annual Report.
The Committee’s review of IFRS 16 (Leases) is explained below
and there were no other material changes to significant accounting
policies during 2020. The Committee also discussed the impact
and implementation of IFRIC 23 (Uncertainty over income tax
treatment) but noted that did not have a material impact.

Following discussions with management and the external auditor,
the Committee approved these critical accounting judgements,
significant accounting policies and disclosures which are set out
in note 1 ‘Accounting policies’ to the financial statements.

Vin Murria and Karen Slatford both have considerable sector
experience, in accordance with Code provision 24. Furthermore,
in order to ensure that the Committee continues to have
experience and knowledge relevant to the sector in which
Softcat operates, all of the Non-Executive Directors receive
regular updates on business, regulatory, financial reporting,
governance and accounting matters. Changes to the
membership of the Committee during the year are shown
on page 55 and all members are Independent Non-Executive
Directors of the Company. The Company Secretary acts as
Secretary to the Committee.

How the Committee operates
The Committee met three times during the year and each meeting
had full attendance. Meetings of the Committee generally take
place on the same day as the Board meeting to maximise the
efficiency of interaction with the Board. Following a review of
the Committee’s workload and duties, particularly considering
the time required to assess the Company’s system of internal
control and risk management framework, the Committee
concluded that the number of meetings shall increase to four
times a year during 2021.

The external auditor, EY, is invited to each meeting together
with the Company Chair, the Chief Executive, the Chief Financial
Officer (‘CFO’), the Company Secretary and Grant Thornton
(who provide an internal audit service to Softcat). This means that
each member of the Board is present at Committee meetings.
However, I shall as needed report to the Board as a separate
agenda item on the activity of the Committee and matters of
particular relevance to the Board in the conduct of the Committee’s
work. The Board as a whole regularly reviews the performance of
the business via monthly reporting packs and a CFO’s report at
each Board meeting. This provides the Committee with a good
ongoing understanding of the financial standing of the business
which accumulates towards the formal half-year and full-year results.

The Committee sets time aside periodically to seek the views
of the external auditor, in the absence of management. The
Committee also meets separately with the internal auditor during
the year and in between meetings the Chair keeps in touch with
the CFO and other members of the management team.

Annual Report and Accounts 2020 Softcat plc

Audit Committee report continued

Accountability continued

Adoption of IFRS 16 (Leases)
The Committee discussed with management the adoption of IFRS 16, which applied to Softcat for the first time in the year ended
31 July 2020. The new standard requires the Company’s leased assets to be recorded as ‘right of use assets’ in the Company’s Statement
of Financial Position. The Committee reviewed and was satisfied with management’s assessment of the impact of IFRS 16 on the
Company’s balance sheet. EY had reviewed management’s assessment of the adoption of IFRS 16 and reported on the outcome of their
review to the Committee. The above provided the Committee with comfort that an appropriate approach had been taken on the
adoption of IFRS 16.

Significant judgements and issues
An important part of the Committee’s responsibilities is to assess key issues in respect of published financial statements and the
Committee pays particular attention to any matters which it considers may affect the integrity of Softcat’s financial statements, with
a view to satisfying itself that each matter has been treated appropriately. The significant areas of focus considered and the actions
taken by the Committee in relation to the 2020 Annual Report are outlined below.

We discussed these with the external auditor during the year and, where appropriate, these have been addressed as areas of audit
focus as outlined in the Independent Auditor’s Report on pages 94 to 101.

Matter considered

Action

Going concern and viability

The Committee has recognised the exceptional and wide-ranging impact of COVID-19 and potential
for impact as final Brexit arrangements are concluded. Both matters have been discussed regularly
during the year by the Board. Given this, management prepared additional analysis and more severe
downside scenarios than in previous years in respect of the Company’s going concern and longer-term
viability. This was presented together with potential mitigating actions which could be taken in the
event of one or more of the downside scenarios occurring. The Committee was satisfied with management’s
work on the matter and supported the conclusions reached in respect of the Company’s going concern
and longer term viability (see pages 36 and 37 and pages 90 and 91 respectively).

IFRS 16 (leases)

See above.

Inappropriate revenue
recognition: misstatement
of revenue recognised at
or near year end

The Committee has reviewed the Company’s revenue recognition policy and discussed in detail with
management the processes applied to accurately record revenue at period ends. The Committee also
receives detailed monthly reporting on business performance which includes revenue recognition data
and trends. The Committee discusses the performance and data trends as needed with the CFO. The
Committee has concluded that the timing of recognition is in line with current IFRS requirements.

Misstatement of rebate
income

Application of IFRS 15

The Committee has taken steps to understand the nature and quantum of supplier rebates received
by the Company. The Committee receives management information on rebates accrued as part of
monthly performance reporting and monitors trends against prior period results. The Committee is
satisfied with management’s ability to accurately record rebates earned within the financial period.

The Committee is aware that inappropriate application of IFRS 15 may result in erroneous presentation
and disclosure of revenue. EY has audited the disclosure of IFRS 15 and presented the results of their
procedures to the Committee. The above provided the Committee with comfort that an appropriate
and consistent approach continues to be taken on the presentation of revenue under IFRS 15.

Other matters
The Committee also undertook a range of further activities in relation to the Company’s accounting and external reporting in the year:

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Fair, balanced and understandable
The processes and controls that underpin the Committee’s assessment of whether the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to assess the Company’s position and prospects, performance,
business model and strategy include ensuring that:

• all team members who provide a material contribution to drafting the Annual Report and Accounts are fully briefed by the Company

Secretary on the fair, balanced and understandable requirement;

• an experienced core team is responsible for the co-ordination of content submissions, verification, detailed review and challenge;
• the Annual Report and Accounts follows a framework which supports the inclusion of key messaging, market and performance

overviews, principal risks and other governance disclosures. Sufficient forward-looking information is also provided and a balance is
sought between describing potential challenges and opportunities;

• information in the different parts of the Annual Report is consistent;
• the Annual Report is written to avoid jargon where possible and is presented free of unnecessary clutter;
• senior management confirms that the content in respect of its areas of responsibility is considered to be fair, balanced and

understandable; and

• the Committee receives an early draft of the Annual Report to enable timely review and comment.

Following its review, the Committee is of the opinion that the 2020 Annual Report, taken as a whole, is fair, balanced and understandable
allowing the Committee to provide positive assurance to the Board to assist it in making the statement required by the Code.

Going concern and viability statements
The Committee has reviewed the Company’s ability to continue to operate as a going concern for the 12 month period post the date
of this report and the Company’s assessment of viability over a period greater than 12 months. In assessing viability, the Committee
has considered the Company’s position presented in the budget and three-year plan recently approved by the Board. In the context
of the current challenging environment as a result of COVID-19, a COVID-19 scenario was applied to the plan, as well as the modelling
of additional sensitivities. These were based on the potential financial impact of the Group’s principal risks and uncertainties and the
specific risks associated with the COVID-19 pandemic and a more uncertain macro-economic environment. The Committee has
concluded that these assumptions are appropriate. The Committee has also reviewed the Group’s reverse stress test using a downside
scenario. Further details are set out in the statements on pages 90 and 91 and pages 36 and 37 respectively of this Annual Report and
the Committee confirms that, following review, it has recommended both statements for approval by the Board.

The Committee received regular updates on the steps taken by management to secure liquidity for the likely duration of the crisis and
recovery period beyond. These include the formal agreements reached with HSBC in April providing a revolving loan facility of £50m
(which expires in April 2021) and confirmation as an eligible issuer under the UK Government’s Covid Corporate Financing Facility
(‘CCFF’). The Committee is satisfied that the increased liquidity risk because of the impact of COVID-19 has been reduced by these
measures.

External audit
The Committee has primary responsibility for overseeing the relationship with, and performance of, the external auditor. This includes
making the recommendation on the appointment, reappointment and removal of the external auditor, assessing its independence on
an ongoing basis and negotiating the audit fee.

Annual Report and Accounts 2020 Softcat plc

Audit Committee report continued

Accountability continued

Auditor appointment
The Committee is responsible for making recommendations to the Board in relation to the appointment of the external auditor.
EY was appointed as auditor of the Company in July 2013. The current external audit engagement partner is David Hales, who has
held this role since August 2017. A timeline setting out the tenure of EY as auditor is set out below:

External audit tendering timeline

Prior to July 2013
Rayner Essex LLP
conducted the
external audit
immediately prior
to FY 2013

July 2013
EY appointed
as auditor and
conducted the
external audit
for FY 2013

November 2015
Softcat becomes a
publicly listed entity

August 2017
Mandatory
appointment
of new audit
lead partner
after five years

July 2023
Competitive tender
will take place by
this date, being
ten years since
last audit tender

The Committee continues to review the auditor’s appointment
and the need to tender the audit, ensuring the Company’s best
interests are considered and ensuring compliance with reforms
of the audit market by the UK Competition and Markets Authority.
Accordingly, the Company confirms that it complied with the
provisions of the Competition and Markets Authority’s Order 2014
for the financial year under review. There are no contractual
obligations restricting Softcat’s choice of external auditor.

For the financial year ending 31 July 2020, the Committee has
recommended to the Board that EY be reappointed under the
current external audit contract and the Board has endorsed
that recommendation. The Board has therefore proposed the
reappointment of EY at the Annual General Meeting to be held
in December 2020. There are currently no active plans to
commence a tendering for the external audit.

Audit risk
At the start of the audit cycle we received from EY a detailed
audit plan identifying its audit scope, planning materiality and
assessment of key audit risks.

The audit risk identification process is considered a key factor in
the overall effectiveness of the external audit process, and the
key risks for the 2020 financial year closely align to the significant
judgements and issues above. The key risks identified were:

• inappropriate revenue recognition;
• presentation of revenue in respect of IFRS 15;
• misstatement of rebate income; and
• going concern and viability.

Should the need ever occur, the Committee has the authority
to request for additional areas to be reviewed if it is deemed to
be relevant for the integrity of Softcat’s financial statements.

EY also outlined other areas of audit focus which included
a combination of standing matters usually associated with an
external audit each year and additional matters which reflect
potential changes in Softcat’s risk profile, such as exposure to
Brexit. Key audit risks are regularly reviewed by the Committee
or the Board.

Working with the external auditor
The external auditor attended all Committee meetings in 2020
and received all Committee reading papers and minutes. We hold
private meetings with the external auditor to provide additional
opportunity for open dialogue and feedback from the Committee
and the auditor without management being present. The external
auditor has direct access to the Chair to raise any concerns
outside formal Committee meetings.

Softcat plc Annual Report and Accounts 2020

Matters typically discussed include the external auditor’s assessment
of business risks, the transparency and openness of interactions
with management, confirmation that there has been no restriction
in scope placed on it by management, the independence of its
audit and how it has exercised professional scepticism.

Effectiveness of the external audit process
The Committee reviewed the quality of the external audit
throughout the year and considered the performance of EY.
The effectiveness of the external audit process is dependent
on a number of factors. These include the quality, continuity,
experience and training of audit personnel, business understanding,
technical knowledge and the degree of rigour applied in the
review processes of the work undertaken, communication of key
accounting and audit judgements, together with appropriate audit
risk identification at the start of the audit cycle. The Committee
also took into account an assessment of the firm-wide audit quality
inspection report issued by the FRC in July 2020 together with
EY’s responses to that report.

Prior to the conclusion of the audit for the 2020 financial year,
the Committee conducted an effectiveness evaluation of the
external auditor. The evaluation was led by the Committee Chair
and involved issuing tailored evaluation questionnaires which
were completed by the Committee, selected managers in the
Finance team who regularly work with EY and Grant Thornton (as
internal auditor). The results of the survey provided useful
feedback to the Committee and confirmed that overall, EY
continued to perform their role well. Minor areas were highlighted
to further improve the working relationship with the Committee
and the Company and these will be considered by EY.

Based on the above, the Committee concluded that there had
been appropriate focus and challenge on the primary areas of
audit focus from EY and concluded that the performance of
EY remained efficient and effective.

Independence and objectivity
The Committee has a policy governing the engagement of the
external auditor to provide non-audit services. This precludes
EY from providing certain services. The policy was reviewed and
updated during 2020 and can be found at softcat.com/investors/
our-governance/. All non-audit services provided by the external
auditor are reported to the Committee and a record is kept so
that the total costs regarding non-audit work during a financial
year are monitored.

For certain specific permitted services, the Committee has
pre-approved that EY can be engaged by management, subject
to the policy set out above, and subject to a total 10% of the
current external audit fee on an annual basis.

For all other services or those permitted services that exceed
these specified fee limits, I, as Committee Chair, or in my absence
another Committee member, can pre-approve permitted services.

The Committee also received confirmation from EY that there are
no relationships between the Company and EY that may have a
bearing on its independence.

In respect of the audit of the 2020 financial statements, the
Committee considered the ongoing fee proposal and, following
the receipt of formal assurance that its fees were appropriate for
the scope of the work required, agreed a charge from EY of
£350,000 for statutory audit services. The Committee had
discussed with EY the reasons for an increase in fees compared to
the prior year, which included the increased audit effort required
to audit a business which had continued to grow over the years.

In addition to the statutory audit fee, EY and related member firms
charged the Company £13,500 for audit-related services primarily
in connection with the audit of corporate governance updates
and the audit of the transition to adopting IFRS 16. The Committee
agreed a fee of £30,000 in respect of EY’s review of the 2020
half-year results, which was classified as a non-audit fee. Further
details of the fees paid, for audit and non-audit services, to EY for
the 2020 and 2019 financial years can be found in note 3 to the
financial statements.

The Committee is aware of the requirements of the Statutory
Auditors and Third Country Auditors Regulations 2016 (the ‘2016
Regulations’). The 2016 Regulations provide for a cap on non-audit
services of a maximum of 70% of the average of the audit fees
paid on a rolling three-year basis. In order to ensure this limit is
not exceeded, the Company shall in usual circumstances seek
that permitted non-audit fees shall not exceed 50% of the average
audit fee over the three preceding financial years in each case.
The three-year measurement period covers the 2018, 2019 and 2020
financial years and is 10.4%, which is considerably below the cap.

Strategic report / Corporate governance / Financial statements

Internal control and risk management
The Committee has the primary responsibility for the oversight
of the Company’s system of internal control, including the risk
management framework and the work of the internal audit
function (see below). During the year the Committee closely
monitored the Group’s internal control and risk management
systems and received regular reports from management and the
internal audit team covering the major risks and/or events faced
by the business.

Assessment of the Company’s system of internal
control, including the risk management framework
The Company’s risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Committee. Our activity here was driven primarily by the
Company’s assessment of its principal risks and uncertainties,
as set out on pages 32 to 34.

The Company has in place an internal control environment to
protect the business from the material risks which have been
identified. Management is responsible for establishing and
maintaining adequate internal controls over financial reporting
and we have responsibility for ensuring the effectiveness of
these controls.

The Committee has completed its review of the effectiveness
of the Company’s system of internal control, including risk
management, during the year and up to the date of this
Annual Report, in accordance with the requirements of the
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting published by the FRC.

Through the processes outlined above, the Audit Committee
has considered all significant aspects of the Company’s risk
management and internal control systems for the year and up
to the date of this Annual Report allowing it to provide positive
assurance to the Board to assist it in making the statements
required by the UK Corporate Governance Code. No significant
failings or weaknesses were identified as a result of the review
that may significantly impact the financial statements. However,
had there been any such failings or weaknesses, the Committee
and the Board confirm that necessary actions would have been
taken to remedy them.

Annual Report and Accounts 2020 Softcat plc

Audit Committee report continued

Accountability continued

Internal audit
The Company/Softcat has an internal audit function which is fully
outsourced to Grant Thornton LLP (‘Grant Thornton’). The aim of
the internal audit function is to provide independent and objective
assurance on the adequacy and effectiveness of internal controls,
risk management and governance processes. The appointment
and removal of the internal audit function is a matter reserved to
the Committee.

Monitoring and review of the scope, extent and effectiveness
of the activity of the Company’s internal auditor is regularly
considered by the Committee. Management discusses with
Grant Thornton the selection of appropriate areas and controls
within the business for internal audit. This is then presented by
Grant Thornton as a proposed annual internal audit plan prior to
the start of each financial year. The audit plan is then reviewed
and approved by the Committee. The Committee then receives
updates from Grant Thornton on the audits and receives an audit
report on each audit undertaken, which includes the results of
their audits, recommendations for changes and management
action plans to address any unsatisfactory audits or recommendations.
The Committee also receives from management regular progress
updates on previously undertaken audits in order to ensure those
actions have been completed or closed.

The internal audit plan for 2020 covered a broad range of core
financial and operational processes and controls, focusing on
specific risk areas. Specialist reviews were undertaken in the
following areas:

• the order fulfilment function which has seen significant growth
in the volume and value of orders processed over the past few
years with a specific focus on buyer and supplier performance
management and insurance agreements;

• legal compliance to understand how Softcat ensures

compliance with enacted and changing legislation and
industry standards; and

• anti-bribery and corruption policy compliance given that
Softcat operates as a service and sales organisation in an
industry with increased inherent risk of bribery and corruption.

Approach to developing the 2021 internal audit plan
During the year Grant Thornton, working closely with management
and the Board as a whole, completed a detailed review of the
audit universe. This universe highlighted the various functional
areas within Softcat, the person or persons with overall functional
ownership, the associated key processes and the related principal

or emerging risks. In addition, it highlighted where internal audit
work has taken place previously. It was then used as basis of
development of the 2021 internal audit plan helping to ensure
alignment with the risks facing the business and the current
assessment of the control environment. It will also help
in determining and prioritising other areas for internal audit
review beyond 2021.

During 2021 reviews are planned in the following areas:

• end user IT asset management and Bring Your Own Device
controls operated by Softcat. This is particularly relevant in
light of Softcat employees working remotely from home since
late March as a result of COVID-19;

• supplier rebate framework and calculation; and
• assurance in relation to the implementation of the new finance
system, given the significant investment cost and that it is viewed
as a key platform to support Softcat’s growth ambitions.

Effectiveness of the internal audit process
Grant Thornton has access to the relevant documentation,
premises, functions and employees to enable it to perform
its activities.

Grant Thornton is a major professional services firm with experience
in consulting, assurance and audit and the relationship with the
Audit Committee is led by an experienced partner of Grant Thornton.
The Committee recently undertook a review of the effectiveness
of the internal audit function. The evaluation was led by the
Committee Chair and involved issuing tailored evaluation
questionnaires which were completed by Softcat management
who had worked recently with Grant Thornton, EY (as external
auditor) and the Committee. The evaluation concluded that
Grant Thornton had a sound appreciation of the key issues facing
the business and that the internal audit function continues to
provide the quality, experience and expertise appropriate for
the business. Minor recommendations arising from the evaluation
to further improve the internal audit process will be considered
by Grant Thornton.

Robyn Perriss
Chair of the Audit Committee
19 October 2020

Softcat plc Annual Report and Accounts 2020

Nomination Committee report

Strategic report / Corporate governance / Financial statements

EFFECTIVENESS

Members

V Murria (Chair)

M Hellawell

R Perriss

K Slatford

Attendance of the
Nomination Committee

Name

Committee attendance 2020

V Murria

M Hellawell

R Perriss

K Slatford

Total meetings held

Attended

Did not attend

N/A

Peter Ventress retired from the Board on 31 December 2019
and he attended all Nomination Committee meetings for the
year until his retirement. Karen Slatford joined the Board on
5 December 2019 and she attended all Nomination Committee
meetings for the year following her appointment.

I am delighted to present my first report as
Chair of the Nomination Committee.

Committee Chair’s introduction
I am delighted to present my first report as Chair of the Nomination
Committee (the ‘Committee’). I took over from Martin Hellawell as
Chair of the Committee in March 2020 (see below for more details)
and I thank Martin for his excellent chairing of the Committee;
I will do my best to carry on his good work. This year has seen
a period of consolidation in terms of composition of the Board.
Two Non-Executive Directors have joined since 2019 and they
have settled in very quickly and are adding tremendous value to
the discussions and decisions made by the Board. The Committee
has also had a number of discussions on diversity and, whilst some
progress is being made, there is more still which can and will be
done. More details on the above are in the report which follows.

If any shareholders or proxy voting advisory agencies would like
to raise any matters with me in respect of the Committee, I can
be contacted via the Company Secretary at cosec@softcat.com.

Membership, meetings and operation
of the Committee
The members of the Committee are set out above and all the
members are Non-Executive Directors. The biographies of the
members of the Committee can be found on pages 46 and 47.
The Chief Executive Officer, Chief Financial Officer and
HR Director are invited to attend meetings where appropriate.
The Committee met three times during the year and meetings
generally take place on the same day as the Board meeting to
maximise the efficiency of interaction with the Board. If needed,
the Committee Chair will report to the Board, as a separate
agenda item, on the actions taken by the Committee. The
Company Secretary acts as Secretary to the Committee.

Annual Report and Accounts 2020 Softcat plc

Nomination Committee report continued

Effectiveness continued

Membership, meetings and operation
of the Committee continued
The key responsibilities of the Nomination Committee (the
‘Committee’) are to advise on appointments to the Board, to
review Board composition and to review succession planning
both for the Board and for senior management. The Committee
also reviews and provides feedback on the initiatives to improve
diversity and inclusion. Carrying out these responsibilities are
critical to ensure the Board and wider business have plans in place
to have the best available talent to drive the Company forward.

The Committee decided earlier in the year it would be better
practice for an independent director to chair the Committee and
agreed I should take on this additional duty. I believe this change
will be welcomed by our shareholders as representing a further
improvement in the Board’s governance processes.

Any Director who intends to join the Board is required to disclose
all significant outside commitments prior to appointment.
On joining the Board, Non-Executive Directors receive a formal
appointment letter, which, amongst other things, identifies the
time commitment expected of them. Each Director continues
to devote sufficient time to meet their Board responsibilities.

The Committee considered and recommended that each Director
willing to stand for re-election be proposed for reappointment at
the 2019 AGM. The Board endorsed all the appointment and
reappointment recommendations of the Committee.

Key activities during the year

The calendar of activities below provides an overview of the
key topics for the Committee during the year.

October 2019
• Appointment of Karen Slatford as a Non-Executive Director
• Appointment of Karen Slatford as the Senior

Independent Director

• Approval of the 2019 Nomination Committee Report
• Recommendation to reappoint Directors at the 2019 AGM

March 2020
• Review of Board composition and skillset
• Recommendation to change Committee Chair

July 2020
• Review of diversity and inclusion
• Recommendation to update the Committee’s Terms

of Reference

September 2020
• Discussion of succession planning
• Review of Board composition and skillset

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Board appointments
I am pleased with the progress made this year on the
Board’s composition.

In light of Peter Ventress’ decision to step down as Non-Executive
Director (with effect from 31 December 2019), the Committee
commenced a search to find a replacement. When considering
a suitable replacement, the Committee firstly considered the
current composition, expertise and skills of the Board, the Board’s
strategic priorities and the attributes best required to complement
the Board. The Committee then prepared a detailed description
of the role required for Peter’s replacement. We worked with an
external executive search firm, Spencer Stuart, and our own
network of potential candidates. Spencer Stuart has no other
business relationship with the Company. As the Committee
is committed to the Board having a diverse mix, we will only
engage with search firms which have signed up to the relevant
Voluntary Code of Conduct for Executive Search Firms on
gender diversity and best practice. Spencer Stuart subscribes
to both the Standard and the Enhanced Voluntary Code of
Conduct for Executive Search Firms. By using such firms the
Committee can maximise the ability to consider a wide range
of suitable candidates.

At the conclusion of the process, Karen Slatford stood out
as the outstanding candidate, particularly with her in-depth
sector knowledge and her highly extensive experience as a
Non-Executive Director. The Committee was delighted that
Karen accepted the Board’s invitation to join in December 2019
as a Non-Executive Director, Senior Independent Director and
Chair of the Remuneration Committee.

Karen was provided with an extensive, full and tailored induction
programme, prepared by the Company Secretary and overseen
by Martin Hellawell as Company Chair. This included meeting
with the Executive Leadership Team, senior managers in the
Human Resources team and with PwC, the Remuneration
Committee’s external adviser. There was also a comprehensive
handover with Peter Ventress (as the former Remuneration
Committee Chair) and a briefing from the Company Secretary
so that Karen could quickly assume the responsibilities of the
Chair of the Remuneration Committee.

The Board, particularly after taking into account the two
Non-Executive Directors who have joined since 2019, has a
diverse range of skills, experience, tenure, personalities and
backgrounds. I believe that combination works well and provides
the right mix of challenge and support to the business. We strive
to maintain a balance to optimise the size of the Board. Whilst
there are many benefits to running a relatively small Board, the
Committee has discussed the potential benefits of adding a
further Non-Executive Director, if that person would add further
significant value to the Board’s effectiveness, skillset and
expertise. We have created a matrix to consider what particular
attributes, skills and experience would be most valuable if we
were to appoint a further Non-Executive Director and we are
keeping this matter under review.

Succession planning
Succession planning is very important to the Committee and
we have given particular attention this year to longer term
succession planning for the Chair, CEO and CFO. We regularly
review our plans and will consider both internal and external
potential candidates.

The appointment of two new Non-Executive Directors since 2019
has improved overall succession planning and created a more
robust and diverse mix of tenure on the Board. Previously, most
of the Non-Executive Directors had been appointed broadly at
the same time and this had created a potential ‘bottleneck’
as their Board retirement dates were also similar. The recent
appointments therefore remove the bottleneck. The Committee
will continue to review the likely retirement dates on the Board as
part of its longer-term succession planning and Board
composition refreshment.

The Committee works with the HR Director and the CEO and
reviews at least annually the plans which are in place for orderly
succession planning on our Executive Leadership Team. We have
a strong talent pipeline and training and development programmes
to prepare managers for more senior roles. The review also
considers how we are developing a more diverse pipeline
amongst the leadership roles. The formal succession planning
reviews are in addition to regular updates provided by the CEO
to the Board on changes in the Executive Leadership Team.

Board member review process
Martin Hellawell as Company Chair is responsible for conducting
an annual review process of the CEO and each Non-Executive
Board member. The CEO performs a similar process with the CFO.
The review processes gather additional feedback to support the
good running of the Board. The Board also conducted an internal
Board effectiveness review which resulted in a positive assessment
of the Board’s performance but equally some valuable pointers
on how to make further improvements. More information on this
year’s internal effectiveness review can be found in the report on
Corporate Governance on page 51.

Karen Slatford, as the Senior Independent Director, led a meeting
of the Non-Executive Directors, without the Company Chair present,
to discuss the Company Chair’s performance. The Non-Executive
Directors confirmed that they continued to be happy with Martin’s
performance and are fully supportive of his role. We believe the
current structure is working well for the Company, our shareholders
and our stakeholders.

As a result of the above review processes and following further
consideration by the Committee, we have recommended to the
Board that each Director be proposed for reappointment at the
AGM to be held in December 2020.

Annual Report and Accounts 2020 Softcat plc

Nomination Committee report continued

Effectiveness continued

Diversity and inclusion
The Board and the Committee devotes significant time to the
issue of diversity and inclusion in the Company. We have made
progress in this area at Board level and management realises the
importance and benefits of creating a more diverse workforce at
all levels in the Company. This is a long-term endeavour and we
recognise it as such.

The Committee is supportive of and recognises the importance
of diversity and inclusion both for the effective functioning of the
Board and more widely in the Company. The Board has a diverse
range of experience by way of expertise and background and it
recognises the benefits that different viewpoints can contribute
to better decision making. The Hampton-Alexander Review
recommended a target for FTSE 350 companies to reach at least
33% of their board and leadership teams to comprise females.
I am pleased to report that the Board now meets this target, but
more progress is needed in respect of our leadership team. The
Board also meets the recommendation set by the Parker Review
that boards should have at least one person of colour. Whilst we
have reached some of these targets, the Committee has not set
a quota in terms of the diversity mix on the Board as the primary
criteria for an appointment is that it is made on merit and the
best fit with the Board. Executive management have committed
to drive for better diversity in the coming years.

It is acknowledged that there is more work to be done to improve
diversity within our Executive Leadership Team and in other areas
of the business and plans to achieve this has been discussed
with the Committee. The Committee has also received briefings
on the initiatives to improve inclusion in the business and the
Company employs a dedicated resource to co-ordinate our
diversity and inclusion efforts. The briefings received by the
Committee included not only diversity regarding gender, but
also on ethnicity, sexual orientation, disability and updates on
various inclusion activities such as supporting family wellbeing
outside of work. More information about diversity and inclusion
in the business can be found in the Sustainability section of this
Annual Report on pages 38 to 40.

Assessment of the independence of the
Non-Executive Directors
The Committee and the Board are satisfied that the external
commitments of the Company Chair and the other Non-Executive
Directors do not conflict with their duties and commitments as
Directors of the Company. Our Directors must:

• report to the Board any material changes to their commitments;
• notify the Company Secretary of actual or potential conflicts or
a change in circumstances relating to an existing authorisation; and

• complete an annual conflicts questionnaire.

Any conflicts identified are considered and, as appropriate,
authorised by the Board.

Each year the Committee reviews the independence of the
Non-Executive Directors. All Non-Executive Directors (excluding
the Company Chair) are currently considered independent.

Documents available for inspection
Non-Executive Directors are appointed for an initial three-year
term, extendable by a further two additional three-year terms.
The letters of appointment for Non-Executive Directors and
the service contracts of the Executive Directors are available to
shareholders for inspection at the Company’s registered office
during normal business hours (subject to any ongoing restrictions
due to the COVID-19 pandemic). Due to restrictions arising from
the COVID-19 pandemic, we are asking shareholders not to
attend the 2020 AGM and service contracts/letters of appointment
will not be available for inspection at the 2020 AGM. Copies can
be sent to shareholders on request.

The formal responsibilities of the Committee are set out in terms
of reference. During the year the Committee reviewed an update
to the terms of reference, which was subsequently approved by
the Board. The Committee’s Terms of Reference are available at
www.softcat.com/investors.

Vin Murria
Chair of the Nomination Committee
19 October 2020

Softcat plc Annual Report and Accounts 2020

Remuneration Committee report

Strategic report / Corporate governance / Financial statements

Letter from Committee Chair
REMUNERATION

Members

K Slatford (Chair)
R Perriss
V Murria

Attendance of the
Remuneration Committee

Name

Committee attendance 2020

K Slatford

V Murria

R Perriss

Total meetings held

Attended

Did not attend

N/A

Peter Ventress stepped down from the Board on
31 December 2019 and he attended all Committee meetings
for the year until the time he stepped down. Karen Slatford
joined the Board on 5 December 2019 and she has since
attended all Committee meetings during the year. In addition
to the five meetings, there was one formal written resolution
considered and passed by the Committee during the year.

The Committee has considered the impact
and uncertainty caused by the COVID-19
pandemic when considering executive
remuneration for the year.

Dear shareholder
I am very pleased to present my first report as Chair of Softcat’s
Remuneration Committee (the ‘Committee’). I would like to thank
Peter Ventress, the former Committee Chair, for all his hard work
over the many years.

Business performance
This has been a very challenging year for Softcat, which like many
other businesses has had to adjust to the significant impact and
uncertainties caused by the COVID-19 pandemic. In this context,
the Committee and the Board have been very encouraged that
Softcat adjusted rapidly to the many changes and has continued
to perform well. You will see our performance and progress
explained in more detail in the Strategic Report but I would like
to pick out some key achievements, which are a credit to the
business given the exceptional circumstances:

• Revenue growth:
• Gross profit growth:
• Operating profit growth:
• Employee engagement:
• Customer satisfaction:

12%

11%

93%

97%

Remuneration Policy (the ‘Policy’)
A new Policy was approved by shareholders at the 2019 AGM with
a vote of 98.6% and I would like to thank our shareholders for giving
the Policy such a high level of support. The Policy incorporated the
recommendations and good points of practice set out in the 2018 UK
Corporate Governance Code. Given all the work that was invested in
introducing the new Policy, this year has been one of consolidation
and operation rather than further change. Following assessment by
the Committee, we consider that the Policy is still fit for purpose.
As such, no changes to the Policy are proposed for the 2020 AGM.

Remuneration outcomes during the year
During the year, the Board regularly reviewed Softcat’s financial
performance and we confirmed in a trading update announcement
in August 2020 that operating profit for the full year was slightly
ahead of the Board’s expectations. This resilient performance
resulted in a credible achievement in many of the Company’s KPIs
(outlined on pages 30 and 31), including performance against our
operating profit targets, leading to 72% of the maximum annual
bonuses being earned by the Executive Directors.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Letter from Committee Chair – Remuneration continued

Remuneration outcomes during the year continued
Good performance has of course been sustained for the past few
years and during the financial year the Long Term Incentive Plan
(‘LTIP’) awards granted in 2016 vested. The Committee assessed
the vesting outcome for the LTIPs and concluded that maximum
targets had been exceeded against the performance metrics of
total shareholder return (‘TSR’) and earnings per share (‘EPS’).

Looking forward, the LTIPs granted in 2017 are due to vest in late
2020. Based on current performance, I would expect the LTIPs
when they vest to exceed the threshold performance conditions
(EPS and TSR), which were set and announced at the time of grant.
The Committee will as usual determine the extent to which the
performance conditions have been met, along with any other
relevant matter before formally concluding on the vesting outcome.

During the year the Committee concluded that all long-term
incentive and annual bonus outcomes were appropriate. This
conclusion was reached after taking into account relevant matters,
such as the performance of the business and the alignment
between the Executive Directors and the wider workforce in
respect of annual variable pay for the year. The Committee
confirms that it did not exercise any discretion to alter any
remuneration outcomes for the Executive Directors.

Main activities during FY20

September 2019
• Discussion on FY20 annual bonus and LTIP measures
• Update on proposed 2019 Remuneration Policy
• Review of proposed consultation with major shareholders

on the 2019 Remuneration Policy

• Review of the 2019 Gender Pay Gap Report
• Review of initial draft of the 2019 Report from the

Remuneration Committee

October 2019
• Update on consultation with major shareholders on the

2019 Remuneration Policy

• Consideration and approval of the proposals for the

grant of LTIPs to Executive Directors for FY20 and other
share-based awards to senior managers below Board level

• Review and approval of the annual bonuses awarded to

Executive Directors for FY19

• Review and determination of vesting outcomes for LTIPs

granted in 2016

• Consideration of the annual bonus arrangements for the

Executive Directors for FY20

• Approval of the 2019 Remuneration Report and proposal of

2019 Remuneration Policy to shareholders

• Review of achievement against share ownership targets for

the Executive Directors

March 2020
• Discussion of arrangements for the annual Company-wide

pay review for FY20

Softcat plc Annual Report and Accounts 2020

• Corporate governance updates and reviews on various

remuneration trends and current practices

May 2020
• Review of market practices in respect of remuneration

performance metrics

• Update on remuneration below Board level across the Company
• Review and discussion of the market impact of COVID-19 on

executive remuneration

July 2020
• Update on remuneration below Board level across the Company
• Approval of a proposed approach and timing in respect of

annual bonus and LTIP awards for FY21

• Corporate governance update for listed companies on

recent remuneration trends

Regular or standing items at each Committee meeting include:
• Approval of previous Committee meeting minutes and

review of follow-up on outstanding actions

• Governance updates for Committee review or approval.

During the year this included reviews of:
• the Committee’s terms of reference;
• the outcomes of shareholder voting on the 2019

Remuneration Report and 2019 Remuneration Policy; and

• remuneration-related aspects of the 2018 UK Corporate

Governance Code.

The Company Secretary also prepares a twelve-month rolling
plan for the Committee so that matters can be planned and
considered over the longer term.

Strategic report / Corporate governance / Financial statements

In conclusion
The Committee continues to focus on ensuring that our
remuneration arrangements remain fit for purpose and take into
account any relevant internal or external factors as appropriate.
We aim to preserve a good alignment of interests between our
shareholders and our management team.

The Annual Report on Remuneration (pages 70 to 83) together
with this letter will be subject to an advisory shareholder vote at
the forthcoming AGM on 10 December 2020. I trust that I can
count on your continued support. If shareholders do wish to
discuss any issues about executive remuneration, I can be
contacted via the Company Secretary at cosec@softcat.com.

Karen Slatford
Chair of the Remuneration Committee
19 October 2020

Notes:
This report has been prepared in accordance with Schedule 8 to the
Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 as amended and the provisions of the current Corporate
Governance Code and the Listing Rules. The report consists of two sections:

• the Annual Statement by the Remuneration Committee Chair; and

• the Annual Report on Remuneration, incorporating:

– an ‘at a glance’ section summarising our proposed Remuneration

Policy, including proposed changes; and

– details of payments made to the Directors and details of the link
between Company performance and remuneration for the 2020
financial year.

The Chair’s Annual Statement and the Annual Report on Remuneration will
be subject to an advisory vote at the AGM to be held on 10 December 2020.

What we have done during the year
As a result of changes in structure of the remuneration packages
for both the CEO and CFO in previous years, their incentives have
become more closely aligned to the market, but the value of each
still remains below median of the FTSE 250 external comparator
data. The Remuneration Policy approved by shareholders in 2019
allows the Committee to increase the incentive quantum above
the current levels. The Committee determined that no such
increase was required nor appropriate during the year. However,
this must of course be kept under review to ensure that
remuneration is competitive, reflective of the Company strategy
and aligned with shareholders and within the constraints of our
agreed Policy.

The calendar activities (page 68) summarises the areas of focus
and actions for the Committee during the 2020 financial year, all of
which were within the framework of the current Remuneration Policy.

Changes in executive remuneration
The Committee has considered the impact and uncertainty
caused by the COVID-19 pandemic when considering executive
remuneration for the year. We continued to receive regular
updates on remuneration across the workforce to ensure the
Committee’s deliberations were well informed. Softcat has been
very considered in its approach to make sure the Company
properly supports and is fair to its employees, customers and
other stakeholders during the pandemic. A decision was taken
not to furlough any employees, despite the business challenges
and uncertainties.

Each year the Company considers whether to award rises in basic
pay across the workforce, in order to maintain the competitiveness
of our rewards. However, management have taken a prudent
approach so far this year to conserve cash in the business and
agreed to freeze pay rises across the Company for all but the
lowest paid staff (those earning less than £25,000 per annum).
The Committee continues to follow an approach which takes into
account pay and conditions throughout the organisation and to
ensure ongoing alignment, the Committee agreed that the same
pay rise freeze should also apply to the Executive Directors. It also
applies to the Company Chair and all Non-Executive Directors.

Mindful of the hardship caused in many communities by
COVID-19, the Board unanimously agreed to donate to a charity
of their choice a value equivalent to 20% of their base salaries/
fees over three months.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part A
AT A GLANCE

Introduction
In this section, we set out a summary of our Remuneration Policy, its link to corporate strategic
objectives and the performance and remuneration outcomes for the 2020 financial year.

Our Remuneration Policy and its link to our Company strategy
The Company’s strategy is laid out on page 13.

Ensuring the alignment of the Remuneration Policy to the Company strategy was key for the Remuneration Committee in developing
the Policy below in conjunction with our core principles of remuneration.

The key elements of the Company’s strategy and how its successful implementation is linked to the Company’s Remuneration Policy
are set out in the following table.

Strategic priorities

Remuneration Policy (from the
date of shareholder approval)

Generate sector-leading
value for shareholders

Growth in profit
from existing customers

Win new customers

Annual bonus
The maximum bonus
(including any part of the
bonus deferred) under the
Annual Bonus Plan (‘ABP’)
will not exceed 200% of a
participant’s annual base salary.

For 2021, the maximum bonus
opportunity is 150% for the
CEO and CFO respectively.



Operating profit
The key performance indicator for the Company. The Committee
believes that the Directors should focus on this key metric during the
financial year to maintain high profit growth and the success of the
business to deliver value for our shareholders.

Growth in this metric is a direct demonstration of the successful
execution of our business strategy, including winning new customers
and growth of profit from existing customers.

Equity
ownership
and retention
of shares

Retain
and reward
executive team
to deliver the
strategy



EPS
An incentive to grow
this market in the longer
term is provided through
EPS growth targeted by
the LTIP. The success
of this element of the
strategy should be
reflected in long-term
TSR performance.

TSR
The generation of
profit growth targeted
by the annual bonus
will help enhance the
value of the Company,
which will be measured
through the success of
the Company’s TSR
performance against
its comparators (a
performance condition
under the LTIP).

EPS and TSR
The success in
maximising profit
growth will be
measured through the
long-term EPS growth
targeted by the LTIP.
In addition, sustained
value generation will
be reflected in the
share price of the
Company, which will
be measured through
the Company’s TSR
performance under
the LTIP.






LTIP
Maximum annual award is
normally 200% of salary.

Awards will vest at the end
of three years.

The performance conditions
for awards are equally
weighted between:

• earnings per share (‘EPS’)

growth; and

• comparative total

shareholder return (‘TSR’).

The current annual award is
100% for the CEO and
CFO respectively.

Share Incentive Plan (‘SIP’)

Minimum shareholding
requirements
• Chief Executive: 200%

of salary

• Chief Financial Officer: 150%

of salary

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Our core principles of remuneration:
• to ensure Senior Executives are attracted, retained and motivated to drive the Company in its next stage of development;
• to incentivise the management team in extending the Company’s position in the IT infrastructure solutions industry; and
• to deliver long-term sustainable growth.

Statement of consideration of shareholder views
The Committee takes the views of the shareholders seriously and these views are taken into account in shaping Remuneration Policy
and practice. Shareholder views are considered when evaluating and setting the remuneration strategy and the Committee commits
to consulting with key shareholders prior to any significant changes to its Remuneration Policy.

During the financial year the Committee consulted with major shareholders in advance of the new Remuneration Policy and obtained
significant shareholder support as a result of the consultations. This was formally confirmed at the 2019 AGM when shareholders
approved the Remuneration Policy. Prior to the 2019 AGM, the Committee had also consulted with certain proxy voting advisory
bodies, including the Investment Association (‘IA’) and the Institutional Shareholder Services (‘ISS’).

Shareholder support remains strong in respect of the Remuneration Policy, which received 98.6% votes in favour at the 2019 AGM.
The advisory vote for the Annual Report on Remuneration at the 2019 AGM received 98.97% votes in favour. The Committee is grateful
for the continuing support of shareholders.

Considerations of employment conditions elsewhere in the Company
The remuneration strategy for all employees is determined in terms of best practice and ensuring that the Company is able to attract
and retain the best people. This principle is followed in our Remuneration Policy.

The remuneration strategy of the Company has been designed to ensure all employees share in its success. This includes for all
employees: base pay, certain employment benefits, a pension plan and participation in the SIP for all eligible employees. Commissions
are available for qualifying sales employees whilst other employees may participate in other annual bonus plans. Executive Directors
are entitled to participate in an annual bonus plan and an LTIP as are some members of the senior management team.

The table below shows how our incentive schemes support the Company strategy.

Strategic objectives

Generate
sector-leading
value for
shareholders

Growth in profit
from existing
customers

Win new
customers

Equity
ownership
and retention
of shares

Retain
and reward
executive team
to deliver the
strategy

Plan

SIP

Purpose

Broaden share ownership
and share in corporate
success over the
medium term.

Eligibility

All eligible
employees

Annual
bonus

Incentivise and reward
short-term performance. At
senior level, an element of
bonus is deferred in shares.



Executive Directors,
senior executives,
senior managers and
managers

LTIP

Incentivise and reward
long-term performance.

Executive Directors,
senior executives
and senior managers



The Company does not use remuneration comparison measurements. A formal Employee Forum has been established within the
business where staff can raise any issue they feel to be relevant with the Designated Non-Executive Director for Workforce Engagement
(Vin Murria). There are also regular employee engagement meetings led by the CEO and CFO. During an employee engagement meeting
in the financial year, employees were informed that as a result of the uncertainty and exceptional circumstances caused by the COVID-19
outbreak, management had taken a prudent approach so far to conserve cash in the business and had agreed to a freeze in pay rises.
The pay freeze had been put in place at all levels of the business, including for members of the Board. An exception was made for the
lowest paid employees (those earning less than £25,000), who received a modest pay rise.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part A – At a glance continued

Considerations of employment conditions elsewhere in the Company continued
In setting the Remuneration Policy for Directors, the pay and conditions of other employees of the Company are taken into account,
including any base salary increases awarded and the level of employer pension contribution. During the year the Committee received
updates on pay and benefits across the general workforce. The Committee also reviews and approves the remuneration structure for
the management-level tiers below the Executive Directors and the proposed framework for annual pay rises and uses this information
to ensure consistency of approach.

How we performed during the 2020 financial year (FY20) (audited)
In respect of FY20, the bonus awards payable to Executive Directors were agreed by the Committee having carefully reviewed the
Company’s results. The performance measures and targets under the Annual and Deferred Bonus Plan for FY20 and the extent to
which they were satisfied are set out below:

Performance condition

Performance
period

Threshold

Target

Maximum

Actual

Actual as
a % of
maximum
opportunity

Annual bonus payout

Graeme
Watt

Graham
Charlton

Operating profit

FY20

£82.98m

£92.20m £101.40m

£93.7m

72.2% £502,017

£334,678

No discretion was exercised by the Committee in relation to the outcome of the annual bonus awards. In respect of the bonus payout
up to 100% of salary, two-thirds was paid in cash and one-third was paid by way of deferred shares. In respect of the bonus payout
above 100% of salary, all of this shall be by way of in deferred shares.

Long-term incentives awarded in FY20 (audited)
On 3 December 2019 the following annual awards of nil-cost options under the Company’s Long Term Incentive Plan (‘LTIP’) were
made to the CEO and CFO:

Executive Director

Graeme Watt
Graham Charlton

LTIP award
(% of salary)

LTIP award
(shares)

Award date

Share price

100
100

42,021
28,014

03/12/19
03/12/19

£11.03
£11.03

1. The share price used to determine the award was calculated by reference to the prevailing market price of an ordinary share on the business day prior

to the award.

50% of the award will be subject to the Company’s relative TSR performance against the FTSE 250 (excluding real estate and investment
trusts) over a three-year performance period and the remaining 50% will be subject to adjusted EPS targets at the end of the period.
Further details are on page 77.

Single figure remuneration for our Executive Directors
The tables below set out the single total figure of remuneration and breakdown for each Executive Director in respect of FY20.

Salary

Taxable
benefit

Bonus 1

LTIP 2

Pension

Graeme Watt (CEO)
Graham Charlton (CFO)

£463,500
£309,000

£0
£2,680 £502,017
£3,113 £334,678 £1,531,120

£23,175
£15,450

SIP

£0
£0

Other

Total

£991,372
£0
£0 £2,193,361

Notes:
1. In respect of performance up to target, two-thirds of the annual bonus earned will be paid in cash and one-third will be deferred into shares (by way
of nil-cost options). In respect of performance above target, all of the annual bonus earned will be deferred into shares (by way of nil-cost options).

2. LTIP awards made on 8 December 2016 to Graham Charlton vested during FY20. The award was calculated by reference to the prevailing market price
on the business day preceding the grant. Details of the performance condition (relative TSR and EPS targets) were disclosed in an announcement to
the London Stock Exchange at the time of grant. As a result of full achievement of the performance criteria, nil-cost options over 119,767 were exercised
at a share price of £11.47 per share. Participants may also receive a cash payment representing the value of dividends (a dividend equivalent) on the
shares over the performance period and a cash dividend equivalent payment was made upon vesting which is included in the above. The aggregate
exercise price and dividend equivalent included above were £1,373,727 and £157,393 respectively.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Remuneration changes for the Board
During the year, the Committee was briefed on the pay reviews for the general workforce. As already noted, management have taken
a prudent approach so far to conserve cash in the business and it was agreed that there will be a pay rise freeze across the Company,
including for the Board. An exception was made for the lowest paid staff (those earning less than £25,000 per annum), who received a
pay rise. The Committee (in respect of the Executive Directors) and the Board (in respect of the Non-Executive Directors) had last year
agreed an increase of 3% in the basic pay and fees for the Executive Directors and Non-Executive Directors, respectively, with effect
from 1 August 2019. This level reflected the increases implemented for much of the workforce from 1 August 2019. Further details are
provided on pages 80 and 83.

Remuneration Policy table summary
In accordance with the remuneration reporting regulations, the Directors’ Remuneration Policy (the ‘Policy’) summarised below was approved
at the AGM on 6 December 2019 and will apply for a period of three years from the date of approval. The Policy is contained in Softcat’s 2019
Annual Report and Accounts, which is available on the Company’s website at https://www.softcat.com/investors/investor-centre/. The
Committee’s objective is to operate this Policy to ensure that our Executive Directors have a remuneration structure and total remuneration
opportunity that is aligned to Softcat’s business and is competitive when assessed against the market in which we compete for talent.

Element of remuneration Operation

Salary

An Executive Director’s basic salary is set on appointment and reviewed annually or when there is a change in
position or responsibility.

When determining an appropriate level of salary, the Committee considers:

• remuneration practices within the Company;
• the general performance of the Company;
• salaries within the ranges paid by the companies in the comparator group used for remuneration benchmarking;
• any change in scope, role and responsibilities; and
• the economic environment.

In general, salary increases for Executive Directors will be in line with the increase for employees.

Individuals who are recruited or promoted to the Board may, on occasion, have their salaries set below the
targeted policy level until they become established in their role. In such cases subsequent increases in salary
may be higher than the general rises for employees until the target positioning is achieved.

Benefits

The Executive Directors receive private health insurance, critical illness, life insurance and death-in-service benefit.

Additional benefits may be offered, such as relocation allowances on recruitment. The maximum will be set at
the cost of providing the benefits described.

Pensions

The Executive Directors are entitled to participate in the Company’s applicable pension plans. Executive
Directors’ pensions are aligned with the employer contributions for the wider workforce, currently 5% of salary.

Annual and Deferred
Share Bonus Plan
(the ‘Bonus Plan’)

The Remuneration Committee will determine the maximum annual participation in the Annual Bonus Plan for
each year, which will not exceed 200% of salary. The maximum bonus opportunity is currently 150% of salary.
This can only be attained by achieving a level of stretch in the targets set.

There is a mandatory deferral of one-third of bonuses up to 100% of salary and all bonuses above 100% of
salary into shares. The deferred elements vest after a minimum period of three years based on continued
employment. The bonus contains clawback and malus provisions.

Long Term Incentive
Plan (‘LTIP’)

LTIP maximum grant is 200% of salary p.a. (250% in exceptional circumstances).

The Committee considers and sets the performance measures and targets for each LTIP award. See page 77
for the performance conditions of the grant made in the year.

The LTIP contains clawback and malus provisions.

There is a mandatory two-year post-vesting holding period.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part A – At a glance continued

Remuneration Policy table summary continued

Element of remuneration Operation

Share Incentive Plan
(‘SIP’)

The Company operates a SIP in which the Executive Directors are eligible to participate (which is in line with
HMRC legislation and is open to all eligible staff) to encourage employees to become shareholders in the
Company and thereby align their interests with shareholders.

Minimum
shareholding
requirement

Non-Executive
Director
and Chair fees

The following table sets out the minimum shareholding requirements:

Role

Chief Executive
Chief Financial Officer

Shareholding requirement (% of salary)

200
150

The Committee retains the discretion to increase the shareholding requirements.

There is a mandatory two-year post-cessation holding period.

The Board is responsible for setting the remuneration of the Non-Executive Directors. The Remuneration
Committee is responsible for setting the Chair’s fees.

Non-Executive Directors are paid an annual fee and additional fees for chairing Committees. The Chair does
not receive any additional fees for membership of Committees.

Fees are reviewed annually based on equivalent roles in the comparator group used to review salaries paid
to the Executive Directors. Fees are set at broadly the median of the comparator group.

Non-Executive Directors and the Chair do not participate in any variable remuneration or benefits arrangements.

The Company will pay reasonable expenses incurred and may settle any tax incurred in relation to these.

There are no changes to the approved Directors’ Remuneration Policy. The full Policy is available to view in Softcat’s 2019 Annual
Report which is on the Company’s website at softcat.com/investors.

Illustrations of the application of the Remuneration Policy
The charts below illustrate the remuneration that would be paid to each of the Executive Directors for the 2021 financial year under three
different performance scenarios: (i) minimum; (ii) on target; and (iii) maximum. The elements of remuneration have been categorised into
three components: (i) fixed; (ii) annual bonus (deferred bonus); and (iii) LTIP.

In line with the regulations on policy scenarios, we have also included an additional reference point to show indicative share price growth
of 50% over three years (being the performance period of the LTIP) at maximum.

Chief Executive Oﬀicer (Graeme Watt)

Chief Financial Oﬀicer (Graham Charlton)

0
0
0
£

’

2,100

1,800

1,500

1,200

900

600

300

1,069

22%

32%

46%

489

100%

1,880

37%

1,648

28%

42%

37%

30%

26%

1,400

1,200

1,000

0
0
0
£

’

800

600

400

200

1,254

37%

1,100

28%

42%

37%

30%

26%

714

22%

32%

46%

328

100%

Minimum

On target

Maximum

Maximum
(including
50% share
price growth)

Minimum

On target

Maximum

Maximum
(including
50% share
price growth)

Fixed

Bonus

LTIP

Fixed

Bonus

LTIP

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

The table below sets out the assumptions used to calculate the elements of remuneration for each of the scenarios set out in the
charts on the previous page.

Element

Fixed1

Description

Minimum

Target

Maximum

Maximum including
50% share price
growth

Salary, benefits and pension

Included

Annual bonus2

Annual bonus (including
deferred shares)

No annual variable 50% of maximum

bonus

100% of maximum
bonus

Maximum opportunity of 150%
of salary

LTIP2,3

Award under the LTIP

Maximum annual award of 100%
of salary

No multiple-year
variable

50% of the
maximum award

100% of the
maximum award

100% of the
maximum award
plus 50% share
price growth

Notes:
1. Based on 2020 benefits payments and pension values as per the single figure table. The actual benefits and pension contributions for FY21 will only be

known at the end of the financial year. Basic pay reflects the no increase awarded for FY21.

2. Share price growth has been included in the final illustration in accordance with the required regulations. Dividend equivalents have not been added to

the deferred share bonus and LTIP share awards.

3. Participation in the SIP has been excluded given the relative size of the opportunity levels.

Executive Director contracts and letters of appointment for Chair and Non-Executive Directors
Executive Directors

Name

Graeme Watt
Graham Charlton

Non-Executive Directors

Name

Martin Hellawell
Vin Murria
Karen Slatford
Robyn Perriss

Notice periods

Date of service contract

1 April 2018
29 October 2015

Nature
of contract

Rolling
Rolling

From
Company

12 months
12 months

From
Director

12 months
12 months

Compensation
provisions for
early termination

None
None

Date of letter of appointment

1 April 2018
3 November 2015
22 October 2019
21 May 2019

Notes:
The Committee’s policy for setting notice periods is that a twelve-month period will apply for Executive Directors.

The Non-Executive Directors of the Company (including the Chair) do not have service contracts. The Non-Executive Directors are appointed by letters
of appointment. Each Independent Non-Executive Director’s term of office runs for a three-year period. The Chair is subject to three months’ notice from
either the Company or the Chair. The other Non-Executive Directors do not have notice periods.

The initial terms of the Non-Executive Directors’ positions are subject to their re-election by the Company’s shareholders at the AGM and to re-election
at any subsequent AGM at which the Non-Executive Directors stand for re-election. All Directors will be put forward for re-election by shareholders on
an annual basis.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part B
ANNUAL REPORT
ON REMUNERATION

Single total figure of remuneration (audited)
Executive Directors (audited)
The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of FY20 and FY19.

Salary1,4

Taxable
benefits2,4

Bonus3,4

LTIP4

Pension4

SIP

Other

Total

£’000

2020

2019 2020 2019

2020

2019

2020

2019 2020 2019 2020 2019 2020 2019

2020

2019

Graeme Watt
(CEO)

Graham
Charlton
(CFO)

463.5 450.0

2.7 3.0 502.0 450.0

—

— 23.2 16.5

— —

— — 991.4

919.5

309.0 300.0

3.1 3.3 334.7 300.0 1,531.1

1,127.3 15.5 8.0

— —

— — 2,193.4 1,738.6

Notes:
1. Both Directors prior to the end of the financial year voluntarily donated to their own chosen charities – this value equated to the equivalent of 20% of

three months’ salary. This did not affect the reportable salary earned for statutory purposes.

2. See section below setting out details of the benefits provided.

3. Details of the bonus targets, their level of satisfaction and the resulting bonus earned in FY20 are set out on page 72.

4. Fixed pay consists of salary, taxable benefits and pensions as set out above. Variable pay consists of bonus and LTIP as set out above. Further details on the
LTIP which vested and was exercised by Graham during the year is provided in the section ‘Single figure remuneration for our Executive Directors’ above.

Non-Executive Directors (audited)
The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director.

Non-Executive Director

2020 fees 1

LTIP

2020 total

2019 fees1

Roles

Martin Hellawell2

Karen Slatford1

Vin Murria3

Robyn Perriss

Peter Ventress4

157,926

1,030,908

1,188,834

1,353,640

Non-Executive Chair

44,252

66,080

60,100

25,793

—

44,252

—

66,080

53,742

Senior Independent Director and
Chair of the Remuneration Committee

Independent Non-Executive Director and
Chair of the Nomination Committee and
Designated Director for Workforce Engagement

60,100

5,008

25,793

60,116

Independent Non-Executive Director and
Chair of the Audit Committee

Independent Non-Executive Director and
Chair of the Remuneration Committee

Notes:
1. The fees are proportionate to time in service to reflect total fees paid during the financial year.

2. Martin Hellawell was appointed Non-Executive Chair with effect from 1 April 2018; prior to that he was CEO and he participated in Softcat’s LTIP

programme. Awards under the LTIP are calculated by reference to the prevailing market price on the business day preceding the grant. As previously
explained, the Committee approved that Martin’s outstanding LTIPs shall be pro-rated with effect from him stepping down as CEO. LTIP awards made
in 2015 and 2016 to Martin vested during FY19 and FY20 respectively. The 2019 figure for Martin includes both his fee as Chair and the LTIP which
vested in FY19 and these were disclosed in last year’s Annual Report on Remuneration. As a result of full achievement of the performance criteria,
nil-cost options over 76,968 ordinary shares vested and were exercised during FY20. Details of the performance condition (relative TSR and EPS
targets) were disclosed in an announcement to the London Stock Exchange at the time of grant. The closing share price on date of exercise was
£12.08 per share. Participants may also receive a cash payment representing the value of dividends (a dividend equivalent) on the shares over the
performance period and a cash dividend equivalent payment was made upon vesting which is included in the LTIP figure above. The aggregate
exercise price and dividend equivalent included above was £929,773 and £101,135 respectively.

Also as previously reported, the Remuneration Committee exercised its discretion to allow Martin to continue to receive his health benefits as Chair.
The cost of providing this cover during FY20 and other P11D benefits was £3,426 and is included in the figure for Martin’s fees above.

3. The fees for Vin Murria are pro-rated with effect from the respective date of appointment to the nomination committee.

4. The fees for Peter Ventress are pro-rated to the time he stepped down from the Board.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Taxable benefits
Benefits in the year for the Executive Directors comprised health benefits such as private health insurance, health cash plan, critical
illness, dental and life cover. Figures are reported where appropriate.

2020 annual bonus outcomes
In respect of 2020, the bonus awards payable to Executive Directors were agreed by the Committee, having carefully reviewed the
Company’s results. The annual bonus structure operating in 2021 will be unchanged and is outlined on page 82.

Details of the targets used to determine bonuses in respect of FY20 and the extent to which they were satisfied are shown in the table
on page 72. These figures are included in the single figure table.

Long-term incentives awarded and vested (audited)
Awarded
Awards under the Company’s LTIP made in FY20 are shown in the table on page 72. The awards were subject to the following
performance conditions:

Measure

Adjusted EPS

Weighting

50%

Details
• 20% vesting of this element for adjusted EPS at end of

performance period of 38.6p (FY19: 29.3p)

Relative TSR – assessed against the constituents
of the FTSE 250 (excluding real estate and
equity investment trusts)

50%

• Full vesting for 45.5p (FY19: 35.7p)
• Straight-line vesting between these points
• 30% vesting for median performance against the comparators
• Full vesting for upper quartile performance
• Straight-line vesting between these points

The EPS targets were set following the end of the 2019 financial year based on an assessment of the business. The adjusted basic
earnings per share for the purposes of the LTIP performance measure is calculated as basic earnings per share in accordance with
IAS 33, adjusted for exceptional items as determined by the Committee.

Vested
Awards under the Company’s LTIP granted in December 2016 to each of Martin Hellawell (when he was Chief Executive) and Graham
Charlton vested and were exercised by Martin and by Graham in FY20. Options over 176,129 shares were granted to Martin which, as
previously disclosed, were pro-rated to 76,968 shares following him stepping down as CEO. Options over 119,767 shares were granted
to Graham. Vesting of the awards was subject to the following performance conditions (which were disclosed at the time of grant):

Measure

Adjusted EPS

Weighting

50%

Details
• 20% vesting of this element for adjusted EPS at end of

performance period of 20.6p

Relative TSR – assessed against the constituents
of the FTSE 250 (excluding real estate and
equity investment trusts)

50%

• Full vesting for 23.7p
• Straight-line vesting between these points
• 30% vesting for median performance against the comparators
• Full vesting for upper quartile performance
• Straight-line vesting between these points

EPS for FY19 was 34.6p per share and upper quartile performance was achieved in respect of the TSR. Following formal review by the
Committee, the Committee confirmed that full vesting had been achieved in respect of both EPS and TSR. Further details on the LTIPs
which vested are provided in the tables in respect of single figure remuneration.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part B – Annual report on remuneration continued

Pension entitlements
The Company operates a defined contribution pension scheme which the Executive Directors can participate in, or they can take a
cash supplement in lieu of pension.

In FY20, both Graham Charlton and Graeme Watt received 5% of salary either as an employer pension contribution into the defined
contribution scheme or as a pension cash allowance. This is in line with employer pension contributions available for the general workforce.

None of the Directors receive an entitlement under a defined benefit plan.

Share Incentive Plan (‘SIP’)
There were no free shares awarded in FY20 (FY19: nil). No free shares have been awarded under the SIP since 2015 and no free shares
vested during FY20.

The Executive Directors have an entitlement to purchase partnership shares under the SIP. Graham Charlton and Graeme Watt
purchased 170 and 171 partnership shares respectively during the year. The total SIP holdings are provided on page 78 as part of the
Directors’ share interests table.

Payments to past Directors/payments for loss of office (audited)
There were no payments for loss of office made to Directors in the year. Peter Ventress stepped down as a Non-Executive Director
on 31 December 2019 and he received his respective fees to that date. He did not receive any other payments.

Statement of Directors’ shareholding and share interests

Director

Shareholding
requirement
(% of salary) 1

Current
shareholding
(% of salary) 2

Beneficially
owned 3

Other shares held

Options

LTIP interests
subject to
performance
conditions

Deferred
shares not
subject to
performance
conditions

Vested and
unexercised

Unvested

Exercised

Shareholding
requirement
met?

Executive Directors
Graeme Watt
Graham Charlton

200
150

0.6
202.8

218 3
49,689 3

183,705
152,088

22,112 4
38,876 4

Non-Executive Directors
Martin Hellawell5

n/a

Karen Slatford6

Vin Murria
Robyn Perriss

n/a

n/a
n/a

n/a

n/a
n/a

5,312,857

—

165,397
15,000

n/a

n/a
n/a

n/a

n/a
n/a

—
—

n/a

n/a
n/a

—
—

n/a

n/a
n/a

—
—

n/a

n/a
n/a

No
Yes

n/a

n/a
n/a

Notes:
1. The Committee has adopted formal shareholding guidelines that will encourage the Executive Directors to build up, over a five-year period, and then
subsequently hold, a shareholding equivalent to a percentage of base salary. Graham joined the Company in 2015 and currently meets the minimum
shareholding requirement. Graeme, who joined the Company in 2018, does not meet the shareholding requirements and will be building up his shareholding.

2. This is based on a closing share price of £12.61 at 31 July 2020 and the year-end salaries of the Executive Directors. Values are not calculated for

Non-Executive Directors as they are not subject to shareholding requirements.

3. This includes investment in partnership shares under the SIP. Graeme and Graham have each purchased 38 partnership shares between the year end

and the date of this report, which is not included above.

4. This is in respect of previous awards of nil-cost options granted under the Deferred Share Bonus Plan.

5. Includes ordinary shares held by, or in trust for, Martin and/or his family members.

6. Karen joined the Board in December 2019.

Fees retained for external non-executive directorships
Executive Directors may hold positions in other companies as non-executive directors and retain the fees. Graeme and Graham
currently hold no such external directorships.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Comparison of overall performance and pay
The graph below shows the value of £100 invested in the Company’s shares since listing compared with the FTSE 250 index.
The graph shows the total shareholder return generated by both the movement in share value and the reinvestment over the same
period of dividend income.

The Committee considers that the FTSE 250 is the appropriate index because the Company has been a member of this since the first
review of the index since the IPO. This graph has been calculated in accordance with the Regulations. It should be noted that the
Company listed on 18 November 2015 and therefore only has a listed share price for the period of 18 November 2015 to 31 July 2020.

Total shareholder return

600

500

400

300

200

100

18/11/2 015

FTSE 250

Softcat

18/0 3/2 016

18/07/2 016

18/11/2 016

18/0 3/2 017

18/07/2 017

18/11/2 017

18/0 3/2 018

18/07/2 018

18/11/2 018

18/0 3/2 019

18/07/2 019

18/11/2 019

18/0 3/2 0 2 0

18/07/2 0 2 0

Chief Executive’s historical remuneration
The table below sets out the total remuneration delivered to the Chief Executive over the last year valued using the methodology
applied to the single total figure of remuneration.

Chief Executive

G Watt
M Hellawell1

Total single figure

2020

2019

2018

2017

2016

2015

£991,372

£919,518

£305,539
— £532,716

—
£774,908

—
£562,117

—
£335,762

Annual bonus payment level achieved
(% of maximum opportunity)

LTIP vesting level achieved
(% of maximum opportunity)

n/a

100
—

n/a

100
100

n/a

—
100

n/a

—
99

n/a

—
72

n/a

Note:
1. Martin stepped down from his role as Chief Executive on 31 March 2018 and Graeme joined as Chief Executive on 1 April 2018. The single figure

includes remuneration paid for the role as Chief Executive during the financial year.

Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2020 financial year. All figures provided are taken from the
relevant Company accounts.

Profit distributed by way of dividend
Total tax contributions1
Overall spend on pay, including Executive Directors

Disbursements
from profit in 2020
financial year

Disbursements
from profit in 2019
financial year

£52.3m
£30.2m
£111.2m

£56.2m
£27.1m
£97.6m

Note:
1. Includes corporation tax and employer’s National Insurance contributions. The total tax contributions have been included because of the size of the

contributions in comparison to other payments.

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part B – Annual report on remuneration continued

Change in the Directors’ remuneration compared with employees

Graeme Watt
Graham Charlton
Martin Hellawell
Vin Murria4
Robyn Perriss
Karen Slatford5
All employees6

% increase/(decrease) in remuneration in 2020
compared with remuneration in 20191

Salary or fees

Bonus 2

Benefits 3

3%
3%
3%
23%
0%
0%
5%

12%
12%
0%
0%
0%
0%
-14%

0%
-9%
1%
0%
0%
0%
-14%

Notes:
1. For the Directors, the percentage change reflects the figures set out in the single figure table on page 76. Figures are on an annualised basis where the

Director joined or left during the year.

2. Excludes commissions for employees.

3. Includes private medical insurance only for employees.

4. Vin Murria was appointed as the Director with responsibility for workforce engagement and also appointed as the Chair of the Nomination Committee.

Fees receivable for these duties are in addition to the fees payable as a Non-Executive Director.

5. Karen joined the Board in December 2019.

6. For employees, figures represent Softcat plc, which is a single entity company. Details are in respect of the average percentage change in respect

of the remuneration of employees on a full-time equivalent basis. In order to make the comparisons meaningful, the average percentage change in
respect of each of salary, bonus and benefits for employees is a per capita figure. The reduction in bonus is related to the recruitment over the last year
of roles which are not eligible for bonus. The benefits values have fluctuated due to change in premiums.

CEO pay ratios
The UK Government requires certain companies with over 250 employees to disclose annually the ratio of their CEO’s single figure
total remuneration to that of the UK workforce. CEO pay ratio data is presented below for 2020, with a prior year comparison. The data
shows how the CEO’s single figure remuneration for 2020 (as taken from the single figure remuneration table) compares to equivalent
single figure remuneration for full-time equivalent UK employees, ranked at the 25th, 50th and 75th percentile.

Year

2020

20191

Method

25th percentile pay ratio

Median pay ratio

75th percentile pay ratio

Option A

33:1

35:1

21:1

22:1

12:1

Note:
1. The 2019 disclosure has been restated from that reported in the 2019 Remuneration Report to allow for a change in calculation of our total

remuneration for full-time equivalent employees. Disclosure in 2019 was voluntary and the restatement has been made to fully align a prior year
comparison to the first statutory required disclosure of 2020.

The Government’s methodology of Option ‘A’ has been used to calculate the remuneration of 1,519 (FY19: 1,359) employees who were
employed on the assessment date of 31 July for each respective financial year. All individuals in employment at this date were included
in the calculation, with applicable components of individual remuneration annualised for employees not employed for the full twelve
months. This option was selected given as it was considered to be the most efficient and robust approach in respect of gathering the
required data and in particular was considered to be the most accurate way of identifying the best equivalents of the 25th, 50th and
75th percentiles.

We calculated our total remuneration for full-time equivalent employees to include:

• annual salary and allowances;
• annual bonus earnings (for the period relating to respective financial year);
• gains realised from exercising awards granted under the SIP or LTIP share plans; and
• the value of taxable benefits (including pension contributions).

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

From 2019 to 2020 the ratio between the total remuneration of the CEO and the total remuneration of the remaining UK workforce has
remained broadly similar, with a small reduction in the ratio on the lower quartile. This minor reduction is resultant from the year on
year increase in headcount being weighted towards our continued investment in technical specialists who typically earn a higher
remuneration. This means that more employees in 2020 are within the top quartile which subsequently increases the average
remuneration of other percentiles as reflected in the year on year ratio movements.

Pay in respect of the CEO and UK workforce is shown in the table below.

CEO

All employees

(See single figure table, page 76)

25th percentile

2020 salary
2020 total pay

£463,500
£991,372

£28,437
£30,215

Median

£43,080
£46,300

75th percentile

£75,353
£83,274

Consideration by the Directors of matters relating to Directors’ remuneration
The Board has delegated to the Committee, under agreed terms of reference, responsibility for the Remuneration Policy and for determining
specific packages for the Executive Directors and other selected members of the senior management team. The Company consults with key
shareholders in respect of the Remuneration Policy and the introduction of new incentive arrangements.

The terms of reference for the Committee are available on the Company’s website, softcat.com/investors, and from the Company Secretary
at the registered office.

Our main responsibilities are:

• to determine and agree with the Board the broad Remuneration Policy for the Executive Directors and other selected members of

the senior management team;

• to review the ongoing appropriateness and relevance of the Remuneration Policy; and
• to review any major changes in employee benefit structures throughout the Company and to administer all aspects of any share scheme.

The Committee receives assistance from the Company Secretary, who attends meetings. The Chief Executive Officer, the Chief Financial
Officer, the Director of Human Resources and the Reward, Payroll & Policy Manager attend by invitation and when appropriate.

Advisers to the Remuneration Committee
During the financial year, PwC advised the Committee on all aspects of the Remuneration Policy for Executive Directors and selected
members of the senior management team. PwC was appointed by the Committee following IPO in November 2015. PwC also provided
the Company with IT consultancy work during the year. The Committee is satisfied that no conflict of interest exists or existed in the
provision of these services.

PwC is a member of the Remuneration Consultants Group and the Voluntary Code of Conduct of that body is designed to ensure
objective and independent advice is given to remuneration committees. Fees of £118,100 (2019: £67,500) were provided to PwC during
the year in respect of remuneration advice received.

Statement of voting at general meeting
The table below shows the binding vote approving the Directors’ Remuneration Policy and the advisory vote on the Annual Report on
Remuneration at the 2019 AGM.

Directors’ Remuneration Policy
Annual Report on Remuneration

Votes for

% Votes against

% Votes withheld

161,238,582
161,694,092

98.60
98.87

2,296,086
1,840,577

1.40
1.13

109
109

Annual Report and Accounts 2020 Softcat plc

Remuneration Committee report continued

Part B – Annual report on remuneration continued

Statement of implementation of the Remuneration Policy in the 2019/2020 financial year
The Remuneration Committee has reviewed and considered the key components of remuneration to ensure that the Remuneration Policy
(summarised below) is fit for purpose, continues to drive success within the remuneration framework and meets the shareholder and
governance expectations of a FTSE 250 company.

Base salary

Pension

What was implemented in 2019/2020

Implementation in 2020/2021

For 2020, base salaries for the CEO and CFO
were £463,500 and £309,000 respectively. This
represented a rise of 3%, consistent with the base
salary increase for the overall employee population.

Base salaries are unchanged whilst a general pay
freeze has been implemented in the business,
including for the CEO and CFO.

The Company increased employer contributions for
employee population to up to 5%. The Remuneration
Committee made an equivalent increase for the
Executive Directors. The Remuneration Policy was
amended to reduce the maximum from 20% to be
in line with the wider workforce.

No change.

Benefits

No change.

Annual Bonus Plan
(‘ABP’)
• Cash
• Deferred share award

For FY20 the maximum opportunity was set at 150%
of salary. To further align the ABP to the interests of
our shareholders:

• any bonus awarded above 100% of salary was
deferred into shares (in addition to the existing
one-third deferral into shares for any award below
100% of salary); and

• the increased maximum bonus opportunity could
only be awarded by achieving a new increased
level of stretch in the targets set by the Committee.

Up to 20% shall vest at threshold performance.

LTIP

2019 LTIP awards:

2020 LTIP awards:

• The maximum award levels for the CEO and CFO

were 100% of salary.

• The performance measures and weightings were

50% EPS growth and 50% relative TSR.

• The Committee reviewed the EPS performance
target range in light of the Company’s strategic
plan over the next period. Taking into account
these factors the Committee set the EPS range
for the 2019 LTIP grant at challenging levels.
The targets were disclosed on grant.

• The Remuneration Policy introduced a mandatory

two-year post-vesting holding requirement.

• No change in the LTIP grant levels.
• No change to the performance measures

or their weighting.

• No change in the determination of EPS

performance targets.

• No change in the post-vesting holding

requirement.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

What was implemented in 2019/2020

Implementation in 2020/2021

Shareholding
requirements

CEO: 200% of salary

CFO: 150% of salary

No change.

To be built up over five years from appointment.

The Remuneration Policy introduced a
post-cessation shareholding requirement:

• Executive Directors must hold 100% of their
shareholding requirement for one year
post-cessation and 50% of their shareholding
requirement for a further year post-cessation.

• Applicable to future share awards vesting under

Chair and
Non-Executive fees

the ABP and LTIP.

Chair fee: £154,500

Board fee: £50,648

Fees are unchanged whilst a general pay freeze has
been implemented in the business, including for
Non-Executive Directors.

Senior Independent Director: £5,627

Committee chairship (per Committee) and
fee for the Designated Director for Workforce
Engagement: £11,254

These represented a rise of 3%, consistent with the base
salary increase for the overall employee population.

In accordance with the recommendations of the
2018 UK Corporate Governance Code, during
the year, the Board agreed to allocate additional
responsibility for workforce engagement to one of
the existing Non-Executive Directors. The fee reflects
the additional time commitment required.

Karen Slatford
Chair of the Remuneration Committee
19 October 2020

Annual Report and Accounts 2020 Softcat plc

Directors’ report

Non-Financial Reporting Directive
In accordance with the EU Non-Financial Reporting Directive, the following chart summarises where you can find further information
in this Annual Report on each of the key areas of disclosure that the Directive requires.

Environmental, social
and employee-related
matters

• This year the Board has endorsed longer-term goals in respect of sustainability and has started

preparations for compliance with the future requirements under the Task Force on Climate-related
Financial Disclosures (TCFD). Our Green Teams continue to raise awareness of the importance of
environmental issues through their activities.

• Both the Board and management understand that our culture and good employee engagement are

crucial to our success. A considerable amount of time is spent ensuring these are maintained.

• We discuss each of these areas in the ‘Sustainability’ section of this report on pages 38 to 43 and in the

Corporate Governance Report on pages 48 to 54.

Human rights and
anti-bribery-related
matters

• Risks to human rights and of modern slavery are not considered a material issue for the Company.
• We also operate anti-bribery procedures which support compliance with the UK Bribery Act.
• We discuss each of these areas in the ‘Sustainability’ section of this report on pages 38 to 43 and in the

corporate governance report on pages 48 to 54.

Diversity policy
and approach

• We continue to put great importance on the positive benefits that diversity of gender, ethnicity,

experience, background and viewpoints can bring to the business.

Business model,
policies, principal
risks and KPIs

• We support numerous initiatives to help improve diversity. Progress on these is monitored by both

senior management and the Board. The Board acknowledges there is more we need to do to improve
diversity in areas of our business and will continue with our efforts.

• We discuss our approach to diversity in the ‘Sustainability’ section of this report on pages 38 to 43, in the

Chair’s Statement on pages 6 to 9 and in the Nomination Committee Report on pages 63 to 66.

• We operate a business model which includes non-financial inputs and outputs. Our business model is

underpinned by our straightforward strategy.

• Risks, including financial and non-financial risks, are monitored by management and by the Audit

Committee. The Audit Committee also considers the key internal controls for the business.

• The Board regularly reviews both financial and non-financial KPIs, which are relevant for monitoring the

performance of the business and have a clear link to delivering against our strategy. We disclose
performance against our key KPIs.

• We discuss our business model on pages 16 and 17, key risks on pages 32 to 37 and selected KPIs are reported
on pages 30 and 31. Our strategy is discussed in various places in the Strategic Report, including page 13.

Directors’ Report
The Directors present their report for the year to 31 July 2020.

Softcat plc is a public company limited by shares, incorporated in England and Wales, and its shares are traded on the premium
segment of the Main Market of the London Stock Exchange.

Disclosures incorporated by reference
For the purposes of compliance with Disclosure and Transparency Rules (‘DTR’), DTR 4.1.5 R (2) and DTR 4.1.8 R, the required content
of the ‘Management Report’ can be found in the Strategic Report and this Directors’ Report. The following disclosures required to be
included in this Directors’ Report have been incorporated by way of reference to other sections of this report and should be read in
conjunction with this report:

• Corporate Governance Statement – refer to pages 48 to 54 of this report;
• statement explaining how the Directors have had regard to the need to foster the Company’s business relationships with suppliers,
customers and others, and the effect of that regard, including on the principal decisions taken by the Company during the financial
year – refer to pages 18 to 19 of this Annual Report;

• strategy and relevant future developments – refer to page 13 of the Strategic Report; and
• financial risk management objectives and policies – refer to the ‘Risk management’ section included in the Strategic Report on

pages 32 to 37 and note 21 to the financial statements.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

The information in respect of the Non-Financial Reporting Directive appearing in this Directors’ Report is also incorporated by
reference as required in the Strategic Report.

Directors of the Company
The following Directors have held office since 1 August 2019:

Name

Position

Date of appointment

M Hellawell
G Watt
G Charlton
P Ventress
V Murria
K Slatford
R Perriss

Chair
Chief Executive
Chief Financial Officer
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director

Appointed as a Director on 24 March 2006 and Chair on 1 April 2018
Appointed 1 April 2018
Appointed 19 March 2015
Appointed 1 October 2015 and resigned 31 December 2019
Appointed 3 November 2015
Appointed 5 December 2019
Appointed 1 July 2019

Biographies of the Directors as at 19 October 2020 can be found on pages 46 and 47.

Powers of Directors
The general powers of the Directors are contained within UK legislation and the Company’s Articles of Association (the ‘Articles’). The
Directors are entitled to exercise all powers of the Company, subject to any limitations imposed by the Articles or applicable legislation.

Directors’ interests
The interests of the Directors in the issued shares of the Company at 31 July 2020 are disclosed in the Remuneration Report on page 78.
The Remuneration Report also sets out details of any changes in those interests between the year end and up to the date of this report.

No Director had a material interest in any contract of significance with the Company at any time during the financial year.

Appointment and replacement of Directors
The rules about the appointment and replacement of Directors are contained in the Articles. They provide that Directors may be
appointed by ordinary resolution of the members or by a resolution of the Directors. Any Director so appointed must retire and put
themselves forward for election at the next Annual General Meeting (‘AGM’). Directors wishing to continue to serve as members of the
Board will seek re-election annually in accordance with the UK Corporate Governance Code (the ‘Code’).

In accordance with the Code, at the 2020 AGM each Director will stand for election or re-election.

Indemnification of Directors
The Directors have the benefit of an indemnity provision contained in the Articles. The provision was in force during the year ended
31 July 2020 and remains in force and relates to certain losses and liabilities which the Directors may incur to third parties in the course
of acting as Directors of the Company. In addition, Directors and officers of the Company and its subsidiaries are covered by directors’
and officers’ liability insurance.

Compensation for loss of office and change of control
There are no agreements in place with any Director that would provide compensation for loss of office or employment resulting from
a change of control. Change of control provisions for the Company’s share plans may cause options and awards granted under such
plans to vest on a takeover.

The Company is not party to any other significant agreements that take effect after, or terminate upon, a change of control.

Articles of Association
The Articles may be amended by a special resolution of the members. At the AGM held on 12 November 2015, shareholders approved
by special resolution the amended Articles which took effect at the date of the initial public offering (‘IPO’) on 18 November 2015.

Annual Report and Accounts 2020 Softcat plc

• Special resolutions providing the Directors with authority to:

(i)

allot shares or sell treasury shares for cash up to a
maximum nominal amount of £4,956; and

(ii) allot shares or sell treasury shares for cash up to a

maximum nominal amount of £4,956, in connection with
an acquisition or other capital investment,

otherwise than to existing shareholders pro rata to
their shareholding.

• A special resolution providing the Directors with authority to
make market purchases of up to 19,825,047 of the Company’s
ordinary shares.

These authorities are due to expire at the Company’s AGM to be
held on 10 December 2020 and proposals for the renewal of the
authority to allot ordinary shares and to make market purchases
of the Company’s own ordinary shares are set out in the Notice
of the Annual General Meeting. The Directors have no current
intention of exercising the authority in respect of the purchase
of the Company’s own shares, which is sought in the best interest
of shareholders to allow the flexibility to react promptly where
such market purchases may be desirable.

There are no restrictions on the transfer or limitations on the
holding of ordinary shares and no requirements to obtain approval
prior to any transfers other than: certain restrictions which may
from time to time be imposed by laws and regulations (for example,
insider trading laws); pursuant to the Market Abuse Regulation
and the Company’s own rules whereby Directors and certain
employees of the Company require the approval of the Company
to deal in the ordinary shares; and pursuant to the Articles where
there is default in supplying the Company with information
concerning interests in the Company’s ordinary shares. There
are no special control rights in relation to the Company’s
ordinary shares.

There are no agreements between holders of securities that are
known to the Company which may result in restrictions on the
transfer of securities or on voting rights.

Directors’ report continued

Share capital and control
The Company’s ordinary issued share capital as at 31 July 2020
was 198,679,171 ordinary shares of 0.05p each, which have a
premium listing on the London Stock Exchange. The ordinary
share class represents over 99.9% of the Company’s total issued
share capital.

In addition to the ordinary shares, the Company also has a class
of 18,933 deferred shares which were created following the share
capital reorganisation at IPO and which are not admitted to
trading on a regulated market.

Shares acquired through the Company’s share schemes and
plans rank equally with the other shares in issue and have no
special rights. The Company has a Share Incentive Plan Trust
(‘SIP Trust’) for the benefit of employees and former employees
of the Company. As at 31 July 2020, the SIP Trust held 320,779
shares (2019: 359,302) awarded to employees as part of the free
share award, subject to service conditions. A further 345,054
shares (2019: 319,835) were held on behalf of employees who
have taken part in the Company’s voluntary partnership share
purchase programme. The SIP also held 49,803 unallocated
shares (2019: 49,803).

During the year ended 31 July 2020, share options were exercised
pursuant to the Long Term Incentive Plan, resulting in the
additional listing and allotment of 428,625 new ordinary shares.

Holders of ordinary shares are entitled to attend and speak at
general meetings of the Company, and to appoint one or more
proxies and, if they are corporations, corporate representatives
who are entitled to attend general meetings and to exercise
voting rights.

The deferred shares carry no voting rights or rights to receive any
of the profits of the Company available for distribution by way of
dividend or otherwise. On a return of capital on a winding up of
the Company (but not otherwise), the holder is entitled only to
the repayment of the amount paid up on that share after payment
of the capital paid up on each other share in the capital of the
Company and the further payment of £10,000,000 on each such
share. The deferred shares represent less than 0.01% of the
Company’s total issued share capital.

Further information on the Company’s issued share capital can
be found in note 17 to the financial statements.

The Company passed the following resolutions on 5 December 2019:

• An ordinary resolution providing the Directors with authority to:

(i)

allot ordinary shares up to a maximum nominal amount of
£33,041, to be reduced by the nominal amount allotted or
granted under paragraph (ii) below in excess of such sum; and

(ii) allot ordinary shares up to a maximum nominal amount of
£66,083 in connection with a pre-emptive offer by way of a
rights issue, such amount to be reduced by any allotments
made under paragraph (i) above.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Substantial shareholders
The substantial shareholdings in the table below represent those interests notified to the Company as at 31 July 2020 in accordance
with the Disclosure Guidance and Transparency Rules of the UK Listing Authority, and those holdings may have changed since
notification to the Company.

Peter Kelly1
Mawer Investment Management Limited
John Nash1

As at 31 July 2020

As at 19 October 2020

Ordinary
shares

Voting
rights

Ordinary
shares

64,976,058
9,946,370
9,063,364

32.7% 64,976,058
5.0% 9,946,370
4.6% 9,063,364

Voting
rights

32.7%
5.0%
4.6%

Note:
1. The ordinary shares held by Peter Kelly and John Nash include shares held beneficially via various entities or connected persons.

Principal shareholder and Relationship Agreement
In accordance with Listing Rule 9.8.4R(14), the Company has set out below a statement describing the Relationship Agreement entered
into by the Company with its principal shareholder (the ‘Relationship Agreement’). As at 19 October 2020, Peter Kelly, the founder of
Softcat plc, held 32.7% of the issued ordinary share capital of the Company.

On 13 November 2015, the Company and Peter Kelly entered into the Relationship Agreement. The principal purpose of the
Relationship Agreement is to ensure that the Company will be capable of carrying on its business independently of Peter Kelly
and certain persons deemed to be connected with him (‘Connected Persons’).

Pursuant to the Relationship Agreement, Peter Kelly, inter alia:

• shall procure that all transactions, agreements or arrangements entered into between the Company and Peter Kelly (or any of his

Connected Persons) are conducted on an arm’s length basis, on normal commercial terms and in accordance with the related party
transaction rules set out in Chapter 11 of the Listing Rules and Peter Kelly shall abstain from voting on any resolution to which LR 11.1.7R(4)
of the Listing Rules applies relating to a transaction with Peter Kelly (or any of his Connected Persons) as the related party; and

• shall (and shall procure that each of his Connected Persons shall) (i) not take any actions that would reasonably be expected to have
the effect of preventing the Company from complying with its obligations under the Listing Rules or be prejudicial to the Company’s
status as a listed company or the Company’s eligibility for listing; (ii) not propose or procure the proposal of a shareholder resolution
that would circumvent or appear to circumvent the proper application of the Listing Rules; and (iii) not exercise his voting rights or
other rights to procure any amendment to the Articles which would be contrary to the maintenance of the Company’s independence,
including its ability to operate and make decisions independently from Peter Kelly, or otherwise inconsistent with the provisions of
the Relationship Agreement.

Furthermore, the Company and Peter Kelly have agreed that for so long as Peter Kelly (together with any of his Connected Persons)
holds 10% of the Company’s issued share capital, he shall be entitled to appoint one Non-Executive Director of the Company, although
no such Director has been appointed as at the date of this Annual Report.

The Relationship Agreement will remain in effect for so long as: (a) Peter Kelly (and/or any of his Connected Persons) holds at least 10%
of the Company’s issued share capital; and (b) the ordinary shares are admitted to the premium listing segment of the Official List
maintained by the Financial Conduct Authority.

The Company has and, in so far as it is aware, Peter Kelly and his Connected Persons have complied with the independence provisions
set out in the Relationship Agreement from the date of the agreement.

Annual Report and Accounts 2020 Softcat plc

Details of the Company’s gender and ethnicity breakdown are
given in the Sustainability Report on page 38.

The Company places considerable value on the involvement of
its employees and continues to keep them informed on matters
affecting them as employees. This is undertaken through a variety
of methods including, but not limited to, weekly Company meetings,
team briefings, Company days, email and the intranet. The Board
has also appointed Vin Murria as the Designated Non-Executive
Director for Workforce Engagement.

At team meetings, managers are responsible for ensuring that
information sharing, discussion and feedback take place on a
regular basis. As a result of these meetings management can
communicate the financial and economic factors affecting the
Company and ensure that the views of employees are taken into
account in Company decisions which are likely to affect their interests.

Post-balance sheet events
Dividend
The Board recommends a final ordinary dividend of 16.6p per
ordinary share and a special dividend of 7.6p per ordinary share
to be paid on 11 December 2020 to all ordinary shareholders
who were on the register of members at the close of business
on 6 November 2020. Shareholders will be asked to approve the
final and special dividends at the AGM on 10 December 2020.

The Company’s dividend and distributions policy is detailed in
the Corporate Governance Report on page 52.

Directors’ report continued

Risk regarding financial instruments
The financial risk management objectives and policies are
disclosed in note 21 to the financial statements.

Research and development
The Company did not carry out any research and development
activities during the year (2019: none).

Political donations
The Company did not make any political donations during the
period (2019: £Nil).

A resolution to authorise the Company to make political
payments up to an aggregate amount of £100,000 has been
included for shareholder consideration in the Notice of AGM for
2020. The Company does not intend to make any payments to
political organisations or to incur other political expenditure;
however, this resolution has been proposed to ensure that the
Company has authority under the wide definition used in the
Companies Act 2006 of matters constituting political donations.

Greenhouse gas emissions and energy consumption
Information relating to the following is detailed in the
Sustainability Report, on pages 42 and 43 of the Strategic Report:

• greenhouse gas emissions; and
• energy consumption and energy efficiency.

Corporate social responsibility
Details on our commitment to corporate social responsibility can
be found in the Sustainability Report on pages 38 to 43 of the
Strategic Report.

Equality and diversity
The Company operates an equal opportunities policy which
endeavours to treat individuals fairly and not to discriminate
on the basis of gender, disability, race, national or ethnic origin,
sexual orientation or marital status. Applications for employment
are fully considered on their merits, and employees are given
appropriate training and equal opportunities for career
development and promotion.

The Company is committed to ensuring that adequate policies
and procedures are in place to enable disabled applicants to
receive training to perform safely and effectively and to provide
development opportunities to ensure they reach their full potential.
Where an individual becomes disabled during the course of their
employment with the Company, the Company will seek to provide,
wherever possible, continued employment on normal terms and
conditions. Adjustments will be made to the environment and
duties or, alternatively, suitable new roles within the Company will
be secured with additional training where necessary.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Requirements of the Listing Rules
The following table provides references to where the information required by the Listing Rule 9.8.4R is disclosed:

Listing Rule requirement

Location in Annual Report

A statement of the amount of interest capitalised during the period under review and details
of any related tax relief.

Not applicable

Information required in relation to the publication of unaudited financial information.

Not applicable

Details of any long-term incentive schemes and Directors’ interests.

Directors’ Remuneration Report,
pages 67 to 83

Details of any arrangements under which a Director has waived emoluments, or agreed
to waive any future emoluments, from the Company.

Directors’ Remuneration Report,
pages 67 to 83

Details of any non-pre-emptive issues of equity for cash.

Details of any non-pre-emptive issues of equity for cash by any unlisted major
subsidiary undertaking.

Directors’ Report, page 86

No such share allotments

Details of parent participation in a placing by a listed subsidiary.

Not applicable

Details of any contract of significance in which a Director is or was materially interested.

Not applicable

Details of any contract of significance between the Company (or one of its subsidiaries)
and a controlling shareholder.

Details of waiver of dividends by a shareholder.

Not applicable

Board statement in respect of Relationship Agreement with the controlling shareholder.

Directors’ Report, page 87

Auditor
Ernst & Young LLP (‘EY’) has signified its willingness to continue in office as auditor to the Company and the Company is satisfied that
EY is independent and that there are adequate safeguards in place to safeguard its objectivity. A resolution to reappoint EY as the
Company’s auditor will be proposed at the 2020 AGM.

Annual Report and Accounts 2020 Softcat plc

Directors’ report continued

Going concern
Overview
In considering the going concern basis for preparing the financial
statements, the Directors consider the Company’s objectives and
strategy, its principal risks and uncertainties in achieving its
objectives and its review of business performance and financial
position, which are all set out in the Strategic Report (see pages 1
to 43) and Financial Review sections (see pages 28 and 29) of this
Annual Report. Given the economic uncertainty of the COVID-19
pandemic and the further uncertainty arising from the impact of
the UK leaving the EU, and taking into account the recent
guidance issued by the FRC the Directors have undertaken a fully
comprehensive going concern review.

The Group 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, which is
for a 12 month period of going concern from the date of this
report. All the forecasts reflect the payment of our FY20 dividend
of £47.6m which will be paid in December 2020 subject to
approval at the AGM.

The Company operates in a resilient industry. Our customer base
incorporates a large volume of non-discretionary spend from UK
corporates as IT has become vital to establish competitive
advantage in an increasingly digital age. Public Sector, a large
and fast-growing area of the business, has shown no negative
sensitivity to COVID-19 so far. The Company will continue to
focus on increasing the customer base and spend per customer
during the going concern period.

Liquidity and financing position
At 31 July 2020, the Company held instantly accessible cash
and cash equivalents of £80.1m, while net current assets were
£127.0m. Note 21 to the financial statements includes the
Company’s objectives, policies and processes for managing its
capital, its financial risk management and its exposures to credit
risk and liquidity risk. The Company has access to a Revolving
Credit Facility (‘RCF’) of £50m up to April 2021, but in all models
and scenarios considered by management the facility is not
expected to be drawn down and therefore management has held
no discussions on whether the facility will be extended at the
date of this report. Management have further confirmed their
eligibility for the Covid Corporate Financing Facility (‘CCFF’) as
a safeguard but do not anticipate needing to obtain external
funding for at least 12 months post report date.

There is a sufficient level of liquidity/financing headroom post
mitigation across the going concern forecast period in base and
severe but plausible scenarios considered and outlined in more
detail below.

Operational and business impact of COVID-19
Please see page 35 in the Strategic Report where the impact on
the business has been disclosed. Management have in all three
scenarios modelled the potential future impact of COVID-19 on the
business and considered the impact it had during the period from
March to July 2020. At this point many customers were transitioning
to home working and responding to the impact COVID-19 had on
their own business liquidity impacting their spending patterns.
Despite this and increasingly towards the end of this period,
Softcat experienced low single-digit year-on-year growth.

Base case
The base case, which was approved by the Board in October
2020, takes into account the estimated impact of the COVID-19
pandemic across the going concern period and reflects the
actual trading experience through to September 2020. The key
inputs and assumptions in the base case include:

• revenue growth in the low to mid-single digit range in line with
the growth experienced in last two quarters of FY20 which
reflected the impact of COVID-19;

• rebate income continues to be received in proportion to sales

as in FY20;

• employee commission is incurred in line with the gross margin; and
• similar level of costs as incurred in prior year, with an increase
in bad debt expense modelled to account for a potential
increase in credit risk.

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. All employees
were able to relatively easily move to working remotely, which did
not impact our ability to meet customer needs. We continue to
work largely remotely, and this is not expected to have an impact
on the operational performance of the Company. Year to date
trading to the end of September 2020 shows growth in line with
the base case forecast.

Severe but plausible case
Given the uncertainty around the impact of COVID-19, and the
continuing uncertainty around the impact of Brexit the UK leaving
the EU, we have considered a severe but plausible scenario. In
this case we have modelled a decline in revenues which is
significantly below any historic trend and more severe than
experienced during the period of March 2020 up to July 2020.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

The key inputs and assumptions include:

• an average 8% year-on-year reduction in revenue and gross

invoiced income;

• reduced gross profit margins of between 1% and 2% in

the period;

• bad debt write offs of £15m across the forecast period;
• extending the debtor days by three days from historic levels
achieved and no change to historic supplier payment days; and

Reverse stress test
The Directors have performed a reverse stress test exercise to
see how extreme conditions would need to be for the Company
to become cash negative within a 12-month period. The conditions
go significantly further than the severe but plausible scenario and
reflect a scenario that the business consider remote. The four
combined stresses modelled are as follows:

1. reduction of 40% in gross invoiced income;

2. reduced achievable gross margin by 5%;

• paying an FY21 interim dividend in line with lower level

3. large and immediate bad debt write offs of £25m; and

of profitability.

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, we continue to be profitable and the
Company would still have available cash. We have modelled cost
savings and further working capital action (see mitigating actions
below) that will enable us to mitigate the impact of reduced cash
generation should this scenario occur. The Directors are
confident that they can implement these actions if required.

Mitigating actions
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 £18m cost reduction on an annualised basis and £20m
working capital impact, before taking into account the cost of
delivering them and the point at time at which they were
delivered. The actions which if implemented would offset the
reduced activity:

• commission and bonus costs scaled back in line with

performance;

• reduced salary costs, through recruitment restrictions on new

heads and not replacing leavers;

• no interim dividend in H2 of FY21;
• savings in discretionary areas of spend;
• delayed payment to suppliers foregoing early settlement

discount; and

• short term supplier payment management.

The mitigations are deemed achievable reasonable as the
Company benefits from a flexible business model with a high
proportion of costs linked to performance. If this scenario arose
and the Company implemented the mitigating actions we expect
that available cash would not fall significantly below the £45m
cash liquidity floor set by the Board.

4. substantial increase in debtor days.

All four inputs are greater than the business has ever experienced
in its history. In the modelled scenario, prior to mitigations,
the business could become cash negative within 12 months.

Whilst the Board considers such a scenario to be extremely
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 extremely remote.

Going concern conclusion
Based on the forecast and the scenarios modelled, together
with the performance of the Company to date in 2020/21, the
Directors consider that the Company has significant liquidity
headroom to continue in operational existence for 12 months post
the date of this report. Accordingly, at the October 2020 Board
meeting, the Directors concluded from this analysis it was
appropriate to continue to adopt the going concern basis in
preparing the financial statements. The long-term impact of
COVID-19 is uncertain and should the impact of the pandemic
on trading conditions be 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.

Disclosure of information to the auditor
The Directors in office at the time of approval of the Directors’ Report
are listed on pages 46 and 47 and have each confirmed that:

• so far as he or she is aware, there is no relevant audit

information of which the Company’s auditor is unaware; and

• he or she has taken all the steps that he or she ought to have
taken as a Director to make himself or herself aware of any
such relevant audit information and to establish that the
Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance
with the provisions of Section 418 of the Companies Act 2006.

Annual Report and Accounts 2020 Softcat plc

Directors’ report continued

Annual General Meeting
The Company’s 2020 AGM will take place on 10 December 2020
at the Company’s registered office: Softcat plc, Fieldhouse Lane,
Marlow, Buckinghamshire SL7 1LW.

The Chair of the AGM intends for a poll to be called in respect of
each of the resolutions to be voted on at the 2020 AGM. Subject
to any restrictions set out in this section, in the event of a show
of hands every holder of ordinary shares who is present in person
or by proxy at a general meeting has one vote on each resolution
and, on a poll, every holder of ordinary shares who is present
in person or by proxy has one vote on each resolution for every
ordinary share of which he/she is the registered holder. A proxy
will have one vote against a resolution in the event of a show of
hands in certain circumstances specified in the Articles. The
Notice of AGM specifies deadlines for exercising voting rights.
The Notice of AGM can be found in the Investor Relations section
of the Company’s website, www.softcat.com, and is being posted
at the same time as this Annual Report. The Notice of AGM sets
out the business of the meeting and provides explanatory notes
on all resolutions. Separate resolutions are proposed in respect of
each substantive issue.

A holder of ordinary shares may usually vote personally or by
proxy at a general meeting. Any form of proxy must be delivered
to the Company not less than 48 hours before the time appointed
for holding the meeting or adjourned meeting at which the person
named in the appointment proposes to vote (for this purpose,
the Directors may specify that no account shall be taken of any
part of a day that is not a working day). A corporation which is
a holder of ordinary shares in the Company may authorise such
persons as it thinks fit to act as its representatives at any general
meeting of the Company.

No holder of ordinary shares shall be entitled to attend or vote,
either personally or by proxy, at a general meeting in respect of
any ordinary share if any call or other sum presently payable to
the Company in respect of such ordinary share remains unpaid
or in certain other circumstances specified in the Articles where
there is default in supplying the Company with information
concerning interests in the Company’s ordinary shares.

The Board has carefully considered the safety of its employees
and shareholders in light of the COVID-19 pandemic and
the authorities granted under the Corporate Insolvency and
Governance Act 2020, in particular concerning holding of
annual general meetings. The Board has concluded that it would
be in the best interests of its employees and shareholders for
shareholders not to be able to attend the 2020 AGM in person.
Hence it will not be possible for shareholders to vote in person
or to ask questions in person at the 2020 AGM. Shareholders may
vote on the resolutions at the 2020 AGM by casting a proxy vote
in accordance with the instructions provided on the Notice of
Meeting for the 2020 AGM. Any questions shareholders would
have wished to raise for the Directors at the 2020 AGM may
be submitted to cosec@softcat.com or by letter addressed
to the Company Secretary at the Company’s Registered Office.
Questions should be submitted up to 48 hours in advance of the
Meeting and a response will be provided. The results of each of
the resolutions to be voted on at the 2020 AGM will be published
to the London Stock Exchange and will be available on the
Company’s website.

Softcat plc Annual Report and Accounts 2020

Strategic report / Corporate governance / Financial statements

Statement of Directors’ responsibilities in relation
to the financial statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.

The Directors are required to prepare financial statements for
each financial year in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European Union.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company as at the end of the
financial year and the profit or loss of the Company, so far as
concerns members of the Company, for the financial year.
In preparing those financial statements, the Directors are
required to:

• select and apply accounting policies in accordance with IAS 8;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;

• provide additional disclosures when compliance with the

specific requirements in IFRSs is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance;

• make judgements and estimates that are reasonable

and prudent;

• state that applicable accounting standards have been

followed, subject to any material departures disclosed and
explained in the Company’s financial statements; and

• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.

The Directors are responsible for keeping adequate accounting
records which are sufficient to disclose with reasonable accuracy
at any time the financial position of the Company and enable
them to ensure that the financial statements comply with the
Companies Act 2006 and Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

Fair and balanced reporting
Having taken advice from the Audit Committee, the Board
considers that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Company’s
position and performance, business model and strategy.

Responsibility statement pursuant to FCA’s
Disclosure Guidance and Transparency Rule 4 (‘DTR 4’)
Each Director of the Company (whose names and functions
appear on pages 46 and 47) confirms that (solely for the purpose
of DTR 4) to the best of his or her knowledge:

• the financial statements in this document, prepared in accordance
with the applicable accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit of the
Company; and

• the Strategic Report and the Directors’ Report include a fair

review of the development and performance of the business
and the position of the Company, together with a description
of the principal risks and uncertainties that it faces.

The responsibility statement has been approved by the Board of
Directors and is signed on its behalf by:

Graeme Watt
Chief Executive Officer
19 October 2020

Graham Charlton
Chief Financial Officer
19 October 2020

The Directors’ Report has been approved by the Board of Directors
and is signed on its behalf by:

Luke Thomas
Company Secretary
19 October 2020

Annual Report and Accounts 2020 Softcat plc

Independent auditor’s report
To the members of Softcat plc

Opinion
We have audited the financial statements of Softcat plc for the year ended 31 July 2020 which comprise the Statement of Profit or Loss
and Other Comprehensive Income, Statement of Financial Position, the Statement of changes in Equity, Statement of cash flows and
the related notes 1 to 27, including a summary of significant accounting policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the financial statements:

• give a true and fair view of the company’s affairs as at 31 July 2020 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report
below. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to
report to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report (pages 32 to 37) that describe the principal risks and explain how they are being managed

or mitigated;

• the directors’ confirmation (page 32) in the annual report that they have carried out a robust assessment of the emerging and

principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;

• the directors’ statement (pages 90 and 91) in the financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule

9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation (pages 36 and 37) in the annual report as to how they have assessed the prospects of the entity, over what

period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Overview of our audit approach

Key audit matters

Materiality

• Overstatement of performance through the misstatement of revenue recognised at or near year end
• IFRS 15 Presentation of revenue in respect of principal vs agent
• Misstatement of rebate income to overstate reported results at or near year end
• Appropriateness of Going Concern basis used in the preparation of the Annual Report and Accounts
• Overall materiality of £4.7m which represents 5% of profit before tax

Softcat plc Annual Report and Accounts 2020

Financial statementsStrategic report / Corporate governance / Financial statements

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

In the current year, we have included the going concern basis used in the preparation of the Financial Statements to be a new key audit
matter due to the uncertainly and difficulty to forecast the impact of the COVID-19 pandemic and Brexit on the wider UK economy in
which Softcat operates. Assessing and concluding the impact required additional focus and time being spent by both management and
the senior audit team members.

Key observations
communicated
to the Audit Committee

We concluded that the
revenue recognised at or
near year end was properly
accounted for and that
revenue has appropriately
been recognised in
accordance with IFRSs
as adopted by the
European Union.

Risk

Our response to the risk

Overstatement of performance
through the misstatement of
revenue recognised at or near
year end
During the year the Company recognised
revenue of £1,077.1m (2019: £991.8m).

Refer to the Audit Committee Report
(pages 55 to 62); Accounting policies
(page 111 to 113); and Note 2 of the
Company Financial Statements (page 119).

• Management’s process for accounting

for certain revenue transactions,
particularly the review process at
year end to record revenue in the
appropriate period, is mostly manual
and therefore susceptible to error
(either deliberate or without intent).
The accounting is made more
challenging due to the reliance on
suppliers to notify the company of
delivery, and for suppliers who ship
from outside of the UK which results
in a longer delivery lead time needing
to be built into the assumptions utilised
by management. There is a risk that
revenue is recognised prematurely
or fictitiously.

• Certain compensation incentives are
based on quarterly and annual gross
margin targets, creating a risk of
revenue misstatement through
management override via top side
revenue journals with no associated
cost or revenue recognised in the
incorrect period prematurely.

We performed the following procedures:

• Updated our understanding of management’s cut
off assessment, including the delivery lead time
assumption utilised.

• Tested revenue cut off by obtaining management’s
sales cut off analysis and independently testing
transactions therein on a sample basis by vouching to
invoices and proof of delivery.

• We tested an independent sample of transactions

invoiced in the two weeks either side of the year end,
vouching to invoices and proof of delivery, to confirm
these had been recorded in the correct period.

• We performed third party confirmations for a sample of
key suppliers to verify if shipment is made from outside
of the UK and ensured these were appropriately
considered in management’s cut off assessment.

• Addressed the risk of management override – we

tested a sample of journal entries recorded at or near
year end by verifying to appropriate supporting
documentation.

• Tested a sample of sales transactions deferred at the

year end and recalculated the split of revenue recognised
and the deferred elements to obtain assurance over the
recognition of revenue. We also selected a sample of
invoices from billing data and verified that the revenue
was appropriately recognised or deferred, based on
completion of the performance obligation.

• Analysed sales related journal entry data to track sales
from revenue through to accounts receivable through
to cash collection using data analytics tools. We used
this analysis to validate the appropriateness of
transaction flows and tested a sample of transactions
to determine if the journals accurately reflected the
substance of transactions recorded.

Annual Report and Accounts 2020 Softcat plc

Key observations
communicated
to the Audit Committee

We concluded that the
judgements made by
management are consistent
with the level of control
we have observed, the
presentation and disclosure
of revenue is materially
correct, and has been
recognised in accordance
IFRSs as adopted by the
European Union.

We concluded management’s
rationale for including the
APM to be reasonable. The
disclosures in respect of the
APM is appropriate and
is correctly reconciled
to revenue.

Independent auditor’s report continued
To the members of Softcat plc

Key audit matters continued

Risk

Our response to the risk

IFRS 15 Presentation of revenue
in respect of principal vs agent
During the year the Company recognised
revenue of £1,077.1m (2019: £991.8m). The
adjustment recorded in respect of income
to be recognised net as agent under IFRS
15 amounted to £569.1m (2019: £422.2m).

Refer to the Audit Committee Report
(pages 55 to 62); Accounting policies
(page 111 to 113); and Note 2 of the
Company Financial Statements (page 119).

There is a risk that the reported revenue
may be incorrectly presented on a gross
basis as a result of the incorrect assessment
of whether the Company has control
over the products or services sold and
consequently if the Company is principal
or agent in its arrangements with customers.
As products and services offered continually
evolve the assessment of control needs to
be revisited on an ongoing basis.

The nature of the current systems is
to process all revenue streams gross,
and a manual adjustment is made by
management at year end to record
revenue on a net basis where appropriate.

We performed the following procedures:

• Updated our understanding of management’s

judgement over the classification of transactions
between gross and net presentation.

• Assessed management’s judgement made for any
significant new product types by independently
assessing the nature of such products and meeting
with key members of the sales and solutions teams
to develop an understanding of the advisory element
of Softcat’s customer offering, and challenged the
distinction between sales effort and service delivery
in order to help ascertain the level of control of goods
prior to their delivery, and ultimately concluded if the
principal (gross) or agent (net) treatment applied was
appropriate according to the criteria set out within
the standard.

• Tested a sample of transactions across the year to
determine the Company’s control over the product
or service including:

– Verified the product type to external sources, and
met with key members of the sales and solutions
teams to develop an understanding of the advisory
element of each sample selected to challenge the
distinction between sales effort and service delivery
in order to help ascertain the level of control of
goods prior to their delivery.

– Assessed if principal (gross) or agent (net) treatment
should be applied and compared this to management’s
conclusion to determine if this was appropriate
according to the criteria set out within the standard.

• We reperformed management’s calculation of the

adjustment to record revenue on a net basis.

• Tested that the methodology utilised to calculate the
adjusted performance measure (APM) ‘gross invoiced
income’ is consistent with the FY19 financial statements,
assessed management’s rationale for including the APM
and ensured that the amount reported is reconciled to
reported revenue.

Softcat plc Annual Report and Accounts 2020

Financial statementsStrategic report / Corporate governance / Financial statements

Key observations
communicated
to the Audit Committee

We concluded that the
rebate receivable and
corresponding income are
materially correct and have
been recognised in
accordance with IFRSs
as adopted by the
European Union.

Key audit matters continued

Risk

Our response to the risk

Misstatement of rebate income to
overstate reported results at or
near year end
Accrued rebate income at 31 July 2020
amounts to £6m (2019: £12m).

Refer to the Audit Committee Report
(pages 55 to 62); Accounting policies
(page 114); and Note 11 of the Company
Financial Statements (page 125).

Rebates are recorded through a primarily
manual process. While most rebates are
agreed with the supplier and received
during the year, there is an opportunity to
misstate results through adjustments to
the balance sheet receivable.

We performed the following procedures:

• Tested the year end rebate receivable by confirming a
sample of rebates due from suppliers to third party
source documentation.

• Analysed the rebate receivable by vendor and

compared the largest vendor level balances (making
up 95% of the balance) against 31 July 2019 to identify
movements that are not in line with our expectation or
understanding of the business. Performed analysis to
understand the drivers of increases or decreases in
the underlying balances.

• Assessed the cash conversion of rebates accrued at the
year end and tested a sample to subsequent receipts.

• Tested a sample of rebate transactions recorded in the
statement of profit and loss throughout the year and
obtained underlying support to consider whether the
transactions have been recorded in the correct period.

• We analysed the rebate receivable by vendor and

compared the largest vendor level balances against
31 July 2019 to identify movements that are not in
line with our expectation or understanding of the
business and then performed procedures to understand
the drivers for the increases or decreases in the
underlying balances.

Annual Report and Accounts 2020 Softcat plc

Key observations
communicated
to the Audit Committee

We have concluded that
there is no material
uncertainty related to the
Group’s ability to continue
as a going concern
following our audit of the
three scenario’s prepared by
management, the available
mitigating actions, the post
year end trading results, the
current customer base and
our assessment of the
sector the Company
operates in.

We are satisfied that the
additional disclosures in the
financial statements are
consistent with our
knowledge arising from
our audit.

Independent auditor’s report continued
To the members of Softcat plc

Key audit matters continued

Risk

Our response to the risk

Going concern basis used in the
preparation of the Annual Report
and Accounts
Refer to the Audit Committee Report
(pages 55 to 62); Accounting policies
(page 106 to 108); and Note 1.2 of the
Company Financial Statements
(page 106 to 108).

The COVID-19 pandemic is of an
unprecedented scale. It has severely
impacted the global economy and
businesses across all industries. There is
a significant degree of uncertainty about
the potential for future lockdowns and
the related impact on the UK economy in
which Softcat predominantly operates.
This may be further affected by the UK’s
exit from the EU and the uncertainty on
future levels of trade.

The risk is that the Company’s forecasts
based on management’s assumptions
may be too optimistic and that the Company’s
mitigating actions in the event of a decline
in trading may not be achievable.

There is a further risk that management
has not appropriately disclosed the impact
of COVID-19 in the Annual Report
and Accounts.

The audit engagement partner and senior team
members increased their time directing and supervising
the audit procedures on going concern, in particular in
assessing the going concern models and assumptions
included therein.

We performed the following procedures:

Going concern:
• Obtained management’s going concern cash flow

model, testing its mathematical accuracy. We confirmed
that the forecasts were approved by the Board.

• We considered the liquidity headroom considering cash
on hand and cash generation in the base and severe
but plausible forecasts, post the impact of paying the
year end dividend, and applied sensitivity analysis to
both scenario’s.

• Assessed management’s ability to forecast accurately
with reference to historical forecasts prepared for the
cash flow model used for the Company’s going concern.

• Tested the inputs to the model, including cash on hand,
and that the forecast cash generation is in line with our
understanding of the business. We also assessed the
level of forecast revenue by considering economic
forecasts and competitor trading updates.

• Considered the appropriateness of key assumptions
used in management’s reverse stress testing and
assessed the identified downside risks over gross profit,
bad debt write offs and potential mitigating actions that
could erode the liquidity headroom.

• We considered the practicality of management’s ability

to execute feasible mitigating actions available to
respond to the severe but plausible scenario based on
our understanding of the company and the sector,
including whether those mitigating actions were
actionable by management

• Considered the performance in terms of revenue and

gross profit of the business since year end and
compared it to cash flow forecasts.

• Reviewed management’s basis of preparation note and
the Directors’ Report and validated that they accurately
described management’s going concern considerations.

Other disclosures in the Annual Report in
relation to COVID-19
• Assessed the adequacy of the relevant disclosures
in the Annual Report and accounts, including, the
Directors’ Report, principal risks and uncertainties,
corporate governance and the Audit Committee’s
Report against the relevant reporting requirements
and compared them to our knowledge obtained
from our audit.

Softcat plc Annual Report and Accounts 2020

Financial statementsStrategic report / Corporate governance / Financial statements

An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
the company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of
the company and effectiveness of controls, including controls and changes in the business environment when assessing the level of
work to be performed. All audit work was performed directly by the audit engagement team.

Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.

Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.

We determined materiality for the company to be £4.7 million (2019: £4.2 million), which is 5% (2019: 5%) of profit before tax.
We believe that profit before tax provides us with the most appropriate basis as it drives shareholder returns and is a key measure
of company performance.

During the course of our audit, we reassessed initial materiality and increased this in line with actual profit before tax given final
PBT was higher than forecasted PBT.

Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.

On the basis of our risk assessments, together with our assessment of the company’s overall control environment, our judgement
was that performance materiality was 75% (2019: 75%) of our planning materiality, namely £3.5m (2019: £3.2m). We continue to set
performance materiality at this percentage due to the low number of audit differences.

Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.2m (2019: £0.2m),
which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.

Other information
The other information comprises the information included in the annual report (pages 1 to 93),including the strategic report (pages 1 to
43) and corporate governance (pages 44 to 93), other than the financial statements and our auditor’s report thereon. The directors are
responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we
are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet
the following conditions:

Annual Report and Accounts 2020 Softcat plc

Independent auditor’s report continued
To the members of Softcat plc

Other information continued
• Fair, balanced and understandable (page 93) – the statement given by the directors that they consider the annual report and financial

statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess
the company’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

• Audit Committee reporting (pages 55 to 62) – the section describing the work of the Audit Committee does not appropriately

address matters communicated by us to the Audit Committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code (page 45) – the parts of the directors’ statement

required under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.

Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

• the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not

visited by us; or

• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting

records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Responsibilities of Directors
As explained more fully in the directors’ responsibilities statement (page 93), the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, 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 audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud,
through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified
during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with
governance of the entity and management.

100 Softcat plc Annual Report and Accounts 2020

Financial statementsStrategic report / Corporate governance / Financial statements

Auditor’s responsibilities for the audit of the financial statements continued
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud continued
Our approach was as follows:

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the
most significant those related to the reporting framework (IFRS as adopted by the EU, the Companies Act 2006 and the UK Corporate
Governance Code 2018) and the relevant tax compliance regulations in the UK. In addition, we concluded that there are certain
significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the financial
statements, being the Listing Rules of the London Stock Exchange and the Bribery Act 2010.

• We understood how Softcat plc is complying with those frameworks by making inquiries of management, those responsible for

legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes,
discussions with the Audit Committee and any correspondence received from regulatory bodies.

• We assessed the susceptibility of the company’s financial statements to material misstatement, including how fraud might occur by
meeting with management to understand where they considered there was susceptibility to fraud. We also considered performance
targets and their propensity to influence efforts made by management to manage earnings or influence the perceptions of analysts.
Where this risk was considered to be higher, we performed audit procedures to address each identified fraud risk. The key audit
matters section above addresses procedures performed in areas where we have concluded the risks of material misstatement are
highest (including where due to the risk of fraud). In addition, we completed procedures to conclude on the compliance of the
disclosures in the Annual Report and Accounts with the requirements of the relevant accounting standards, UK legislation and the
UK Corporate Governance Code 2018.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our

procedures involved review of board minutes to identify non-compliance with such laws and regulations, review of reporting to the
Audit Committee on compliance with regulations and enquires of the Company Secretary and management.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address
• We were appointed by the company on 5 December 2019 to audit the financial statements for the year ending 31 July 2020 and

subsequent financial periods.

• The period of total uninterrupted engagement including previous renewals and reappointments is 8 years, covering the years

ending 31 July 2013 to 31 July 2020.

• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the company and we remain independent

of the company in conducting the audit.

• The audit opinion is consistent with the additional report to the Audit Committee.

Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

David Hales (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
19 October 2020

Notes:
1.

The maintenance and integrity of the Softcat plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Annual Report and Accounts 2020 Softcat plc

101

Statement of profit or loss and other comprehensive income
For the year ended 31 July 2020

Revenue
Cost of sales

Gross profit
Administrative expenses

Operating profit
Finance income
Finance cost

Profit before tax
Income tax expense

Profit and total comprehensive income for the year

Profit attributable to:
Owners of the Company

Earnings per ordinary share (p)
Basic
Diluted

Notes

2020
£’000

2019
£’000

3
4
4

1,077,127
(841,422)

991,849
(780,706)

235,705
(141,972)

211,143
(126,657)

93,733
200
(316)

93,617
(17,953)

84,486
333
—

84,819
(16,358)

75,664

68,461

75,664

68,461

18
18

38.2
38.0

34.6
34.4

The Statement of profit or loss and other comprehensive Income has been prepared on the basis that all operations are
continuing operations.

102 Softcat plc Annual Report and Accounts 2020

Financial statements

Strategic report / Corporate governance / Financial statements

Statement of financial position1
As at 31 July 2020

Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred tax asset

Current assets
Inventories
Trade and other receivables
Income tax receivable
Cash and cash equivalents

Total assets

Current liabilities
Trade and other payables
Contract liabilities
Income tax payable
Lease liabilities

Non-current liabilities
Contract liabilities
Lease liabilities

Total liabilities

Net assets

Equity
Issued share capital
Share premium account
Reserves for own shares
Retained earnings

Total equity

Notes

7
8
9
15

10
11

12
13

13
8

2020
£’000

11,897
8,698
1,301
2,408

24,304

2019
£’000

5,761
—
240
2,485

8,486

11,744
314,123
636
80,139

11,084
285,307
—
79,263

406,642

375,654

430,946

384,140

(263,866)
(13,929)
—
(1,867)

(244,468)
(15,165)
(9,115)
—

(279,662)

(268,748)

(2,565)
(7,972)

(10,537)

—
—

—

(290,199)

(268,748)

140,747

115,392

100
4,979
—
135,668

99
4,979
—
110,314

140,747

115,392

1. The 2019 ‘Deferred income’ balance of £15.2m has been reclassified to ‘Contract liabilities’ from ‘Trade and other payables’. Refer to note 1.2 for

further detail.

These financial statements were approved by the Board of Directors and authorised for issue on 19 October 2020.

On behalf of the Board

Graeme Watt
Chief Executive Officer

Graham Charlton
Chief Financial Officer

Softcat plc company registration number: 02174990

Annual Report and Accounts 2020 Softcat plc

103

Statement of changes in equity
For the year ended 31 July 2020

Equity attributable to owners of the Company

Balance at 1 August 2018
Total comprehensive income for the year
Share-based payment transactions
Dividends paid
Shares issued in the year
Dividend equivalents paid
Tax adjustments

Balance at 31 July 2019
Effect of adoption of IFRS 16

Balance at 1 August 2019 (adjusted)
Total comprehensive income for the year
Share-based payment transactions
Dividends paid
Shares issued in the year
Dividend equivalents paid
Tax adjustments

Balance at 31 July 2020

Share capital
£’000

Share
premium
account
£’000

Reserves for
own shares
£’000

99
—
—
—
—
—
—

99
—

99
—
—
—
1
—
—

100

4,979
—
—
—
—
—
—

4,979
—

4,979
—
—
—
—
—
—

4,979

—
—
—
—
—
—
—

—
—

—
—
—
—
—
—
—

—

Retained
earnings
£’000

95,738
68,461
1,732
(56,231)
—
(287)
901

110,314
(179)

110,135
75,664
1,958
(52,338)
—
(259)
508

Total
£’000

100,816
68,461
1,732
(56,231)
—
(287)
901

115,392
(179)

115,213
75,664
1,958
(52,338)
1
(259)
508

135,668

140,747

The share capital and share premium accounts represent the nominal value and premium arising on the issue of equity shares.

The reserve for own shares refers to ordinary shares held by a Share Incentive Plan (‘SIP’) Trust.

During the year ended 31 July 2020, 422,567 share options (2019: 299,791) were exercised and new shares were issued to satisfy this
exercise. Proceeds of £Nil (2019: £Nil) were realised from the exercise of these share options.

As at 31 July 2020, the SIP Trust held 320,779 shares (2019: 359,302) awarded to employees as part of the free share award, subject to
service conditions. A further 345,054 shares (2019: 319,835) were held on behalf of employees who have taken part in the Company’s
voluntary partnership share purchase programme. The SIP also held 49,803 unallocated shares (2019: 49,803).

104 Softcat plc Annual Report and Accounts 2020

Financial statements
Statement of cash flows
For the year ended 31 July 2020

Net cash generated from operating activities

Investing activities
Finance income
Purchase of property, plant and equipment
Purchase of intangible assets

Net cash used in investing activities

Financing activities
Issue of share capital
Dividends paid
Payment of principal portion of lease liabilities
Payment of interest portion of lease liabilities

Net cash used in financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Strategic report / Corporate governance / Financial statements

Notes

2020
£’000

2019
£’000

64,170

64,659

4
7
9

6
8
4,8

200
(7,664)
(1,293)

333
(2,168)
(161)

(8,757)

(1,996)

(1)
(52,338)
(1,882)
(316)

—
(56,231)
—
—

(54,537)

(56,231)

876
79,263

6,432
72,831

80,139

79,263

Annual Report and Accounts 2020 Softcat plc

105

Notes to the financial statements
For the year ended 31 July 2020

1 Accounting policies
1.1 Corporate information
The financial statements of Softcat plc for the year ended 31 July 2020 were authorised for issue in accordance with a resolution of the
Directors on 19 October 2020. Softcat plc is a public limited company incorporated and domiciled in the United Kingdom and whose
shares are publicly traded. The registered office is Solar House, Fieldhouse Lane, Marlow, Buckinghamshire, in the United Kingdom.

The principal activity of the Company continued to be that of a value-added IT reseller and IT infrastructure solutions provider to the
corporate and public sector markets.

1.2 Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the
International Accounting Standards Board (‘IASB’) and as adopted by the EU (‘Adopted IFRS’) and the IFRS Interpretations Committee
(‘IFRIC’) interpretations and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

These financial statements have been prepared under the historical cost convention and are presented in the Company’s presentational
and functional currency of Pounds Sterling and all values are rounded to the nearest thousand (‘£’000’), except when otherwise stated.

The Company applied all standards and interpretations issued by the IASB that were effective as at 1 August 2019. The accounting
policies set out below have, unless otherwise stated (see 1.4.2 below), been applied consistently to all periods presented in these
financial statements.

Presentation
“Deferred income and contract liabilities” of £15.2m, included within “Trade and other payables” at 31 July 2019, have now been
separately disclosed on the face of the statement of financial position as “Contract Liabilities” as required by IFRS 15 “Revenue from
Contracts with Customers”. The opening comparative period statement of financial position at 1 August 2018 has not been provided
as the only balances impacted would have been to reduce Trade and other payables by £11.2m and presented as Contract liabilities.

This reclassification had no impact on the Company’s net assets, income statement or net cash flow from operating activities reported
in 2019.

Going concern
The financial information has been prepared on the going concern basis which assumes that the Company will continue to be able to meet
its liability as it falls due for the foreseeable future, being a period of at least 12 months from the date of signing these financial statements.

In considering the going concern basis for preparing the financial statements, the Directors consider the Company’s objectives and
strategy, its principal risks and uncertainties in achieving its objectives and its review of business performance and financial position,
which are all set out in the Strategic Report (see pages 1 to 43) and Financial Review sections (see pages 28 and 29) of this Annual
Report. Given the economic uncertainty of the COVID-19 pandemic and the further uncertainty arising from the impact of the UK
leaving the EU, and taking into account the recent guidance issued by the FRC the Directors have undertaken a fully comprehensive
going concern review.

The Group 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, which is for a 12 month period of going concern from the date of this report.
All the forecasts reflect the payment of our FY20 dividend of £47.6m which will be paid in December 2020 subject to approval at the AGM.

The Company operates in a resilient industry. Our customer base incorporates a large volume of non-discretionary spend from UK
corporates as IT has become vital to establish competitive advantage in an increasingly digital age. Public Sector, a large and fast-growing
area of the business, has shown no negative sensitivity to COVID-19 so far. The Company will continue to focus on increasing the
customer base and spend per customer during the going concern period.

106 Softcat plc Annual Report and Accounts 2020

Financial statementsStrategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.2 Basis of preparation
Going concern continued
Liquidity and financing position
At 31 July 2020, the Company held instantly accessible cash and cash equivalents of £80.1m, while net current assets were £127.0m.
Note 21 to the financial statements includes the Company’s objectives, policies and processes for managing its capital, its financial risk
management and its exposures to credit risk and liquidity risk. The Company has access to a Revolving Credit Facility (‘RCF’) of £50m
up to April 2021, but in all models and scenarios considered by management the facility is not expected to be drawn down and
therefore management has held no discussions on whether the facility will be extended at the date of this report. Management have
further confirmed their eligibility for the Covid Corporate Financing Facility (‘CCFF’) as a safeguard but do not anticipate needing to
obtain external funding for at least 12 months post report date.

There is a sufficient level of liquidity/financing headroom post mitigation across the going concern forecast period in base and severe
but plausible scenarios considered and outlined in more detail below.

Operational and business impact of COVID-19
Please see page 35 in the Strategic Report where the impact on the business has been disclosed. Management have in all three scenarios
modelled the potential future impact of COVID-19 on the business and considered the impact it had during the period from March to July
2020. At this point many customers were transitioning to home working and responding to the impact COVID-19 had on their own business
liquidity impacting their spending patterns. Despite this and increasingly towards the end of this period, Softcat experienced low
single-digit year-on-year growth.

Base case
The base case, which was approved by the Board in October 2020, takes into account the estimated impact of the COVID-19
pandemic across the going concern period and reflects the actual trading experience through to September 2020. The key inputs and
assumptions in the base case include:

• revenue growth in the low to mid-single digit range in line with the growth experienced in last two quarters of FY20 which reflected

the impact of COVID-19;

• rebate income continues to be received in proportion to sales as in FY20;
• employee commission is incurred in line with the gross margin; and
• similar level of costs as incurred in prior year, with an increase in bad debt expense modelled to account for a potential increase in

credit risk.

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. All employees
were able to relatively easily move to working remotely, which did not impact our ability to meet customer needs. We continue to work
largely remotely, and this is not expected to have an impact on the operational performance of the Company. Year to date trading to
the end of September 2020 shows growth in line with the base case forecast.

Severe but plausible case
Given the uncertainty around the impact of COVID-19, and the continuing uncertainty around the impact of Brexit the UK leaving the
EU, we have considered a severe but plausible scenario. In this case we have modelled a decline in revenues which is significantly
below any historic trend and more severe than experienced during the period of March 2020 up to July 2020.

The key inputs and assumptions include:

• an average 8% year-on-year reduction in revenue and gross invoiced income;
• reduced gross profit margins of between 1% and 2% in the period;
• bad debt write offs of £15m across the forecast period;
• extending the debtor days by three days from historic levels achieved and no change to historic supplier payment days; and
• paying an FY21 interim dividend in line with lower level of profitability.

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, we continue to be profitable and the Company would still have available cash. We have modelled cost savings and further
working capital action (see mitigating actions below) that will enable us to mitigate the impact of reduced cash generation should this
scenario occur. The Directors are confident that they can implement these actions if required.

Annual Report and Accounts 2020 Softcat plc

107

1 Accounting policies continued
1.2 Basis of preparation continued
Going concern continued
Mitigating actions
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 £18m cost reduction on an annualised basis and £20m working capital impact,
before taking into account the cost of delivering them and the point at time at which they were delivered. The actions which if implemented
would offset the reduced activity:

• commission and bonus costs scaled back in line with performance;
• reduced salary costs, through recruitment restrictions on new heads and not replacing leavers;
• no interim dividend in H2 of FY21;
• savings in discretionary areas of spend;
• delayed payment to suppliers foregoing early settlement discount; and
• short term supplier payment management.

The mitigations are deemed achievable reasonable as the Company benefits from a flexible business model with a high proportion of
costs linked to performance. If this scenario arose and the Company implemented the mitigating actions we expect that available cash
would not fall significantly below the £45m cash liquidity floor set by the Board.

Reverse stress test
The Directors have performed a reverse stress test exercise to see how extreme conditions would need to be for the Company to
become cash negative within a 12-month period. The conditions go significantly further than the severe but plausible scenario and
reflect a scenario that the business consider remote. The four combined stresses modelled are as follows:

1. reduction of 40% in gross invoiced income;

2. reduced achievable gross margin by 5%;

3. large and immediate bad debt write offs of £25m; and

4. substantial increase in debtor days.

All four inputs are greater than the business has ever experienced in its history. In the modelled scenario, prior to mitigations,
the business could become cash negative within 12 months.

Whilst the Board considers such a scenario to be extremely 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 extremely remote.

Going concern conclusion
Based on the forecast and the scenarios modelled, together with the performance of the Company to date in 2020/21, the Directors
consider that the Company has significant liquidity headroom to continue in operational existence for 12 months post the date of this
report. Accordingly, at the October 2020 Board meeting, the Directors concluded from this analysis it was appropriate to continue to
adopt the going concern basis in preparing the financial statements. The long-term impact of COVID-19 is uncertain and should the
impact of the pandemic on trading conditions be 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.

108 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.3 Critical accounting judgements and key sources of estimation uncertainty
When applying the Company’s accounting policies, management must make a number of key judgements involving estimates and
assumptions concerning the future. These estimates and judgements are based on factors considered to be relevant, including historical
experience that may differ significantly from the actual outcome. The key assumptions concerning the future and other key sources of
estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year include:

Revenue cut-off
The Company’s management information systems are configured to recognise revenue upon notification of dispatch from the supplier
or distributor which in instances, especially regarding physical shipments, may not be aligned to when control has been transferred to
the customer. Management therefore performs an exercise to capture items that may have been dispatched from the distributor but
not delivered in the financial year, and subsequently defers the recognition of revenue and associated cost into the following year. This gives
rise to a deferred income, which is recognised as a contract liability, and associated inventory in the Statement of Financial Position.
The exercise applied includes assumptions, which management believes are reasonable, in order to identify items that fit the criteria for
deferral. Separately, management reviews individual large transactions on a case-by-case basis, which reduces the opportunity for error.

The key judgements that are made in the cut-off process are as follows:

• When identifying transactions to review in the cut-off process, management limits the review period to a fixed number of days

before and after the period end and validates the date of dispatch.

• Management incorporates a one-day shipment delay assumption onto the sale of hardware items to reflect the time taken between

vendor shipment and customer delivery.

In the process of applying the Company’s accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognised in the financial statements:

Principal versus agent
Significant judgement is required in determining whether the Company is acting as principal, reporting revenue on a gross basis,
or agent, reporting revenue on a net basis. Softcat evaluates each revenue stream against the following indicators when determining
whether it is acting as principal or agent in a transaction: (i) primary responsibility for fulfilling the promise to provide the specified goods
or service, (ii) inventory risk before the specified good or service has been transferred to a customer and (iii) discretion in establishing
the price for the specified good or service. Certain revenue streams present a more balanced judgement than others when assessed
against the above criteria and the conclusion may be reliant on the weighting applied to the responses to these criteria. When applying
the weighting and concluding on whether principal or agent treatment is appropriate, the Company exercises significant levels of
judgement due to the balanced nature of the assessment. The specific judgements made for each revenue category are discussed
in the accounting policy for revenue as disclosed below.

Determining the lease term of contracts with renewal and termination options
Softcat determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain
not to be exercised. Softcat has several property leases that include termination options and Softcat applies judgement in evaluating
whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, that Softcat considers all
relevant factors that create an economic incentive to exercise either the renewal or termination option. Factors in considering extension
or termination options include, but are not limited to, capacity constraints and growth plans, budgets and forecasts, trading relationships
as well as current state of property. After the commencement date, Softcat reassesses the lease term if there is a significant event or
change in circumstances that is within its control and affects its ability to exercise or not exercise the relevant option available.

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109

1 Accounting policies continued
1.4 Adoption of new and revised standards
1.4.1 Standards not yet adopted
At the date of authorisation of these financial statements, the following accounting standards, interpretations, improvements
and amendments have become applicable for the current period:

• Amendments to IFRS 3 Business Combinations
• Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
• Amendments to IAS 1 and IAS 8: Definition of Material
• Amendments to References to the Conceptual Framework in IFRS Standards
• IFRS 16 Leases
• IFRIC 23 Uncertainty over Income Tax Treatments

Other than IFRS 16 Leases and IFRIC 23, which are discussed below, the Company has not been materially impacted by the adoption
of any of the above standards and amendments and has not early adopted any standard, amendment or interpretation that was issued
but is not yet effective.

Softcat has not early adopted any standard, amendment or interpretation that was issued but is not yet effective.

1.4.2 Changes to accounting standards
Softcat plc has adopted the following standards and amendments for the first time in the year commencing 1 August 2019:

• IFRS 16 Leases
• IFRIC 23 Uncertainty over income tax treatment

IFRS 16 Leases
Softcat applied IFRS 16 Leases for the first time for the year ended 31 July 2020, commencing 1 August 2019. The nature and effect of
the changes as a result of adoption of this new accounting standard is described below.

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases – Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the Statement of
Financial Position.

Softcat adopted IFRS 16 using the modified retrospective approach, with an initial date of application of 1 August 2019. Though lessor
accounting is substantially unchanged under IFRS 16, Softcat is not a lessor in any arrangements and therefore no impact noted.
Softcat is a lessee under IFRS 16 and has measured the right-of-use assets at the amount as if the standard applied from the commencement
date but discounted using the incremental borrowing rate (‘IBR’) at the transition date. Softcat elected to use the transition practical
expedient to not reassess if a contract is, or contains, a lease at 1 August 2019. Instead, Softcat applied the standard to contracts
that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. Softcat has elected to use
the recognition exemptions for short term and low value assets as stated in the lease accounting policy. Softcat has also taken
the expedient under IFRS 16 to use a single discount rate to a portfolio of leases with reasonably similar characteristics.

The right-of-use asset was considered for any impairment at initial recognition with no issues noted, nor any adjustments required
to be made.

A summary of the effects of adopting IFRS 16 Leases as at 1 August 2019 is, as follows:

Right-of-use assets
Lease liability
Accruals brought forward derecognised
Retained earnings brought forward

110 Softcat plc Annual Report and Accounts 2020

Property
leases
£’000

7,024
(8,077)
874
179

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.4 Adoption of new and revised standards continued
1.4.2 Changes to accounting standards continued
Upon adoption of IFRS 16, the following changes have been made:

• Right-of-use assets of £7,024,436 were recognised upon transition and presented in the Statement of Financial Position.
• Lease liabilities of £8,076,564 were recognised on transition and presented in the Statement of Financial Position.
• The net effect of these transition entries to the right-of-use asset and lease liability adjusted to opening retained earnings is a debit

of £1,052,128.

• Accruals of £873,612 related to previous operating leases were derecognised.
• The overall net effect of all transition entries to opening reserves is a debit of £178,516 and the associated impact on deferred tax is immaterial.

For the year ended 31 July 2020:

• Depreciation expense increased because of the depreciation of right-of-use assets recognised. This resulted in an additional

depreciation of £1,968,712 for the year ended 31 July 2020.

• If IAS 17 had continued to apply, rent expenses included in administrative expenses, relating to previous operating leases, would

have been £1,788,136.

• The net effect to administrative expenses for the year ended 31 July 2020 was an increase of £180,576.
• Finance costs increased by £316,421 relating to the interest expense on the lease liabilities.

Reconciliation of opening lease commitments under IAS 17 to opening lease liability under IFRS 16:

Operating lease commitment as at 31 July 2019 under IAS 17
Weighted average incremental borrowing rate as at 1 August 2019
Discounted operating lease commitments as at 1 August 2019
Lease payments and commitments relating to renewal periods not included in operating lease commitments as at
1 August 2019
Opening lease liability as at 1 August 2019 under IFRS 16

Property
leases
£’000/%

7,997
2.70%
7,395

682
8,077

IFRIC 23 Uncertainty over income tax treatment
Softcat applied IFRIC 23 Uncertainty over income tax treatment for the first time for the period ended 31 July 2020. IFRIC 23 requires
an entity to assess whether it is probable a taxation authority will accept an uncertain tax treatment.

Softcat applies judgement in identifying uncertainties over income tax treatments and has assessed whether the interpretation had an
impact on its financial statements. Upon adoption of the interpretation, Softcat considered whether it has any uncertain tax positions
and determined that it is highly probable that its tax treatments will be accepted by the taxation authorities. Where it is not probable
that an uncertain tax treatment will be accepted, the most likely amount, or expected amount, is recognised depending on which
method better predicts the resolution of the uncertainty. The interpretation did not have an impact on the financial statements.

1.5 Revenue recognition
Revenue is recognised based on the completion of performance obligations at the transaction price allocated to the performance obligation.
The transaction price is determined by the price specified in the underlying contract or order. Where the contracts include multiple
performance obligations, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices.
No discounts, loyalty points or returns are offered to customers. All performance obligations are separately listed as individual items on
the order and the price is allocated on this basis. A performance obligation is satisfied when control of the promised good or service is transferred
to the customer. The following indicators are used by the Company in determining when control has passed to the customer:

(i) the Company has a right to payment for the product or service;

(ii) the customer has legal title to the product;

(iii) the Company has transferred physical possession of the product to the customer;

(iv) the customer has the significant risks and rewards of ownership of the product; and

(v) the customer has accepted the product.

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111

1 Accounting policies continued
1.5 Revenue recognition continued
Principal versus agent
The Company evaluates the following indicators amongst others when determining whether it is acting as a principal or agent in the
transaction and recording revenue on a gross, or net, basis:

(i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service;

(ii) the Company has inventory risk before the specified good or service has been transferred to a customer; and

(iii) the Company has discretion in establishing the price for the specified good or service.

Hardware revenue
The Company sells hardware that is sourced from and delivered by multiple vendors and distributors. Revenues from sales of hardware
products are recognised on a gross basis as the Company is acting as a principal in these transactions, with the gross value of the
consideration from the customer recorded as revenue. The Company is acting as principal as it has primary responsibility for the
acceptability of goods sold following the provision of consulting services which are not considered to be separately identifiable.
Softcat is also exposed to inventory risk during the delivery period and establishes the selling price itself. Revenue from the sale of
these goods is recognised when the control has passed to the buyer, usually on delivery of the goods.

Vendors typically provide standard warranties on most of the hardware products the Company sells. These manufacturer warranties
are assurance-type warranties and are not considered separate performance obligations. The warranties are not sold separately and
only provide assurance that products will conform with the manufacturer’s specifications.

Software revenue
Revenue from most software licence sales is recognised on a gross basis as the Company is acting as a principal in these transactions at the
point the software licence is delivered to the customer. The Company is deemed to be acting as principal in these transactions as the Company
has primary responsibility for the acceptability of software sold following the provision of consulting services which are not considered to be
separately identifiable, as well as the autonomy to establish the selling price for the transaction. Generally, software licences are sold with the
ability to access that vendor’s latest technology via product updates. The Company evaluates whether the access to updates is a separate
performance obligation by assessing if the third party-delivered updates are critical to the core functionality of the software.

Where updates are critical to the effectiveness of the product then the Company will recognise the revenue on a net, or agent, basis.
Where updates are not considered to be critical to the effectiveness of the product and the customer can continue to benefit from the
core product without employing the updates then the Company recognises this revenue on a gross, or principal, basis. In practice, software
licensing of security type products will require the latest updates to maintain their effectiveness and are therefore reported on a net basis.

The Company sells cloud computing solutions which include Software as a Service (‘SaaS’). SaaS solutions utilise third party partners
to offer the Company’s customers access to software in the cloud that enhances office productivity, provides security or assists in
collaboration. The Company recognises revenue for cloud computing solutions at the time of invoice on a net basis as the Company
is acting as an agent in the transaction.

The Company sells, for a single vendor, access to corporate enterprise agreements which is a certain licensing programme for
customers who are eligible. For these transactions the Company introduces the customer to the vendor who then fulfils the sale,
including transfer of licensing, invoicing and cash collection, without further involvement of the Company. In return for this introduction
the vendor compensates the Company with a fee. This fee is recognised net as the Company is acting as an agent in these transactions.

Service revenue
Softcat sells professional services days which are fulfilled by either Softcat’s own internal team of consultants or by consultants
provided by third parties. The Company recognises the revenue on these transactions, irrespective of whether they are fulfilled internally
or externally, when confirmation has been received from the customer that the work has been satisfactorily completed. In most cases
there is a short timeframe between a customer order and subsequent delivery of the sold service days. As such, the Company does
not recognise revenue on a percentage completion basis as this would not have a material impact.

On very rare occasions the Company will sell professional service days which cover an extended period. For these transactions,
management assesses the individual contract and, if required, recognises the revenue over time according to the output method.
Softcat recognises revenue on the basis of direct measurements of the value to the customer which for professional days would be
days completed as a percentage of total days. Revenue is recognised on a gross basis; the Company is deemed to be acting as
principal in these transactions as it is responsible for selecting the external party, where relevant, for the acceptability of the services
and for determining the price charged to the customer.

112 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.5 Revenue recognition continued
Principal versus agent continued
The Company also provides hosted managed services to its customers offering Infrastructure as a Service (‘IAAS’) and managed print
services among others. The Company hosts these services using internal resources and recognises revenue on a straight-line basis
over the contractual service period. The Company recognises the respective revenue on a gross basis as the Company is acting as a
principal in the transaction as it has both managerial involvement and effective control over the services being provided throughout
the contract period.

Softcat also sells extended or enhanced warranty products provided by third parties. These warranties are sold separately to hardware
and provide the customer with a service in addition to assurance that the product will function as expected. For these enhanced warranty
products, the Company is arranging for those services to be provided by the third party over an extended period and therefore is
acting as an agent in the transaction and records revenue on a net basis at the point of sale. Revenue from such services is recognised
in full at the point of service commencement as the Company has no ongoing obligation in relation to delivery of the underlying service.

Public sector partner business revenue
The Company transacts with several partners in the public sector where the partner is responsible for the solution and customer
relationship. These transactions incorporate the provision of hardware, software or services to the end customer. For this business,
the Company’s responsibilities of invoicing and cash collection are more aligned to those of an agent and therefore this business
is recognised as agent and presented net of cost of sales.

Deferred costs
IFRS 15 requires certain costs to fulfil a contract to be recognised as a separate asset. These deferred costs are deferred until the
performance obligation to which they relate has been met. Deferred costs are measured at the purchase price of the services received.
Deferred costs are released from the Statement of Financial Position in line with the recognition of revenue on the specific transaction
to which the costs relate. Deferred costs are measured at the purchase price of the associated goods or services. Deferred costs are
released from the Statement of Financial Position in line with the recognition of revenue on the specific transaction. There are no
significant or material judgements made by management in the measurement or recognition of these deferred costs, as costs are
matched to an associated sale and the period of deferral is typically short.

Commissions have been incurred in respect of contracts whereby the performance obligation has not yet been satisfied, however, the
Company has applied the practical expedient and recognised the commission as an expense when incurred given that the period over
which the commission would have been recognised is less than a year.

Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which Softcat has received consideration (or an
amount of consideration is due) from the customer. If a customer pays consideration before Softcat transfers goods or services to the
customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities
are recognised as revenue when Softcat performs under the contract. Further details of contract balances are provided in note 13.

1.6 Cost of sales
The Company recognises cost of sales at the point at which it recognises revenue as explained above. Cost of sales predominantly
relate to the cost of goods or services purchased from suppliers and then sold to customers. In addition to these costs, the following
elements are also included within cost of sales.

Rebates
Included within cost of sales are rebates received from commercial partners. Further details are provided on rebates in 1.7, below.

Managed service infrastructure costs
The Company operates its own network operating centre which facilitates the selling of Softcat hosted managed services. The costs
of maintaining this capability include, but are not limited to, the rental of space in data warehouses, energy and licensing costs. These
costs represent the cost of sale of selling hosted managed service solutions and are included within cost of sales.

Funded training costs
The Company carries out numerous training programmes, activities and schemes that aim to educate its sales force and internally
promote the products the business resells. The costs of these activities are recognised within cost of sales.

Early settlement discounts
Through the normal course of business, the Company receives credits from distributors and suppliers for the prompt settlement of
invoices. Softcat recognises these discounts in cost of sales as they are considered to be a reduction in the cost of goods sold.

Annual Report and Accounts 2020 Softcat plc

113

1 Accounting policies continued
1.7 Rebates
Rebates from suppliers are accounted for in the period in which they are earned and are based on commercial agreements with suppliers.
Rebates earned are mainly sales volume related and are generally short term in nature, with rebates earned but not yet received
typically relating to the preceding quarter’s trading. Other forms of rebate received from commercial partners include income from
training provided to staff. Rebate income is recognised in cost of sales in the Statement of Profit or Loss and Other Comprehensive
Income and rebates earned but not yet received are included within accrued income in the Statement of Financial Position.

1.8 Interest income
Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate (‘EIR’) applicable.
EIR is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument
or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in
finance income in the income statement.

1.9 Property, plant and equipment
Property, plant and equipment other than freehold land is stated at cost, net of accumulated depreciation and/or impairment losses,
if any. If the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of
the item, they are accounted for and depreciated separately. Depreciation is provided at rates calculated to write off the cost of
each asset over its expected useful life, as follows:

Freehold buildings

fifty years straight line

Building improvements

remaining period of lease – ten years straight line

Computer equipment

three to five years straight line

Fixtures, fittings and equipment

six years straight line

Motor vehicles

three years straight line

Land is not depreciated.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of
an item of property, plant and equipment is determined as the difference between the net disposal proceeds and the carrying amount
of the asset and is recognised in the income statement when the asset is derecognised.

Building improvements relate to expenditure on improving both leasehold property and the freehold property of Solar House in Marlow.
Improvements to Solar House are depreciated over a ten-year period, which represents their useful life. Leasehold improvements are
depreciated over their useful life which is the lesser of the remaining length of the lease or ten years.

The residual values, useful lives and methods of depreciation are reviewed for reasonableness at each financial year end and adjusted
for prospectively if appropriate.

1.10 Intangible assets
Intangible assets are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less
accumulated amortisation and accumulated impairment losses, if any. Intangible assets with a finite useful life are assessed for
impairment whenever there is an indication that the intangible asset may be impaired. Amortisation is provided for at rates calculated
to write off the cost of each asset over its expected useful life, as follows:

Computer software

three to fifteen years straight line

The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent
with the function of the intangible assets. The amortisation period and the amortisation method are reviewed at least at the end of each
reporting period. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

114 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.11 Leases
A lease is a contract or part of a contract that conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. The Company’s leases, which predominantly relate to property leases, are recognised in line with IFRS 16
(2019: IAS 17).

The leases policy under IFRS 16 is as follows:

i) Right-of-use assets
Softcat recognises right-of use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use).
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement
of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised and lease payments made at or
before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over
the shorter of the lease term and the estimated useful lives of the assets, as follows:

Property lease assets

three to ten years straight line

The right-of-use assets are also subject to impairment reviews.

ii) Lease liabilities
At the commencement date of the lease, Softcat recognises lease liabilities measured at the present value of lease payments to be
made over the lease term adjusted for any termination options. The lease payments include fixed payments, variable lease payments
that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Payments to be made under the
reasonably certain extension option are also included.

In calculating the present value of the lease payments, Softcat uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities
is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments from a change in index
or rate, or a change in the assessment of an option to purchase the underlying asset.

iii) Short-term leases and leases of low value assets
Softcat will apply the short-term lease recognition exemption to any short-term leases it may enter into (i.e. those leases that have
a lease term of twelve months or less from the commencement date and do not contain a purchase option). Softcat also applies the
lease of low-value assets recognition exemption to leases that are considered to be low value and under £5,000. Lease payments on
low-value assets and short-term leases are recognised as an expense on a straight-line basis over the lease term.

The comparative period was based on IAS 17. The policy in the comparative period was as follows:

Rentals payable under operating leases were charged against income on a straight-line basis over the lease term, even if payments are
not made on such a basis. Onerous property leases were provided for in the Statement of Financial Position and represent the present
value of the onerous element of an operating lease. This arises when the Company ceased to use premises and they were left vacant
to the end of the lease.

At inception of an arrangement, the Company determined whether such an arrangement was, or contained, a lease. At inception or on
reassessment of the arrangement that contained a lease, the Company separated payments and other consideration required by such
an arrangement into those for the lease and those for other elements on the basis of their relative fair values.

1.12 Inventories
Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and the estimated costs to sell.

Inventories include goods in transit and other products ordered to fulfil customer orders where the right of ownership is yet to transfer.

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115

1 Accounting policies continued
1.13 Financial instruments
Financial assets
The Company’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised
when the Company becomes party to the contractual provisions of the instrument.

i) Trade receivables
Trade receivables are recognised and measured at the transaction price less allowance for expected credit losses. Trade receivables
do not carry interest.

As required under IFRS 9, the simplified approach for trade receivables and contractual assets has been used as there is not a significant
financing component to these assets. In accordance with the simplified approach for impairment of trade receivables and accrued
income under IFRS 9, the loss allowance for trade receivables is always measured at an amount equal to lifetime expected credit losses
and includes a forward-looking element as well as an assessment based on history and experience. Factors considered when assessing
the expected credit losses include prior experience, specific customer credit ratings, communication quality, industry factors and the
current economic climate.

Due to the size of the receivables ledger and the volume of smaller balances, it is not possible to review all balances individually and
therefore a portion of the ledger is reviewed collectively and provided for as such. More material or higher risk balances are reviewed
individually looking at specific circumstances including payment history, the forecast of economic conditions in the sector the customer
operates in, communication quality and responsiveness, to determine future expected credit losses, and are provided for individually
with respect to the perceived level of risk. In addition, any entities that are in administration or have been passed to debt collection
are provided for individually.

Unbilled receivables are recognised when a contract results in completion of a performance obligation in advance of the customer
being invoiced.

ii) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, call deposits and bank overdrafts. Cash and cash equivalent balances
have a maturity of three months or less and are subject to an insignificant level of risk to change in value.

iii) Accrued income
Accrued income predominantly relates to supplier rebates and is recognised according to both rebate agreements and supplier spend
in the financial year.

As accrued income has a contractual right to receive cash, it is a financial asset and therefore also subject to loss allowances under IFRS 9.
The loss allowance for accrued income is measured at an amount equal to lifetime expected credit losses and includes a forward-looking
element as well as an assessment based on history and experience. Factors considered when assessing the expected credit losses
include prior experience, supplier credit ratings, communication quality, industry norms and the current economic climate.

Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into. The Company’s financial
liabilities comprise trade and other payables. All financial liabilities are recognised initially at their fair value and subsequently measured
at amortised cost using the effective interest method.

i) Trade payables
Trade payables are initially measured at fair value. Trade payables due after one year are measured at amortised cost, using the
effective interest rate method.

Derecognised financial instruments
For a small number of customers, Softcat acts as intermediary to provide financing arrangements between the customer and a
third-party financing provider. Following the delivery of the goods or services, which represents our performance obligation in full,
Softcat receives settlement of the customer invoice, by the third-party financing company. Receivables are derecognised only when
Softcat has transferred the receivable, meaning that it has retained the contractual rights to the cash flows, but has assumed an
obligation to pay those cash flows to the finance provider, in the case where all three of the following conditions are met:

• Softcat has no obligation to pay amounts to the finance provider unless it collects equivalent amounts from the receivable;
• Softcat is prohibited from selling or pledging the receivable; and
• Softcat has an obligation to remit the cash received without material delay.

116 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

1 Accounting policies continued
1.13 Financial instruments continued
Derecognised financial instruments continued
The transfer described above qualifies for derecognition as Softcat has transferred substantially all the risks and rewards of ownership
of the receivable. Its only continuing involvement following delivery is to act as agent in the receipt and transfer of cash payments and,
in line with the derecognition criteria set out above, the customer receivable is derecognised. Softcat does not retain or regain ownership
of any assets at the end of these arrangements and the finance provider takes on the credit risk of future cash flows from the customer.

Cash flows in respect of these arrangements are recognised within cash generated from operations and typically result in a £Nil
impact given that the Company acts as agent in the receipt and transfer of cash payments.

1.14 Pensions
The pension costs charged in the financial statements represent the contributions payable by the Company during the year on the
defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently
administered fund. The amounts charged to the income statement represent the contributions payable to the scheme in respect of
the accounting period and represent the full extent of the Company’s liability.

1.15 Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit
nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised.

Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity,
in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax
assets and liabilities on a net basis.

For deferred tax on leases, Softcat has applied the initial recognition exception under IAS 12. Under the general approach of IAS 12,
the depreciation of the right-of-use asset is regarded as reducing the temporary difference that arose on initial recognition of the asset,
and therefore gives rise to no tax effect. However, the accretion of the finance costs on the liability gives rise to an additional deductible
temporary difference arising after initial recognition of the liability, requiring recognition of a deferred tax asset. This gives rise to an
immaterial deferred tax asset for the year ended 31 July 2020.

1.16 Current taxation
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in
the countries where the Company operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the Statement of Profit or Loss and
Other Comprehensive Income. Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Softcat applies judgement in
identifying uncertainties over income tax treatments and considered whether it has any uncertain tax positions and determined that
it is highly probable that its tax treatments will be accepted by the taxation authorities. Where it is not probable that an uncertain tax
treatment will be accepted the most likely amount or expected amount is recognised depending on which method better predicts the
resolution of the uncertainty.

1.17 Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into Pounds Sterling at the rates of exchange ruling at
the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences
are taken to the income statement.

Annual Report and Accounts 2020 Softcat plc

117

1 Accounting policies continued
1.18 Share-based payments
During the year the Company operated the following equity-settled share option schemes:

Share Incentive Plan (‘SIP’)
The Company operates a SIP for employees who were awarded free shares following the initial public offering in November 2015.
Shares were allocated to employees on the basis of length of service. Free shares awarded to an employee under the SIP are subject to
a minimum holding period of three years following the date on which beneficial interest in the relevant ordinary shares is conferred by
the SIP Trustee to the employee.

The fair value of the SIP shares is determined by the share price at date of grant, on 9 December 2015. A fair value charge is recognised
as an expense in the income statement over the vesting period with a corresponding increase in equity. The charge is recognised only
on the expected number of shares to vest. The assumption used for expected leavers within three years from the date of award has
been calculated with reference to historical employee retention rates.

In addition, the Company’s voluntary partnership share purchase programme, which is open to all eligible employees, is administered
through the SIP. Through this programme, employees have the option to purchase shares from their gross income, the cost of which
is not borne by the Company.

Long Term Incentive Plan (‘LTIP’)
Details in relation to the Softcat LTIP awards to Executive Directors are included in the Directors’ Remuneration Report on page 67.

LTIP awards will only vest and become exercisable upon achievement of performance targets, linked to earnings per share and total
shareholder return, as well as being conditional upon continued employment with the Company. The fair value is measured using a
suitable valuation model where appropriate. Non-market vesting conditions are taken into account by adjusting the number of LTIP
shares expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based
on the number of LTIP shares that will eventually vest. Market vesting conditions are factored into the fair value of the LTIP shares granted.
The cumulative expense is not adjusted for failure to meet a market vesting condition. The resulting fair value charge is charged as
an expense in the income statement over the vesting period with a corresponding increase in equity. Employer’s National Insurance
contributions are payable, on exercise, on the market value of the award and are accrued for within the share-based payments
expense in the Statement of profit or loss and other comprehensive income.

Deferred shares
One-third of the Executive Directors’ annual target bonus is paid in deferred shares. The Company accrues for the cost of the non-cash
bonus over a four-year period, including the year in which the bonus targets are assessed and the following three-year vesting period.
Employer’s National Insurance contributions are payable, on exercise, on the market value of the award and are accrued for within the
share-based payments expense in the Statement of profit or loss and other comprehensive income.

SIP Trust
The Company operates a SIP Trust for the benefit of eligible employees. The Company recognises the assets and liabilities of this trust
as its own until such assets held vest unconditionally with identified beneficiaries. The Company meets all costs incurred by the trust.

1.19 Company accounts
Softcat plc is a single entity with no subsidiary undertakings. The SIP Trust, which hold shares on behalf of employees, are not
consolidated within the results of Softcat plc and instead are treated as extensions of the Company.

118 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

2 Segmental information
The information reported to the Company’s Chief Executive, 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 Profit or Loss and Other Comprehensive Income and Statement of Financial Position. An analysis of revenues by product,
which form one reportable segment, is set out below:

Revenue by type:

Software
Hardware
Services

Gross invoiced income by type:

Software
Hardware
Services

Revenue and gross invoiced income can also be disaggregated by type of business1:

Revenue by type of business:

Small and medium
Enterprise
Public sector

Gross invoiced income by type of business:

Small and medium
Enterprise
Public sector

2020
£’000

519,520
442,349
115,258

2019
£’000

476,461
430,933
84,455

1,077,127

991,849

2020
£’000

964,280
458,297
223,614

2019
£’000

788,903
452,971
172,190

1,646,191

1,414,064

2020
£’000

530,573
257,478
289,076

2019
£’000

499,033
236,262
256,554

1,077,127

991,849

2020
£’000

669,607
338,312
638,272

2019
£’000

607,032
301,998
505,034

1,646,191

1,414,064

Note:
1. Types of business are split by entity staff size. Small and medium business represents workforces of up to 2,000 seats. Enterprise is above 2,000 seats

and public sector represents government and other public bodies.

Annual Report and Accounts 2020 Softcat plc

119

2 Segmental information continued
Gross invoiced income reflects gross income billed to customers adjusted for deferred and accrued revenue items. Softcat continue
to report gross invoiced income as an alternative financial KPI as this measure allows a better understanding of business performance
and position. The impact of IFRS 15 and principal versus agent consideration is an equal reduction to both revenue and cost of sales.

Gross invoiced income
Income to be recognised as agent under IFRS 15

Revenue

2020
£’000

2019
£’000

1,646,191
(569,064)

1,414,064
(422,215)

1,077,127

991,849

The total revenue for the Company for the year has been derived from its principal activity as an IT reseller. Substantially all of this revenue
relates to trading undertaken in the United Kingdom.

3 Operating profit

Operating profit is stated after charging:

Depreciation of tangible assets
Depreciation of right-of-use assets
Amortisation of intangible assets
Operating lease rentals
Low value asset and short-term lease expense
Foreign exchange loss
Inventories expensed in the year

Auditor’s remuneration
Fees payable for the audit of the Company’s annual accounts
Fees payable for audit-related services

Total for statutory audit services

Fees payable for non-audit-related services

Total for non-audit-related services

For details on employee numbers and employee costs, please see note 24.

4 Finance income and finance cost

Bank interest income
Lease liability interest cost

2020
£’000

1,382
1,969
232
—
73
1,583
377,552

2019
£’000

1,275
—
245
1,790
—
752
368,304

350
14

364

2020
£’000

200
(316)

255
33

288

2019
£’000

333
—

120 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

5 Income tax
The major components of the income tax expense for the years ended 31 July 2020 and 31 July 2019 are:

Statement of Profit or Loss
Current income tax charge in the year
Adjustment in respect of current income tax of previous years
Foreign tax relief/other relief
Foreign tax suffered

Total current income tax charge

Deferred tax
Current year
Effect of changes in tax rates

Deferred tax credit

Total tax charge

Reconciliation of total tax charge
Reconciliation of tax expense and accounting profit multiplied by the Company’s
domestic tax rate for 2020 and 2019:
Profit on ordinary activities before taxation

Profit on ordinary activities before taxation multiplied by the standard rate of UK
corporation tax of 19% (2019: 19%)

Effects of:
Non-deductible expenses
Adjustment to previous periods
Effect of changes in tax rates
Effects of overseas tax rates
Share options
Other differences

2020
£’000

2019
£’000

18,154
(36)
(58)
64

16,801
10
—
—

18,124

16,811

(11)
(160)

(171)

(506)
53

(453)

17,953

16,358

93,617

84,819

17,787

16,116

219
(36)
(160)
7
143
(7)

166

191
10
53
—
—
(12)

242

Income tax charge reported in profit or loss

17,953

16,358

In the year ended 31 July 2020, £741,019 (2019: £302,967) of current tax was credited to equity and £232,728 (2019: £596,896 credit)
of deferred tax was debited to equity.

Changes affecting the future tax charge
The Finance Act 2015 included legislation to reduce the main rate of UK corporation tax from 20% to 19% from 1 April 2017 and to 17%
from 1 April 2020, however on 17 March 2020 a resolution having statutory effect was passed setting the corporation tax rate at 19%
from 1 April 2020. The 19% rate has been utilised in the financial statements for the purposes of calculating deferred tax assets
and liabilities (2019: 17%).

Annual Report and Accounts 2020 Softcat plc

121

6 Dividends

Declared and paid during the year
Special dividend on ordinary shares (16.0p per share (2019: 15.1p))
Final dividend on ordinary shares (10.4p per share (2019: 8.8p))
Interim dividend on ordinary shares (0.0p per share (2019: 4.5p))

2020
£’000

2019
£’000

31,720
20,618
—

29,891
17,419
8,921

52,338

56,231

A final dividend of 16.6p per share has been recommended by the Directors and if approved by shareholders will be paid on
11 December 2020. This includes the 5.4p interim dividend that was declared in March 2020 and subsequently cancelled due to
uncertainty created by Coronavirus. The final ordinary dividend will be payable to shareholders whose names are on the register at
the close of business on 6 November 2020. Shares in the Company will be quoted ex-dividend on 5 November 2020. The dividend
reinvestment plan (‘DRIP’) election date is 23 November 2020.

In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 7.6p has been
proposed. If approved this will also be paid on 11 December 2020 alongside the final ordinary dividend.

The Board approved the cancellation of the interim dividend proposed in the FY20 Interim Report and recommends the final and
special dividend for shareholders’ approval. Softcat’s dividend policy remains a progressive one which targets an annual dividend of
between 40% and 50% of the Company’s profits after tax in each financial year before any exceptional items. In determining the level
of dividend in any year in accordance with the policy, the Board considers a number of other factors that influence the proposed
dividend, which include but are not limited to:

• the level of available distributable reserves in the Company;
• future cash commitments and investment needs to sustain the long-term growth prospects of the business; and
• potential strategic opportunities.

Softcat’s constitution does not limit or oblige the Company to any minimum or maximum dividend payments. However, no dividend
may exceed the amount recommended by the Directors and all dividends shall be paid in accordance with any relevant legislation.

Softcat intends to continue to fund its dividends through the cash generated by the business. Details of the Company’s continuing
viability and going concern can be found on pages 36 and 37 and pages 90 and 91 respectively.

122 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

7 Property, plant and equipment

Cost
At 1 August 2018
Additions
Disposals

At 31 July 2019
Additions
Disposals

At 31 July 2020

Depreciation
At 1 August 2018
On disposals
Charge for the year

At 31 July 2019
On disposals
Charge for the year

At 31 July 2020

Net book value
At 31 July 2020

At 31 July 2019

Freehold
land and
buildings
£’000

Building
improvements
£’000

Computer
equipment
£’000

Fixtures,
fittings and
equipment
£’000

Motor
vehicles
£’000

2,649
—
—

2,649

150
—
25

175
—
25

200

2,449

2,474

2,342
1,130
(195)

3,277
4,935
(683)

7,529

1,326
(112)
425

1,639
(537)
411

1,513

6,016

1,638

8,112
535
(1,036)

7,611
532
—

8,143

7,171
(943)
608

6,836
—
521

7,357

786

775

1,538
400
(32)

1,906
2,165
—

4,071

988
(20)
186

1,154
—
371

1,525

2,546

752

262
103
—

365
32
(34)

363

212
—
31

243
(34)
54

263

100

122

Total
£’000

14,903
2,168
(1,263)

15,808
7,664
(717)

22,755

9,847
(1,075)
1,275

10,047
(571)
1,382

10,858

11,897

5,761

Freehold land amounting to £1.4m (2019: £1.4m) has not been depreciated.

No assets are subject to restrictions on title or are pledged as security for liabilities (2019: £Nil).

There is no material difference between the carrying and fair value of the underlying assets as at both 31 July 2020 and 31 July 2019.

8 Right-of-use assets and lease liabilities
Leases – as a lessee
Softcat has lease contracts for various 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 year:

As at 1 August 2019
Lease modifications
Depreciation

As at 31 July 2020

The weighted average incremental borrowing rate as used for the period is 2.7%.

Property
leases
£’000

7,024
3,644
(1,970)

8,698

Annual Report and Accounts 2020 Softcat plc

123

8 Right-of-use assets and lease liabilities continued
Leases – as a lessee continued
Set out below are the carrying amounts of lease liabilities included under current and non-current liabilities and the movements during
the period:

As at 1 August 2019
Lease modifications
Accretion of interest
Payments

As at 31 July 2020

Split as:
Short-term
Long-term

Property
leases
£’000

8,077
3,644
316
(2,198)

9,839

1,867
7,972

Lease modifications in the year were in respect of extension of specific lease terms of existing property leases, as well as the rental of
additional space.

Softcat had no variable leases 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:

As at 31 July 2020

Termination options expected to be exercised

Within five
years
£’000

More than
five years
£’000

2,210

3,867

Total
£’000

6,077

The total value of lease charges for low value and short-term leases to Statement of profit or loss and other comprehensive income
for the year was £73,310.

124 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020Strategic report / Corporate governance / Financial statements

Computer
software
£’000

1,992
161

2,153
1,293

3,446

1,668
245

1,913
232

2,145

1,301

240

9 Intangible assets

Cost
At 1 August 2018
Additions

At 31 July 2019
Additions

At 31 July 2020

Amortisation
At 1 August 2018
Charge for the year

At 31 July 2019
Charge for the year

At 31 July 2020

Net book value
At 31 July 2020

At 31 July 2019

The amortisation of intangible assets is included in administrative expenses within the income statement. See note 3.

10 Inventories

Finished goods and goods for resale

The amount of any write down of inventory recognised as an expense in the year was £Nil (2019: £Nil).

11 Trade and other receivables

Trade and other receivables
Provision against receivables

Net trade receivables
Unbilled receivables
Prepayments
Accrued income
Deferred costs

2020
£’000

2019
£’000

11,744

11,084

2020
£’000

2019
£’000

296,286
(2,863)

260,272
(2,199)

293,423
5,104
2,700
5,951
6,945

258,073
1,939
4,361
12,013
8,921

314,123

285,307

The provision against receivables follows the expected credit loss model.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Annual Report and Accounts 2020 Softcat plc

125

11 Trade and other receivables continued
The ageing profile of trade receivables was as follows:

Current
0–30 days
31–60 days
61–90 days
Over 90 days

Total due

2020
£’000

234,054
30,017
10,624
8,065
13,526

Related
provision
£’000

(993)
(459)
(217)
(212)
(982)

Net
£’000

233,061
29,558
10,407
7,853
12,544

2019
£’000

191,274
40,862
11,595
8,492
8,049

Related
provision
£’000

(617)
(359)
(110)
(194)
(919)

Net
£’000

190,657
40,503
11,485
8,298
7,130

296,286

(2,863)

293,423

260,272

(2,199)

258,073

The Company provides against its trade receivables using the forward-looking expected credit loss model under IFRS 9. An impairment
analysis is performed at each reporting date. Provisions against future recoverability are set to reflect probability-weighted outcomes,
analysis of prior events, current conditions, including an assessment of COVID-19 related factors. Further details on how the Company
manages its credit risk can be found in note 21.

Movement in the provision for trade receivables was as follows:

Balance at beginning of year
Increase for trade receivables regarded as potentially uncollectable
Decrease in provision for trade receivables recovered, or written off, during the year

Balance at end of year

Set out below is the information about the credit risk exposure on Softcat’s trade receivables:

2020
£’000

2,199
2,149
(1,485)

2019
£’000

1,867
2,071
(1,739)

2,863

2,199

31 July 2020

Current
£’000

<30 days
£’000

31–60 days
£’000

61–90 days
£’000

>91 days
£’000

Total
£’000

Expected credit loss rate
Estimated total gross carrying amount at default
Expected credit loss

0.42%
234,054
(993)

1.53%
30,017
(459)

2.04%
10,624
(217)

2.63%
8,065
(212)

7.26%
13,526
(982)

0.97%
296,286
(2,863)

31 July 2019

Current
£’000

<30 days
£’000

31–60 days
£’000

61–90 days
£’000

>91 days
£’000

Total
£’000

Expected credit loss rate
Estimated total gross carrying amount at default
Expected credit loss

0.32%
191,274
(617)

0.88%
40,862
(359)

0.95%
11,595
(110)

2.28%
8,492
(194)

11.42%
8,049
(919)

0.84%
260,272
(2,199)

Unbilled receivables and accrued income have been reviewed by management and have been determined to have an immaterial
impact on our expected credit losses.

See note 21 for details on how the Company approaches its exposure to credit risk.

The Company does not hold collateral as security.

126 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

12 Trade and other payables

Trade payables
Other taxes and social security
Accruals

2020
£’000

198,171
16,799
48,896

2019
£’000

185,384
17,328
41,756

263,866

244,468

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

During FY20, Trade and other payables has been restated to exclude contract liabilities from the prior year figure totalling £15.2m.
See note 13.

13 Contract liabilities

Deferred income

Deferred income is split as:

Short term deferred income
Long term deferred income

2020
£’000

2019
£’000

16,494

15,165

16,494

15,165

2020
£’000

13,929
2,565

2019
£’000

15,165
—

16,494

15,165

Please refer to note 1.2 for the basis of preparation and reclassification of contract liabilities.

Contract balances
Deferred income includes short-term and long-term goods or services to be delivered to a customer 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. During the current year, £15.165m has been recognised
in revenue resulting from these contract liabilities existing as at 31 July 2019. As at 31 July 2020, £16.494m remains on the Statement of
Financial Position as a contract liability resulting entirely from transactions arising from the year to 31 July 2020. Softcat expects that
£13.929 of the balance as at 31 July 2020 will be released in FY21 with the balance released within 2-5 years of the end of FY21.

14 Cash and cash equivalents

Cash at bank and in hand

2020
£’000

2019
£’000

80,139

79,263

Cash and cash equivalents comprise cash at bank and cash in hand. Cash at bank earns interest at floating rates based on daily bank
deposit rates. All cash held is accessible and is not restricted for any period of time.

Annual Report and Accounts 2020 Softcat plc

127

15 Deferred tax
The deferred tax asset is made up as follows:

Accelerated capital allowances
Share-based payments
Other temporary differences

Deferred tax assets

Reconciliation of deferred tax asset
Balance at 31 July 2019 (PY: 31 July 2018)
Adjustment in respect of prior years
Profit and loss account
Charge to equity

Balance at 31 July 2020 (PY: 31 July 2019)

2020
£’000

24
1,606
778

2,408

2020
£’000

2,485
35
171
(283)

2,408

2019
£’000

118
1,833
534

2,485

2019
£’000

1,436
—
452
597

2,485

The Company recognises all deferred tax movements in the year within the income statement, except for £232,749 (2019: £596,896 credit)
debited to equity in relation to deferred tax movements on share-based payments.

The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax
liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority.

Current tax
Movement in respect of prior years
Movement in respect of current year

Total current tax

Deferred tax
Movement in respect of prior years
Movement in respect of current year:
Share options
Fixed assets
Other temporary differences

Total deferred tax

Total tax

2020

2019

Income
statement
£’000

SOCIE
£’000

Total
£’000

Income
statement
£’000

SOCIE
£’000

Total
£’000

(36)
18,160

18,124

—
(741)

(741)

(36)
17,419

17,383

10
16,801

16,811

—
(304)

(304)

10
16,497

16,507

—

(50)

—

(90)
119
(200)

(171)

283
—
—

233

193
119
(200)

—
(38)
(415)

(453)

17,953

(508)

17,445

16,358

—
—
(597)

(597)

(901)

—
(38)
(1,012)

(1,050)

15,547

16 Pension and other post-retirement benefit commitments
Defined contribution pension scheme
The Company operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the
Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the
fund. At the year end pension contributions of £428,255 (2019: £376,385) were outstanding.

Contributions payable by the Company for the year

128 Softcat plc Annual Report and Accounts 2020

2020
£’000

2,221

2019
£’000

1,457

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

17 Share capital
Authorised share capital
In accordance with the Companies Act 2006, the Company no longer has an authorised share capital. The Company’s Articles of
Association have been amended to reflect this change.

Allotted and called up
198,679,171 (2019: 198,250,486) ordinary shares of 0.05p each
18,933 (2019: 18,933) deferred shares1 of 1p each

2020
£’000

2019
£’000

100
—

100

99
—

Note:
1. At 31 July 2020 deferred shares had an aggregate nominal value of £189.33 (2019: £189.33).

In the year ended 31 July 2020, 422,567 (2019: 299,791) new ordinary shares were issued to satisfy the exercise of share options and
no ordinary shares (2019: nil) were issued to satisfy exercises under the deferred share bonus plan.

No issued ordinary shares of £0.0005 each were unpaid at 31 July 2020 (2019: nil unpaid).

All ordinary shares rank pari passu in all respects.

Deferred shares do not have rights to dividends and do not carry voting rights.

Own share transactions
In the year ended 31 July 2020 the SIP Trust returned £Nil (2019: £Nil) to the Company through share recycling.

18 Earnings per share

Earnings per share
Basic
Diluted

The calculation of the basic earnings per share and diluted earnings per share is based on the following data:

Earnings
Earnings for the purposes of earnings per share, being profit for the year

The weighted average number of shares is given below:

Number of shares used for basic earnings per share
Number of shares deemed to be issued at nil consideration following exercise of share options

Number of shares used for diluted earnings per share

2020
p

38.2
38.0

2019
p

34.6
34.4

2020
£’000

2019
£’000

75,664

68,461

2020
’000

2019
’000

198,127
1,007

197,643
1,209

199,134

198,852

Annual Report and Accounts 2020 Softcat plc

129

19 Notes to the Statement of Cash Flows
Reconciliation of operating profit to net cash inflow from operating activities

Operating profit
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangibles
Loss on disposal of fixed assets
Dividend equivalents paid
Cost of equity-settled employee share schemes

Operating cash flow before movements in working capital
Increase in inventory
Increase in trade and other receivables
Increase in trade and other payables and contract liabilities

Cash generated from operations
Income taxes paid

Net cash from operating activities

20 Financial commitments
Guarantees
Softcat plc has the following guarantees as at 31 July 2020:

2020
£’000

93,733
1,382
1,970
232
146
(259)
1,958

99,162
(660)
(28,816)
21,601

91,287
(27,117)

2019
£’000

84,486
1,275
—
245
188
(287)
1,732

87,639
(2,453)
(79,350)
74,369

80,205
(15,546)

64,170

64,659

• a class guarantee facility of £2,000,000 (2019: £2,000,000) with HSBC UK Bank plc; and
• a revolving credit facility of up to £50,000,000, with option to extend to £70,000,000 (2019: £Nil) with HSBC UK Bank plc.

21 Financial instruments and financial risk management
The Company’s principal financial liabilities comprise trade and other payables and lease liabilities. The primary purpose of these
financial liabilities is to finance the Company’s operations. The Company’s principal financial assets comprise trade and other
receivables and cash that derive directly from its operations.

Financial assets
The financial assets of the Company were as follows:

Cash at bank and in hand
Trade and other receivables

2020
£’000

2019
£’000

80,139
304,478

79,263
272,025

384,617

351,288

The full year 2019 trade and other receivables balance has been restated to exclude deferred costs amounting to £8.9m.

The Directors consider that the carrying amount for all financial assets approximates to their fair value.

In respect of assets and liabilities that should be derecognised as at 31 July 2020, there remained £1.7m (2019: £Nil) on the Statement
of Financial Position. The receivable recognised at the 31 July 2020 was due to timing difference between the transfer of cash that
spanned the year end date.

130 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

21 Financial instruments and financial risk management continued
Financial liabilities
The financial liabilities of the Company were as follows:

Trade payables
Accruals
Lease liabilities

2020
£’000

2019
£’000

(198,171)
(48,896)
(9,839)

(185,384)
(41,756)
—

(256,906)

(227,140)

The Directors consider that the carrying amount for all financial liabilities (excluding lease liabilities) approximates to their fair value.

Financial risk management
The Company is exposed to interest rate risk, foreign currency risk, credit risk and liquidity risk. The Company’s senior management
oversees the management of these risks and ensures that the Company’s financial risk taking is governed by appropriate policies and
procedures and that financial risks are identified, measured and managed in accordance with Company policies and Company risk
appetite. In addition, during the current year as part of the risk management process the Company has entered into a revolving credit
facility with HSBC UK Bank plc initially entitling Softcat to funds of up to £50,000,000 and the option to extend by a further £20,000,000.
As at 31 July 2020, no drawdowns have been made on this balance. The RCF expires on 29 April 2021.

Softcat also qualified for the Covid Corporate Financing Facility (CCFF) which would entitle Softcat to receive a loan of up to £300,000,000.
As at 31 July 2020, there has been no intent or requirement to draw down upon the CCFF.

The Board of Directors reviews and agrees the policies for managing each of these risks, which are summarised below:

Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. At the year end the Company has no borrowings and therefore the exposure to interest rate risk is limited to the rates
received as interest income on cash deposits. The Company accepts the risk of losing interest on deposits due to interest rate
reductions. Due to the limited exposure to interest rate risk no sensitivity analysis has been prepared.

Foreign currency risk
The Company is exposed to foreign currency risk when dealing with customers and suppliers who wish to be billed in a currency other
than Pounds Sterling. As the vast majority of transactions are with UK customers and are denominated in Pounds Sterling, the
Directors consider this foreign currency risk to be small and do not hedge this risk due to the limited exposure. The level of foreign
currency transactions is monitored closely to ensure that the level of exposure is manageable. Due to the limited exposure to currency
risk no sensitivity analysis has been prepared.

Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a
financial loss. The Company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing
activities, including deposits with banks and financial institutions.

Trade receivables
Credit risk from trade receivables is managed in accordance with the Company’s established policy, procedures and control relating to
customer credit risk management. A customer’s credit quality is assessed based on an extensive credit rating scorecard and individual
credit limits are defined in accordance with this assessment.

Outstanding customer receivables are regularly monitored. At 31 July 2020, the Company had 1,436 customer accounts (2019: 1,352) that owed
the Company more than £25,000 each. These accounts accounted for approximately 16% (2019: 16%) of total customers and 94% (2019: 89%)
of the total value of amounts receivable. There were 483 customers (2019: 453 customers) with balances greater than £100,000 accounting
for just over 5% (2019: 5%) of the total number of receivable accounts and 77% (2019: 72%) of the total value of amounts receivable.

The requirement for impairment is analysed at each reporting date. The calculation is based on actual incurred historical data and
expected credit losses. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial
assets. The Company does not hold collateral as security. The Company has evaluated the concentration of risk with respect to trade
receivables, as there is limited reliance on single, or few customers; instead, sales are typically small in size but large in volume as are
the number of customers, the Company considers concentration risk to be low. This is illustrated by the fact that no more than 6% of
receivables are due from any one customer at the year end.

The Company provides against its trade receivables using the forward-looking expected credit loss model under IFRS 9.

Annual Report and Accounts 2020 Softcat plc

131

21 Financial instruments and financial risk management continued
Financial risk management continued
Financial instruments and cash deposits
Credit risk from cash balances with banks and financial institutions is managed in accordance with Company policy. The Company
has significant cash reserves which are accessible immediately and without restriction. Credit risk with respect to cash deposits is
managed by carefully selecting the institutions with which cash is deposited and spreading its deposits across more than one such
institution to ease concentration risk.

Liquidity risk
The Company generates positive cash flows from operating activities and these fund short-term working capital requirements.
The Company aims to maintain significant cash reserves and none of its cash reserves are subject to restrictions. Access to cash
is not restricted and all cash balances could be drawn upon immediately if required. The Board carefully monitors the levels of cash
deposits and is comfortable that for normal operating requirements, no external borrowings are currently required.

The following table details the Company’s remaining contractual maturity for its financial liabilities based on undiscounted
contractual payments:

2020
Trade payables
Accruals
Lease liabilities

2019
Trade payables
Accruals

Within 1 year
£’000

1 to 2 years
£’000

2 to 5 years
£’000

Over 5 years
£’000

Total
£’000

(198,171)
(48,896)
(2,143)

—
—
(2,434)

—
—
(4,307)

—
—
(1,897)

(198,171)
(48,896)
(10,781)

(249,210)

(2,434)

(4,307)

(1,897)

(257,848)

(185,384)
(41,756)

(227,140)

—
—

—

—
—

—

—
—

—

(185,384)
(41,756)

(227,140)

In both the current year and the prior year, materially all of the financial liabilities, other than lease liabilities, above have a contractual
settlement date of between zero and three months.

Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern while also maximising the operating
potential of the business. The capital structure of the Company consists of equity attributable to equity holders of the Company,
comprising issued capital, reserves and retained earnings as disclosed in the Company Statement of Changes in Equity. The Company
is not subject to externally imposed capital requirements.

22 Capital commitments
At 31 July 2020 the Company had £Nil capital commitments (2019: £Nil).

23 Directors’ remuneration

Remuneration for qualifying services
Company pension contributions to defined contribution schemes

2020
£’000

2,027
1

2,028

2019
£’000

1,866
14

1,880

During the year ended 31 July 2020 the Directors of the Company were awarded a total of 70,035 LTIP shares (2019: 125,000) at an
average exercise price of £Nil (2019: £Nil) and 23,583 shares (2019: 16,596) under the FY17 Deferred Share Bonus Plan.

The number of Directors for whom retirement benefits are accruing under defined contribution schemes amounted to one (2019: one).
The number of Directors who are entitled to receive shares under long-term incentive schemes during the year was three (2019: three).

Gains on share options exercised in the year were £2,303,501 (2019: £2,047,114).

Share-based payment charges include £795,011 (2019: £772,470) in respect of Directors.

132 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

24 Employees
Number of employees
The average monthly number of employees (including Directors) during the year was:

Sales
Services
Administration

Employment costs

Wages and salaries
Social security costs
Other pension costs
Share option charge

2020
Number

2019
Number

979
255
241

897
209
194

1,475

1,300

2020
£’000

96,746
12,230
2,221
1,958

2019
£’000

85,438
10,697
1,456
1,732

113,155

99,323

25 Share option schemes
The Company operates a Long Term Incentive Plan (‘LTIP’) for Executive Directors and senior management and a Share Incentive Plan
(‘SIP’) for all employees.

The Company recognised the following expenses related to equity-settled share-based payment transactions:

LTIP
SIP

Employer’s National Insurance contributions payable on all plans

2020
£’000

1,958
—

1,958

1,018

2,976

2019
£’000

1,568
164

1,732

563

2,295

All options vest at the end of the vesting period relating to that option or on the occurrence of a contingent event. This includes
substantial sale or substantial business asset sale. If the options remain unexercised after a period of ten years from the date of grant,
the options expire. Furthermore, the vesting of these share options is dependent on continued employment.

Following the public listing of shares in the Company, share options become readily convertible assets for which the Company is liable
for employer’s National Insurance contributions. The Company accrues for National Insurance contributions on a straight-line basis
from the date of award to the vesting date.

Annual Report and Accounts 2020 Softcat plc

133

25 Share option schemes continued
LTIP
The LTIP provides share awards to Executive Directors and senior management.

Executive Directors
Details in relation to the Softcat LTIP awards to Executive Directors are included in the Directors’ Remuneration Report on page 72.

During the year 70,035 (2019: 125,000) share awards related to LTIP schemes were issued to two Executive Directors at nil exercise
price with a performance period of three years. The fair value of these awards was £470,635 (2019: £503,125). Performance conditions
are linked to earnings per share and total shareholder return over the vesting period. The EPS linked element of the LTIPs awarded in
the year were valued using the Black-Scholes model and a Monte-Carlo simulation was used for the TSR linked element of the award.
The following assumptions were used to reach the below fair value:

Proportion of LTIP award
Share price at grant date (£)
Weighted average exercise price at grant date
Risk-free interest rate
Expected volatility
Performance period (years)

Fair value (£)

31 July 2020

31 July 2019

EPS

TSR

EPS

TSR

50%
11.10
—
0.75%
29%
3

7.75

50%
11.10
—
0.75%
29%
3

5.67

50%
6.95
—
0.75%
27%
3

4.86

50%
6.95
—
0.75%
27%
3

3.19

Expected volatility has been determined using historical data reflecting share price movements covering the audited financial year.

During the year 196,735 (2019: 299,791) LTIP options were exercised with an average weighted share price at the date of exercise of
£11.81 (2019: £6.84).

Deferred Share Bonus Plan
One-third of the Executive Directors’ annual bonus is paid in deferred shares. In the year 26,215 (2019: 16,596) deferred shares relating
to the 2019 Deferred Share Bonus Plan were issued to two Executive Directors with a £Nil exercise price and a further vesting period
of three years. The fair value is calculated using the share price on the date of grant and the number of shares awarded. The fair value
of deferred shares issued in the year is £249,975 (2019: £130,000).

Senior management
An award of 148,532 (2019: 234,013) shares was made to members of the Executive Leadership Team and other senior management
in the year. These shares had an exercise price of £Nil at the date of grant and a performance period of three years. The share-based
payment charge of these awards was £1,550,674 (2019: £1,263,670). As the exercise price of the options awarded in the year was £Nil,
the charge has been calculated by multiplying the number of shares issued by the share price on the date of grant, adjusted for an
expected forfeiture rate. The share price is the fair value of the equity instrument granted, which was £11.60 (2019: £6.00) at grant date.
The resultant fair value is then recognised over the performance period.

During the year 21,864 shares (2019: 48,038) were forfeited as members of senior management left the business prior to completion
of the vesting period.

The weighted average remaining contractual life under exercise period of all LTIP awards is 8.12 years (2019: 8.26 years).

Share Incentive Plan
The Company awarded free shares to its employees following the initial public offering in November 2015. Shares were allocated to
employees on the basis of length of service. Free shares awarded to an employee under the SIP are subject to a minimum holding
period of three years.

Historical employee attrition rates have been used to calculate the expected number of shares expected to vest. The resulting income
statement charge is spread over the three-year vesting period with a corresponding entry in equity.

In addition, the Company’s voluntary partnership share purchase programme, which is open to all employees, is administered through
the SIP.

The weighted average remaining contractual life of share-based payment arrangements at the year end was 5.36 years (2019: 6.36 years).

134 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Strategic report / Corporate governance / Financial statements

25 Share option schemes continued
All share-based payment arrangements
The number and weighted average exercise price of all share-based payment arrangements (including LTIP) are as follows:

Outstanding at 1 August
Granted during the year
Forfeited during the year
Exercised during the year

Outstanding at 31 July

Exercisable at 31 July

Weighted
average
exercise
price
£

No. of
shares
as at
31 July 2020

Weighted
average
exercise
price
£

No. of
shares
as at
31 July 2019

— 1,568,268
244,782
—
(21,864)
—
(461,090)
—

1,330,096

383,171

— 1,648,779
375,609
—
(66,405)
—
(389,715)
—

1,568,268

—

The fair value of share-based payment arrangements granted in the year was £2,271,284 (2019: £1,896,795), relating entirely to
Long Term Incentive Plan awards.

The weighted average remaining contractual life of share-based payment arrangements at the year end was 7,45 years (2019: 7.73 years).

26 Post-balance sheet events
Dividend
A final dividend of 16.6p per share has been recommended by the Directors and if approved by shareholders will be paid on
11 December 2020. This includes the 5.4p interim dividend that was declared in March 2020 and subsequently cancelled due to uncertainty
created by Coronavirus. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of
business on 6 November 2020. Shares in the Company will be quoted ex-dividend on 5 November 2020. The dividend reinvestment
plan (‘DRIP’) election date is 23 November 2020.

In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 7.6p has been
proposed. If approved this will also be paid on 11 December 2020 alongside the final ordinary dividend.

Annual Report and Accounts 2020 Softcat plc

135

27 Related party relationships and transactions
Transactions with key management personnel
The remuneration of key management personnel, which consists of persons who have been deemed to be discharging managerial
responsibilities, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

Short-term employee benefits
Post-employment benefits

2020
£’000

2,489
12

2,501

2019
£’000

2,312
27

2,339

Key management personnel received a total of 108,750 share awards (2019: 165,762) at a weighted average exercise price of £Nil (2019: £Nil).

The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key
management personnel.

Share-based payment charges include £960,117 (2019: £878,608) in respect of key management personnel.

Dividends to Directors

M Hellawell
G Watt
G Charlton
R Perriss
V Murria
L Ginsberg1
K Slatford
P Ventress2

2020
£’000

1,382
—
16
—
78
—
—
8

1,484

2019
£’000

2,623
—
3
—
84
6
—
13

2,729

Notes:
1. Lee Ginsberg resigned from the Board on 30 June 2019. Amounts shown above relate to the time until resignation.

2. Peter Ventress resigned from the Board on 31 December 2019. Amounts shown above relate to the time until resignation.

136 Softcat plc Annual Report and Accounts 2020

Financial statementsNotes to the financial statements continuedFor the year ended 31 July 2020

Company information and contact details

Company number 02174990

Registered office
Softcat plc
Solar House
Fieldhouse Lane
Marlow
Buckinghamshire
SL7 1LW
United Kingdom

Tel: 01628 403 403

Website
www.softcat.com

Directors
Martin Hellawell (Chair)
Graeme Watt (CEO)
Graham Charlton (CFO)
Robyn Perriss (Independent NED)
Vin Murria OBE (Independent NED)
Karen Slatford (Senior Independent NED)

Company Secretary
Luke Thomas

Investor relations contact
investors@softcat.com

Softcat LEI
213800N42YZLR9GLVC42

Registrar
Link Group
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom

enquiries@linkgroup.co.uk

Tel: 0371 664 0300

Calls cost 12p per minute plus your phone company’s access
charge. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 9.00am
and 17.30pm, Monday to Friday excluding public holidays in
England and Wales.

Corporate advisers
Auditor
Ernst & Young LLP
1 More London Place
London, SE1 2AF

Joint corporate broker
Jefferies International
100 Bishopsgate
London EC2N 4JL

Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London, EC4M 7LT

Legal advisers
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London, E1 6PW

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Softcat plc
Fieldhouse Lane
Marlow
Buckinghamshire SL7 1LW

Tel: 01628 403 403