Softcat Annual Report 2021

FY2021 Annual Report · Softcat

Loading PDF…

Together

Softcat plc
Annual Report and Accounts 2021

Softcat:
we’re in this
together

Our purpose, to help customers use IT to succeed by
putting our employees first, has seemed especially
prescient during the past twelve months. The special
culture we have at Softcat was born from our founder’s
vision to bring people together in a company they could
enjoy being part of. While we haven’t been able to
physically get together as much as we would have
liked this past year, we have been able to stay in touch
through some typically ingenious and fun Softcat
initiatives – take a look at pages 2 and 3 and pages 41
to 43 for more detail on what we’ve been up to.

Financial highlights

Contents

Gross profit £m

Gross profit per customer £’0002

276.4

235.7

211.1

175.2

136.3

Operating profit £m

Revenue £m1

119.4

93.7

84.5

68.0

50.2

28.4

24.8

23.0

19.9

16.4

1,156.7

1,077.1

991.8

797.2

Customer base ’0002

Cash conversion %3

9.7

9.5

9.2

8.8

8.3

89.9

88.0

92.0

98.0

97.0

FY21 operational highlights

• Revenue growth: 7%
• Gross profit growth: 17%
• Operating profit growth: 27%
• Cash conversion: 90%
• Employee engagement: 93%
• Customer satisfaction: 95%
• Customer base up by 200
• Gross profit per customer growth: 15%

1. Revenue was previously restated due to the adoption of
IFRS 15 during 2019. As a result revenue is only available
on a comparable basis for 2018 to 2021.

2. Customer base is defined as the number of customers who
have transacted with Softcat in both of the preceding
twelve-month periods.

3. Cash conversion is an alternative performance

measures. Please see page 29 for further definition
and reconciliation.

Pages 1 to 51 form the Strategic Report of Softcat plc
for the financial year ended 31 July 2021. 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.

FY21 operational highlights
Financial highlights

Strategic report
1
1
2 Our response to COVID-19
4 At a glance
6 Bringing our enablers together
12 Chair’s statement
15
Investment case
16 Business model
18 Chief Executive Officer’s statement
21 Strategic roadmap
22 Our market and offering
26 Strategy
28 Chief Financial Officer’s review
30 Risk management
34 KPIs
36 Section 172 – Stakeholder engagement
40 Social value

Corporate governance

Introduction to corporate governance

54 Board of Directors

58 Governance report

67 Audit Committee report

76 Nomination Committee report

80 Remuneration Committee report

99 Directors’ report

Financial statements
107 Independent auditor’s report
113 Statement of profit or loss and other

comprehensive income

114 Statement of financial position
115 Statement of changes in equity
116 Statement of cash flows
117 Notes to the financial statements
IBC Company information and

contact details

Strategic reportOur response to COVID-19

Supporting our
stakeholders through
the COVID-19 pandemic

At its core, Softcat is a people business which invests in its
employees and the things they care about. In this section you
will see some of the ways we have responded to the COVID-19
pandemic, supporting one another and our wider stakeholders.

Supporting our people
The outbreak of the COVID-19 pandemic created insecurity
and uncertainty. Keeping our employees safe remained our
top priority and we have also made great efforts to keep our
special culture, regardless of the challenges of remote working.
Our ‘Word of the Year’ was ‘Together’, which was a cornerstone
to our approach to how we work, even when separated.

We are grateful to report that there have been no cases
of COVID-19-related deaths in our workforce. No employee,
regardless of their role and responsibilities, was furloughed.

As the pandemic continued, management maintained a keen
interest in how our employees were coping, through regular
employee surveys and virtual all-employee meetings. These have
been helpful in allowing management to understand how our
employees are feeling, as well as how Softcat can best support them.

Vin Murria, our Designated Director for Workforce Engagement,
along with our other Non-Executive Directors, held a virtual
engagement session with representatives from our South Coast,
Leeds and Birmingham offices, giving our employees and our
Directors a direct opportunity to engage on many topics,
including how employees were coping during the pandemic.

Keeping our employees informed about COVID-19-related
developments, both inside and outside the business, was crucial
in supporting a sense of togetherness. Management released
comprehensive and regular updates by email, which included
updates on the latest Government guidelines, links to helpful
websites, as well as details of the support made available by the
Company. To maintain a sense of normality, we have continued
the Softcat tradition of a member of our Senior Leadership Team
releasing an email each Friday to all employees. The weekly email
is an important opportunity to continue recognising the hard
work and support of other colleagues and it often provided
a more personal insight into the lives and thoughts of our
management team as they dealt with the lockdown. Prior to the
pandemic, each quarter the highest performing employees were

taken out for lunch by a member of our Senior Leadership Team
and given the rest of the day off. This tradition was continued in
virtual form, with the Company buying lunch at home for the
winning employees. Our non-sales staff were also recognised for
their essential role on ‘Non-Sales Recognition Day’, where staff
were given lunches and awarded prizes.

From the outset of the pandemic, all employees were given
access to IT kit, desks and other equipment, paid for by Softcat,
to help them work from home comfortably and effectively.
It was apparent, however, through our regular engagement
with employees, that for a small number of employees the
home environment was not ideal and so, where possible under
Government guidance, we made our offices available for those
who needed to use them. Our Facilities team did a brilliant job
of implementing safety measures and protocols, including a
one-way systems, frequent deep cleans, face covering protocols
and extra cleaning stations.

We have also taken a practical approach for those who need to
juggle home duties, such as child and social care, with work.
Management has allowed, where possible, a more flexible
approach to working hours.

As the lockdown continued, it became clear how important
it is to take care of our own and each other’s mental health.
We trained more mental health first aiders, who were available to
chat and provide guidance to employees in need of help. We also
created a ‘buddy system’, which matched newer employees with
more experienced members of staff. To further raise awareness
and the support available, we ran a Mental Health Awareness
Week in May, with a focus on matters such as anxiety about
returning to the office.

What makes Softcat stand out is our culture, typified by our
collaborative, vibrant and fun office environment. A key challenge
was how our culture could be maintained, and continue to flourish,
without coming together physically. Offices adapted by running
virtual activities, such as coffee mornings and fitness classes.

Softcat plc Annual Report and Accounts 2021

Marlow office as vaccination centre
Finally, one of our proudest moments was opening a COVID-19
vaccination centre, in partnership with Marlow NHS Trust, using
part of our Marlow office. Softcat provided and converted the
space free of charge. The centre opened in January 2021 and
continued to operate up until October. Tens of thousands of
people have been vaccinated at the centre, mostly from the
local community and many of our employees were also
vaccinated onsite.

Supporting our wider stakeholders
‘Together’ doesn’t only apply to the employees of Softcat, but
also to those around us in the communities in which we operate.
Some charities have struggled during the COVID-19 pandemic as
lockdowns have made fundraising harder and charities connected
to mental health and wellbeing have experienced an increase in
people turning to them for help. With the help of our Softcat
Communities Network, Softcat has donated over £180,000 to
various charities. To read more about the charities, see our
Charities section on page 42.

To empower our employees to support the causes they care
about, Softcat launched Love2Volunteer in 2019. Each employee
can use two days per year as free charitable days, for which
they will be paid by the Company. Last year, we expanded the
use of these days to cover activities and initiatives around the
environment, community, homelessness and animals, and to
provide support to those in need during the pandemic. To help
employees utilise these days, Softcat partnered with the ‘onHand’
app, which connects volunteers with those who need someone
to talk to, which was very important during the lockdown.

We know how hard the families of Softcat employees were
working who also care for their young children. To bring
something different and fun into their worlds, ‘Half-Term
Hampers’ were sent to employees with young children, which
included toys and educational material, to give our Softcat
families a helping hand. There was also a shortage of laptops,
which were critical to help children with learning remotely, in
some schools. Softcat donated laptops to a school local to our
office in Marlow, which some of our employees’ children attend.

Lots of people ask me why I’ve
stayed at the same company for
13 years. Well the answer is simple:
I feel incredibly valued as an
employee.”

Rachel Clay
Education Sales Manager

Strategic reportAt a glance

Culture, expertise
and passion

Our goal is to be the leading IT infrastructure solutions
provider in terms of employee engagement, customer
satisfaction and shareholder returns. Success will create
opportunities for our people and drive growth for our
customers and partners.

Our values
Softcat was founded to be a place where people enjoyed coming to work.
The values we hold today remain grounded in that vision and create what
we believe is a unique culture which forms the basis of all our success.

Responsibility

Intelligence

Fun

Passion

Community

Read more on pages 80 to 98

Senior Leadership Team
The SLT is led by the CEO and is responsible for leading the
day-to-day operation of Softcat. The SLT focuses on:

• strategy implementation;
• operational, financial and competitive performance;

• commercial developments;
• succession planning below Board level;
• organisational development; and
• maintaining Softcat’s culture.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceGovernance report continued

What the Board
did this year

Strategy

Stakeholder engagement

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:

• recurring updates from the CEO;
• specific strategy review discussions with the Board and

key senior management in February 2021; and

• discussion of critical items to support the growth of the
business, such as the ongoing implementation of a new
finance system and discussion with management on high
level operational plans for the coming year.

Performance monitoring

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

• 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. Forecasts in the
three-year plan are subsequently refreshed as needed
during the year;

• approval of an annual budget, followed by a report each

month comparing performance against budget;

• consideration of year-end and half-year performance and

subsequent review, approval and publication of the
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.

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 met with a major customer, a vendor and a
distributor. The meetings were very helpful in gaining
perspectives from outside the Board;

• the Board discussed sustainability with management,
in particular the setting of environmental targets and
commitments, such as science-based emissions
reduction targets;

• discussions with investors and analysts, including their

feedback following meetings and after the release of our
annual and half-year announcements. We maintain an
investor relations programme of meetings with existing
and potential shareholders;

• Vin Murria is Softcat’s Designated Non-Executive Director

for Workforce Engagement. She led, with the other
Non-Executive Directors present, on engagement with
various staff in the business;

• reviewing the feedback from employee surveys. This

includes regular surveys of the managers in the business
plus additional surveys to gauge the wellbeing of
employees whilst working remotely during the restrictions
imposed by the pandemic. The feedback provided
valuable insight on employee appreciation of the support
given by management;

• the Chair undertook an investor engagement programme

with our top 50 shareholders and with the key proxy
advisory agencies to further strengthen our mutual
understanding of governance matters. Martin updated
the Board regularly;

• the Remuneration Committee Chair engaged with our

top shareholders on the changes to the remuneration of
the Executive Directors (see the Remuneration Report,
pages 80 to 83);

• the Board reviewed the outcomes of Softcat’s annual

customer satisfaction survey and the actions to further
improve relations with customers; and

• the Audit Committee Chair reached out to our top

shareholders for feedback on key areas of audit focus
for the coming year.

Softcat plc Annual Report and Accounts 2021

Governance and risk

Other

During the year the Board:

The Board has also:

• approved the 2021 Annual Report and Accounts;
• approved the 2021 Notice of AGM; and
• reviewed monthly reports which analysed key changes

in our shareholder base.

• monitored the effect of the COVID-19 pandemic on the

Company’s performance and finances, and the impact of
the pandemic more widely within the economy;

• reviewed reports on governance and legal issues,
including developments in corporate governance,
executive remuneration and sustainability;

• received feedback and comments on governance from

major shareholders;

• performed a review of Board effectiveness;
• reviewed the Company’s risk appetite, principal risks and

uncertainties;

• received updates on the business’ readiness and
possible external impacts following the end of the
transition period of the UK’s exit from the European
Union;

• considered changes to the delegation of authorities to

management and approved updated terms of reference
for each committee, in line with best market
practice; and

• received regular governance and regulatory updates.

People, vision and values

During the year the Board:

• met with many of the members of the Senior Leadership
Team (‘SLT’). The CEO provided regular updates to the
Board on the SLT and any changes in key roles in the
business;

• received regular updates on people and HR matters,
including training and development, culture, diversity
and inclusion;

• considered the results of the annual employee survey
and the quarterly management team surveys; and

• virtually met employee representatives from our
South Coast, Leeds and Birmingham offices.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceGovernance report continued

Composition, succession
and evaluation

Composition and succession
This is discussed in the report from the Nomination Committee
on pages 76 to 79.

Board meetings are well organised,
move at pace and are focused on the
right things. All members of the Board
contribute actively, work well together
and bring complementary skills
and approaches.”

Response from the Board evaluation survey 2021

Softcat plc Annual Report and Accounts 2021

Board evaluation 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
and an internal process in 2019 and 2020 respectively). The key
stages of the process this year 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. It was agreed to repeat most of the
questions from the previous year to provide a year-on-year
comparison of responses where possible. Given the increased
expectations for the Audit Committee under proposals for
reforms launched by the Government (see page 68), it was
agreed to add additional questions in this regard.

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

Individual responses were anonymised and collated. 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.

Areas evaluated
The questionnaire on Board effectiveness assessed the Board’s
performance over four main areas, which the Board believes are
critical for a successful and effective Board:

• Board processes;
• strategic issues and oversight;
• contribution and development; and
• Committees.

Outcome
The outcome of the review was once again positive and
concluded that the Board and its Committees continue to
function well, consider the right issues and work in a transparent
and constructive way. Some of the points included:

• the Board has the right level of focus on strategy, performance

and culture;

• the Board continued to function well, working remotely during
the COVID-19 lockdown, and had a good focus on the risks and
impacts arising from COVID-19;

• the Chair continues to perform well in his role and is working

well with the CEO. There is a clear separation of roles between
the Chair and CEO. The CEO and CFO work well together;

• each of the Board’s committees continues to function well and

each has an effective Committee Chair;

• there was a good focus during the year on longer-term

succession planning;

• each Board member continues to provide high quality

contribution to Board discussions, etc.; and

• the ongoing interaction at Board meetings with senior

managers across the business was very helpful.

There were no areas rated as poor in the review.

Outputs and 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. The output
of the evaluation confirmed the Board’s top strategic issues.
These will be incorporated as needed into the twelve-month
rolling plan for the Board, which is maintained by the Company
Secretary and regularly reviewed by the Board, to ensure
appropriate time continues to be dedicated to each key topic.

Some minor areas for improvement or implementation were
identified, which include:

• more direct employee feedback and engagement with the

Board as employees start to return to the office;

• the format/content of some Board papers will be reviewed;
• a revision of the twelve-month rolling plan to incorporate the

Board’s view of its top strategic issues; and

• additional interaction with members of the Senior Leadership

Team at Board meetings.

The Company Secretary has prepared an action plan based on
the recommendations and an update will be provided in next
year’s Annual Report.

Good progress had been made on the actions arising from
the internal Board evaluation conducted in the previous year.
This included:

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

the composition of the Board;

• maintaining the focus on delivering growth over the longer

term; and

• increasing the Board’s oversight on sustainability issues.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceGovernance report continued

Operation of the Board

Workforce engagement
Vin Murria is the Board’s Designated Director for Workforce
Engagement. Due to the restrictions imposed by pandemic
it was not possible to hold face-to-face employee forum
engagements during the year. However, engagements were
held virtually with selected representatives from our South
Coast, Leeds and Birmingham offices and Vin has now held
engagement sessions with each of Softcat’s offices. The most
recent engagement session was led by Vin and attended by
the Non-Executive Directors. Various topics were discussed,
including the Board’s strategic outlook, working throughout
the COVID-19 pandemic, diversity and various commercial and
operational matters. The discussions provide valuable insight
and actions are taken following feedback where appropriate.

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 2021 amounted to £174.1m
(as disclosed in the Statement of Financial Position).

The COVID-19 pandemic has given rise to material market and
wider economic uncertainties and the Board has continually
monitored the performance of the business throughout the year,
particularly in respect of cash flow, receivables, the need for any
external borrowing and the minimum amount of cash required to
operate the business. Last year, the Board decided to increase

the minimum cash holding of the business from £30m to £45m,
reflecting in part the uncertainty created by COVID-19 and the
growth of the Company since IPO in 2015. The Board has
reviewed the matter and has agreed to maintain the minimum
cash holding level at £45m.

The Directors have proposed a final dividend and a special
dividend for the financial year ended 31 July 2021. Further
information in respect of the proposed dividends can be found
on page 29. 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 page 33 and pages 104 and 105
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 2021
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, with the assistance of the Company
Secretary, for ensuring that all Non-Executive Directors receive
ongoing training and development. All Directors are provided
with frequent briefings of current and relevant issues. Topics
discussed during the year included updates on industry trends
and competitor performance, corporate governance and audit
reforms, and developments in sustainability and environmental
reporting. The Board also receives updates on our public reporting
commitments, such as gender pay gap reporting (and ethnic pay
gap reporting, on which Softcat reports voluntarily), tax strategy,
creditor payment practices and risks of modern slavery.

There were no new Directors appointed during year. However, the
Company Secretary is responsible for preparing for approval by
the Chair an extensive and tailored induction programme to
accelerate the learning of any new Director appointed to the Board.

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:

• informing the Board of their key obligations as Directors

of a public listed company;

• assisting the Chair by organising induction and training

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

• developing the agenda for each meeting of the Board
and its committees for approval by the respective chair;

Softcat plc Annual Report and Accounts 2021

• 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, in
accordance with the Company’s constitution, applicable
legislation and good governance practice.

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

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;

• 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 or Committee 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.

• 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.

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

goals and objectives;

• 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’.

• have oversight to ensure compliance with key listed company

• The development of strategy is led by the executives with

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. Consideration is also given
to diversity, succession planning, employee engagement (led
by the Designated Director) and culture within the business.

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.

• The Directors have access to key governance documents,

such as the Matters Reserved to the Board, Terms of Reference
for each Committee, and the Delegated Authorities Matrix.

• Non-Executive Board members make themselves available outside
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.

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 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 76 to 79). 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.
Board procedures operate to restrict a Director from voting on
any matter in which they have a material personal interest, unless
the Board unanimously decides otherwise. If 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 2021 Softcat plc

Corporate governanceGovernance report continued
Governance report continued

Relations with
shareholders

The Board maintains a proactive and constructive programme of
engagement with its stakeholders and recognises within this the
important and valuable role that shareholders play, as owners of
the Company. Further information on the Board’s engagement
with its stakeholders is provided on pages 36 to 39. Owing to the
impact of restrictions due to the COVID-19 pandemic,
interactions with shareholders this year were primarily virtual.

The Chair undertook another extensive engagement programme
with the Company’s largest shareholders on governance matters.
Feedback from these sessions was reported back to the Board
to make sure the Board fully understood the views of those
shareholders and the Board 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
Due to the restrictions in place following the outbreak of COVID-19,
the Company’s 2020 Annual General Meeting (‘AGM’) was a
closed meeting, with shareholders not permitted to attend.
This arrangement was in compliance with the Corporate
Insolvency and Governance Act 2020. Shareholders were given
the opportunity to submit questions to the Directors via email;
however, no such questions were received from shareholders.

The AGM gives shareholders an opportunity to vote on key
aspects of Softcat’s business and to ask questions to the
Directors. The opportunity to submit questions for the Directors
via email will be given again for the 2021 AGM. Details of how to
do this can be found in the Notice of AGM.

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

The 2021 AGM will be held on 15 December 2021 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).
Following the relaxation of COVID-19 restrictions, shareholders
will be permitted to attend the 2021 AGM.

Results roadshows
Following the release of our full-year preliminary results
announcement and our half-year results, the Chief Executive
and Chief Financial Officer undertook extensive virtual investor
engagement roadshows. Analyst presentations from our
announcements are available on our website.

Softcat plc Annual Report and Accounts 2021

Audit Committee report

Accountability

One of the key decisions that the
Committee has made is to conduct
an audit tender process during FY22
in relation to the external audit for the
year ending 31 July 2023.”

Introduction
As Chair of the Audit Committee (the ‘Committee’), I am pleased
to present the Committee’s report for the year ended 31 July 2021.

The Committee continues to fulfil 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 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, the key issues it has considered during FY21 and also
areas of focus over the next financial year.

Ernst & Young LLP (‘EY’) has been Softcat’s external auditor since
July 2013. One of the key decisions that the Committee has made
is to conduct an audit tender process during FY22 in relation to
the external audit for the year ending 31 July 2023. Further details
of the external audit tendering timeline are set out on page 72.

Members

R Perriss (Chair)

K Slatford

V Murria

Attendance of the Audit Committee

Committee attendance 2021

Name

R Perriss

V Murria

K Slatford

Total meetings held

Attended

Did not attend

N/A

There were no changes during the year in the membership of the
Audit Committee.

Allocation of time

Internal audit: 29%

External audit: 28%

controls: 23%29+

Financial reporting: 20%

Risk and internal

Annual Report and Accounts 2021 Softcat plc

Corporate governance

28
+
20
+
23
+
M
Audit Committee report continued

Accountability continued

Areas of focus in 2021 included:
• reviewing the appropriateness of our published

half-year and full-year results;

• reviewing the application of financial reporting and

governance standards;

• assessing the Company’s going concern and viability

statements, including the ongoing impact of COVID-19;

• confirming that the Annual Report is fair, balanced

and understandable;

• receiving further updates in relation to the

implementation of a new finance system to support
greater automation and further strengthen the financial
control environment;

• 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:

– IT asset management and the use of personal
devices to access the Company’s networks;

– in-flight assurance updates in respect of the

implementation of a new ERP finance system; and

– a review of the controls and processes in respect

of vendor and distributor rebates;

• a review of the implications of the proposals for reforms
issued by the Department for Business, Energy & Industrial
Strategy (‘BEIS’) to improve trust in audit and corporate
governance. The Company responded to BEIS’ proposals.
We have agreed to make certain changes in anticipation
of some of the expected outcomes; and

• preliminary considerations ahead of a competitive

tender for the external auditor which will take place by
July 2022 to allow for an appointment to be in place
for the 2023 financial year end.

Focus areas for 2022:
• ongoing monitoring of the implementation of the new

finance system;

• preparation and implementation following the final outcomes

of the BEIS proposals (see below);

• reviewing the requirements of the Task Force on Climate-
related Financial Disclosures (‘TCFD’) and considering the
impact and risk of climate change under various scenarios.
The analysis will support our more comprehensive future
reporting in line with the TCFD pillars of disclosure;

• the development of an Audit and Assurance Policy; and
• undertaking a competitive tender for the provision of external

audit services.

As noted above, the Committee has spent a good deal of time
considering the draft proposals for reforms issued by BEIS in
March 2021 to improve trust in audit and corporate governance.
In advance of the final outcomes of the proposals, the Committee
has considered some of the key potential implications, particularly
in respect of enhanced controls, fraud maturity, greater engagement
with stakeholders and the role/choice of external auditor. Given
the importance of the proposals, the Company responded to the
BEIS consultation. The Committee will monitor developments
and have oversight of the implementation of any changes which
arise from the final outcomes of the proposals.

During the year the Company received a letter from the
Supervision Committee of the FRC, relating to its review
of the Company’s 2020 Annual Report. The letter did not raise
any questions or queries, but did note some suggestions for
improvement to disclosures for future reporting periods. The
Board and the Committee have considered the suggestions
made by the FRC and have made enhancements to disclosures
in this year’s Annual Report in all areas suggested.

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 continue to consider the impact
of COVID-19 on our business and you will find important detail on
this in other sections of the Annual Report (see pages 2 and 3).

Whilst this Report of the Audit Committee contains some of
the matters addressed during the year, it should be read in
conjunction with the Independent Auditor’s Report starting on
page 107 and indeed the Softcat plc financial statements in
general. At the 2020 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 2021 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
25 October 2021

Softcat plc Annual Report and Accounts 2021

Responsibilities
The Committee reviewed and updated its terms of reference
during the year and the Board endorsed those changes. The
terms of reference are available at www.softcat.com/investors
and in hard copy 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.

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.

How the Committee operates
The Committee met formally four times during FY21 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.

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
(which provides 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 Company operates anti-bribery and corruption procedures
which support compliance with the UK Bribery Act and certain
equivalent legislation outside of the UK. During the year
management reviewed the anti-bribery and corruption policy
and associated controls, such as the register for gifts and
hospitality, and this was noted by the Committee.

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 Committee Chair
keeps in touch as needed with the CFO, other members of the
management team, the internal auditor and the external auditor.

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.
The Committee also reviewed the Company’s reporting in
respect of payment practices to suppliers.

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 2021. 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.

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. Biographies of the
members of the Committee are shown on pages 55 and 56 and
there were no changes to the membership of the Committee
during the year. All members are independent Non-Executive
Directors of the Company. The Company Secretary acts as
Secretary to the Committee.

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.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceAudit Committee report continued

Accountability continued

Accounting policies and practices
The Committee received reports from management in relation to the identification of critical accounting judgements, key sources
of estimation uncertainty, significant accounting policies and proposed disclosure of these in the 2021 Annual Report. There were
no new accounting policies adopted during the year which had a material impact on the Company’s financial statements.

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.

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 2021 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 107 to 112.

Matter considered

Action

Going concern and viability In respect of the financial statements for the year ended 2021, management prepared analysis

modelling a variety of downside scenarios to assess the Company’s viability and ability to continue as
a going concern. This included an updated assessment of the impact of COVID-19 and the ongoing
Brexit impact. Both matters continue to be reviewed and discussed by the Board. The latest analysis
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 104 and 105 and page 33 respectively).

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 or the Board 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 and cost of sales. Management has taken appropriate action and performed
detailed work to ensure that revenue is reported accurately on a principal or agent basis. Softcat
evaluates each revenue stream against known indicators to determine disclosures and presentation.
The indicators are reviewed quarterly and factor in product mix sold by Softcat. 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.

Softcat plc Annual Report and Accounts 2021

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

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;

• the Committee receives an early draft of the Annual Report

to enable timely review and comment; and

• the Committee receives a briefing from management
which sets out the key themes and links in the Annual
Report which contribute to it being a fair, balanced and
understandable document.

Following its review, the Committee is of the opinion that the
2021 Annual Report, taken as a whole, is fair, balanced and
understandable. This allows 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 twelve-month period post
the date of this report and the Company’s assessment of viability
over a period greater than twelve months. In assessing viability,
the Committee has considered the Company’s position
presented in the budget and the three-year plan recently

approved by the Board. As part of its review, the Committee
considered the ongoing impact of the COVID-19 pandemic on
the business and how it has been factored into forward-looking
views on risk, viability and planning, considering amongst other
things a number of scenarios modelled by management, including
a severe but plausible downside scenario and reverse stress tests
carried out to assess the strength of the Company’s liquidity
position. The Committee has concluded that the updated
assumptions are appropriate. Further details are set out in the
statements on page 33 and pages 104 and 105 of this Annual
Report. The Committee confirms that, following review, it has
recommended both statements for approval by the Board.

In 2020 the Committee received regular updates on the steps
taken by management to secure liquidity for the likely duration
of the COVID-19 crisis and recovery period beyond. This included
agreements reached with HSBC in April 2020 to provide a
revolving loan facility of up to £50m. The facility was not used
and expired in April 2021. Following discussion by the Board, and
given the strong trading and healthy cash position, it was agreed
that there was no need to renew or establish a replacement
facility. In 2020 the Company qualified as an eligible issuer under
the UK Government’s Covid Corporate Financing Facility (‘CCFF’).
The Company did not, however, draw down on any funds under
the CCFF. Softcat withdrew from the CCFF in March 2021 upon
its cessation. The Board will continue to monitor liquidity risk.

Financial Reporting Council (‘FRC’) review of the
2020 Annual Report
During 2021, the FRC informed the Company that it had carried
out a review of the disclosures in the Company’s 2020 Annual
Report. Based on the FRC’s review of the disclosures, the FRC
confirmed that there were no questions or queries which it
wished to raise with the Company at the time and that it did not
intend to take any action in relation to the accounting disclosures.
We have noted the suggested enhancements that could be
made to certain of our disclosures and these have been
appropriately addressed in the 2021 Annual Report. The Audit
Committee reviewed the letter from the FRC together with the
changes in disclosures prepared by management in this 2021
Annual Report, which address the points raised by the FRC.

The FRC wishes to point out the scope and limitations of its review.
The FRC’s review and comments were based on Softcat’s 2020
Annual Report and Accounts and did not benefit from detailed
knowledge of Softcat’s business or an understanding of the
underlying transactions entered into by Softcat. The FRC provided
no assurance that the Softcat 2020 Annual Report and Accounts
were correct in all material respects and did not verify the
information provided but considered compliance with reporting
requirements only. The FRC accepts no liability for reliance on its
review and findings by the Company or any third party, including
but not limited to investors and shareholders.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceAudit Committee report continued

Accountability continued

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.

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. 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 FY13

July 2013
EY appointed as auditor and conducted the external audit for FY13

November 2015
Softcat becomes a publicly listed entity

October 2017
Mandatory appointment of new audit lead partner

October 2022
Mandatory change of lead partner required

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 ended 31 July 2021, 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 2021.

In view of the requirement to undertake a competitive tender
in respect of the external audit by 2023, during the year the

Committee began making preliminary plans for an audit tender
during FY22. Actions taken so far include:

• consideration of a timetable and outline project plan to

conduct a tender;

• informal approaches and meetings with audit firms

considered as potential alternatives to EY; and

• considering appropriate preliminary compliance and

governance, such as confirmation of the independence of
the potential alternative audit firm and that each firm would
not be conflicted by any other relationship with Softcat.

The current external audit engagement partner is David Hales,
who has held this role since 2017. As noted above, David’s
five-year term will expire in October 2022 and the Committee
will work with EY on the handover to a new audit engagement
partner. An update on the tender and the audit engagement
partner will be provided in next year’s Annual Report.

Softcat plc Annual Report and Accounts 2021

Following the conclusion of the 2021 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, by selected managers in the
Finance team who regularly work with EY and by 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 discussed with 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 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 2021 and can be found on the Company’s
website at: www.softcat.com/about-us/investor-centre/
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 2021 financial statements, the
Committee considered a fee proposal from EY and the Committee
reviewed the quantum and rationale relating to increased costs
for EY to undertake required audits. Following the receipt of
formal assurance that its fees were appropriate for the scope
of the work required, the Committee agreed a charge from
EY of £435,000 for statutory audit services in respect of the
Company’s annual financial statements.

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 2021 financial year closely align to the significant
judgements and issues above. The key risks identified included:

• 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
climate change risk. 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 2021
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.

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 (‘AQ’I) report issued by the FRC in July 2021 together
with EY’s responses to that report. The Committee also noted the
equivalent AQI reports issued in respect of the other audit firms
which are anticipated to participate in the Company’s tender for
the external audit (see page 72).

Annual Report and Accounts 2021 Softcat plc

Corporate governanceAudit Committee report continued

Accountability continued

Independence and objectivity continued
In addition to the above statutory audit fee, EY and related
member firms charged the Company £7,000 for audit-related
services primarily in connection with the audit of corporate
governance updates. The Committee agreed a fee of £35,000
in respect of EY’s review of the 2021 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 2021 and 2020
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 2019, 2020 and 2021 financial years and is 7.6%, which
is considerably below the cap.

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 30 to 33.

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 the Committee has 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. As part of the financial
year-end process, management presented to the Committee an
overview of the existing control framework and it summarised
the key controls in operation which underpinned the control
environment during FY21. Management has documented certain
key controls, including IT general controls, overarching controls
for the Finance department, financial management controls and
audit risk financial reporting controls.

Softcat plc Annual Report and Accounts 2021

Management had considered the control environment and
concluded that in its view the controls had been operating
effectively throughout the year and, taken together, provided a
high degree of assurance that the financial statements are free
from material misstatement.

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.

Internal audit
During FY21 the Company had an internal audit function which
was 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 2021 covered a broad range of
core financial and operational processes and controls,
focusing on specific risk areas. Reviews were undertaken
in the following areas:

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

• supplier rebate framework and calculation. This was important
given the material income Softcat derives from rebates; and

• assurance in relation to the implementation of the new finance
system. This was important given the significant investment
cost and that it is viewed as a key platform to support Softcat’s
growth ambitions.

Approach to developing the 2022 internal
audit plan and scheduled reviews
During the year Grant Thornton worked closely with management
and the Audit Committee Chair on an internal audit plan for 2022.
The plan was formulated considering an ‘audit universe’ which
had been developed in prior years, with consideration of the
important risks facing Softcat and the wider economic and
regulatory climate. The internal audit plan also took into account
the potential impact of the BEIS consultation and proposed reforms
on improving trust in audit and corporate governance and the
emerging themes on enhanced governance and controls.

During 2022 reviews are planned in the following areas:

• IT governance and access management: The review will

consider the appropriateness of the governance in respect of
the organisation and use of IT in the business. Alongside this,
the review will assess the controls which are in place to ensure
that there are robust measures for appropriate access to the
Company’s data and systems.

• Internal controls over financial reporting: The consultation and
reforms proposed by BEIS (see above) include a strengthening
of controls over financial reporting and enhanced reporting
requirements in this regard. Management will be making plans
to comply with the required changes once BEIS has confirmed
the outcome of its consultation. In preparation for the
expected reforms, a review will be conducted to assess the
current maturity of financial reporting processes and controls
and to identify any material gaps/priority actions to further
develop controls over financial reporting.

• Fraud maturity: This review will assess the adequacy of the
existing fraud control framework and it will review existing
fraud prevention and detection controls. This is an important
area given the evolving nature and sophistication of fraud in
an increasingly digital world and that the consultation and
proposals issued by BEIS (see above) include proposed
reforms to strengthen companies’ focus on fraud.

• A further assurance review will be conducted in relation to

moving to the ‘go live’ project stage of the new finance system,
which is envisaged early in the second half of FY22.

Effectiveness of the internal audit process
As Softcat continues to grow and the focus increases on
maintaining a strong framework of internal controls and risk
management, the Committee has reviewed and discussed with
management the suitability of maintaining a fully outsourced
internal audit function. As a result, it was agreed to move to a
co-sourced model with effect from FY22 and the Company has
recently appointed an experienced in-house internal auditor to
further strengthen and formalise our controls and compliance
framework. The appointment will also provide the additional
required resource in respect of the increasing focus on financial
reporting controls proposed in the reforms under the BEIS
consultation. Grant Thornton will continue to conduct the
reviews assigned to them by the Committee and they will work
closely with the newly appointed Internal Audit Manager.

Grant Thornton has had 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. Following the conclusion of the
2021 financial year, the Committee undertook a review of
the effectiveness of Grant Thornton’s role as internal auditor.
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, by EY (as external auditor) and by the
Committee. The evaluation concluded that Grant Thornton
continues to have a sound understanding of the business,
including the key issues facing the Company and that they
continue to perform well. Minor recommendations arising from
the evaluation to further improve the internal audit process will
be discussed with Grant Thornton.

Robyn Perriss
Chair of the Audit Committee
25 October 2021

Annual Report and Accounts 2021 Softcat plc

Corporate governanceNomination Committee report

Effectiveness

Members

K Slatford (Chair)

M Hellawell

R Perriss

V Murria

Attendance of the Nomination Committee

Committee attendance 2021

Name

K Slatford

M Hellawell

R Perriss

V Murria

Total meetings held

Attended

Did not attend

N/A

During the year Karen Slatford assumed the role of Committee
Chair from Vin Murria.

Allocation of time

Board composition: 23%

Succession planning: 36%

Corporate governance: 7%23+

Culture and diversity: 34%

Softcat plc Annual Report and Accounts 2021

The Board has a diverse range of skills,
experience, tenure, personalities and
backgrounds. That combination continues
to work well and provides the right mix of
challenge and support to the business.”

Committee Chair’s introduction
I am delighted to present my first report as Chair of the
Nomination Committee (the ‘Committee’). I took over from
Vin Murria during the year and I thank Vin for chairing the
Committee; I will do my best to carry on her good work. I would
also like to thank the other Committee members for their help
and support since I have assumed the Committee Chair.

There were no changes in the composition this year, so 2021
has been a year of consolidation in terms of composition of the
Board. We have considered longer-term succession planning for
the Board during the year as explained below. I was pleased to
see the addition during the year of employee culture as a formal
discussion and review topic for the Committee. We have also
had a number of discussions on diversity and inclusion and I am
delighted with the enthusiasm of management and their genuine
desire to embrace a diverse workforce. We do recognise, however,
that there is more still which can and will be done on diversity,
particularly in managerial positions. More details on the above are
in the report which follows and in the Sustainability section of this
Annual Report.

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 Committee is chaired
by an independent Director. The biographies of the members of
the Committee can be found on pages 55 and 56. The Chief
Executive Officer, Chief Financial Officer, HR Director and Head of
Talent, Engagement and Diversity are invited to attend meetings
where appropriate. The Committee met six 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.

36
+
34
+
7
+
M
The key responsibilities of the Committee are to advise on
appointments to the Board, to review Board composition and to
review succession planning both for the Board and senior
management. The Committee also reviews and provides
feedback on the initiatives to improve diversity and inclusion.
Carrying out these responsibilities is critical to ensure the Board
and wider business have plans in place to have the best available
talent to drive the Company forward.

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 2020 AGM. The Board endorsed all
the appointment and reappointment recommendations
of the Committee.

Board appointments
As already noted, there were no changes in the membership of
the Board during the year. However, the Committee has during
the year reviewed the composition of the Board to ensure it
remains fit for purpose. As the Committee is committed to the
Board having a diverse mix, if we need to engage with an external
search firm we will work with firms which have signed up to the
relevant Voluntary Code of Conduct for Executive Search Firms
on diversity and best practice. By using such firms, the Committee
can maximise the ability to consider a wide range of
suitable candidates.

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

September 2020
• Review of succession planning for senior management

and the Board

• Review of the draft report from the Nomination

Committee for 2020

October 2020
• Update on succession planning
• Recommendation to reappoint Directors at the

2020 AGM

• Approval of the 2020 Nomination Committee Report

December 2020
• Review of the results of the annual employee

satisfaction survey and planned actions

• Discussion on employee culture
• Discussion on diversity and inclusion

March 2021
• Review of Board composition
• Review and recommendation regarding Committee Chair
• Review of the final Hampton-Alexander report on diversity

May 2021
• Update on Board composition
• Update on diversity and inclusion

July 2021
• Review of succession planning
• Update on Board composition

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 discussion or approval
• Review of and updates to the Committee’s terms

of reference

Annual Report and Accounts 2021 Softcat plc

Corporate governanceNomination Committee report continued

Effectiveness continued

Board appointments continued
Any new appointee to the Board will receive an extensive, full
and tailored induction programme, prepared by the Company
Secretary and overseen by Martin Hellawell as Company Chair.
This will include meeting with the Senior Leadership Team and
key external advisers to the Board.

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 continues to work
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 and be a good fit. We have 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 shall keep this matter under review.

Succession planning
Succession planning is very important to the Committee and we
have given particular attention 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.

Following my appointment and the appointment of Robyn
Perriss, we have 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. As part of the Committee’s succession planning for the
longer term, we are keeping in mind that in 2024 we will reach
the nine-year tenures in respect of Martin Hellawell and Vin
Murria. 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 Senior Leadership Team. The formal
succession planning reviews are in addition to regular updates
provided by the CEO to the Board on changes in the Senior
Leadership Team. We have a strong talent pipeline and our review
also considers opportunities to develop a more diverse pipeline
in leadership roles. We have also ensured we continue to provide
training and development programmes throughout the
pandemic to prepare managers for more senior roles.

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 pages 62
and 63.

I, acting in my capacity 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 remain fully supportive
of his role. We believe the current structure and membership of
the Board works well for the Company, our shareholders and our
other stakeholders.

As a result of the above 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 2021.

Diversity and inclusion
The Board and the Committee devotes significant time to the
issue of diversity and inclusion in the Company and management
realises the importance and benefits of creating a more diverse
workforce at all levels in the Company. This continues to be 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.

During the year, the final report was issued under the Hampton-
Alexander Review. The 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 target
was met in respect of the Board (50%). Although welcomed
improvements were made in increasing women in leadership
roles, we did narrowly miss the Review target and achieved
29.3%. As already noted, the Committee does recognise that
more progress is needed in respect of the diversity of our
leadership team and plans to improve this have been discussed
with the Committee. The Board currently 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.

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 40 to 51.

Softcat plc Annual Report and Accounts 2021

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 restrictions due to
the COVID-19 pandemic). Letters of appointment and service
contracts will be available for inspection at the 2021 AGM (subject
to any restrictions due to the COVID-19 pandemic).

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.

Karen Slatford
Chair of the Nomination Committee
25 October 2021

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report

Letter from the Chair of the
Remuneration Committee

The Committee has carefully considered
the implications for our executive
remuneration arrangements for 2021/22
and beyond. We have made four changes,
all of which are within our current
Directors’ Remuneration Policy.”

Dear shareholder
I am very pleased to present this report as Chair of Softcat’s
Remuneration Committee (the ‘Committee’). I would like to thank
the Committee members for their support and contribution
this year.

Business performance
The Company continued to perform well during the year. There
was strong growth in revenue and double-digit growth in gross
profit and operating profit. Operational performance was also
excellent and we have continued to invest for future growth.
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 continuing credit to the business and
its leadership:

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

17%

27%

93%

95%

Remuneration Policy (the ‘Policy’)
Our current Policy was approved by shareholders at the 2019
AGM with a vote of 98.6%, which is a high level of support.
The Policy incorporated the recommendations and good points
of practice set out in the 2018 UK Corporate Governance Code.
The Policy also provides sufficient flexibility for the Committee
to make changes in executive remuneration to ensure that this
remains fit for purpose (please see below). Given this, 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 2021 AGM.

Members

K Slatford (Chair)

R Perriss

V Murria

Attendance of the Remuneration Committee

Committee attendance 2021

Name

K Slatford

V Murria

R Perriss

Total meetings held

Attended

Did not attend

N/A

Allocation of time

conditions: 24%

Workforce remuneration and

Corporate governance: 15%24+

Executive remuneration: 41%

Remuneration market practice
and developments: 20%

Softcat plc Annual Report and Accounts 2021

41
+
20
+
15
+
M
Main activities during FY21
October 2020
• Review of Remuneration Policy
• Review and approval of the 2020 Remuneration Report
• Update on gender pay gap and ethnic pay gap

performance and reporting

• Consideration of the proposals for the grant of LTIPs to
Executive Directors for FY21 and other share-based
awards to senior managers below Board level

• Review and determination of vesting outcomes for LTIPs

granted in 2017

• Review of impact of share-based awards on shareholder

dilution

• Review and approval of the annual bonuses awarded to
Executive Directors and Senior Leadership Team (‘SLT’)
members for FY20

• Consideration of the annual bonus arrangements for
the Executive Directors and SLT members for FY21

• Review of achievement against share ownership targets

for the Executive Directors

November 2020
• Approval of the proposals for the grant of LTIPs to

Executive Directors

• Review of independent confirmation of vesting

outcomes for LTIPs subject to the achievement of
performance conditions

March 2021
• Review and discussion on benchmarking of

executive remuneration

• Review and determination of vesting outcomes for the

LTIPs granted to CEO in 2018
• Corporate governance updates

May 2021
• Review of market practices in respect of fees for

Non-Executive Directors

• Discussion on all-employee share schemes
• Interim update report on performance of annual bonus

plan and outstanding LTIPs

• Discussion of executive remuneration and approval of

changes for FY22

July 2021
• Update on shareholder consultation regarding
executive remuneration changes for FY22

• Update on workforce remuneration, including salary

reviews and bonuses below Board level

• Consideration of proposed approach and timing in
respect of annual bonus and LTIP awards for FY22

• Review of remuneration trends and remuneration-related
corporate governance developments for listed companies

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 discussion or approval
• Review of and updates to the Committee’s terms of

reference

• Review of the outcomes of shareholder voting on the

Remuneration Report

• Discussion of market trends on performance metrics
• Update on workforce pay and conditions and discussion

of Company-wide pay review

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.

Remuneration outcomes during the year
During the year, the Board regularly reviewed Softcat’s financial
and operational performance. We confirmed in trading updates
during the year that:

• the Company took no form of Government support during the
pandemic nor made any headcount reductions. Investment in
our growth strategy continued throughout the pandemic;

• we retained our strong culture at Softcat which was a source
of great strength to deal with the challenges of the pandemic;

• we continued to grow and take share in a market that has
remained relatively resilient during the pandemic; and

• the Board expected results for the full year ended 31 July 2021

to be ahead of expectations.

This strong performance resulted in an excellent achievement
of many of the Company’s KPIs (outlined on pages 34 and 35),
including performance against our operating profit targets,
leading to 100% of the maximum annual bonus being earned by
the Executive Directors.

Good performance has been sustained for the past few years
and during the financial year the Long Term Incentive Plan (‘LTIP’)
awards granted in November 2017 to Graham Charlton and in
April 2018 to Graeme Watt vested. The Committee assessed the
vesting outcomes for the LTIPs and concluded that maximum
metrics of total shareholder return (‘TSR’) and earnings per
share (‘EPS’) had been attained. The LTIP awards therefore
vested in full.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report continued

Letter from the Chair of the Remuneration Committee continued

Remuneration outcomes during the year continued
During the year the Committee concluded that all long-term
incentive and annual bonus outcomes were appropriate and no
discretion was exercised to amend any remuneration outcomes
for the Executive Directors. 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.

Looking forward, the LTIPs granted in 2018 are due to vest in
late 2021. 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.

Changes in executive remuneration for FY22
The Committee made some changes to the remuneration for Executive Directors in light of the performance of the business and
shareholder value creation. Over recent years our market capitalisation has doubled and we have transitioned from a mid-tier
FTSE 250 company to one of the top 50 in the FTSE 250.

Softcat FTSE rank and TSR as at the end of FY21

100

150

k
n
a
r
0
5
2
E
S
T
F
t
a
c
t
f
o
S

200

1/1/2 016

800

600

400

200

0
0
1
o
t
d
e
s
a
b
e
r
R
S
T
t
a
c
t
f
o
S

Softcat FTSE 250 rank

Softcat TSR rebased to 100 (at 1/1/16)

1/1/2 017

1/1/2 018

1/1/2 019

1/1/2 0 2 0

1/1/2 0 21

Summary of changes
Given this context, the Committee carefully considered the
implications for our executive remuneration arrangements for
2021/22 and beyond. We consulted in advance with our largest
shareholders, who were broadly supportive, and also with the
major proxy advisory agencies. We made four changes, all of
which are within our current Directors’ Remuneration Policy:

• 10% base salary increase to both the CEO and CFO, to £525k

and £350k respectively, effective from 1 August 2021;

• increased the normal LTIP grant size from 100% to 150% of
salary for FY22 (the normal maximum allowed for under our
Policy is 200%);

• amended our annual bonus measures from being purely based on
operating profit to include 20% based on robust ESG goals, which
for 2021/22 will focus on customer and employee satisfaction; and

• increased the shareholding requirement for the CFO role to

200% of salary in line with that of the CEO and also
shareholder expectations.

The impact of these changes are:

• The increase is delivered 20% in fixed and 80% in variable pay
(at target), maintaining our strong pay for performance culture.

• Salaries are moved towards the lower quartile of the FTSE 250.
This is despite Softcat’s market capitalisation being above the
upper quartile of this group.

• The increase is largely delivered in shares which are linked
to future performance over three years, with a two-year
holding period, further enhancing our executives’ alignment
to shareholders.

Executive share ownership
The executive share ownership guidelines under our current
Remuneration Policy require a minimum shareholding target
of 200% and 150% of salary for the CEO and CFO respectively.
Executives are permitted five years to reach the target and
we already operate post-vesting and post-cessation holding
requirements. To further strengthen the alignment of interests
between the CFO and our shareholders, the Committee has
increased the CFO’s minimum holding requirement to 200% of
salary, which will apply in respect of the vesting of future share
awards. This will subsequently be incorporated into our revised
Remuneration Policy when it is renewed in 2022.

Rationale for the changes
Effective executive leadership is critical to Softcat’s success and
the Committee must ensure that the remuneration for our CEO
and CFO appropriately reflects their performance and motivates
them to continue to drive this high level of business performance.
Softcat’s approach to remuneration has evolved since our IPO in
2015, but our philosophy of rewarding high performance through
a combination of a broadly competitive level of salary with highly
competitive variable pay linked to performance has remained
consistent and these changes reflect this position.

Softcat plc Annual Report and Accounts 2021

Base salary increase
Our review concluded that the salaries of our Executive Directors
were no longer positioned appropriately either against the external
market, or to reflect the performance, experience and capability
of Graeme Watt and Graham Charlton. Our conclusion was that
salaries should be set to at least a lower quartile position against
the FTSE 250 comparator group (this is still below the typical salaries
of companies with a similar market capitalisation to Softcat).

The Committee believes that the best outcome for all stakeholders
is to increase pay to a sufficient level to avoid significant
misalignment with the market whilst maintaining the opportunity
for reward through exceptional performance. We believe that an
increase of 10% to the base salary of both the CEO and CFO
achieves that goal and reduces a potentially significant retention
risk for the business.

We are focused on ensuring that the reward arrangements across
Softcat are appropriate and performance driven as well as being
cost effective in a highly competitive employment market.

LTIP increase and targets
We also considered the executives’ total earnings opportunity
and concluded that this was below the market level, particularly
given the continued growth and success of our business and the
contribution and value of our key executives. Whilst we felt that
the annual bonus, which currently has an annual maximum of
150% of salary, was broadly competitive, the long-term incentive
opportunity of 100% of salary was below appropriate positioning,
and not in line with our focus on variable pay opportunity as a key
driver of performance. This increase will only be delivered in practice
if stretching performance conditions are met (currently EPS and TSR)
over a three-year period and will be delivered in shares which must
be held for five years in total to ensure shareholder alignment.

LTIP targets are included on page 92. The Committee carefully
considered the target-setting methodology and EPS in particular,
in light of the increased quantum. We have set the EPS ‘target’
delivering a 67% outcome (equivalent to 100% of salary – the
previous maximum vesting amount) in the same way we previously
set our maximum target. We have then added a further stretch to
this, which is required in order to achieve the increased maximum
vesting. The EPS targets set take into account the expected
increase in Corporation Tax from April 2023.

Changes to bonus measures
As part of our review the Committee considered the growing
importance of wider non-financial metrics to measure the
success of a business, including the use of environmental, social
and governance (‘ESG’) measures. We have decided to introduce
an assessment of ESG goals in respect of 20% of the annual bonus.
Measures may change in future years but for 2021/22 this measure
will focus on customer satisfaction and employee engagement.

We will continue to provide comprehensive retrospective
disclosure of the outcome against targets, fully in line with our
current approach.

Wider workforce context
We continued to receive regular updates on remuneration across
the workforce to ensure the Committee’s deliberations were well
informed. The proposed approach for the CEO and CFO is fully

consistent with our philosophy of driving performance and
rewarding the attainment of stretching targets which we operate
across Softcat. Our review noted that, across the last three years,
on average around 10% of the workforce has been awarded
increases of 10% or more reflecting a combination of external
market competitiveness, individual performance and value to our
business. We are focused on ensuring that the reward arrangements
across Softcat are appropriate and performance driven as well as
being cost effective in a highly competitive employment market.
Our approach has been, and continues to be, to ensure that our
executives are treated fairly and consistently with our broader
employee group.

Having a dedicated and passionate team and providing excellent
customer service is core to what we do at Softcat and helps drive
exceptional performance. We believe it is right to recognise and
reward this through fair remuneration. These changes seek to
maintain our pay philosophy, which has served the business well
since our IPO.

What we have done during the year
The calendar activities (page 81) summarise the areas of focus and
actions for the Committee during the 2021 financial year, all of which
were within the framework of the current Remuneration Policy.

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 84 to 98) together
with this letter will be subject to an advisory shareholder vote at
the forthcoming AGM on 15 December 2021. 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
25 October 2021

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 Remuneration Policy; and
– details of payments made to the Directors and details of the link
between Company performance and remuneration for the 2021
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 15 December 2021.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration 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 2021 financial year.

Our Remuneration Policy and its link to our Company strategy
The Company’s strategy is laid out on pages 26 and 27.

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



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



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 2022:

• The maximum bonus

opportunity is 150% for the
CEO and CFO respectively.

• We shall amend our annual
bonus measures to include
20% based on robust ESG
goals, initially with a focus
on customer and
employee satisfaction.

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’).

For 2022, the normal annual
award for each of the CEO
and CFO will increase from
100% to 150% of salary.

Softcat plc Annual Report and Accounts 2021



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.

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

Share Incentive Plan (‘SIP’)

Minimum shareholding
requirements
• Chief Executive: 200%

of salary

• Chief Financial Officer: 150%

of salary

From 2022, the minimum
shareholding requirements for
the CFO will increase to 200%
of salary.

Equity
ownership
and retention
of shares

Retain
and reward
executive team
to deliver the
strategy






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 the remuneration
practices of the Company. 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 or any material
changes within the existing Policy.

During the financial year the Committee consulted with major shareholders and certain proxy voting agencies, regarding the
changes in remuneration for the Executive Directors, as explained in the letter from the Committee Chair. The Committee explained
the rationale, in detail, behind the proposal and invited comments. Responses were provided for any question from those with whom
the Committee consulted.

Shareholder support remains strong for the remuneration practices of the Company. The Remuneration Policy received 98.6% votes
in favour at the 2019 AGM. The advisory vote for the Annual Report on Remuneration at the 2020 AGM received 97.69% votes in favour.
The Committee is grateful for the continuing support of shareholders.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report continued

Part A – At a glance continued

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.

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 tier 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 2021 financial year (FY21) (audited)
In respect of FY21, 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 FY21 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

FY21

£84.33m

£93.7m £103.07m

£119.4m

100% £716,108

£477,405

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 deferred shares.

Softcat plc Annual Report and Accounts 2021

Long-term incentives awarded in FY21 (audited)
On 25 November 2020 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 1

100
100

40,480
26,986

25/11/20
25/11/20

£11.45
£11.45

Note:
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 92.

Single figure remuneration for our Executive Directors
The table below sets out the single total figure of remuneration and breakdown for each Executive Director in respect of FY21.

Graeme Watt (CEO)
Graham Charlton (CFO)

Salary

£477,405
£318,270

Taxable
benefit

£4,106
£4,106

Pension

Total
fixed

Bonus 1

LTIP 2

Total
variable

Total

£23,870
£15,889

£505,381
£338,264

£716,108 £1,366,604 £2,082,712 £2,588,093
£923,243 £1,400,648 £1,738,913
£477,405

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 28 November 2017 to Graham Charlton vested during FY21. 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 74,074 shares were
exercised at a share price of £11.37 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 share price on exercise and dividend equivalent included above were £842,221 and £81,022 respectively.

LTIP awards made on 4 April 2018 to Graeme Watt vested during FY21. 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 66,864 shares were
exercised at a share price of £18.725 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 share price on exercise and dividend equivalent included above were £1,252,028 and £114,576 respectively.

Remuneration changes
During the year, management had taken a prudent approach to conserve cash in the business as a result of the COVID-19 pandemic.
It was agreed initially that there would be a pay 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. Following further review of the Company’s
performance later in the year, the Company agreed to reinstate a pay rise for FY21 (backdated to the beginning of the financial year).
Executive Directors received a pay rise of 3% in basic salary. This was in line with the default pay rise for the employees of the
Company. The Non-Executive Directors waived any entitlement to increases in fees for FY21 and their fees remained unchanged.

Please see the letter from the Committee Chair in respect of remuneration changes for the Executive Directors in FY22. Non-Executive
Directors received an increase of 3% in their fees in respect of FY22, which is in line with the default pay rise for employees in the Company.

Annual Report and Accounts 2021 Softcat plc

Corporate governance
Remuneration Committee report continued

Part A – At a glance continued

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/about-us/
investor-centre/shareholder-information. 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 92
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.

Share Incentive Plan
(‘SIP’)

The Company operates a SIP in which the Executive Directors are eligible to participate. The SIP is operated
in line with HMRC legislation and is open to all eligible employees (UK employees with at least three months’
service). The SIP encourages employees to become shareholders in the Company and thereby align their
interests with shareholders.

Softcat plc Annual Report and Accounts 2021

Element of remuneration Operation

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 Remuneration Committee has approved an increased minimum shareholding requirement for the CFO to 200% of salary,

effective for financial year 2022. This change will be reflected formally in the next Remuneration Policy, in 2022.

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 paid additional fees for chairing Committees, the Senior
Independent Director and the Designated Non-Executive Director for Workforce Engagement. 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 www.softcat.com/about-us/investor-centre/shareholder-information.

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 2022 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)

2,800

2,400

2,000

0
0
0
£

’

1,600

1,200

800

400

1,343

29%

42%

556

100%

2,131

37%

26%

Minimum

On target

Maximum

0
0
0
£

’

1,800

1,500

1,200

900

600

300

2,525

47%

31%

22%

Maximum
(including
50% share
price growth)

897

29%

42%

372

100%

1,422

37%

26%

Minimum

On target

Maximum

1,685

47%

31%

22%

Maximum
(including
50% share
price growth)

Fixed

Bonus

LTIP

Fixed

Bonus

LTIP

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report continued

Part A – At a glance continued

Illustrations of the application of the Remuneration Policy continued
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 150%
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 2021 benefits payments and pension values as per the single figure table. The actual benefits and pension contributions for FY22 will only be

known at the end of the financial year. Basic pay reflects the 10% increase awarded for FY22.

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.

Softcat plc Annual Report and Accounts 2021

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 FY21 and FY20.

Salary1

Taxable
benefits1,3

Pension1

Total fixed

Bonus2,4

LTIP2

Total variable

Total

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

2021
£’000

2020
£’000

Graeme Watt (CEO)
477.4 463.5

4.1

Graham Charlton (CFO)
318.3 309.0

4.1

2.7

23.9

23.2 505.4 489.4 716.1 502.0 1,366.6

— 2,082.7

502.0 2,588.1 991.4

3.1

15.9

15.5 338.3 327.6 477.4 334.7

923.2 1,531.1 1,400.6 1,865.8 1,738.9 2,193.4

Notes:
1. Fixed pay consists of salary, taxable benefits and pensions as set out above.

2. Variable pay consists of bonus and LTIP as set out above. Further details on the LTIPs which vested and were exercised by Graham and by Graeme during

the year are provided in the section ‘Single figure remuneration for our Executive Directors’ above.

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

4. Details of the bonus targets, their level of satisfaction and the resulting bonus earned in FY21 are set out on page 86.

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

2021 fees

2020 fees

Martin Hellawell1

Karen Slatford2

£157,944 £1,188,834

£71,301

£44,252

Vin Murria3

£68,525

£66,080

Roles

Non-Executive Chair

Senior Independent Director, Chair of the Remuneration Committee and
Chair of the Nomination Committee

Independent Non-Executive Director and Designated Director for
Workforce Engagement

Robyn Perriss

£61,902

£60,100

Independent Non-Executive Director and Chair of the Audit Committee

Notes:
1. 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. The fee for 2020 includes £1,030,908 in respect of the exercise of an LTIP during the year, which was awarded to him when he was the CEO.

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 FY21 and other P11D benefits was £3,444 (2020: £3,426) and is included in the figure for Martin’s fees above.

2. The fees for Karen Slatford are pro-rated with effect from the respective date of appointment as Chair of the Nomination Committee.

3. The fees for Vin Murria are pro-rated with effect from the respective date she stepped down as Chair of the Nomination Committee.

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

2021 annual bonus outcomes
In respect of 2021, the bonus awards payable to Executive Directors were agreed by the Committee, having carefully reviewed the
Company’s results. Changes to the annual bonus structure operating for 2022 are explained in the letter from the Committee Chair
on pages 80 to 83.

Details of the targets used to determine bonuses in respect of FY21 and the extent to which they were satisfied are shown in the table
on page 86. These figures are included in the single figure table.

Annual Report and Accounts 2021 Softcat plc

Corporate governance
Remuneration Committee report continued

Part B – Annual report on remuneration continued

Long-term incentives awarded and vested
Awarded in FY21 (audited)
Awards under the Company’s LTIP made in FY21 are shown in the table on page 87. The awards were subject to the following
performance conditions:

Measure

Adjusted EPS

Weighting

50%

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

performance period of 38.9p (FY20: 38.6p)

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

50%

• Full vesting for 46.9p (FY20: 45.5p)
• 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 2020 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 in FY21 (audited)
Awards under the Company’s LTIP granted in November 2017 to Graham Charlton and 4 April 2018 to Graeme Watt vested and were
exercised by Graham and Graeme in FY21. Options over 119,767 shares were granted to Graham and options over 66,864 shares were
granted to Graeme. 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 23.7p

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

50%

• Full vesting for 26.9p
• 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 FY20 was 38.2p 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.

To be awarded in FY22
Vesting of the awards will be 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 49.5p

• 67% vesting of this element for adjusted EPS at end of

performance period of 53.8p

• Full vesting for 59.4p
• Straight-line vesting between 20% and 67% and between 67%

and full vesting

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

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

50%

Softcat plc Annual Report and Accounts 2021

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 FY21, 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 FY21 (FY20: nil). Free shares were awarded under the SIP on 11 December 2015, and became free
of any restrictions on the fifth anniversary following the award. Graham was awarded 301 free shares in 2015, which he retained.

The Executive Directors have an entitlement to purchase partnership shares under the SIP. Graham Charlton and Graeme Watt
purchased 125 and 124 partnership shares respectively during the year. The total SIP holdings are provided on page 93 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.

Statement of Directors’ shareholding and share interests (audited)

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
200

Non-Executive Directors
Martin Hellawell5
Karen Slatford
Vin Murria
Robyn Perriss

n/a
n/a
n/a
n/a

228
601

n/a
n/a
n/a
n/a

35,621 3
82,068 3

157,501
105,000

38,969 4
31,937 4

4,201,857
—
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
n/a

Yes
Yes

n/a
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 at least 200% of base salary.

The shareholding requirement is calculated as follows:

• Shares owned by the Executive Director (and their associates) count towards the ownership target.
• Shares which have vested, but which remain subject to a holding period and/or clawback, count towards the ownership target.
• Unvested shares, which are not subject to a further performance condition, count towards the ownership target on a net of tax basis. This includes

deferred awards under the Annual Bonus Plan.

• Unvested awards and unexercised options which have performance conditions attached do not count towards the ownership target.

2. This is based on a closing share price of £19.33 at 30 July 2021 (being the last business day before 31 July 2021) 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 22 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.

Fees retained for external non-executive directorships by Executive Directors
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.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report continued

Part B – Annual report on remuneration continued

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 2021.

Total shareholder return

1,000

900

800

700

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

18/11/2 0 2 0

18/0 3/2 0 21

18/07/2 0 21

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.

2021

2020

2019

2018

2017

2016

2015

Total single figure

£2,588,093
—

£991,372
—

£919,518

£305,539
— £532,716

—
£774,908

—
£562,117

—
£335,762

100

—

100

n/a

—

100

—

100

—

100

—

n/a

Chief Executive

G Watt
M Hellawell1

G Watt

M Hellawell1

Annual bonus payment
level achieved
(% of maximum
opportunity)

G Watt

M Hellawell1

LTIP vesting level
achieved
(% of maximum
opportunity)

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.

Softcat plc Annual Report and Accounts 2021

Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2021 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 2021
financial year

Disbursements
from profit in 2020
financial year

£60.8m
£36.4m
£127.8m

£52.3m
£30.2m
£111.2m

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.

Change in the Directors’ remuneration compared with employees
The table below sets out the annual change in Director’s remuneration from the previous year compared to the average annual change
in remuneration for all other employees. The notes beneath this table describe how we have calculated the year-on-year change.

% increase/(decrease) in remuneration in 2020
compared with remuneration in 2019

% increase/(decrease) in remuneration in 2021
compared with remuneration in 2020

Salary or fees

Bonus 2

Benefits 3

Salary or fees

Bonus 2

Benefits 3

Graeme Watt1
Graham Charlton1
Martin Hellawell
Vin Murria4
Robyn Perriss
Karen Slatford5
All employees6

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

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

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

3%
3%
0%
4%
3%
6%
3%

43%
43%
0%
0%
0%
0%
12%

37%
37%
1%
0%
0%
0%
1%

Notes:
1. For the Directors, the percentage change reflects the figures set out in the single figure table on page 91. The FY21 uplift in benefits is due to an

adjustment made in the current year which incorporates adjustments for prior period balances totalling £2,418. Removing the impact of this adjustment
would show growth, on a like-for-like basis, of 14% over the prior year. 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 Chair of the Nomination Committee until 24 March 2021. Fees receivable for these duties are in addition to the fees

payable as a Non-Executive Director.

5. From 24 March 2021, Karen Slatford was appointed as Chair of the Nomination Committee. Fees receivable for these duties are in addition to the fees

payable as a Non-Executive Director.

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 increase in bonus is due mostly to improved performance
versus targets for senior management when compared to the prior year. The benefits values have fluctuated due to change in premiums.

Annual Report and Accounts 2021 Softcat plc

Corporate governance
Remuneration Committee report continued

Part B – Annual report on remuneration continued

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 2021, with comparative figures for 2020 and
2019, which were disclosed in last year’s Directors’ Remuneration Report. The data shows how the CEO’s single figure remuneration for
2021 (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 percentiles.

Year

2021

2020
2019

Method

25th percentile pay ratio

Median pay ratio

75th percentile pay ratio

Option A

Option A
Option A

89:1

33:1
35:1

57:1

21:1
22:1

32:1

12:1
12:1

The Government’s methodology of Option ‘A’ has been used to calculate the remuneration of 1,655 (FY20: 1,519) 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).

The ratio between the total remuneration of the CEO and the total remuneration of the remaining UK workforce increased significantly in
2021 due to an LTIP award which vested and was exercised during the period. The LTIP was granted in 2018 following the appointment
of Graeme Watt as CEO. The value of the LTIP when it was exercised was approximately £1.4m and this resulted in an increase to the
single figure remuneration compared to 2019 and 2020, which did not include any vesting of LTIP awards. Normalising the 2021 total
pay figure of the CEO to that comparable to previous years (excluding the LTIP), the median pay ratio would be 27:1. This is higher than
the last two periods due to higher growth in the CEO’s total remuneration, driven by an increase in bonus payable, whilst the average
earnings of the remaining UK workforce have remained broadly in line with previous years. The Committee believes that the median
pay ratio is consistent with the Company’s pay, reward and progression policies.

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

CEO

All employees

(See single figure table, page 91)

25th percentile

2021 salary
2021 total pay

£477,405
£2,588,093

£27,380
£29,184

Median

£43,246
£45,347

75th percentile

£72,871
£81,661

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.

Softcat plc Annual Report and Accounts 2021

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. 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 £87,750 (2020: £118,100) 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 2020 AGM.

Annual Report on Remuneration

167,295,326

97.69

3,950,771

2.31

15,019

Votes for

% Votes against

% Votes withheld

Statement of implementation of the Remuneration Policy in the 2020/21 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.

What was implemented in 2020/21

Implementation in 2021/22

Base salary

Pension

In light of the uncertainty caused by the COVID-19
pandemic, base salaries for most employees
(including Executive Directors) were initially
frozen. Following a review of performance later
in the financial year, base salaries for the CEO
and CFO were £477,405 and £318,270 respectively.
This represented a rise of 3% each, consistent
with the base salary increase for the overall
employee population.

The Company operates employer contributions
for the employee population (including
Executive Directors) to up to 5% of base pay. The
Remuneration Policy provides that employer
contributions in respect of Executive Directors shall
be in line with the wider workforce.

Following a review of executive remuneration,
base salaries for the CEO and CFO are increased
to £525,146 and £350,097 respectively. This
represents a rise of 10% each. See the letter from
the Committee Chair for more details.

No change.

Benefits

No change.

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

For FY21 the annual bonus measure was based on
the achievement of operating profit. 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.

For FY22 the annual bonus measure is being
amended to include 20% based on robust ESG
goals, which initially focus on customer and
employee satisfaction. See the letter from the
Committee Chair for more details.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceRemuneration Committee report continued

Part B – Annual report on remuneration continued

Statement of implementation of the Remuneration Policy in the 2020/2021 financial year continued

What was implemented in 2020/21

Implementation in 2021/22

LTIP

2020 LTIP awards:

• The maximum annual 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 2020 LTIP grant at challenging levels.
The targets were disclosed on grant.

Shareholding
requirements

CEO: 200% of salary

CFO: 150% of salary

To be built up over five years from appointment.
Only shares owned by the Executive Director count
towards the target.

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

the ABP and LTIP.

2021 LTIP awards:
• The annual award level increases to 150%. See
the letter from the Committee Chair for more
details.

• No change to the performance measures or

their weighting.

• Relative TSR is still assessed against the

FTSE 250 (excluding real estate and investment
trusts). EPS targets are shown on page 92.

The shareholding requirement for the CFO
increases to 200% of salary.

The shareholding requirement shall be calculated
as follows:
• Shares owned by the Executive Director count

towards the ownership target.

• Shares which have vested, but which remain
subject to a holding period and/or clawback,
count towards the ownership target.

• Unvested shares, which are not subject to a

further performance condition, count towards
the ownership target on a net of tax basis. This
includes deferred awards under the Annual
Bonus Plan.

Chair and
Non-Executive fees

The Non-Executive Directors waived any
entitlement to increases in fees.

Fees increase by 3%, in line with the default pay
rise for employees of the Company.

Chair fee: £154,500

Board fee: £50,648

Chair fee: £159,135

Board fee: £52,167

Senior Independent Director fee: £5,627

Senior Independent Director fee: £5,796

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

Committee chair fee (per Committee) and
fee for the Designated Director for Workforce
Engagement: £11,592

Karen Slatford
Chair of the Remuneration Committee
25 October 2021

Softcat plc Annual Report and Accounts 2021

Directors’ report

The following is the report of the Directors of the Company
for the financial year ended 31 July 2021.
Non-Financial Reporting Directive
In accordance with Sections 414CA and 414CB of the Companies Act 2006, the following chart summarises where you can find further
information in this Annual Report on each of the key areas of disclosure that these sections require.

Environmental, social
and employee-related
matters

• This year we have provided further disclosure on Softcat’s environmental commitments, including
voluntary reporting on aspects of Task Force on Climate-related Financial Disclosures (‘TCFD’) in
advance of mandatory reporting. Our Green Teams continue to raise awareness of the importance
of environmental issues through their activities.

• Our positive and inclusive culture, as well as good employee engagement, are integral to Softcat’s
success. Both the Board and management understand this and 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 40 to 51 and in the

Corporate Governance Report on pages 58 to 66.

• Human rights abuse and modern slavery risks are not considered a material issue for the Company.
• We operate anti-bribery procedures which support compliance with the UK Bribery Act and

other legislation.

• We discuss each of these areas in the Sustainability section of this report on pages 40 to 51 and in the

Corporate Governance Report on pages 58 to 66.

Human rights and
anti-bribery-related
matters

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 and inclusion. 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 we will continue with our efforts.

• We discuss some of the actions taken in response to employee engagement in the Section 172

Statement on pages 36 to 39 of this report, our approach to diversity in the Sustainability section on
pages 40 to 51, in the Chair’s Statement on pages 12 to 14 and in the Nomination Committee Report on
pages 76 to 79.

• 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 and key risks on pages 30 to 33 and selected KPIs are
reported on pages 34 and 35. Our strategy is discussed in various places in the Strategic Report, including
pages 26 and 27.

Directors’ Report
The Directors present their report for the year to 31 July 2021.

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.

Annual Report and Accounts 2021 Softcat plc

Corporate governanceDirectors’ report continued

Disclosures incorporated by reference
For the purposes of compliance with Disclosure Guidance 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 52 and 53 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 36 to 39 of this report;

• strategy and relevant future developments – refer to pages 26 and 27 of the Strategic Report; and
• financial risk management objectives and policies – refer to the ‘Risk management’ section included in the Strategic Report on

pages 30 to 33 and note 21 to the 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 2020:

Name

Position

Date of appointment

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

Chair
Chief Executive
Chief Financial Officer
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 3 November 2015
Appointed 5 December 2019
Appointed 1 July 2019

Biographies of the Directors as at 25 October 2021 can be found on pages 55 and 56.

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 2021 are disclosed in the Remuneration Report on page 93.
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 2021 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 2021 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.

100 Softcat plc Annual Report and Accounts 2021

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.

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 10 December
2020:

• an ordinary resolution providing the Directors with authority to:

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.

Share capital and control
The Company’s ordinary issued share capital as at 31 July 2021
was 199,041,810 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 2021, the SIP Trust held 214,622
shares (2020: 320,779) awarded to employees as part of the free
share award, subject to service conditions. A further 346,958
shares (2020: 345,054) were held on behalf of employees who
have taken part in the Company’s voluntary partnership share
purchase programme. The SIP Trust also held 51,007 unallocated
shares (2020: 49,803).

During the year ended 31 July 2021, share options were exercised
pursuant to the Long Term Incentive Plan, resulting in the
additional listing and allotment of 362,639 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.

(i) allot ordinary shares up to a maximum nominal amount of
£33,113, 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
£66,227 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;

• special resolutions providing the Directors with authority to:

(i) allot shares or sell treasury shares for cash up to a

maximum nominal amount of £4,967; and

(ii) allot shares or sell treasury shares for cash up to a

maximum nominal amount of £4,967, in connection with
an acquisition or other capital investment,

otherwise than to existing shareholders pro rata to their
shareholding; and

• a special resolution providing the Directors with authority to

make market purchases of up to 19,868,367 of the Company’s
ordinary shares.

These authorities are due to expire at the Company’s AGM to be
held on 15 December 2021 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 interests
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.

Annual Report and Accounts 2021 Softcat plc

101

Corporate governance

Directors’ report continued

Substantial shareholders
The substantial shareholdings in the table below represent those interests notified to the Company as at 31 July 2021 in accordance
with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, and those holdings may have changed since
notification to the Company.

Peter Kelly1
Mawer Investment Management Limited
John Nash1

As at 31 July 2021

As at 25 October 2021

Ordinary
shares

Voting
rights

Ordinary
shares

64,976,058
9,946,370
7,244,714

32.6% 64,976,058
5.0% 9,946,370
3.6% 7,244,714

Voting
rights

32.6%
5.0%
3.6%

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 25 October 2021, Peter Kelly, the
founder of Softcat plc, held 32.6% 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.

102 Softcat plc Annual Report and Accounts 2021

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.

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 (2020: none).

Political donations
The Company did not make any political donations during the
period (2020: £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
2021. 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 40 to 51 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 40 to 51 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 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.

Details of the Company’s gender and ethnicity breakdown are
given in the Sustainability Report on page 40.

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, emails 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 14.4p per
ordinary share and a special dividend of 20.5p per ordinary share
to be paid on 20 December 2021 to all ordinary shareholders
who were on the register of members at the close of business
on 12 November 2021. Shareholders will be asked to approve the
final and special dividends at the AGM on 15 December 2021.

The Company’s dividend and distributions policy is detailed in
the Corporate Governance Report on page 64.

Requirements of the Listing Rules
The following table provides references to where the information required by 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 80 to 98

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 80 to 98

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 101

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 102

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 2021 AGM.

Branches
The Company operates branches in Australia, the United States of America, the Netherlands, Singapore, Hong Kong and Ireland.

Annual Report and Accounts 2021 Softcat plc

103

Corporate governanceDirectors’ 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 51) and Chief Financial Officer’s review sections (see pages 28
and 29) of this Annual Report. Given the ongoing economic
uncertainty of the COVID-19 pandemic and considering the latest
guidance issued by the FRC the Directors have undertaken a fully
comprehensive going concern review.

The Company 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 for a
thirteen month period from the date of this report (the going
concern period) until 30 November 2022. All the forecasts reflect
the payment of the FY21 dividend of £69.5m which will be paid in
December 2021 subject to approval at the AGM.

The Company operates in a resilient industry. Our UK Corporate
customer base spend is increasingly non-discretionary as IT
continues to be vital to gain competitive advantage in an
increasingly digital age. Public Sector, a large and fast-growing
area of the business, continues to show no negative sensitivity
to COVID-19. The Company strategy remains unchanged and
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 2021, the Company held instantly accessible cash
and cash equivalents of £101.7m, while net current assets
were £161.3m. 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 Revolving Credit Facility (‘RCF’) and
Covid Corporate Financing Facility (‘CCFF’) were both cancelled
in the year as at no point did the Company require them to be
drawn down. Operational cash flow forecasts for the going
concern period are sufficient to support the business with the
£45m cash floor set by the Board not being breached.

There is a sufficient level of liquidity headroom post mitigation
across the going concern forecast period in base and severe but
plausible scenarios considered and outlined in more detail below.

Continued operational and business impact of COVID-19
Please see pages 12, 18, 19, 29, 32 and 33 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 2020 to July 2021.
Despite the continued lockdowns in the UK, the Company has
traded well delivering double-digit year-on-year growth.
COVID-19 is expected to have an ongoing impact on the
customer base with a potential increased credit

104 Softcat plc Annual Report and Accounts 2021

risk as a result of the government aid schemes announced
over the last 18 months ending and on the supply chain with
disruptions related to a worldwide shortage of semiconductors.
The Board continue to monitor the global and national economic
environment and organise operations accordingly.

Base case
The base case, which was approved by the Board in October 2021,
takes into account the FY22 budget process which includes
estimated growth and increased cost across the going concern
period and is consistent with the actual trading experience
through to September 2021. The key inputs and assumptions in
the base case include:

• revenue growth in mid-single digit range in line with historic

rates pre COVID-19;

• rebate income continues to be received in proportion to cost

of sales as in FY21;

• employee commission is incurred in line with the gross margin;

and

• increased levels of cost to reflect continued investment in

the business IT infrastructure as well as a return of travel and
staff entertainment costs which were put on hold during the
last twelve months due to travel restrictions and social
distancing/lockdowns.

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. In making
our forecasts we balanced our customer needs alongside
employee welfare. We will offer a hybrid working model with
a balance of remote working and return to the office. This is
not expected to have a significant impact on the operational
performance of the Company. Year to date trading to the end
of September 2021 is consistent with the base case forecast.

Severe but plausible case
Given the continued impact of COVID-19 on our customer base
and supply chain, we have modelled a severe but plausible scenario.
In this case we have modelled a decline in revenue, versus the
base case, which is significantly below any historic trend and
more severe than experienced during the height of the pandemic.
The complications as a result of COVID-19, being an increased
risk of longer hardware lead times and potential increased credit
risk have been factored into these models as deemed appropriate.

The key inputs and assumptions include:

• an average 10% reduction in revenue, compared to the base case;
• reduced gross profit margins of 1% in the period;
• additional bad debt write offs of £5m across the forecast

period;

• extending the debtor days by one day from historic levels

achieved and no change to historic supplier payment days;

• paying a reduced interim dividend in line with lower

profitability but still within the range set out in the dividend
policy; and

• both commission cost and rebate income adjusted downwards
in line with reduced profitability and cost of sales, but at the
same percentage rates as in the base case.

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, the Company continues to be profitable,
and the Company would still have sufficient cash reserves to
meet the Board’s minimum requirements. Despite this,
management have modelled further cost saving and working
capital action (see mitigating actions) that will enable the
Company to mitigate the impact of reduced cash generation
further, 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 a £20m cost reduction on an annualised basis and additional
annual working capital savings of £25m, before considering 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:

• bonus costs scaled back in line with performance;
• no interim dividend in H2 of FY22;
• 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 and reasonable as the
Company benefits from a flexible business model with a high
proportion of costs linked to performance.

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 twelve-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:

reduction of 20% in gross invoiced income, compared to the
base case;

2. reduced achievable gross margin by 4%;

3. large and immediate bad debt write offs; and

4. extending the debtor days by four days from historic levels
achieved and no change to historic supplier payment 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 twelve 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, the Directors consider
that the Company has significant liquidity headroom to continue
in operational existence for twelve months post the date of this
report. Accordingly, at the October 2021 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 ongoing impacts of COVID-19 on both
customers and suppliers continue to create market uncertainty
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 55 and 56 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 General Meeting
The Company’s 2021 AGM will take place on 15 December 2021
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 2021 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 Centre 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.

Annual Report and Accounts 2021 Softcat plc

105

Corporate governanceDirectors’ report continued

Annual General Meeting continued
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 results
of each of the resolutions to be voted on at the 2021 AGM will be
published to the London Stock Exchange and will be available on
the Company’s website.

The AGM is the Company’s principal forum for communication
with private shareholders and the Directors recognise its
important role. The Chair of the Board and the Chairs of the
Committees, together with the other Directors, will be available
to answer shareholders’ questions at the meeting. Additionally,
shareholders will be given the opportunity to submit questions
via email, to the Directors, ahead of the meeting. Questions may
be submitted to cosec@softcat.com or by letter addressed to the
Company Secretary at the Company’s registered office. Questions
should be received up to 24 hours in advance of the meeting and
a response will be provided. Further information and requirements
can be found within the Notice of AGM.

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 accounting
standards in conformity with the requirements of the Companies
Act 2006 and International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies
in 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 and of the profit or loss of the Company for that
period. In preparing these 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.

106 Softcat plc Annual Report and Accounts 2021

The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the Company financial statements comply with the Companies
Act 2006. 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.

Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website.

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 55 and 56) confirms that (solely for the purpose
of DTR 4) to the best of his or her knowledge:

• that the financial statements, prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and IFRSs adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union, 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
25 October 2021

Graham Charlton
Chief Financial Officer
25 October 2021

The Directors’ Report has been approved by the Board of
Directors and is signed on its behalf by:

Luke Thomas
Company Secretary
25 October 2021

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 2021 which comprise the Statement of profit or loss
and other comprehensive income, Statement of financial position, 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 Accounting Standards in conformity with the requirements of the Companies
Act 2006.

In our opinion, the financial statements:

• give a true and fair view of the Company’s affairs as at 31 July 2021 and of its profit for the year then ended;
• have been properly prepared in accordance with International Accounting Standards in conformity with the requirements of the

Companies Act 2006; 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. 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 listed 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 going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Company’s ability to continue
to adopt the going concern basis of accounting included:

• understanding management’s process and controls related to the assessment of going concern;
• checking the arithmetical accuracy of the cash flow forecast models and assessing the Group’s historical forecasting accuracy;
• obtaining management’s going concern models which included a base case, a severe yet plausible downside cash flow scenario,
and a reverse stress test covering the going concern assessment period. These forecasts include an assessment of available cash
balances given Company has no external debt arrangements as well as understanding how the impact of COVID-19 and potential
supply chain shortages had been reflected in the forecasts;

• considering the downside scenarios identified by management, independently assessing whether there are any other scenarios
which should be considered, and assessing the quantum of the impact on the available cash flows of the downside scenarios in
the going concern period;

• challenging management’s assumptions within the cash flow forecasts in relation to the forecast growth rates in the going concern
period, including comparison to internal and external economic forecasts. Due to uncertainty in the wider economic markets and
potential impact of supply chain shortages post COVID-19 we have focused our work on further sensitivities to the severe but
plausible scenario and whether the reverse stress test is considered remote;

• assessing the adequacy of the going concern assessment period until 30 November 2022, considering whether any events or

conditions foreseeable after the period indicated a longer review period would be appropriate;

• comparing management’s forecasts to actual results through the subsequent events period and performing enquiries to the date

of this report; and

• assessing if the going concern disclosures in the financial statements are appropriate and in accordance with the revised ISA UK 570

going concern standard.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for a period of thirteen months
from when the financial statements are authorised for issue.

In relation to the Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company’s
ability to continue as a going concern.

Annual Report and Accounts 2021 Softcat plc

107

Financial statementsIndependent auditor’s report continued

To the members of Softcat plc

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 versus agent
• Misstatement of rebate income to overstate reported results at or near year end
• Overall materiality of £6.0m which represents 5% of profit before tax

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 UK-based audit engagement team.

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.

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.

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 £1,156.7m
(2020: £1,077.1m).

Refer to the Audit Committee Report
(page 70); accounting policies (page 119
to 122); and note 2 of the Company
financial statements (pages 127 and 128).

• 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
assumptions 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;

• 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;

• considered the impact of specific significant contracts
recognised across the balance sheet date, vouching
the split of revenue recognised;

• to address the risk of management override, we tested
a sample of journal entries recorded at or near year end
as well as top-side adjustments 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 based on a review of the
supporting documentation 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; and

• 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.

108 Softcat plc Annual Report and Accounts 2021

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.

We concluded management’s
rationale for including the
APM to be reasonable. The
disclosures in respect of the
APM are appropriate and
are correctly reconciled
to revenue.

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 £1,156.7m (2020:
£1,077.1m). The adjustment recorded in
respect of income to be recognised net
as agent under IFRS 15 amounted to
£781.8m (2020: £569.1m).

Refer to the Audit Committee Report
(page 70); accounting policies (page 119
to 122); and note 2 of the Company
financial statements (pages 127 and 128).

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 Softcat
are the agent in the arrangement.

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 consulting element
of Softcat’s customer offering, and challenged the
distinction between sales effort and service delivery in
order to help ascertain the exercise 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, such
as supplier websites, and met with key members
of the sales and solutions teams to develop an
understanding of the consulting 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; and

– 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;

• reperformed management’s calculation of the

adjustment to record revenue on a net basis; and

• tested that the methodology utilised to calculate the

adjusted performance measure (‘APM’) ‘gross invoiced
income’ is consistent with the FY20 financial
statements, assessed management’s rationale for
including the APM and ensured that the amount
reported is reconciled to reported revenue.

Annual Report and Accounts 2021 Softcat plc

109

Financial statementsKey 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.

Independent auditor’s report continued

To the members of Softcat plc

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 2021
amounts to £8.1m (2020: £6.0m).

Refer to the Audit Committee Report
(page 70; accounting policies (page 122);
and note 11 of the Company financial
statements (page 133).

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 88% of the balance) against 31 July 2020 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; and

• analysed the rebate receivable by vendor and compared
the largest vendor level balances against 31 July 2020
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.

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 £6.0m (2020: £4.7m), which is 5% (2020: 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 profit
before tax was higher than forecasted profit before tax.

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% (2020: 75%) of our planning materiality, namely £4.5m (2020: £3.5m). 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 £0.3m (2020: £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.

110 Softcat plc Annual Report and Accounts 2021

Other information
The other information comprises the information included in the Annual Report set out on pages 1 to 106, including the Strategic
report (pages 1 to 51) and Corporate governance report (pages 52 to 106), other than the financial statements and our auditor’s report
thereon. The Directors are responsible for the other information contained within the Annual Report.

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.

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 course of 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 themselves. 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.

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.

Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code
specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified set out on pages 104 and 105;

• Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is

appropriate set out on page 33;

• Directors’ statement on fair, balanced and understandable set out on page 106;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 30 to 33;
• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out

on page 30 to 33 and page 74; and;

• the section describing the work of the Audit Committee set out on pages 67 to 75.

Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 106, 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.

Annual Report and Accounts 2021 Softcat plc

111

Financial statementsIndependent auditor’s report continued

To the members of Softcat plc

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
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities,
including fraud, is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the
Company and management.

• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Company and determined that the
most significant are those related to the reporting framework (IFRS, the Companies Act 2006 and the UK Corporate Governance
Code 2018), relevant tax compliance regulations in the UK and relevant employment law 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.

• We understood how Softcat plc is complying with those frameworks by making enquiries 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 enquiries 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
• Following the recommendation from the Audit Committee, we were reappointed by the Company on 10 December 2020 to audit

the financial statements for the year ended 31 July 2021 and subsequent financial periods.

• The period of total uninterrupted engagement including previous renewals and reappointments is nine years, covering the years

ending 31 July 2013 to 31 July 2021.

• 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
25 October 2021

112 Softcat plc Annual Report and Accounts 2021

Statement of profit or loss and other comprehensive income

For the year ended 31 July 2021

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

2021
£’000

2020
£’000

3
4
4

1,156,667
(880,309)

1,077,127
(841,422)

276,358
(156,942)

235,705
(141,972)

119,416
28
(477)

118,967
(22,782)

93,733
200
(316)

93,617
(17,953)

96,185

75,664

96,185

75,664

18
18

48.4
48.2

38.2
38.0

The Statement of profit or loss and other comprehensive Income has been prepared on the basis that all operations are
continuing operations.

Annual Report and Accounts 2021 Softcat plc

113

Financial statements

Statement of financial position

As at 31 July 2021

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

2021
£’000

2020
£’000

7
8
9
15

10
11

12
13

13
8

11,753
7,022
5,202
3,149

11,897
8,698
1,301
2,408

27,126

24,304

38,411
329,666
432
101,724

11,744
314,123
636
80,139

470,233

406,642

497,359

430,946

(293,528)
(12,759)
—
(2,598)

(263,866)
(13,929)
—
(1,867)

(308,885)

(279,662)

(3,626)
(5,704)

(2,565)
(7,972)

(9,330)

(10,537)

(318,215)

(290,199)

179,144

140,747

100
4,979
—
174,065

100
4,979
—
135,668

179,144

140,747

These financial statements were approved by the Board of Directors and authorised for issue on 25 October 2021.

On behalf of the Board

Graeme Watt
Chief Executive Officer

Graham Charlton
Chief Financial Officer

Softcat plc company registration number: 02174990

114 Softcat plc Annual Report and Accounts 2021

Statement of changes in equity

For the year ended 31 July 2021

Equity attributable to owners of the Company

Balance at 1 August 2019
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
Total comprehensive income for the year
Share-based payment transactions
Dividends paid
Shares issued in the year
Dividend equivalents paid
Tax adjustments
Other

Balance at 31 July 2021

Share capital
£’000

Share
premium
account
£’000

Reserves for
own shares
£’000

99
—
—
—
1
—
—

100
—
—
—
—
—
—
—

100

4,979
—
—
—
—
—
—

4,979
—
—
—
—
—
—
—

4,979

—
—
—
—
—
—
—

—
—
—
—
—
—
—
—

—

Retained
earnings
£’000

110,135
75,664
1,958
(52,338)
—
(259)
508

135,668
96,185
2,267
(60,815)
—
(196)
1,117
(161)

Total
£’000

115,213
75,664
1,958
(52,338)
1
(259)
508

140,747
96,185
2,267
(60,815)
—
(196)
1,117
(161)

174,065

179,144

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 2021, 362,639 share options (2020: 422,567) were exercised and new shares were issued to satisfy this
exercise. Proceeds of £Nil (2020: £Nil) were realised from the exercise of these share options.

As at 31 July 2021, the SIP Trust held 218,258 shares (2020: 320,779) awarded to employees as part of the free share award, subject to
service conditions. A further 348,779 shares (2020: 345,054) were held on behalf of employees who have taken part in the Company’s
voluntary partnership share purchase programme. The SIP also held 51,007 unallocated shares (2020: 49,803).

Annual Report and Accounts 2021 Softcat plc

115

Financial statements
Statement of cash flows

For the year ended 31 July 2021

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

Notes

2021
£’000

2020
£’000

91,252

64,170

4
7
9

6
8
4,8

28
(2,265)
(4,199)

200
(7,664)
(1,293)

(6,436)

(8,757)

—
(60,815)
(2,125)
(291)

(1)
(52,338)
(1,882)
(316)

(63,231)

(54,537)

21,585
80,139

876
79,263

101,724

80,139

116 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements

For the year ended 31 July 2021

1 Accounting policies
1.1 Corporate information
The financial statements of Softcat plc for the year ended 31 July 2021 were authorised for issue in accordance with a resolution of the
Directors on 25 October 2021. 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 accounting standards (IFRS) in conformity with the
requirements of the Companies Act 2006. IFRS includes the application of International Financial Reporting Standards (‘IFRS’) as
issued by the International Accounting Standards Board (‘IASB’) and the IFRS Interpretations Committee (‘IFRIC’) interpretations.

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 2020. The accounting
policies set out below have, unless otherwise stated (see 1.4 below), been applied consistently to all periods presented in these
financial statements.

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 51) and Chief Financial Officer’s review sections (see pages 28 and 29) of
this Annual Report. Given the ongoing economic uncertainty of the COVID-19 pandemic and considering the latest guidance issued by
the FRC the Directors have undertaken a fully comprehensive going concern review.

The Company 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 for a thirteen month period from the date of this report (the going concern
period) until 30 November 2022. All the forecasts reflect the payment of the FY21 dividend of £69.5m which will be paid in December 2021
subject to approval at the AGM.

The Company operates in a resilient industry. Our UK Corporate customer base spend is increasingly non-discretionary as IT continues
to be vital to gain competitive advantage in an increasingly digital age. Public Sector, a large and fast-growing area of the business,
continues to show no negative sensitivity to COVID-19. The Company strategy remains unchanged and 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 2021, the Company held instantly accessible cash and cash equivalents of £101.7m, while net current assets were £161.3m.
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 Revolving Credit Facility (‘RCF’) and Covid Corporate Financing
Facility (‘CCFF’) were both cancelled in the year as at no point did the Company require them to be drawn down. Operational cash
flow forecasts for the going concern period are sufficient to support the business with the £45m cash floor set by the Board not
being breached.

There is a sufficient level of liquidity headroom post mitigation across the going concern forecast period in base and severe but
plausible scenarios considered and outlined in more detail below.

Continued operational and business impact of COVID-19
Please see page 2 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 2020 to July 2021. Despite the continued lockdowns in the UK, the Company has traded well delivering double-digit year-on-year
growth. COVID-19 is expected to have an ongoing impact on the customer base with a potential increased credit risk as a result
of the government aid schemes announced over the last 18 months ending and on the supply chain with disruptions related to
a worldwide shortage of semiconductors. The Board continue to monitor the global and national economic environment and
organise operations accordingly.

Annual Report and Accounts 2021 Softcat plc

117

Financial statements1 Accounting policies continued
1.2 Basis of preparation continued
Going concern continued
Base case
The base case, which was approved by the Board in October 2021, takes into account the FY22 budget process which includes
estimated growth and increased cost across the going concern period and is consistent with the actual trading experience through
to September 2021. The key inputs and assumptions in the base case include:

• revenue growth in mid-single digit range in line with historic rates pre COVID-19;
• rebate income continues to be received in proportion to cost of sales as in FY21;
• employee commission is incurred in line with the gross margin; and
• increased levels of cost to reflect continued investment in the business IT infrastructure as well as a return of travel and staff
entertainment costs which were put on hold during the last twelve months due to travel restrictions and social distancing/
lockdowns.

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. In making our
forecasts we balanced our customer needs alongside employee welfare. We will offer a hybrid working model with a balance of remote
working and return to the office. This is not expected to have a significant impact on the operational performance of the Company.
Year to date trading to the end of September 2021 is consistent with the base case forecast.

Severe but plausible case
Given the continued impact of COVID-19 on our customer base and supply chain, we have modelled a severe but plausible scenario.
In this case we have modelled a decline in revenue, versus the base case, which is significantly below any historic trend and more
severe than experienced during the height of the pandemic. The complications as a result of COVID-19, being an increased risk of
longer hardware lead times and potential increased credit risk have been factored into these models as deemed appropriate.

The key inputs and assumptions include:

• an average 10% reduction in revenue, compared to the base case;
• reduced gross profit margins of 1% in the period;
• additional bad debt write offs of £5m across the forecast period;
• extending the debtor days by one day from historic levels achieved and no change to historic supplier payment days;
• paying a reduced interim dividend in line with lower profitability but still within the range set out in the dividend policy; and
• both commission cost and rebate income adjusted downwards in line with reduced profitability and cost of sales, but at the same

percentage rates as in the base case.

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, the Company continues to be profitable, and the Company would still have sufficient cash reserves to meet the Board’s
minimum requirements. Despite this, management have modelled further cost saving and working capital action (see mitigating
actions) that will enable the Company to mitigate the impact of reduced cash generation further, 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 a £20m cost reduction on an annualised basis and additional annual working
capital savings of £25m, before considering 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:

• bonus costs scaled back in line with performance;
• no interim dividend in H2 of FY22;
• 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 and reasonable as the Company benefits from a flexible business model with a high proportion
of costs linked to performance.

118 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 20211 Accounting policies continued
1.2 Basis of preparation continued
Going concern continued
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 twelve-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 20% in gross invoiced income, compared to the base case;

2. reduced achievable gross margin by 4%;

3. large and immediate bad debt write offs; and

4. extending the debtor days by four days from historic levels achieved and no change to historic supplier payment 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 twelve 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, the Directors consider that
the Company has significant liquidity headroom to continue in operational existence for twelve months post the date of this report.
Accordingly, at the October 2021 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 ongoing impacts of COVID-19 on both customers and suppliers
continue to create market uncertainty 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.

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 and the performance obligation has been met by the Company. 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. We further assess a five day risk window for international hardware shipments.

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.

Annual Report and Accounts 2021 Softcat plc

119

Financial statements1 Accounting policies continued
1.3 Critical accounting judgements and key sources of estimation uncertainty continued
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.

1.4 Adoption of new and revised standards
There have been no new standards effective, or issues but not yet effective, in the period to 31 July 2021, that materially affect Softcat.
There has also been no change that will materially affect Softcat based on existing standards.

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.

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, therefore the Company has satisfied its performance obligation.
In line with industry standard terms, payment is generally due 30 days after invoice date.

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 and exhibits control 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. The criticality of updates is used to further assess the level of control the Company has
in a transaction and therefore whether it should be recorded as principal or agent. Updates require the continued input of the vendor
without involvement of the Company and therefore moves the finely balanced control assessment away from principal and towards
agent, to the extent the updates are deemed critical.

120 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 20211 Accounting policies continued
1.5 Revenue recognition continued
Principal versus agent continued
Software revenue continued
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 following
the indicators of control. 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.

Whether the Company is deemed to be a principal or agent in the transaction, the revenue associated with the license sale is recognised
upon the transfer of the license to the customer. At this point Softcat has satisfied its performance obligations. Payment is generally
due 30 days from invoice date.

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. As the Company has satisfied its performance obligations by arranging the transfer of the licensing to the customer,
revenue is recognised in full at that point on a net basis as the Company is acting as an agent in the transaction, with an invoice
subsequently raised. Payment is generally due within 30 days from invoice date.

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 as the Company has satisfied its performance obligations at the point of initial
transaction being completed between the vendor and the customer. This fee is recognised net as the Company is acting as an agent
in these transactions. Payment is generally due within 30 days of the initial transaction between the vendor and the customer.

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.

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.

Payments for these goods are generally received on industry standard terms of 30 days from the date of invoice.

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.

Revenue is recognised in full on satisfactory completion of the work by the partner, as this is the point the Company has satisfied
its performance obligations. Payment is generally due within 30 days from completion of the work.

Annual Report and Accounts 2021 Softcat plc

121

Financial statements1 Accounting policies continued
1.5 Revenue recognition continued
Principal versus agent continued
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). This occurs
infrequently and is usually to support the wishes of the customer who sometimes may prefer to provide funds upfront which can then
be allocated to future orders. Contract liabilities are recognised as revenue when Softcat performs obligations 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.

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.

122 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 20211 Accounting policies continued
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

Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are
directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognised
as intangible assets where the following criteria are met:

• it is technically feasible to complete the software so that it will be available for use;
• management intends to complete the software and use it;
• there is an ability to use the software;
• it can be demonstrated how the software will generate probable future economic benefits;
• adequate technical, financial and other resources to complete the development and to use the software are available; and
• the expenditure attributable to the software during its development can be reliably measured.

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.

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.

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.

Annual Report and Accounts 2021 Softcat plc

123

Financial statements1 Accounting policies continued
1.11 Leases continued
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 applies the short-term lease recognition exemption to any short-term leases it enters 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.

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.

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.

The simplified approach on expected credit losses (ECL’s) 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.

124 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 20211 Accounting policies continued
1.13 Financial instruments continued
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.

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 years ended 31 July 2020 and 31 July 2021.

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.

Annual Report and Accounts 2021 Softcat plc

125

Financial statements1 Accounting policies continued
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.

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 80.

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.

1.20 Adjusted Performance Measures
The Company uses two non-Generally Accepted Accounting Practice (non-GAAP) financial measures in addition to those reported
in accordance with IFRS. The Directors believe that these non-GAAP measures, set out below, assist in providing additional useful
information on the underlying trends, sales performance and position of the Company. Gross invoiced income is a measure which
correlates closely to the cash received by the business and therefore aids the users understanding of working capital movements in
the statement of financial position and the relationship to sales performance and the mix of products sold.

Consequently, non-GAAP measures are used by the Directors and management for performance analysis, planning and reporting and
have remained consistent with the prior year. These non-GAAP measures comprise of gross invoiced income and cash conversion.

Gross invoiced income reflects gross income billed to customers adjusted for deferred and accrued revenue as reported in the IFRS
measure. A reconciliation of IFRS Revenue to Gross invoiced income is provided within Note 2, Segmental information.

Cash conversion ratio comprises of cash flows from operations net of capital expenditure as a percentage of operating profit.

126 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 20211 Accounting policies continued
1.20 Adjusted Performance Measures continued
A reconciliation to the adjusted measure for cash conversion is provided below:

Cash generated from operations
Purchase of property, plant and equipment
Purchase of intangible assets

Cash generated from operations, net of capital expenditure

Operating profit

Cash conversion ratio

2021
£’000

113,797
(2,265)
(4,199)

2020
£’000

91,287
(7,664)
(1,293)

107,333

82,330

119,416

93,733

89.9%

87.8%

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

2021
£’000

501,058
556,472
99,137

2020
£’000

519,520
442,349
115,258

1,156,667

1,077,127

2021
£’000

1,109,198
566,305
262,937

2020
£’000

964,280
458,297
223,614

1,938,440

1,646,191

2021
£’000

635,511
237,649
283,507

2020
£’000

530,573
257,478
289,076

1,156,667

1,077,127

2021
£’000

839,398
336,013
763,029

2020
£’000

669,607
338,312
638,272

1,938,440

1,646,191

Note:
1. Types of business are split by entity staff size. Small and medium business represents work forces 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 2021 Softcat plc

127

Financial statements2 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 consistent, year on year, understanding of gross
income billed, business performance and position and correlates closely to working capital movements. 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

2021
£’000

2020
£’000

1,938,440
(781,773)

1,646,191
(569,064)

1,156,667

1,077,127

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
Low value asset and short-term lease expense
Foreign exchange (gain)/loss
Inventories expensed in the year
Movement in trade receivables provision as potentially uncollectable, recovered or written off during 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 the half year review of the condensed financial statements

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
Interest on tax
Lease liability interest cost

2021
£’000

2,332
2,263
297
102
(68)
489,743
552

2020
£’000

1,382
1,969
232
73
1,583
377,552
664

435
7

442

2021
£’000

28
(186)
(291)

350
14

364

2020
£’000

200
—
(316)

128 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 2021

5 Income tax
The major components of the income tax expense for the years ended 31 July 2021 and 31 July 2020 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
Adjustments in respect of prior periods
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 2021 and 2020:
Profit on ordinary activities before taxation

Profit on ordinary activities before taxation multiplied by the standard rate of UK
corporation tax of 19% (2020: 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

2021
£’000

2020
£’000

22,909
80
(1)
1

18,154
(36)
(58)
64

22,989

18,124

(303)
168
(72)

(207)

(11)
—
(160)

(171)

22,782

17,953

118,967

93,617

22,604

17,787

118
248
(72)
—
(92)
(24)

178

219
(36)
(160)
7
143
(7)

166

Income tax charge reported in profit or loss

22,782

17,953

In the year ended 31 July 2021, £582,785 (2020: £741,019) of current tax was credited to equity and £534,278 (2020: £232,728 debit)
of deferred tax was credited to equity.

Changes affecting the future tax charge
A reduction in the UK corporation tax rate from 19% to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016.
The March 2020 Budget announced that a rate of 19% would continue to apply with effect from 1 April 2020, and this change was
substantively enacted on 17 March 2020.

An increase in the UK corporation rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will
increase the Company’s future current tax charge accordingly. The deferred tax asset at 31 July 2021 has been calculated based on
these rates, reflecting the expected timing of reversal of the related temporary and timing differences (2020: 19%).

6 Dividends

Declared and paid during the year
Special dividend on ordinary shares (7.6p per share (2020: 16.0p))
Final dividend on ordinary shares (16.6p per share (2020: 10.4p))
Interim dividend on ordinary shares (6.4p per share (2020: 0.0p))

2021
£’000

2020
£’000

15,100
32,981
12,734

31,720
20,618
—

60,815

52,338

A final dividend of 14.4p per share has been recommended by the Directors and if approved by shareholders will be paid on
20 December 2021. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of
business on 12 November 2021. Shares in the Company will be quoted ex-dividend on 11 November 2021. The dividend reinvestment
plan (‘DRIP’) election date is 29 November 2021.

Annual Report and Accounts 2021 Softcat plc

129

Financial statements

6 Dividends continued
In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 20.5p
has been proposed. If approved this will also be paid on 20 December 2021 alongside the final ordinary dividend.

The Board 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 page 33 and pages 104 and 105 respectively.

7 Property, plant and equipment

Freehold
land and
buildings
£’000

Building
improvements
£’000

Computer
equipment
£’000

Fixtures,
fittings and
equipment
£’000

Motor
vehicles
£’000

Cost
At 1 August 2019
Additions
Disposals

At 31 July 2020
Additions
Disposals

At 31 July 2021

Depreciation
At 1 August 2019
On disposals
Charge for the year

At 31 July 2020
On disposals
Charge for the year

At 31 July 2021

Net book value
At 31 July 2021

At 31 July 2020

2,649
—
—

2,649

175
—
25

200
—
31

231

2,418

2,449

3,277
4,935
(683)

7,529
1,236
(802)

7,963

1,639
(537)
411

1,513
(784)
1,197

1,926

6,037

6,016

7,611
532
—

8,143
442
(7,293)

1,292

6,836
—
521

7,357
(7,240)
506

623

669

786

1,906
2,165
—

4,071
586
(936)

3,721

1,154
—
371

1,525
(931)
547

1,141

2,580

2,546

Total
£’000

15,808
7,664
(717)

22,755
2,264
(9,242)

365
32
(34)

363
—
(211)

152

15,777

243
(34)
54

263
(211)
51

102

100

10,047
(571)
1,382

10,858
(9,166)
2,332

4,024

11,753

11,897

Freehold land amounting to £1.4m (2020: £1.4m) has not been depreciated.

No assets are subject to restrictions on title or are pledged as security for liabilities (2020: £Nil).

There is no material difference between the carrying and fair value of the underlying assets as at both 31 July 2021 and 31 July 2020.

130 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 2021
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:

Property Leases

Opening right-of-use asset as at 1 August
Lease modifications
Depreciation

Closing right-of-use asset as at 31 July

2021
£’000

8,698
587
(2,263)

2020
£’000

7,024
3,644
(1,970)

7,022

8,968

The weighted average incremental borrowing rate as used for the period is 2.7%.

Set out below are the carrying amounts of lease liabilities included under current and non-current liabilities and the movements during
the period:

Property Leases

Opening lease liability as at 1 August
Lease modifications
Accretion of interest
Payments

Closing lease liability as at 31 July

Split as:
Short-term
Long-term

2021
£’000

9,839
588
291
(2,416)

2020
£’000

8,077
3,644
316
(2,198)

8,302

9,839

2,598
5,704

1,867
7,972

Lease modifications in the year were in respect of extension of specific lease terms of existing property leases.

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 2021

Termination options expected to be exercised

As at 31 July 2020

Within five
years
£’000

More than
five years
£’000

3,613

2,428

Within five
years
£’000

More than
five years
£’000

Total
£’000

6,041

Total
£’000

Termination options expected to be exercised

2,210

3,867

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 £101,617 (2020: £73,310).

Annual Report and Accounts 2021 Softcat plc

131

Financial statements
9 Intangible assets

Cost
At 1 August 2019
Additions

At 31 July 2020
Additions
Disposals

At 31 July 2021

Amortisation
At 1 August 2019
Charge for the year

At 31 July 2020
Charge for the year
Disposals

At 31 July 2021

Net book value
At 31 July 2021

At 31 July 2020

Software
under
development
£’000

Computer
software
£’000

Total
Intangibles
£’000

—
906

906
3,927
—

4,833

—
—

—
—
—

—

2,153
387

2,540
272
(1,924)

2,153
1,293

3,446
4,199
(1,924)

888

5,721

1,913
232

2,145
297
(1,923)

1,913
232

2,145
297
(1,923)

519

4,833

906

369

395

5,202

1,301

Software under development as capitalised in both FY20 and FY21 relates to the new enterprise resource planning (ERP) system being
designed and built internally.

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

2021
£’000

2020
£’000

38,411

11,744

The increase in stock is predominantly driven by stock in transit for a specific customer yet to be delivered.

The amount of any write down of inventory recognised as an expense in the year was £Nil (2020: £Nil).

132 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 2021

11 Trade and other receivables

Trade and other receivables
Provision against receivables

Net trade receivables
Unbilled receivables
Prepayments
Accrued income
Deferred costs

2021
£’000

2020
£’000

300,058
(3,415)

296,286
(2,863)

296,643
10,500
3,584
8,171
10,768

293,423
5,104
2,700
5,951
6,945

329,666

314,123

The provision against receivables follows the expected credit loss model under IFRS 9. The Directors consider that the carrying
amount of trade and other receivables approximates to their fair value.

The ageing profile of trade receivables was as follows:

Current
0–30 days
31–60 days
61–90 days
Over 90 days

Total due

2021
£’000

232,372
46,370
12,775
4,780
3,761

Related
provision
£’000

(2,369)
(463)
(80)
(48)
(455)

Net
£’000

230,003
45,907
12,695
4,732
3,306

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

300,058

(3,415)

296,643

296,286

(2,863)

293,423

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:

2021
£’000

2,863
2,880
(2,328)

2020
£’000

2,199
2,149
(1,485)

3,415

2,863

31 July 2021

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

1.02%
232,372
(2,369)

1.00%
46,370
(463)

0.63%
12,775
(80)

1.00%
4,780
(48)

12.10%
3,761
(455)

1.14%
300,058
(3,415)

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)

2.62%
8,065
(212)

7.26%
13,526
(982)

0.97%
296,286
(2,863)

While assessing expected credit losses as part of the provision, we have taken a marginally more conservative position in our estimates
given the unwinding of Government support during the COVID-19 pandemic. The overall provision reflects 1.14% of the total ledger
(2020: 0.97%).

Unbilled receivables and accrued income have been reviewed by management and have been determined to have an immaterial
impact on our expected credit losses. The Company does not hold collateral as security.

See note 21 for details on how the Company approaches its exposure to credit risk.

Annual Report and Accounts 2021 Softcat plc

133

Financial statements

12 Trade and other payables

Trade payables
Other taxes and social security
Accruals

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

13 Contract liabilities

Deferred income

Deferred income is split as follows:

Short term deferred income
Long term deferred income

2021
£’000

220,305
12,378
60,845

2020
£’000

198,171
16,799
48,896

293,528

263,866

2021
£’000

2020
£’000

16,385

16,494

2021
£’000

12,759
3,626

2020
£’000

13,929
2,565

16,385

16,494

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, £13.929m (2020: £15.165m)
has been recognised in revenue resulting from these contract liabilities existing as at 31 July 2020. As at 31 July 2021, £13.820m remains
on the Statement of Financial Position as a contract liability resulting from transactions arising from the year to 31 July 2021. Softcat
expects that £12.759m of the balance as at 31 July 2021 will be released in FY22 with the balance released within 2–5 years of the end
of FY21.

14 Cash and cash equivalents

Cash at bank and in hand

2021
£’000

2020
£’000

101,724

80,139

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.

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 2020 (PY: 31 July 2019)
Adjustment in respect of prior years
Profit and loss account
Charge to equity

Balance at 31 July 2021 (PY: 31 July 2020)

134 Softcat plc Annual Report and Accounts 2021

2021
£’000

120
2,154
875

3,149

2021
£’000

2,408
(236)
375
602

3,149

2020
£’000

24
1,606
778

2,408

2020
£’000

2,485
35
171
(283)

2,408

Notes to the financial statements continuedFor the year ended 31 July 2021

15 Deferred tax continued
The Company recognises all deferred tax movements in the year within the income statement, except for £534,278 (2020: £232,749 debit)
credited 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

2021

2020

Income
statement
£’000

SOCIE
£’000

Total
£’000

Income
statement
£’000

SOCIE
£’000

Total
£’000

80
22,909

22,989

—
(583)

(583)

80
22,326

22,406

(36)
18,160

18,124

—
(741)

(741)

(36)
17,419

17,383

168

236

—

(50)

(151)
(66)
(158)

(207)

(602)
—
—

(534)

(753)
(66)
(158)

(741)

(90)
119
(200)

(171)

283
—
—

233

193
119
(200)

22,782

(1,117)

21,665

17,953

(508)

17,445

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 £482,087 (2020: £428,255) were outstanding.

Contributions payable by the Company for the year

2021
£’000

2,484

2020
£’000

2,221

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
199,041,810 (2020: 198,679,171) ordinary shares of 0.05p each
18,933 (2020: 18,933) deferred shares1 of 1p each

2021
£’000

2020
£’000

100
—

100

100
—

100

Note:
At 31 July 2021 deferred shares had an aggregate nominal value of £189.33 (2020: £189.33).

In the year ended 31 July 2021, 362,639 (2020: 422,567) new ordinary shares were issued to satisfy the exercise of share options and no
ordinary shares (2020: nil) were issued to satisfy exercises under the deferred share bonus plan.

No issued ordinary shares of 0.05p each were unpaid at 31 July 2021 (2020: 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 2021 the SIP Trust returned £Nil (2020: £Nil) to the Company through share recycling.

Annual Report and Accounts 2021 Softcat plc

135

Financial statements

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

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

2021
p

48.4
48.2

2020
p

38.2
38.0

2021
£’000

2020
£’000

96,185

75,664

2021
’000

2020
’000

198,559
884

198,127
1,007

199,443

199,134

2021
£’000

119,416
2,332
2,263
297
76
(196)
2,267

126,455
(26,667)
(15,544)
29,553

113,797
(22,545)

2020
£’000

93,733
1,382
1,970
232
146
(259)
1,958

99,162
(660)
(28,816)
21,601

91,287
(27,117)

91,252

64,170

20 Financial commitments
Guarantees
As at the reporting date, Softcat plc has a class guarantee facility of £2,000,000 (2020: £2,000,000) with HSBC UK Bank plc.

136 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 2021

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

2021
£’000

2020
£’000

101,724
315,313

80,139
304,478

417,037

384,617

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 2021, there remained a payable of £369,200 (2020: £1,700,000
receivable) on the Statement of Financial Position. The payable recognised at the 31 July 2021 was due to timing difference between
the transfer of cash that spanned the year end date.

Financial liabilities
The financial liabilities of the Company were as follows:

Trade payables
Accruals
Lease liabilities

2021
£’000

2020
£’000

(220,305)
(60,845)
(8,302)

(198,171)
(48,896)
(9,839)

(289,452)

(256,906)

The Directors consider that the carrying amount of 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. During the prior year as part of the risk management process the Company 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 were made on this balance. Given the strong cash balance and resilient trading throughout the
Covid-19 pandemic, a decision was made not to renew the RCF facility when it expired on 29 April 2021.

Softcat also qualified for the Covid Corporate Financing Facility (CCFF) which entitled Softcat to receive a loan of up to £300,000,000.
Softcat withdrew from the scheme on 23 March 2021 upon its cessation having made no drawdowns. No loan existed as at 31 July 2021
(2020: £Nil).

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.

Annual Report and Accounts 2021 Softcat plc

137

Financial statements

21 Financial instruments and financial risk management continued
Financial risk management continued
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 2021, the Company had 1,623 customer accounts (2020: 1,436)
that owed the Company more than £25,000 each. These accounts accounted for approximately 17% (2020: 16%) of total customers
and 98% (2020: 94%) of the total value of amounts receivable. There were 562 customers (2020: 483 customers) with balances greater
than £100,000 accounting for just over 6% (2020: 5%) of the total number of receivable accounts and 81% (2020: 77%) of the total
value of amounts receivable.

The Company continues to monitor the impact of Covid-19 on its customer base and how that is managed through the provision
of credit, payment terms and the expected credit loss provision against trade receivables. It is estimated that around 10% to 15% of
the customer base are in industries that have been negatively affected by the pandemic, However, as noted above, the receivables
balance continues to be well diversified and individual customers typically represent a very small proportion of the outstanding
balance. To date, there has been no material impact of Covid 19 on customer receipts or receivables ageing, however many customers
have benefited from government support programs, such as the furlough scheme, potentially removing or deferring credit losses.
The Company continues to include a Covid risk overlay in its forward looking expected credit loss provision, to account for the credit
risk that remains following the withdrawal of government support programs.

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 reflected by the fact that as at 31 July 2021,
no more than 7% (2020: 6%) of receivables are due from any one customer.

The Company provides against its trade receivables using the forward-looking expected credit loss model under IFRS 9.

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:

2021
Trade payables
Accruals
Lease liabilities

2020
Trade payables
Accruals
Lease liabilities

Within 1 year
£’000

1 to 2 years
£’000

2 to 5 years
£’000

Over 5 years
£’000

Total
£’000

(220,305)
(60,845)
(2,598)

—
—
(2,502)

—
—
(2,681)

—
—
(1,497)

(220,305)
(60,845)
(9,278)

(283,748)

(2,502)

(2,681)

(1,497)

(290,428)

(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)

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.

138 Softcat plc Annual Report and Accounts 2021

Notes to the financial statements continuedFor the year ended 31 July 2021
21 Financial instruments and financial risk management continued
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 2021 the Company had £Nil capital commitments (2020: £Nil).

23 Directors’ remuneration

Remuneration for qualifying services
Company pension contributions to defined contribution schemes

2021
£’000

2,358
3

2,361

2020
£’000

2,027
1

2,028

During the year ended 31 July 2021 the Directors of the Company were awarded a total of 67,466 LTIP shares (2020: 70,035) at an
average exercise price of £Nil (2020: £Nil) and 22,830 shares (2020: 23,583) under the FY17 Deferred Share Bonus Plan.

The number of Directors for whom retirement benefits are accruing under defined contribution schemes amounted to one (2020: one).
The number of Directors who are entitled to receive shares under long-term incentive schemes during the year was two (2020: three).

Gains on share options exercised in the year were £2,300,922 (2020: £2,303,501).

Share-based payment charges include £1,019,135 (2020: £795,011) in respect of Directors.

For further information on Directors remuneration, please also see pages 80 to 98.

24 Employees
Number of employees
The average monthly number of employees (including Directors) during the year was:

Sales
Services
Administration

Employment costs

Salaries, commissions and bonus
Social security costs
Other pension costs

Employment costs – subtotal
Share option charge

Total employment costs including share option charge

2021
Number

2020
Number

1,068
286
282

1,636

979
255
241

1,475

2021
£’000

110,470
14,862
2,484

127,816
2,267

2020
£’000

96,746
12,230
2,221

111,197
1,958

130,083

113,155

Annual Report and Accounts 2021 Softcat plc

139

Financial statements

Notes to the financial statements continued

For the year ended 31 July 2021

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

Share option charge

Employer’s national insurance contributions payable on all plans

Share option charge including employer’s national insurance

2021
£’000

2,267

1,468

3,735

2020
£’000

1,958

1,018

2,976

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.

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 80.

During the year 67,466 (2020: 70,035) 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 £497,224 (2020: £470,635). 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
Dividend yield
Performance period (years)

Fair value (£)

31 July 2021

31 July 2020

EPS

TSR

EPS

TSR

50%
11.46
—
0.10%
55%
3%
3

7.94

50%
11.46
—
0.10%
55%
3%
3

6.80

50%
11.10
—
0.75%
29%
3%
3

7.75

50%
11.10
—
0.75%
29%
3%
3

5.67

Expected volatility has been determined using historical data reflecting share price movements covering the audited financial year.

During the year 140,938 (2020: 196,735) LTIP options were exercised with an average weighted share price at the date of exercise of
£14.86 (2020: £11.81).

Deferred Share Bonus Plan
One-third of the Executive Directors’ annual bonus is paid in deferred shares. In the year 22,830 (2020: 26,215) 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 £262,548 (2020: £249,975).

During the year 18,177 (2020: Nil) options arising from deferred share bonus plans were exercised with an average weighted share price
at the date of exercise of £11.37 (2020: £Nil).

140 Softcat plc Annual Report and Accounts 2021

25 Share option schemes continued
LTIP continued
Executive Directors continued
Senior management
An award of 164,245 (2020: 148,532) 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 fair value of
these awards was £1,692,545 (2020: £1,550,674). 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 £11.45 (2020: £11.60) at grant date. The resultant fair value
is then recognised over the performance period.

During the year 17,467 shares (2020: 21,864) 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 8.08 years (2020: 8.12 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.

As at 31 July 2021 the SIP Trust held 618,044 (2020: 715,636) ordinary shares in the Company. The market value of the shares held
by the SIP Trust as at 31 July 2021 was £11.9m (2020: £9.0m).

The weighted average remaining contractual life of share-based payment arrangements at the year end was 4.36 years
(2020: 5.36 years).

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 2021

Weighted
average
exercise
price
£

No. of
shares
as at
31 July 2020

— 1,330,096
254,541
—
(17,467)
—
(468,796)
—

1,098,374

264,291

— 1,568,268
244,782
—
(21,864)
—
(461,090)
—

1,330,096

383,171

The fair value of share-based payment arrangements granted in the year was £2,452,317 (2020: £2,271,284), relating entirely to
Long Term Incentive Plan awards.

The weighted average remaining contractual life of share-based payment arrangements at the year end was 7.25 years
(2020: 7.45 years).

26 Post balance sheet events
Dividend
A final dividend of 14.4p per share has been recommended by the Directors and if approved by shareholders will be paid on
20 December 2021. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of
business on 12 November 2021. Shares in the Company will be quoted ex-dividend on 11 November 2021. The dividend reinvestment
plan (‘DRIP’) election date is 29 November 2021.

In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 20.5p has
been proposed. If approved this will also be paid on 20 December 2021 alongside the final ordinary dividend.

Annual Report and Accounts 2021 Softcat plc

141

Financial statementsNotes to the financial statements continued

For the year ended 31 July 2021

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

2021
£’000

2,758
19

2,777

2020
£’000

2,489
12

2,501

Key management personnel received a total of 99,902 share awards (2020: 108,750) at a weighted average exercise price of £Nil
(2020: £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 £1,049,849 (2020: £960,117) in respect of key management personnel.

Dividends to Directors

M Hellawell
G Watt
G Charlton
R Perriss
V Murria
K Slatford
P Ventress1

2021
£’000

1,555
—
17
5
51
—
—

1,628

2020
£’000

1,382
—
16
—
78
—
8

1,484

Note:
1. Peter Ventress resigned from the Board on 31 December 2019. Amounts shown above relate to the time until resignation.

142 Softcat plc Annual Report and Accounts 2021

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
10th Floor, Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom

enquiries@linkgroup.co.uk

Tel: 0371 664 0300

Calls are charged at the standard geographic rate and will vary
by provider. 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
45 Gresham Street
London EC2V 7BF

Legal advisers
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW

CBP009310

Softcat plc’s commitment to environmental issues is reflected in this Annual Report,
which has been printed on Arcoprint, an FSC® certified material. This document was
printed by Pureprint Group using its environmental print technology, with 99% of dry
waste diverted from landfill, minimising the impact of printing on the environment.

Both the printer and the paper mill are registered to ISO 14001.

Softcat plc
Fieldhouse Lane
Marlow
Buckinghamshire SL7 1LW

Tel: 01628 403 403