## VALUES ## RECOGNITION ## INTEL ## RECOGNITION ## COLLABORATION ## VALUED ## PAR ## RE ## INCLUSI ## COMMUNIT ## COMMUNITY ## AT THE HEART ## OF EVERYTHING ## WE DO This year an internal project team undertook a review of Softcat’s values to ensure that they were still relevant to our business and employees. Having refreshed the descriptors of the existing four values, Intelligence, Responsibility, Fun and Passion, we felt that our commitment to Softcat’s various communities wasn’t reflected strongly enough in the existing values. This led us to introduce a fifth value, Community. As we wanted to embed the newvalue in our employees’ minds, we also decided to make ‘Community’ our word of the year. To us, ‘Community’ means that we believe in the power of people, encouraging collaboration to provide support and positively contribute to our internal and external communities. Strategic report HIGHLIGHTS | Financial highlights | | | | | | | | | | | Operational highlights | | Strategic report | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | 2 | | Revenue growth: 37% | | | Gross profit £m | | | | | Gross profit per customer £’000 | | | | | | | • | | | 22 | | | | 327.2 | 22 | | | | 33.0 | | | • Gross profit growth: 18% | | | 21 | | | 276.4 | | 21 | | | 28.4 | | | | | | | | | | | | | | | | | | | • Operating profit growth: 14% | | | 20 | | 235.7 | | | 20 | | 24.8 | | | | | | | | 19 | | 211 . 1 | | | 19 | | 23.0 | | | | | • Cash conversion: 76% | | | 18 | 175.2 | | | | 18 | 19.9 | | | | | | | | | | | | | | | | | | | | | • Employee engagement: 90% | | 1 | Operating profit £m | | | | | Revenue £m | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | • Customer satisfaction: 94% | | 22 | | | | 136.1 | 22 | | | 1,077.9 | | | | | | | | | | | | | | • Customer base up by: 200 | | 21 | | | 119.4 | | 21 | 784.0 | | | | | | 20 | | 93.7 | | | | | | | | • Gross profit per customer growth: 16% | | 19 | | 84.5 | | | | | | | | | | 18 | 68.0 | | | | | | | | | | | | | 2 | | | | 3 | | | | | | Customer base ’000 | | | | | Cash conversion % | | | | | | | 22 | | | | 9.9 | 22 | | 76.2 | | 1. The prior year comparatives have been restated in line with | | the change in accounting policy for the IFRS IC agenda 21 9.7 89.9 21 decision – IFRS 15 Revenue from Contracts with Customers, 20 9.5 20 88.0 treatment of Software revenue as agent revenue. For further 19 9.2 19 92.0 information, see note 1.5 to the financial statements. As a 18 8.8 18 98.0 result, revenue is only available on a comparable basis for 2021 and 2022. 2. Customer base is defined as the number of customers who 3 Gross invoiced income £m have transacted with Softcat in both of the preceding twelve-month periods. 22 2,507.5 21 1,938.4 3. Gross invoiced income (GII) and cash conversion are alternative performance measures. Please see page 33 for 20 1,646.2 further definitions and reconciliations. 19 1,414.1 Pages 1 to 64 form the Strategic Report ofSoftcat plc forthe financial year ended 31July2022. 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. ### Contents | Strategic report | Corporate governance | | --- | --- | | 1 Highlights | 66 Introduction to corporate governance | | 2 Strategic roadmap | 68 Board leadership and company focus | | 3 Investment case | 70 Governance report | For more information visit: 4 At a glance 80 Audit Committee report www.softcat.com | 12 Chair’s statement | 90 Nomination Committee report | | --- | --- | | 16 Chief Executive Officer’s statement | 96 Sustainability Committee report | | 20 Business model | 98 Remuneration Committee report | | 22 Our market and offering | 128 Directors’ report | 28 Strategy Financial statements 30 KPIs 136 Independent auditor’s report 32 Chief Financial Officer’s review 14 4 Statement of profit or loss and other 34 Section 172 – Stakeholder engagement comprehensive income 38 Social value 14 5 Statement of financial position 43 Task Force on Climate-related Financial 14 6 Statement of changes in equity Disclosures (‘TCFD’) and sustainability 14 7 Statement of cash flows 59 Risk management 14 8 Notes to the financial statements 175 Company information and contactdetails 1Annual Report and Accounts 2022 Softcat plc STRATEGIC ROADMAP ## A CLEAR DIRECTION Our strategy is simple, putting both our employees and customers at the heart of everything we do. ### Our purpose Our purpose is to help customers use technology to succeed, by putting our employees first. ### Our vision To be the leading IT infrastructure product and services provider in terms of employee engagement, customer satisfaction and shareholder returns. ### Strategy Acquire more customers. Sell more to existing customers. Read more on pages 28 and 29 ### Enabled by our... People and culture. Ease of doing business. Addressable market expansion. Read more on page 38 Read more on page 10 Read more on page 22 ### Guided by our values Responsibility IntelligenceFun PassionCommunity Read more on page 8 2 Softcat plc Annual Report and Accounts 2022 INVESTMENT CASE Strategic report ## WHY INVEST IN SOFTCAT? We help commercial and public sector organisations design, procure, implement and manage theright IT solutions to match their needs. We set ourselves out from our peers as the solutions provider of choice through our unique culture. By providing the best IT solutions, we provide the underpinnings to the modern, digital economy. The sector has seen substantial growth and we think there is so much more to come. ### We advise, design, procure, implement ## 1 and manage technology for our 400+ ### customers vendors and partners We work with all of the leading global technology manufacturers toprovide our customers with the broadest possible choice of IT infrastructure solutions to suit their needs. This includes software licensing, workplace technology, networking, security, cloud and datacentre. Wedoall of this through our own teams of account managers augmented bynumerous specialist service partners. Read more onpage 5 and pages 24 to 27 ### Proven customer excellence ## 2 We provide much the same technology as our competitors. What makes us 94% different is the passion and dedication of our people to supporting our customer satisfaction customers across this offering. Read more on pages 24 to 27 ### A dedicated and passionate team ## 3 We believe that if people enjoy what they do, and care about the 90% company they work for, they will do it better. Our culture is the vital employee engagement ingredient to providing outstanding service to our customers. Read more on page 8 ### Market-leading growth and ## 4 financialstrength 23% We have delivered 17 consecutive years of gross invoiced income and compound annual growth rate in profit growth, all of which has been organic. The business has nodebt and GII overthe last ten years a strong track record of cash generation. Read more on pages 16 to 19 and pages 30 to 33 ### Large and growing addressable market ## 5 We estimate our UK addressable market is around £53bn in 2022. 4.7% According to Gartner (a leading research firm), this is forecast to grow estimated share of at8% p.a. through to 2025. As the largest VAR in the UK we have just addressablemarket in FY2022 undera 5% market share, giving us the opportunity to continue to deliver market-leading growth. Read more on pages 22 to 26 3Annual Report and Accounts 2022 Softcat plc AT A GLANCE ## WORKING AS ## A COMMUNITY ### 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. ### Where we operate UK Ireland Netherlands United States of America Hong Kong Singapore Australia ## 94% 9,922 1, 921 customer satisfaction customer base people ### Our sustainable and responsible approach We recognise we are part of each community in which we operate and we are proud of the strong partnerships we build with our stakeholders. We continue to make a meaningful commitment to long-term sustainability and to reducing our environmental impact. Read more on our approach to stakeholders on pages 34 to 37 and onour progress to build a more sustainable business on pages 43 to 58 4 Softcat plc Annual Report and Accounts 2022 Strategic report ## 400+ ### vendors ### Our offering Our vendors We support commercial and public sector We’re proud to collaborate and work closely with organisations to design, procure, implement allthe biggest global technology vendors, as well as andmanage their digital infrastructure. Our emerging innovators, to deliver the broadest possible continuing success puts us in the privileged choice for our customers. position to invest in new capabilities in exciting and emerging areas of technology, organised around three key customer priorities: Hybrid infrastructure Designing, implementing and supporting a mix of private and public cloud, optimised for individual customer needs. Cyber security Providing assessment services as well as implementing andmanaging solutions to stay one step ahead. Digital workspace Designing and implementing the tools and applications todeliver agile, collaborative and highly productive business environments. Read more onpages 25 and 26 5Annual Report and Accounts 2022 Softcat plc ## Softcat was founded to be a place where ## people enjoy coming to work. The values ## we hold today remain grounded in that ## vision and create a unique culture which ## forms the basis of our success. Our four values have served us well and driven our success and engagement: Intelligence, Responsibility, Fun and Passion. Softcat is knownfor how we look after our people, both for the opportunities they aregiven at work but also, importantly, for allowing them to bring their whole selves to work. So, after a review we felt that our commitment to diversity and inclusion wasn’t reflected strongly enough our values. This led us to introduce a fifth value, Community, which was our word of the year. ### Tech Starter Our Women Tech Starter programme is part of our Supporting Women in Business community network. The Tech Starer programmewaslaunched to encourage women to take roles in more technical positions following a career break. The programme is designed to helpbuildup skills and qualifications that may have been put on hold. Itallows us to tap into a pool of talent who have the right skills, but need the opportunity to put them back into practice. We know that flexibility is also important and so the role is designed with that in mind. We have recently recruited our third cohort, bringing the total participants to 18 women. 6 Softcat plc Annual Report and Accounts 2022 ## COMMUNITY Our seven diversity networks have one common thread. They are ### Seven networks. One community. Strategic report all in place to support our employees from minority groups by ensuring they can be themselves at work. Each network has a Supporting Women in team of leaders who drive the purpose, activities and progress Business (‘SWIB’) ofthe diversity initiatives within their network. Our diversity and inclusion communities provide a safe space SWIB is Softcat’s longest standing network. It improves confidence in forour employees to come together and celebrate what makes women, recognises their equality with men and raises awareness of us unique. They promote a culture of acceptance, inclusion and women in the business. SWIB also works with Softcat’s senior management to understand how they can support on retention and belonging, where our differences are celebrated. Community progression of women in Softcat. networks are open to those that identify within the network as well as allies looking to provide support and educate themselves. Involvement is flexible with members dedicating Ethnic and Cultural asmuch or as little time as they like in supporting, attending meetings and working on initiatives. Diversity Network Our communities are good for business The Ethnic and Cultural Diversity Network celebrates, educates and collaborates on topics and important cultural events relating to our We believe our commitment to our communities has tangible culturally diverse community at Softcat. benefits both for our business, our strategy and our industry: Employees • Competition for the best talent is intense and our inclusive approach helps to attract, retain and motivate the very Pride Network bestworkforce. • Our communities create new opportunities, particularly in Our Pride Network creates a supportive and inclusive work demographic areas which are under-represented in the IT industry. environment for all sexual orientations, gender identities and marginalised or under-represented LGBTQ+ groups. Our approach to diversity and inclusion advances • opportunities to more employees. Customers Family Network • More of our customers and prospective customers are asking us to demonstrate that we have good corporate values. This is becoming more important as customers seek to work with The Family Network ensures that, as an organisation, we focus on partners who have a good reputation and do what is right. creating a culture that our employees can balance family commitments with work responsibilities. • Our diverse workforce more effectively serves the market in which it operates and helps to drive growth. Industry and partnerships • Our communities network aims to strengthen our position in EDN Network the industry and share our efforts to make a difference across the IT sector. The industry is changing for the better due to our EDN stands for ‘Empowering Disability and Neurodiversity’. Our efforts – but there is still a long way to go. We take the time network aims to empower and support our members and colleagues toidea-share and look at how we can collaborate better through education and awareness of disabilities that are both visible together, not just for Softcat but for the industry. and hidden. We are a Disability Confident employer as a result of the progress we have made in such a short period of time. • Our communities network also helps to build on our competence in inclusive behaviours with customers, suppliers and partners. We have signed pledges to commit to making progress and we share this work with anyone who wants to Faith Network connect and evolve. The Faith Network ensures that we live out Softcat’s commitment to our employees in bringing their whole self to work, by creating a safe space and place to support anyone practising their religion. I thought the role was perfect as it offered training and reskilling in a supported environment. I saw howSoftcat really cares about its employees and Armed Forces Network diversity and inclusion and realised this was a company Iwanted to be a part of.” Veterans are an important part of our present and future because they fight for our right to freedom. We recognise the importance of that Nina Webhra commitment but also to embrace the skills our veterans can bring to Softcat Technology Onboarding Manager and Tech Starter the workplace – bravery, strength and hard work. Our network programme participant supports those who identify with a military life. 7Annual Report and Accounts 2022 Softcat plc ### Culture, expertise and passion At Softcat, 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 almost 30 years ago as more than just an ITreseller. Our founder, Peter Kelly, wanted Softcat to be a place where people enjoy coming to work. And that ethos is still very much alive today. Our five values combine to create a unique culture that forms the basis of all our ongoing success. Our values help define us and are: •Fun – we don’t take ourselves too seriously and allow people to be their true selves at work •Responsibility – our actions, attitude and choices matter – forour people, our customers, our supply chain and ourenvironment •Community – we want our people to feel valued, respected and supported by a culture that recognises their unique set ofskills and perspectives •Intelligence – we empower our people to use their initiative, expertise and best judgement •Passion – conviction, commitment and hard work are some ofthe most important traits we look for ## CULTURE 8 Softcat plc Annual Report and Accounts 2022 ### We need a bigger trophy cabinet Strategic report We may have already mentioned that we’re proud of our culture. But to be recognised externally is incredible. Over the last twelve months we’ve ascended to eighth place in the Great Place to Work/Best Workplaces – Super Large category and ResponsibilityFun achieved fourth place in the UK’s Best Workplaces for Women 2022 – Super Large category. We’ve received a Glassdoor Excellence in Employee Wellbeing Award, the CRN’s Best Company to Work for – £101m+ category and its Over and Above Award, recognising us as the No.1 value-added reseller, not to mention dozens of awards given to us by the incredible vendors we partner with. Community Intelligence Passion ### Happy employees = ### happycustomers An exceptional level of customer service is a top priority for Softcat. To achieve that, we put our people first by supporting them and investing in their futures through various programmes and opportunities. We also source talented individuals who will live and breathe our core values and help us move forward as a business. ### The story of Softcat is remarkable, from humble Employee satisfaction is something we’re proud of at ### beginnings with phone calls out of a garden Softcat, with our survey sitting at 90%. Not only that, but ### we regularly ask managers to give us feedback on how shed to today’s position as the UK’s leading things are going at Softcat and we are delighted that they ### value-added reseller with offices all over the tell us they have a high level of confidence in the senior ### country. This is an incredible milestone, and if leadership team, whose job is to run the business. ### there’s one thing that has stayed key to us all ### this time, it would be the unique culture we ### have. The culture is one where we are ferociously ### people- and customer-led and it is core to our ### performance. I would like to thank not only our ### customers, service partners and vendors for ### trusting in us, but every single Softcat employee ### over the entire history of the Company for the ### amazing dedication and commitment they ### have given throughout to get us to this ### leadership ranking each and every day.” Graeme Watt Chief Executive Officer 9Annual Report and Accounts 2022 Softcat plc ## Our extensive range of solutions and ## services helps our customers deliver a ## consistent and secure workplace for ## their users, across all devices in ## multiple locations. We’ve been able to help customers in the UK and Ireland seamlessly transition to hybrid working while maintaining their business operations. We’ve also expanded our multinational operations to better assist our customers with global reach so they can make these transitions, while still helping to meet their ITneeds, regardless of the geographical area they operate in. ### The right partner Our scope stretches far beyond selling IT products. We pride ourselves on building, implementing and managing IT solutions that help our customers to succeed. We provide independent design and intelligent recommendations that allow our customers to solve challenges and capitalise on new opportunities. Our wide and varied customer base makes us a prime technology partner. We work with commercial and public sector organisations, both their domestic and multinational operations, encompassing mid-market and enterprise across a range of verticals, local and central Government, blue light, education, healthcare and more. 10 Softcat plc Annual Report and Accounts 2022 ## COMMITMENT ### Long-term sustainable growth Enabling a consistent strategy Strategic report Our desire to deliver excellent, long-standing solutions Putting our people at the heart of everything we do ensures that for our customers derives from our culture and values. business is always personal. Our commitment to listen, learn and Bringing all of that together supports our strategy provide allows us to offer the very best technology solutions and towards long-term sustainable growth: services. They enable our customers to benefit from outstanding digital experiences that are fit for purpose, secure and forward •We deliver intelligent, industry-leading IT services: as thinking. We have a robust framework which ensures we deliver the market and the needs of our customers evolve, we the outcomes our customers want every single time. strive to stay at pace. Our extensive portfolio of services and IT professionals are always on hand for Our Voice of the Customer Programme gives us key insights into any stage in our customer’s journeys: whether that’s our customers’ wants and needs that underpin our strategy and discovery, design, delivery or operation. allow us to continuously develop and improve the service we provide for our customers. It subsequently drives the ongoing •More than 300 dedicated service professionals: investment in people and specialist resources needed to deliver we’ve adapted and restructured to create one on our customer promise. integrated team of agile and committed service developers, highly experienced consultants and Across Softcat, the knowledge and expertise of our people also designers, expert support analysts, and dedicated allows us to better understand our customers and the industries customer and partner managers. They are what truly they operate within. This is why we focus on developing, creates a unique and trusted service for our attracting and retaining the best talent so we can collaborate customers, helping them meet their challenges head across industries. During the last twelve months, we have also on, no matter what sector they operate in. deepened our commitment and action on inclusion and sustainability – topics that are important to our leadership •A reliable, high quality partner network: we stay in teamas well as our staff, customers and partners. the know with more than 400 vendors and partners to make sure that our solutions are the very best they can be. They help us continuously gain new insight and intelligence to pass on to our customers as the market evolves. •Quality service, quality standards: we’ve set high standards for ourselves and for our service provision. We don’t just mark our own homework or rely on our own intuition, we carry internationally recognised standards including: ISO 27001 (Information Security), ISO 9001 (Quality), ISO 22301 (Business Continuity) and ISO 20000 (Service Management). 11Annual Report and Accounts 2022 Softcat plc 11 CHAIR’S STATEMENT ## COMMUNITY ## ATTHE HEART ## OF WHAT WE DO I am pleased to report on another highly successfulfinancial year for the Company Gross invoiced income was up 29%, gross profit was up 18% and ### Having completed our succession operating profit performance was up 14%. Our strong performance has once again proved our resilience in the face of significant ### plans for the Chair and CEO, economic challenges. I am delighted with the performance of the ### Iamconfident that I am leaving team and the business through such an extraordinary period, and Ithank our CEO Graeme Watt, his leadership team and every ### Softcat with inspirational and employee for the remarkable job they have done throughout this ### excellent leadership.” year, for rising to the challenges and for keeping their focus – youreally delivered once again. Martin Hellawell Non-Executive Chair Of course there have been and there continue to be significant challenges. Wage inflation partly due to the cost-of-living increases and partly due to the scarcity of labour in the market hasbeen significant and this represents by far our largest cost in the business. As expected, as we thankfully return to the new normal, significant costs such as travel and employee events comeback into the business. Inflation, particularly in energy costs, brings further pressures to the cost of running our Company. 12 Softcat plc Annual Report and Accounts 2022 Software isour largest category of business so we have been less Our deliberations on Board changes have been made thinking Strategic report affected than some, but we have not been immune to the supply about the right person for the job. But in addition to that, we realise chain challenges facing the technology industry. The economic that diversity in its widest sense can only improve how the Board outlook isuncertain, and it seems highly likely that many customers operates. Our Board now consists of seven Directors and with four will facesignificant challenges in the period ahead. of them women, we have for the first time a women majority on our Board. The addition of Lynne has further strengthened our mix of But you know what, despite all of that I remain as confident in the personality types, backgrounds, types of experience, areas of Company’s future prospects as ever. interest and focus. I see very clear benefits of that degree of Challenging times focus our customers on becoming increasingly diversity in the ways we think and work together. efficient and seeking what competitive edge they can obtain. Sustainability has always been a key topic for Softcat particularly Mostfully subscribe to the fact that much of this is driven through in recent years and significant time has been dedicated to it on the technology investment and standing still or reducing technology main Board agenda. Recognising the ever-increasing importance spend will drive companies backwards when they desperately of the topic and responding to shareholder feedback, the Company need to go forward. The Softcat offering has been transformed has created a dedicated Sustainability Committee. This is now over the last decade and our ability to really help customers with chaired by Vin Murria who now chairs the separate workforce these challenges gets significantly stronger each year. engagement and the Sustainability Committee under a widened In challenging times, Softcat, aided by an enviable balance sheet, ESG Board remit. Vin is a force of nature and an outstanding an excellent reputation in the market and our market position puts contributor to the Board and, despite her other ventures, always us in a very strong position to continue, and indeed accelerate, dedicates more time and effort to the Softcat Board than could be market share gains as weaker competitors reduce investment possibly expected. We are mindful that her nine-year term will be tosurvive. reached in November 2024. The Company is in rude health with continuous investment in Board effectiveness and engagement people, systems and customer and partner relationships reaping The Board function is taken very seriously at Softcat. The members their rewards. Anecdotally, I was particularly pleased to see that of the Board have tremendous experience and are of the very the performance of our most recent intakes over the last year have highest quality. Each is highly engaged as a Board member and been the highest recorded in the Company’s history. ispassionate about the Company and its future. Each goes well In summary, there are challenges but with an addressable market beyond their job specification and commits significant time and that continues to grow, Softcat’s opportunity to outpace that market effort on Company matters in their respective areas between growth by taking further market share gains and the Company Board meetings. I feel very privileged to have run this Board and being in better shape than it ever has been, there are many thank each Board member for their extraordinary contribution. grounds for optimism. Whilst readily accepting the importance of governance, we try tofocus Board meetings on topics where the Executive team Current Board composition maybenefit from the Board’s challenge and wider experience. At the beginning of the year the Board consisted of Graeme Watt, TheBoard strives to be a benefit to the Executive team, not a CEO; Graham Charlton, CFO; Karen Slatford, Senior Independent choreor a tick box exercise. We also see the importance of not Director and Chair of the Remuneration and Nomination Committees; nit-picking or finding fault for the sake of it and rather focus on Robyn Perriss, Chair of the Audit Committee; Vin Murria, the encouraging and helping the Executive team. Designated Director for Workforce Engagement; and me as Chairof the Board. The Board strives to recognise and understand the various stakeholders of the business to help inform the Board debate. This is a relatively small board for the size of the organisation and Board meetings continue to include regular interactions directly the Board had previously discussed the potential benefits of adding with customers, partners and most importantly employees from a further Non-Executive Director, if that person would add further alllevels including all-employee sessions with members of the significant value to the Board’s effectiveness, skillset and expertise Non-Executive Board. and would be a good fit. Following a search process, it was clear that Lynne Weedall certainly met all the requirements and the The investor voice is an integral part of the Board function. All Board was delighted to welcome her as a new addition in May. interaction between the Executive team and investors is reported tothe Board including the independent feedback reports from Lynne has insights from her executive career together with investors following the two annual roadshows. In addition as significant experience gained on the boards of listed companies, ChairI contact our top 50 shareholders and the proxy advisory and this will further strengthen our Board. In particular, given the agencies, encouraging engagement with either me or, if needed, massive importance we put on people and the Softcat culture and one of our Non-Executive Board members. These sessions cover the importance of its continued evolution, a seasoned professional Board matters, governance and stewardship and are valuable who has dedicated their career to this at a number of very large towards achieving a better understanding of mutual objectives. organisations was notable by their absence on the Softcat Board. Inparticular this year’s engagements have been very useful to Lynne became Chair of the Remuneration Committee on consult on Board succession matters. We are proposing a new appointment, taking over from Karen Slatford, a change which Remuneration Policy this year, and although the changes to the more effectively rebalances the workload on the Board, as Karen Policy are minor (see the Remuneration Committee report on is also Chair of the Nomination Committee. I’d like to thank Karen pages98 to 127), we have consulted with our largest shareholders. for chairing the Remuneration Committee so professionally and effectively since 2019. 13Annual Report and Accounts 2022 Softcat plc CHAIR'S STATEMENT CONTINUED # Board effectiveness and engagement continued During the course of the second half of the financial year we used an external company to conduct our Board effectiveness review (please see the Governance Report, pages 74 and 75). In summary, we have: - a well-functioning, dedicated Board with a good mix of skills and breadth of contribution from all members; - good working relationships between Non-Executive Directors and Executives with the right level of challenge and support; - an inclusive and open culture, well aligned to that of the business; and - strong Board leadership with good support from the Company Secretariat. Useful pointers to how we may want to tweak the Board going forward included an increased focus on technology evolution and the opportunities and threats these may present to the Company and our offering. While no immediate need was identified, the continued requirement to identify potential Board members to further strengthen the Board was highlighted. # Future Board composition Substantial thought, work and consultation have gone into succession planning this year, culminating in our announcement on 12 July 2022 that from 1 August 2023, Graham Charlton will become the CEO of Softcat. On the same day, Graeme Watt will succeed me as Non-Executive Chair. In parallel we have engaged with a search firm to recruit a replacement CFO. As you will see from the report from the Nomination Committee (see pages 90 to 95), these changes have given the Committee a lot to think about and work through during the year and beyond and more details about the succession planning processes followed are in that report. In our regular succession planning reviews, Graham has for some time been considered a very strong candidate to succeed as CEO and he has for a while confirmed his interest in the role. During his seven years so far as CFO, Graham has developed a deep understanding of the business and in what makes Softcat successful, not least our culture, which he has championed since joining. The Board believes Graham is an outstanding individual and the right person to lead the business successfully through the next stage of its growth. For a number of years, the Board has maintained a good focus on longer-term succession planning, conscious also that my nine-year term under the rules of the UK Corporate Governance Code comes to an end in 2024. Graeme had made the Board aware recently that he was contemplating retirement as a full time Executive and he had expressed an interest in being considered as my successor. The Board considered alternative potential candidates from the existing Board and externally. In-depth industry experience, public company experience, cultural fit and availability were all seen as key attributes and very much in the interest of our shareholders. No alternative candidate came anywhere close to Graeme against these criteria. The Board was unanimous that Graeme's deep knowledge of the business, Softcat's culture and its markets made him the ideal candidate to support the interests of all our stakeholders. This move has been carefully considered by the Board, which acknowledges that the appointment of the CEO into the role of the Chair is not in line with the recommendations of the UK Corporate Governance Code. However, the Board has a very clear and successful operating model as hopefully demonstrated during my time as Chair – the CEO is clearly 'the boss' of the Company and it is the Chair's job to make sure the Board is effective. This will not change. A number of shareholders were, within the limits of information that may be disclosed, consulted about these potential changes: notably through the Chair engagement programme and broad support was received. # Dividend The Board has reviewed Softcat's dividend policy and it remains unchanged. Our dividend policy remains a progressive one which targets an annual dividend of between 40% and 50% of the Company's profits after tax in each financial year before any exceptional items. Subject to any cash requirements for ongoing investment, the Board will consider returning excess cash to shareholders over time. We recommend a final dividend of 16.6p per ordinary share, taking the total dividend to 23.9p per ordinary share. In addition, we recommend a special dividend of 12.6p per ordinary share is paid at the same time as the final dividend. Shareholders will be asked to approve the final and special dividends at the AGM on 13 December 2022. Further details of our dividend and distributions policy can be found on page 76. # Sustainability The importance of sustainability to our key stakeholders continues to increase. Our customers, shareholders and employees think and talk about it far more than ever. It is clear they are becoming more engaged and that climate change is taking on a greater sense of urgency. We are making good steps with our approach to environmental matters and there is a deeply held belief on the Board that this is the right thing to do. We have achieved the first of our key three targets to be carbon neutral (scopes 1 and 2) by 2022, and we are making progress towards using 100% renewable energy by 2024 and to achieving a carbon net zero supply chain by 2040. Our near- and long-term sustainability targets have been submitted to the Science-Based Targets initiative ('SBT') and approved, with an aim to reach zero emissions ten years ahead of the deadline set by the Government. Softcat became the first IT company in Europe to have its net zero targets approved by the SBT. As already mentioned, during the year we established a Sustainability Committee of the Board and this will provide oversight on the effectiveness of our sustainability strategy and the progress being made through various initiatives. We are helping our customers to understand better and measure their carbon footprint as this is an important first step to help them reduce their emissions. This is a major initiative for the Company, representing significant investment for the Company and one the Board has been fully involved in at every step. More about this can be found on page 55. For the longer term, we are working hard with our vendors to understand their plans to reduce carbon emissions and to work with them where we can to help them achieve that. This is a major undertaking and requires the sustained desire of the whole IT industry for many years to come to make a collective change for the good. 14 Softcat plc Annual Report and Accounts 2022 There are some things that we can and are doing now or in the Much of UK corporate diversity has focused on gender diversity. Strategic report short term which bring prompt benefit such as switching our offices We continue to remain very focused on activities in this area and to renewable energy. I was also delighted to see the introduction continue to make slow but steady progress in some of our statistics of a salary sacrifice programme for employees to lease electric with 33% of our workforce now being female compared to 29% vehicles in a tax efficient way. We have also recently made a five years ago. While I would say this wouldn’t I, the progress in commitment to exchange our corporate fleet from internal mentality shift and cultural shift is, in my opinion, far greater. Diversity combustion vehicles to electric vehicles. These are practical matters to us. It matters to our values and it also matters to the future demonstrations of what we can do to reduce our everyday impact success of the business. It’s become a wide ranging topic at Softcat on the environment and have been welcomed by the Board. with workstreams and employee groups covering areas such as ethnicity, disability, sexuality, neurodiversity, faith and social mobility. We have made a commitment to the Task Force on Climate- Agood example of this is signing up to the Social Mobility Pledge. related Financial Disclosures and you will see the progress made This includes reaching out to schools or colleges to provide coaching since last year in our Sustainability Report (on pages 43 to 58). through quality careers advice, recruitment support and mentoring I am extremely encouraged by Softcat’s focus on sustainability. to people from disadvantaged backgrounds or circumstances. Wehave become an evangelist for sustainability within and The increase in understanding, awareness, compassion and the outside of our industry and this has been widely recognised, desire to have a truly diverse workplace is something of which forexample we were named as winner of CRN’s Tech Impact Ithink the team should be very proud. Awards 2021– Sustainable Reseller of the Year. It’s a personal matter but as a small anecdote, counting Mollie Wallace While I fully understand the need to plan and measure, to support as a colleague over the last six years, a wonderful, neurodiverse and adhere to standards, quite honestly there is too much of that employee at Softcat and witnessing the incredible positive going on for my liking. Action is more important. The big wins for influence she has had on the Softcat team, has been a highlight Softcat will come from influencing our customers and suppliers. ofmy Softcat tenure. Thisis harder to measure but I am increasingly encouraged by our ability to play a leading role in influencing the wider supply chain Pre-close statement in the future. The highlights have been many since I started working with the Company in 2005 and officially joined in February 2006. In Employees FY2005 we achieved an operating profit of £1.1m compared to As we have always said, Softcat does not make anything. I could the £136.1m we report on for this financial year. We’ve come a be creative but in traditional terms at least, we have no IP to speak long way, particularly since I stepped down as CEO! of. Our product is literally our people. Excellent numbers are the result of excellent people, great teamwork and strong leadership. Whilst I’m proud of the growth we have accomplished and theway Once again, I am indebted to the employees of Softcat for their the business has continually adapted to keep thriving, outstanding work and dedication. I’mevenprouder of the things that haven’t changed. Our culture and values have remained largely the same, and our employees As well as all the normal challenges including a year of strong have always had a passion for serving our customers, and keeping growth, the team has endured a significant system change which our Company a fun, humble, vibrant and caring place to work. It is inmy experience no matter how well executed will always cause this culture and values which made Softcat a success and it is this considerable extra work and sometimes frustration. Attrition in the which will drive the business forward in the future. first half, in line with the ‘great resignation’ was greater than we anticipated and the recruitment market has been very tough. Having completed our succession plans for the Chair and CEO, Thisplaces extra strain on existing staff. The team has rallied Iam also confident that I am leaving Softcat with inspirational aroundand delivered once again. andexcellent leadership. As covered in this report employee satisfaction remains very high. So for the last time in a Softcat Annual Report please let me thank I’ve also been very pleased to see a large improvement in the fantastic Softcat Board and employees for their dedication, recruitment in the second half and more importantly a significant support and camaraderie; our wonderful customers for their loyalty reduction in attrition. and for their guidance on how to serve them better; our partners for their backing right from the early days; and our investors for their The Company has seen the largest increase in pay levels, support and guidance. particularly at entry level, I think in our history and the Board has been supportive and encouraging of these necessary actions from This isn’t quite a goodbye; I’ve still got a few months left! which we are already seeing the benefits. Thank you. We’re finding our rhythm with the new hybrid working environment and once again seeing the benefits of greater face-to-face interaction and group activity. This will also help facilitate our community, charity and volunteer programmes which are now well established in the Company and very much part of who we are Martin Hellawell and want to be. Non-Executive Chair 24 October 2022 15Annual Report and Accounts 2022 Softcat plc CHIEF EXECUTIVE OFFICER’S STATEMENT ## INVESTING TO ## DELIVER FUTURE ## GROWTH I am pleased to report on our 2022 results, which represent another record achievement for our business. Thanks to the hard work and dedication of our entire team, we have now achieved ### I am pleased to report on our 2022 68 successive quarters of organic year over year income and profit growth. Our focus on being the best place to work and ### results, which represent another delivering outstanding customer service continues to serve us well. ### record achievement for our business. Our strong and unique culture enabled us to manage the ### Thanks to the hard work and challenges of the pandemic and we emerged in an even stronger competitive position continuing to grow faster than the market. ### dedication of our entire team, we Oursales growth was delivered right across the board with double ### have now achieved 68 successive digit growth in all segments and technologies as we continued to manage hardware supply chain constraints. ### quarters of organic year over year We made excellent progress selling deeper into existing customers ### income and profit growth.” and saw gross profit per customer improve by 16.1%, while also attracting new customers, driving 2.1% growth in our overall Graeme Watt customer base. Chief Executive Officer 16 Softcat plc Annual Report and Accounts 2022 Our people continue to be the primary focus of our investments. Despite the tough talent market, we were able to grow headcount by 14.3% and, since year end, this has grown further to 2,060 which sets us up to drive future success by continuing to take share of a growing market. We do this by providing the broadest portfolio of leading-edge technology solutions and services, listening to our customers, and leveraging the largest commercial team in our space in the UK market. I am delighted that the Company is again able to recommend the payment of a special dividend this year. Thank you to all those with whom we enjoy a partnership, and, of course, a huge thank you to the Softcat team for your amazing energy, ambition, execution and dedication to each other and our customers. During the challenges of the pandemic the business didn't miss a heartbeat thanks to your passion and the care you took to look after everyone around you. ### Sales Strategy Our sales strategy remains reassuringly consistent and straight forward as we look to drive greater share of wallet in existing customers and acquire new customers. Our gross invoiced income performance was broad-based again last year, growing by 29.4% and reflecting significant market share gains. All of our key sales segments grew revenue by more than 15% and we were delighted to be awarded CRN's Public Sector VAR of the Year for the third year running. Market data from Context, an industry research body, suggests we outgrew the market by over three times. We were able to effectively navigate the ongoing hardware supply chain challenges throughout the year. More recently there is some evidence that the supply chain situation is improving, at least for end user devices although shortages on some storage and networking hardware lines look set to continue well into the new year. Gross profit growth was also very strong at 18.4% and we were pleased to convert 41.6% of our gross profit to operating profit. This conversion was a little ahead of our expectations and operating profit growth overall stood at 14.0%. We are a customer-led organisation and continue to listen to feedback and adjust our portfolio of technology and services accordingly. Our annual customer engagement survey, completed by a larger set of customers than ever before, delivered very positive results with an NPS of 55 (2021: 59) and demonstrating improvements in every category. This was despite the backdrop of industry-wide supply chain challenges and the implementation of our own new finance system. We have the largest commercial team in the UK market and continue to invest heavily in both salespeople and supporting roles. We are always looking at ways to improve and have a number of initiatives in play including 'Elevate', our new sales training and development programme. We are also looking at ways we can use internal and external data to augment sales activities and accelerate sales and the acquisition of new customers. Customer number growth was 2.1% and we continue to leverage the insights from engagements across our nearly 10,000-strong customer base to deliver high quality solutions and drive further investment and support from our vendor partners. Gross profit per customer, one of our most important metrics, grew by 16.1% in the year as we continued to focus on delivering high quality service and solutions for both existing and new customers. We remain very excited about the opportunity we have in our core markets for further share gains, and in 2023 we will open a further office in Newcastle which will offer career development opportunities for some of our people, extend our recruitment reach and bring us closer to local customers. We are very pleased with the progress we have been making on our multi-national business, where we look to support the international needs of our UK and Irish customers. Our opening of a series of international branches, including an office in the US, are entirely customer-led and have augmented our sales growth by driving wallet share gains with existing customers and attracting new ones. Our business is broad-based from both a technology and customer vertical perspective which provides resilience to any pockets of weakness in demand. Our market-leading organic growth enables continued investment and this strength relative to our competition brings opportunities to hire new talent and expertise as well as gain customers. We have less than 5% of a growing market and continue to be excited by the opportunity ahead. We have seen similar patterns in our customers' consumption from the previous year. They continue to invest in IT infrastructure to support their growth ambitions and to remain competitive and productive. Their need to be secure, support their flexible working policies and deliver on and off-premises storage and compute solutions to their businesses are greater than ever. Customers continue to invest in digital transformations, and we are seeing increasing needs for connectivity, collaboration, IT asset management and cloud adoption. We recognise that the UK economy is currently experiencing significant volatility and uncertainty, particularly in relation to interest rates and foreign currency exchange. These factors have the potential to impact our trading and operational activity, but our experience suggests demand for IT infrastructure is robust even in extreme circumstances. The breadth of our solutions and services means we are very well placed to deliver on our customers' needs in such changing and challenging times. Annual Report and Accounts 2022 Softcat plc 17 Softcat plc report ![img-0.jpeg](img-0.jpeg) CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED People and Culture As announced on 12th July 2022, I will be stepping up to the Chair role at the end of the current financial year and Graham Charlton Our culture remains as strong as ever and we emerged from the will become CEO. These changes, effective 1st August 2023, are pandemic in very positive fashion. We have transitioned well into a result of a considered selection process and represent the the world of flexible working and have empowered our people to orderly execution of a carefully developed succession plan. do the right thing for themselves personally and for our business. Wehave also begun a process to appoint a new CFO and We have created a good rhythm of balancing remote and office aclear transition plan is in place to ensure there is no disruption working whilst maintaining the highest levels of internal and tothe leadership and running of the business. external customer service levels. We remain focused on giving our new employees the best possible start to their Softcat career and Ease of doing business continue to prioritise the importance of face-to-face customer and During the year we successfully implemented a new finance vendor interactions. Our word of the year for the new financial systemwhich gives us a platform to deliver further growth, be year is ‘Connect’ and getting our people together with each other, moreproductive and provides a basis upon which to implement our vendors, customers and other partners remains a fundamental astrategy for the digital age, to support our customers with new element of building successful relationships. offerings and to address the challenges of adopting multi-cloud In a really tough talent market, we continued to be resolutely and consumption-based technology. focused on investing in and growing our employee base and, We will also aim to capitalise on the new data storage and asaresult, were able to increase headcount by 14.3%. For the management infrastructure, created alongside the development new financial year we announced a series of fixed pay ofthe finance system, to augment our sales capabilities. Further adjustments and provided a clearer link between pay, system developments are also planned, including a major upgrade responsibility, and career progression in sales. We are pleased of our service management system which is likely to begin in the with the profoundly positive impact these changes have already second half. made to recruitment and retention. Addressable market Our learning and development initiatives continue to bear fruit and We are very pleased to have opened a small US office in we are delighted with the number of employees going through our Arlington, Virginia. The team there is focused on delivering local various programmes including the Sales Development Programme, sales and support to customers with whom we have a relationship the Specialist Acceleration Programme, our Tech Starter in the UK and Ireland. As well as delivering more business to programme and various management modules. existing customers, we think that over time we will be able to attract We are delighted to have recently held our first face-to-face new UK and Irish customers who have needs in North America KickOff event for three years which was a great success and very aswell as take on North American customers with international motivating for the 1,900 employees that attended. We are also operations. This presence in the US will enable us to better looking forward to the re-instatement of our Partner Forum and understand that market, providing insights that will benefit our Charity Ball events later in the year. wideroperations and inform future strategy. Our annual employee satisfaction poll is the most important survey We will continue to monitor inorganic expansion opportunities too, in any given year. Being the best possible place to work is very both the possibility of entering a new market or to add emerging important to us to attract great talent into the business, to retain that capabilities in our core domestic UK market. same talent as they grow and develop and to always provide an outstanding customer service. We are pleased to report our employee NPS at 52 as surveyed in October 2021 (FY2021: 58), clearly demonstrating that despite our growth we continue to maintain our strong culture and have a highly motivated and engaged workforce. Our employees reported that they were particularly happy with the culture, our approach to remote working, wellbeing and our community network groups. ### We were delighted to have recently ### held our first face to face Kick Off event ### for three years which was a great ### success and very motivating for the ### 1,900 employees that attended.” 18 Softcat plc Annual Report and Accounts 2022 Diversity, Inclusion and Sustainability Outlook Strategic report Our word of the year was community, and it has been really The Company is in as strong a competitive position as ever pleasing to see so many employees getting involved in our, now heading into the new financial year and we expect to continue seven, community network groups. We have made further progress todeliver double-digit gross profit growth and deliver market this year with over 1,000 employees participating in our Allyship sharegains. programme and we were very pleased to be ranked 4th in the Demand has remained strong and customer behaviour across all UK’s Great Places to Work for Women. From a gender diversity segments is normal. That said, the comparative first half period to perspective, we are getting very close to our first stage target of January 2022 was exceptional and, as highlighted at the time, 35% women in the business, well ahead of schedule, and we benefitted from a very high volume of business from our largest would be very pleased to raise this bar to a new target next year. customer. In addition, COVID-19 delayed the resumption of We continue to work hard to achieve greater diversity in our internal events and travel to see customers until March 2022, while leadership team and are aiming for this to be representative of this new year has seen the Company award significantly higher theCompany as a whole. pay increases across all departments, including an increase to the Despite being unable to hold our annual Charity Ball again in starting salaries of new sales recruits to reflect market conditions. 2022, we were delighted that our teams across the Company We have also increased the rate of recruitment into the Company wereable to raise more than £96,000 for charitable causes. as we remain focused on the enormous and growing opportunity the IT infrastructure market presents. With carbon reduction high on our agenda, Softcat has made environmental sustainability a core element of our business We are confident that operating profit for the year will be in line strategy. We are committed to helping develop a more efficient with expectations and at levels similar to 2022, but the factors industry, pledging to become carbon net-zero across scopes 1,2 mentioned above mean cost growth is likely to outstrip gross profit and operational scope 3 by 2030 and have a net-zero value growth in the first half. circle by 2040. To date, and throughout previous periods of market upheaval and We have been pleased with the initial adoption of Enexo, our uncertainty (including COVID-19), customer demand has been in-house developed carbon emissions reporting platform, which robust and growing but we nevertheless plan carefully for all launched this year and enables organisations to quantify, monitor possible scenarios. Our business model has significant agility; and plan reduction strategies for their emissions. We now have approximately 35% of our operating cost base is made up of sales over 150 users from 120 customers and partners taking advantage commissions that naturally flex in a linear fashion with gross profit, of the value this platform offers. We are delighted that the Science while hiring plans are reviewed on a weekly basis to react to Based Targets initiative (SBTi) has officially approved our targets to market dynamics. Our balance sheet remains strong, and the take urgent climate action and contribute to halting the rise in Company carries no external bank debt. Consequently, we are global temperatures. We are the first IT company in Europe to confident that the business is in a very strong position to continue to receive this and one of only 35 companies in the world to have outperform the market. their net-zero targets approved by the SBTi. This is a significant achievement especially as only six companies, across all sectors, in the UK have had their targets approved. Finally, we were awarded the Tech Sustainability Partner of the Year at both of the two recent main industry awards: CRN (for the second year in a row) and Graeme Watt Candefero (on an EMEA-wide basis), recognising the industry Chief Executive Officer leadership we are generating in this space. In addition, we 24 October 2022 continue to work towards full compliance with new TCFD disclosures. 19Annual Report and Accounts 2022 Softcat plc BUSINESS MODEL ## OUR COMPETITIVE EDGE ### Our people are bright, motivated, driven and enthusiastic. Most importantly ### theycareabout the Company they work for and the customers they serve. ### Resources and relationships | 1 | Our people | 2 | Our market opportunity | 3 | Our customers | | --- | --- | --- | --- | --- | --- | | Our people are the keystone of | | | and offerings | The longevity of our customer | | | ourcompetitive edge. Their passion, | | | | relationships is a direct product of the trust | | Despite 17 years of unbroken, organic intelligence, sense of fun and commitment they place in our people and the value growth, a 4.7% share of our addressable to the long-term success of our customers we deliver from our technical capabilities. market affords us huge potential for further is what really makes us stand out from During the past 17 years of consecutive growth. Our success continues to fuel thecrowd. organic growth the number of customers reinvestment into our technical capabilities, and the average gross profit per To read more see pages 38 to 42 which we add to relentlessly year after year. customers have both more than trebled. As a result, we have one of the broadest and deepest technical offerings in the market, To read more see pages 22 to 27 positioning us as the partner of choice for even the biggest and most complex solutions. To read more see pages 22 to 27 | 4 | Our vendor partnerships | 5 | Our financial strength | | --- | --- | --- | --- | | Technology vendors face intense | | In a world of risk and leverage, we are | | | competition and need partners that can | | proud to be a bit different. We have | | | accurately, reliably and credibly | | never had any debt and maintain a | | | represent their products and services to | | strong balance sheet providing strategic | | | tens of thousands of target organisations | | agility. We have a highly liquid business | | | in the UK and Ireland. With our scale and | | model and can comfortably fund both a | | | expertise, we offer unrivalled access for | | progressive dividend policy and | | | both global and local partners to UK and | | long-term organic business investment. | | Irish customers. This reach is being further To read more see pages 32 to 33 expanded through investment in our multinational branch network. To read more see pages 22 to 27 ### The value we create for stakeholders ### Customers Shareholders People ## 94% 17 90% customer satisfaction years of consecutive organic employee engagement profitgrowth 20 Softcat plc Annual Report and Accounts 2022 Strategic report ### Resources and relationships How we deliver We recruit and train great We incentivise and engage We deliver outstanding people with high potential our people to perform customer service We work with universities and We create a great place to work Only great people who are highly schools across the country and where people are recognised and motivated and care about the seethousands of candidates each rewarded for success. We are business they work for can provide year before selecting those that known for our unique culture and truly outstanding levels of customer are right for Softcat. We look for itis without doubt the basis of service over the long term. We try exceptional people with the oursuccess. to couple that with a world-class rightattitude. set of technical capabilities and believe the results speak for themselves. We win new customers and Addressable market sell more to existing customers expansion Winning a new customer is just the We have a strong track record of very start of the journey; our real aim developing new revenue streams and is to nurture a relationship carefully are fast to move as the market evolves. over many years. If we can prove our Despite our success to date, it’s hard worth by never letting a customer to foresee a time when there won’t down, trust builds and everyone wins. still be huge opportunity for growth. ### The value we create for stakeholders Underpinned by our values Responsibility IntelligenceFun PassionCommunity Read more on pages 8 and 9 21Annual Report and Accounts 2022 Softcat plc OUR MARKET AND OFFERING ## OUR ADDRESSABLE MARKET ## CONTINUES TO EXPAND Our proven model of building customer trust over the long term ## As our addressable market continues gives us the confidence that Softcat has a future organic growth ## to expand, we continue to invest and opportunity best measured in decades rather than years. To capitalise on this opportunity we continue to invest significantly in ## plan for the best opportunities to new resources to expand our geographic presence and increase our capacity for training and development, as well as adding new ## further grow our business. specialist and technical skills to the team. As technology evolves Gartner (a leading research firm) estimates that the non-consumer over time, it is a strategic imperative that we continue to add UK IT market is worth £124bn in 2022. Company analysis of this complementary offerings to remain relevant to our customers and other sources, such as the CRN Top VARs report, suggests that andpartners. our addressable market in the UK and Ireland is worth around Our opportunity is greater than just the UK and we now provide £53bn. This gives us an approximate market share of 4.7%, up our services across a multinational landscape. We also prepared from 3.0% in 2019. Our current customer base of 9,922 represents diligently for the UK’s exit from the EU and now see an opportunity around 20% of the addressable universe, with whom we have an to provide our services across a multinational landscape, estimated average of 20% to 25% share of IT infrastructure spend. encompassing the US, the Far East as well as Europe. We have Industry commentators predict more market growth in the years made strong progress in building a team in the US and our ahead, with Gartner forecasting that the non-consumer UK IT branches in the Netherlands, Hong Kong, Singapore and Australia market will grow to £155bn in 2025 – a three-year compound enable us to support UK customers in their overseas operations. annual growth rate (CAGR) of 7.8%. The areas addressable by us are forecast to grow slightly faster with a three-year CAGR of 8.1% taking our addressable market to £68bn in 2025. Softcat addressable market £80 £70 8.1% CAGR £68 £60 £63 £50 £57 £53 £49 £40 £46 £46 £bn £30 £20 £10 £0 2 019 2020 2 021 2022 2023 2024 2025 Forecast Forecast Forecast (Source: Gartner IT. Spending Forecast, 3Q22 Update) 22 Softcat plc Annual Report and Accounts 2022 In the current challenging macro-economic environment, Strategic report technology will be integral to enabling businesses to regain, maintain or improve their efficiency and profitability. Organisations ### across corporate and public sectors will need to further adapt their 69% of organisations are leveraging a partner infrastructure models to deliver enhanced employee and customer ### for moving enterprise workloads.” experiences and drive productivity and efficiency improvements whilst protecting their data. These drivers and trends play straight (Source: Flexera State of the Cloud report) into our diverse range of solutions including managed, professional and support services, cloud, datacentre, infrastructure, security and digital workspace solutions from hardware, peripherals and Today, we do not sell directly to organisations in countries outside software licensing. the UK and Ireland but this is a further opportunity for us. We have To meet the needs of these organisations, we have continued to now recruited a Corporate Development Manager to look in a invest heavily in our tools and technical offering. In the face of systematic way at the opportunities for non-organic expansion economic uncertainty, we have taken very deliberate steps to outside of the UK. We are in the early stages of our thinking and maintain our investments at a rate at least equivalent to the previous no decisions have been made. five years. Our cloud proposition is being enhanced through With our focus firmly on the long-term opportunity, we have significant initiatives with both Microsoft Azure and Amazon Web maintained double-digit headcount growth, encompassing Services (AWS), and we continue to build our security services increases across all areas of the business including sales, practice as well. specialists, support, technical and business operations. Ourcustomers and partners can expect more of the same fromusin 2022 and beyond. ### Many UK business are still laggards compared ### to global benchmarks on Digital Process ### adoption... most of the UK is still paying ### catch-up, with ‘upgrade’ IT budgets instead ### of‘transformational’ ones’. This provides a ### longer runway of growth in the UK...” (Source: Peel Hunt) 23Annual Report and Accounts 2022 Softcat plc OUR MARKET AND OFFERING CONTINUED ## GROWING OUR OFFERING ## IN AN EXPANDING MARKET A structurally growing market For our customers going through digital transformations, IT is Our customers need help to understand their options. increasingly moving from a back-office cost to be managed to a Wesupportthese needs by providing independent key enabler of their operational and strategic objectives. Digital recommendations, and architecting, procuring, implementing transformation is on many organisations’ minds. Moving to the andmanaging their IT solutions. hybrid cloud, being flexible on ways of working and enhancing As our vendors’ products and services evolve so too we need to security have all gone up on their priority list, and Softcat evolve. We continually invest in our own capabilities both by recognises that. The ways a company or public sector body training up our staff and strategically recruiting external expertise engages with its employees, customers and partners increasingly so that we can take new products and services to our customers rely on IT that enhances interactions. and remain relevant in solving the challenges they are facing. As Microsoft Chair and CEO Satya Nadella told investors in January 2022: “We are living through a generational shift in our economy and society as digital technology as a percentage of global GDP continues to increase.” This is backed up by Gartner ### We are living through a generational shift forecasting that UK non-consumer IT spend will grow by 7.7% from ### 2022 to 2025, far faster than forecasts for UK GDP growth. inour economy and society as digital ### As a result, IT departments in our customers have never been more technology as a percentage of global central to their organisation’s operational and strategic success. At ### GDPcontinues to increase.” the same time the range of products and services available has never been as wide and complexity is increasing. Satya Nadella Microsoft Chair and CEO January 2022 ### Expanding our Community In 2023, Softcat will be branching out into anewcity for the first time in four years; this time inNewcastle. The opening of our Newcastle officealigns with Softcat’s strategy to support newcustomers and enhance the capabilities of our existing customers, by providing a local service and a multinational portfolio of products, solutions and services. Newcastle also offers a rich talent pool through its local universities and colleges. Investing inpeople and talent will always play a key part inSoftcat’s continued growth. 24 Softcat plc Annual Report and Accounts 2022 Strategic report Our customers supported by our people We are passionate about deepening our engagement with our customers to develop long-term valuable and sustainable ### Organisations are focused on switching off relationships. We train our Sales Account Managers to build trust ### over time, by doing what we say we will and responding positively ‘emergency’ digital transformation mode and when something goes wrong. As our Sales Account Managers ### turning on smarter digital transformation, setting identify opportunities, they will bring in vendor and technology ### experts to provide guidance, design, procurement advice or service a clear and concise roadmap for the deployment options to support their customers. Over time, customers do not ### of new technologies. This will help them to have one relationship with their Sales Account Manager at Softcat ### remain agile in the face of new headwinds.” but multiple relationships with us across all areas of IT infrastructure. Our annual customer experience survey is a key check and Chief Commercial Officer, Softcat balance that informs our strategy. It drives the ongoing investment in people and specialist resources needed to deliver on our The IT landscape is ever changing customer promise. Customer satisfaction is one of Softcat’s key The market has seen increased focus on technologies like performance indicators (see pages 30 to 31). sustainability, cloud and ‘as a service’ solutions – which ultimately More than eight in ten members of the Softcat team face directly means that decision makers have more agency on choosing into customers in one manner or another, including Account solutions that are cost effective. We base our key IT priorities Managers, Sales Specialists, Technical Design, Professional around these market opportunities; they include digital workspace, Consultants, Managed Services and our Customer Experience hybrid infrastructure and cyber security. We focus on these areas Team, where Customer Success Managers work alongside to make sure we are prepared for everything our customers could Service Delivery teams to ensure that complex solutions are need and can discover value-add opportunities for the bespoke integrated and delivered to the highest quality. solutions we design, deliver and operate. We focus on developing, attracting and retaining the best talent, Digital workspace increasing our expertise so that we can better understand the With a people-first approach, we improve experiences, create environments and industries that our customers operate in. This choice and enable outcomes by securely connecting people, helps us collaborate across industries and share best practice and data, apps and devices. We consider the key aspects that innovation to ensure we deliver the best experience for our underpin a successful digital workspace strategy: workstyle customers and the challenges they face. We also believe in putting flexibility, choice and creating collaborative workspaces to enable the right people in place and investing in them over the long term. enhanced productivity and a happier workforce. We are continuing to develop our agenda across issues like inclusion and sustainability – topics that are important to our leadership team as well as our staff, customers and partners. ### The SD-WAN market is forecast to double ### between 2021–2026 (Source: 650 Group) 25Annual Report and Accounts 2022 Softcat plc OUR MARKET AND OFFERING CONTINUED Hybrid infrastructure Cyber security Whether it is public, private or multi-cloud, what counts is delivering Protecting data, networks and systems is a critical issue for the and maintaining the optimal combination of technology for each industry. Almost every business relies on the confidentiality, integrity customer’s unique situation. Softcat as a cloud aggregator can and availability of its data. Protecting information needs to be at design, deliver and operate a range of effective environments. the heart of an organisation’s security planning. As cyber security Across data assurance, through management and monitoring, to evolves, we build, implement and maintain ongoing programmes connectivity and security, we design the public, private and hybrid to proactively reduce risk for our customers. cloud solutions that deliver the optimal estate. Organisations are now using an average of ## 67% of UK and Ireland Chief Information Officers are looking to ## 3.7 public clouds; and increase their spending on Cyber Security in 2022. Nil are looking to cut spending. (Source: 2022 Gartner CIO and Technology Executive Survey) ## 4.9 private clouds (Source: Flexera State of the Cloud Report) Our customers’ top five IT priorities 1. Cyber security 4. IT asset and service management 2. Devices 5. Networking (Source: Softcat 2022 customer experience survey) 3. End point management 26 Softcat plc Annual Report and Accounts 2022 Strategic report ## OUR VENDOR PARTNERS ### Partnering for success We pride ourselves on partnering with a portfolio of world-class IT vendors – holding top level accreditations with each. We work closely with these industry leaders on a shared goal: delivering the best solutions or services for our customers. Our vendor agnostic approach helps us to meet the requirements of our customers. It also means we are able to offer an extensive range of products and bespoke solutions with maximum value, alongside in-depth technical expertise. We value our vendor partnerships and are committed to continuously improving and evolving our partner strategy. This commitment has been reflected in the long list of partner awards we have received year after year. By continuously listening and asking questions of our customers we are able to evolve and improve our partner strategy. ### Some awards we have won: ### Some of our vendors 27Annual Report and Accounts 2022 Softcat plc Strategic report STRATEGY ## ACQUIRE ## MORE ## CUSTOMERS Progress in 2022 ### In 2022 customer numbers grew organically Our customer base grew by 2.1% during the year, ### for the 15th year in a row, butwe still with success across each of our key segments: mid-market, enterprise and public sector. ### onlyserve around one in five from our ### targetmarket. Future focus Our customer base was 9,922 in 2022, which only reflects approximately 20% of the addressable market. We will continue to target new accounts through further investment in our Sales team. KPIs • Customer base increased by 2.1% to 9,922 • 94% customer satisfaction CASE STUDY: STRATEGY IN ACTION ### Berry Bros. & Rudd Berry Bros. & Rudd (‘BB&R’) are Britain’s oldest wine and What were the benefits? spirit merchant, stocking over 4,000 wines. Still located • An end-to-end managed infrastructure service. at No.3 St James’s Street, London where the business • The consolidation of disparate IT systems into a began in 1698, it now has operations in the UK, Japan, high-performing, multi-platform provision. Hong Kong and Singapore and employs more than 300 members of staff. • Enhanced resiliency and redundancy through hosted WAN and backup services. Softcat began working with BB&R to help them migrate their out-dated IT provision to a more resilient hosted • Ongoing support and close collaboration. service. Inevitably, as BB&R has grown its business, “Softcat delivers on what it promises. Softcat has supported ithas recognised the increasing advantages of BB&R’s ambitions and helped guide its IT strategy, cloud-based services. Softcat has been on hand to investments and development. The account management replace their existing on-premises legacy infrastructure, provides advice that’s always on point and informed by enhance resilience and IT capabilities, enable deep sectoral knowledge – and Softcat genuinely gives scalingto cope with increased demand from the impression that it wants to help. Softcat understands businessexpansion and facilitate migration to true BB&R’s business philosophy and has helped create the hybrid/multi-cloud environments. platforms it needs to face the future with confidence.” Paul Slade Infrastructure Manager at Berry Bros. & Rudd 28 Softcat plc Annual Report and Accounts 2022 Strategic report ## SELL MORE ## TO EXISTING ## CUSTOMERS Progress in 2022 ### The opportunity to help customers navigate Cross-sell programmes and training have delivered ### acomplex array of technology choices significant results over the last few years and we continue to see existing customers spend more with ### hasnever been greater. us across more business lines than ever before. Future focus Future growth in business line penetration and gross profit per customer is targeted for 2023 as we continue to roll out account planning, deploy new product and service offerings, continue developing multinational sales capabilities and invest in additional headcount. KPIs • Gross profit per customer increased by 16% during the year • 94% customer satisfaction CASE STUDY: STRATEGY IN ACTION ### NHS Digital As a long-standing partner of NHS Digital, Softcat was “We’re a relatively small team and the ongoing support brought in to help their Cloud Centre of Excellence Softcat provided made all the difference. Where we had (‘CCoE’) mitigate the complex costs associated with limited knowledge, Softcat provided the expertise. That adopting cloud-based solutions across an organisation ongoing support helped to generate highly valuable as large as the NHS. Softcat has a strong track record of data to facilitate trend analysis, identify where cost providing high quality cloud-focused solutions. Softcat’s savings could be made and highlight opportunities for specialists worked closely with the NHS Digital team to operational optimisation across more than 70 business ensure the correct configuration, understand the data units. All in all, the solution represents a one-time hit that’s being produced and use it to highlight where cost and brought much needed clarity to our cloud operations. operational efficiencies could be achieved. Softcat has been there to underpin our own due diligence and provide the rock-solid data that enables What were the benefits? usto monitor usage and spend, challenge invoices and • Significantly simplified billing. drive down costs.” • Real-world, timely information to facilitate informed IT Team Member, decision making. NHS Digital • Opportunity to rationalise unused assets, reduce ongoing costs and secure discounts on future provision. • Monthly cost savings of 25%. 29Annual Report and Accounts 2022 Softcat plc KPIs ## SUMMARY RESULTS ## ANDKPIs The financial and non-financial key performance indicators shown below demonstrate the Company’s progress against strategic goals and delivery of financial performance and shareholder value. Thesemetrics are referred to throughout this report and further discussed in more detail within the ChiefFinancial Officer’s Review on pages 32 and 33. ### Financial 1 | Revenue £m | | | Gross profit £m | | | | Operating profit £m | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 22 | | 1,077.9 | | | | 327.2 | 2222 | | | 136.1 | | 21 | 784.0 | | | | 276.4 | | 2121 | | 119.4 | | | | | | | 235.7 | | | 2020 | 93.7 | | | | | | | | 211 . 1 | | | 1919 | 84.5 | | | Strategic link Strategic link Strategic link | Comments | | Comments | | Comments | | | | --- | --- | --- | --- | --- | --- | --- | | | • Revenue includes all income from the | | • Gross profit comprises revenue net | | • Operating profit comprises gross profit | | | | resale of third party software, hardware | | ofthird party product costs, supplier | | net of administrative expenses. | | | | and services, as well as the sale of the | | rebates and certain internal direct costs. | | | 3 | Link to Directors’ remuneration Company’s own services. • For 2022 operating profit accounts for 80% of the weighting for the Executive Directors’ annual bonus, reflecting an important role in measuring the delivery of in-year shareholder value. | | | | | 2 | | | | | | | | 2 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Gross invoiced income £m | | | | | Basic earnings per share p | | | | | Cash conversion % | | | | | | 22 | | | | 2,507.5 | 22 | | | | 55.5 | 22 | | | 76.2 | | | 21 | | | 1,938.4 | | 21 | | | 48.4 | | 21 | | | | 89.9 | | 20 | | 1,646.2 | | | 20 | | 38.2 | | | 20 | | | | 88.0 | | 19 | | 1,414.1 | | | 19 | | 34.6 | | | 19 | | | | 92.0 | | Comments | | | | | Comments | | | | | Comments | | | | | | | • Gross invoiced income reflects gross | | | | | • Basic earnings per share (‘EPS’) is | | | | | • Cash conversion is defined as cash | | | | | | income billed to customers adjusted | | | | | defined as profit after tax divided by | | | | | generated from operations but after | | | | | | fordeferred and accrued items. | | | | | thenumber of shares in issue at the | | | | | capital expenditure, as a percentage | | | | | | | | | | | balance sheet date. | | | | | ofoperating profit. | | | | 3 | Link to Directors’ remuneration | | • The five-year average for cash | | --- | --- | --- | | | • Basic EPS is a performance measure in | conversion is 88%, reflecting the highly | | | the targets for the Executive Directors’ | liquid nature of the business operations | | | Long Term Incentive Plan (‘LTIP’) . | and a disciplined approach to working | capital management. • Delivery of EPS growth will also contribute indirectly to share price performance, and • The reduction on prior year reflects the ability to pay dividends, both important atransient expansion in year-end elements in total shareholder return (‘TSR’). tradereceivables following the TSR is also a performance measure of the implementation in the fourth quarter LTIP. ofanew finance system. 30 Softcat plc Annual Report and Accounts 2022 Link to strategy: Strategic report ### Non-financial Acquire more customers Employee engagement score % Customer satisfaction % 22 90 22 94 Sell more to existing 21 93 21 95 customers 20 93 20 97 19 92 19 96 People and culture Strategic link Strategic link Ease of doing business Comments Comments Addressable market • The employee engagement score is • Customer satisfaction is defined as the expansion derived from responses to an annual percentage of customers who rate survey of all staff. themselves as either ‘satisfied’ or ‘very satisfied’ in response to an annual • Enthusiastic and highly motivated survey (possible responses also include people form the very core of the ‘dissatisfied’ and ‘very dissatisfied’). In Softcatbusiness model and our 2022 the survey had 1,870 respondents customerproposition. (2021: 1,248). 3 Link to Directors’ remuneration 3 Link to Directors’ remuneration • Actions overseen by the Executive • Actions overseen by the Executive Directors to maintain strong employee Directors to maintain strong customer engagement account for 20% of the satisfaction account for 20% of the weighting (along with customer weighting (along with employee satisfaction) for the Executive Directors’ engagement) for the Executive annual bonus, reflecting the importance Directors’ annual bonus, reflecting of a well-engaged workforce to theimportance of customers, who Softcat’s overall success. areatthe core of Softcat’s strategy. Gross profit per customer £’000 Customer base ’000 | 22 | | | 33.0 | 22 | 9.9 | | --- | --- | --- | --- | --- | --- | | 21 | | 28.4 | | 21 | 9.7 | | 20 | 24.8 | | | 20 | 9.5 | 1. The prior year comparatives have 19 23.0 19 9.2 beenrestated in line with the change in accounting policy for the IFRS IC Strategic link Strategic link agenda decision – IFRS 15 Revenue from Contracts with Customers, treatment of Software revenue as agent revenue. For further information, see note 1.5 to Comments Comments the financial statements. As a result, revenue is only available on a comparable • Gross profit per customer is defined • Customer base is defined as the number basis for 2021 and 2022. asgross profit divided by the number of customers who have transacted with 2. Gross invoiced income (‘GII’) and cash ofcustomers. Softcat in both of the preceding conversion are alternative performance twelve-month periods. • New customers are included in the measures. Please see page 33 for further definitions and reconciliations. calculation and tend to create a dilution • Growth in this metric demonstrates of the metric, but to a similar degree theability of the sales force to win 3. For more information on the remuneration of the Executive Directors, from one financial year to another. newcustomers while also retaining please see the Annual Report on existing relationships. Remuneration on pages 98 to 112. • The growth in this metric therefore demonstrates the value created by • Important for in-year performance ever-deepening long-term relationships, butalso underpins future growth. and the Company’s ability to sell an increasing range of technologies based upon genuine trust and loyalty. Read more in our Chief Financial Officer’s Review; seepages 32 and 33 31Annual Report and Accounts 2022 Softcat plc CHIEF FINANCIAL OFFICER'S REVIEW # DELIVERING GROWTH AND INVESTMENT ![img-1.jpeg](img-1.jpeg) “ Overall performance was once again very well diversified, with each area of technology and each customer segment delivering growth in both GII and gross profit.” Chief Financial Officer | Financial summary (restated) | FY2022 | FY2021 | Growth | | --- | --- | --- | --- | | Revenue | £1,077.9m | £784.0m | 37.5% | | **Revenue split** | | | | | Software | £150.0m | £128.4m | 16.8% | | Hardware | £797.9m | £556.5m | 43.4% | | Services | £130.0m | £99.1m | 31.2% | | Gross invoiced income ('GII') | £2,507.5m | £1,938.4m | 29.4% | | **GII split** | | | | | Software | £1,365.3m | £1,109.2m | 23.1% | | Hardware | £810.2m | £566.3m | 43.1% | | Services | £332.0m | £262.9m | 26.2% | | Gross profit (GP) | £327.2m | £276.4m | 18.4% | | Gross profit margin | 30.4% | 35.2% | (4.8)% pts | | Operating profit | £136.1m | £119.4m | 14.0% | | Operating profit margin | 12.6% | 15.2% | (2.6)% pts | | Gross profit per customer^{2} | £33,000 | £28,400 | 16.1% | | Customer base^{3} | 9.9% | 9.7% | 2.1% | | Cash conversion | 76.2% | 89.9% | (13.7)% pts | 1. The prior year financial comparatives have been restated where relevant in line with the change in accounting policy – IFRS 15 Revenue from Contracts with Customers, treatment of Software revenue as agent revenue. Further information can be found in Note 1.5. 2. Gross profit per customer is defined as GP divided by the customer base. 3. Customer base is defined as the number of customers who have transacted with Softcat in both of the preceding twelve-month periods. ## Gross profit, revenue and gross invoiced income Gross profit (GP), our primary measure of income, grew by 18.4% to £327.2m, reflecting strong growth in both the first and second halves of the financial year. Customer demand was robust and consistent, with double-digit gross invoiced income (GII) and GP growth generated across each of software, hardware and services. Revenue was up 37.5% due to a strong performance across all areas of technology, with each of software, hardware and services growing in excess of 15%. The application of IFRS 15 to revenue was amended during the year in response to a clarification issued by the IFRS Interpretation Committee. This is detailed in note 2 but, in summary involves a switch from recognising some elements of software income on a gross basis as if Softcat were principal in the transaction, to recognising all software income streams on a net basis with Softcat acting as an agent to the transaction. As a result, revenue figures for 2021 have been restated in line with this new treatment. We continue to report GII, which is unaffected, alongside revenue as taken together this allows a fuller understanding of commercial profit margins and cash flow dynamics. GII grew by 29.4%, ahead of the 18.4% expansion in GP due mainly to a series of large, low-margin hardware projects completed with a major customer. Hardware comprised 32.3% of total GII, up from 29.2% in the prior year. Overall performance was once again very well diversified, with each area of technology and each customer segment delivering growth in both GII and GP. The large hardware projects with the major customer comprised mainly datacentre projects, but we saw very strong performance across the customer base in networking, security and workplace technologies too. Double-digit growth was delivered in both GII and GP from the public sector, enterprise and mid-market customer segments. Growth was strongest in mid-market which comprised 46.6% GII in the period, up from 43.3% in the 32 Softcat plc Annual Report and Accounts 2022 prior year. Growth in GII from enterprise customers was 27.2% and public sector delivered 19.4% growth in GII for the second year in a row; a very similar rate of expansion to that seen in the prior year. #### Customer KPIs During the year average GP per customer grew by 16.1% to £33.0k (2021: £28.4k) and the customer base increased to 9,922, up 2.1% on the prior year. Despite this further strong progress and being confirmed as the largest reseller in the UK by CRN, our industry remains highly fragmented. Our latest estimates, based on multiple industry sources including CRN and Gartner, suggest we have less than a five percent share of total addressable market value. This comprises a trading relationship with c.20% of potential customers with whom we have an average share of wallet of c.20% – 25%. As a result, we continue to have a fantastic opportunity for future growth by continuing to concentrate on our simple strategy of seeking to sell deeper into existing accounts by building trust and loyalty over time, while gradually expanding our customer base year on year. #### Operating profitability and investment in future growth Total operating costs for the year were up 21.7% reflecting headcount growth of 14.3% and the return of events and travel costs during the second half of the year. The post-pandemic restart of these activities is a significant boost to our operations, comprising as they do a material element of our business culture and enabling us to deepen our interaction with customers. Headcount growth of 14.3% reflects our ongoing investment across all areas of the business, both in building scale and capacity to our sales operations as well as expanding our technical capabilities. We continue to recruit contemporary skills across the full range of infrastructure specialisms, including for example security and cloud services. As a result of our headcount investment and the return of events and travel costs our operating to GP margin fell slightly year on year to 41.6% (2021: 43.2%). This is expected to reduce again in the year ahead reflecting the annualisation of the headcount investment and the normalisation of event related costs in the first half. This is expected to then increase in H2 following the anniversary of the end of lockdown restrictions in March 2023. #### Corporation tax charge The effective tax rate for 2022 was 18.9% (2021: 19.2%), reflecting a stable UK statutory rate of 19.0% in both years, together with the relatively marginal impact of non-deductible expenses and share-based payment transactions. Our tax strategy continues to be focused on paying the right amount of tax in the right jurisdiction, at the right time. #### Cash and balance sheet Cash conversion, defined as cash flow from operations before tax but after capital expenditure, as a percentage of operating profit, was 76.2% (2021: 89.9%). The reduction on prior year reflects a transient expansion in year-end trade receivables following the implementation in the fourth quarter of a new finance system. Whilst successful, the system implementation created some temporary disruption to collection procedures, but this is expected to return to normal during the first half of the new year with collections already strengthening in August and September. #### Dividend A final ordinary dividend of 16.6p per share has been recommended by the Directors and if approved by shareholders will be paid on 19 December 2022. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of business on 11 November 2022. Shares in the Company will be quoted ex-dividend on 10 November 2022. The last day for dividend reinvestment plan ('DRIP') elections to be received is 28 November 2022. In line with the Company's stated intention to return excess cash to shareholders a further special dividend payment of 12.6p has been proposed. This has been calculated to increase the minimum cash holding of the business from £45m to £60m and is due to the significant increase in GII since this was last adjusted in 2020. If approved this will also be paid on 19 December 2022 alongside the final ordinary dividend. This will bring the total amount returned to shareholders since becoming a public company to £401.2m. #### Alternative 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. Consequently, non-GAAP measures are used by the Directors and management for performance analysis, planning and reporting and have remained consistent with the prior year. These non-GAAP measures comprise gross invoiced income (or 'GII') and cash conversion. 1. **Gross invoiced income** is a measure which correlates closely to the cash received by the business and therefore aids the users understanding of working capital movements in the statement of financial position and the relationship to sales performance and the mix of products sold. Gross invoiced income reflects gross income billed to customers adjusted for deferred and accrued revenue as reported in the IFRS measure. A reconciliation of IFRS Revenue to gross invoiced income is provided within note 2 of the financial statements. 2. **Cash conversion ratio** is cash flow from operations, net of capital expenditure, as a percentage of operating profit. A reconciliation to the adjusted measure for cash conversion is provided below: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Cash generated from operations** | **108,988** | **113,797** | | Purchase of property, plant and equipment | (1,890) | (2,265) | | Purchase of intangible assets | (3,334) | (4,199) | | **Cash generated from operations, net of capital expenditure** | **103,764** | **107,333** | | Operating profit | 136,145 | 119,416 | | **Cash conversion ratio** | **76.2%** | **89.9%** | **Graham Charlton** **Chief Financial Officer** 24 October 2022 Annual Report and Accounts 2022 **Softnet plc** 33 Standard report SECTION 172  STAKEHOLDER ENGAGEMENT Our key stakeholders ## CONSIDERING ## ALL OF OUR Employees Our employees are at the heart of our business ## STAKEHOLDERS and help to drive Softcat’s continued success ### This section describes how the Directors take ### into account stakeholders and other matters ### in carrying out their duties and the impact Customers ### ondecision making. The Board considers Understanding the needs of our customers in ### regular and effective engagement with order to build enduring relationships is critical to Softcat’s strategy ### Softcat’s stakeholders to be fundamental ### toour success. We define our key stakeholders as individuals or groups who have ### an interest in, or are affected by, theactivities of our business. The Suppliers and Board believes a good understanding ofourkey stakeholders and ### vendors their needs is essential to deliver sustainablevalue creation over the long term, bringing benefits to ourshareholders and stakeholders. Softcat’s strong relationships with our suppliers and vendors help us provide the best solutions Director responsibilities and support for our employees and customers Our Directors are fully aware of their responsibilities under Section172(1) of the Companies Act 2006 (the ‘Act’) and take their responsibilities seriously. The Board considers that, in its decisions and actions taken, it has acted in a way that would ### promote the success of the Company for the benefit of its members Investors as a whole, whilst having regard to stakeholders and matters set outin Section172(1) (a–f) of the Act. The Directors’ responsibilities Investors are the owners of the Company and under Section 172 are rooted in our Company’s culture, our values have made a financial commitment in the and particularly our purpose: ‘we help customers use technology success of Softcat tosucceed, by putting our employees first’. Our key stakeholders The Board has identified Softcat’s key stakeholders to be our ### Communities and employees, customers, suppliers and vendors, investors, and the ### environment and communities in which we operate. The potential the environment impact of the Company’s operations on each of our stakeholders is We recognise we are part of each community an important consideration for the Board. The Board has approved in which we operate and it is vital to make a a framework of key topics which ensures that regular updates are meaningful commitment to long-term sustainability received and discussed by the Board regarding each stakeholder group. This ensures the Board is well informed and able to make appropriate considerations when deciding Softcat’s strategy and other business decisions. The following table sets out how our stakeholders have been engaged with, how relationships with stakeholder groups are monitored, and how their interests have influenced decisions made by the Board. Read more elsewhere in this Strategic Report, our Social Value Report on 38 to 42, our report on TCFD and Sustainability on pages 43 to 58 and our Corporate Governance section on pages 65 to 135 34 Softcat plc Annual Report and Accounts 2022 Strategic report ### Employees Our employees are at the heart of our business and help to drive Key topics of engagement Softcat’s continued success. • Arrangements for hybrid working and office culture How we engaged and monitored • Pay and reward structures • The Board approves a framework of meetings which includes • General wellbeing and job satisfaction, including recognition regular scheduled visits to our offices. This was interrupted by of achievements COVID-19 lockdown restrictions and included the cancellation of a Board visit to our new office in Birmingham. • Sustainability • Our annual employee engagement survey, the results of which • Diversity and inclusion are reported to the Board, with an action plan to tackle the Outcomes issues raised. Results are compared against last year’s The Board reviewed, approved or endorsed outcomes, including: equivalent questions to track progress. Quarterly surveys are also discussed with the Board on the performance and • Approving an updated forward schedule of Board meetings to engagement by our most senior managers. reinstate a full Board visit to the Birmingham office, which was held during the year. • Virtual all-hands meetings are held to update employees on thebusiness. This includes opportunities for employees to ask • Given the importance of employee engagement to the success questions to Directors and senior management. Feedback on of Softcat’s strategy, the Remuneration Committee of the Board these meetings is provided by the CEO to the Board. agreed to change the performance metrics of the Executive Directors’ annual bonus plan to include actions taken by • Vin Murria, our Designated Non-Executive Director for management to maintain good employee engagement (see Workforce Engagement, led two employee forums alongside pages 98 to 112 of the Annual Report on Remuneration). her fellow Non-Executive Directors in the Birmingham and London offices. The minutes and actions taken from each forum • The Sustainability Committee considered the outcomes of the were reported to the Board, and relevant feedback was ESG materiality assessment, which included responses from provided to senior management as necessary. employees. The outputs from the materiality assessment helped to shape the forward agenda for the Sustainability Committee. • Internal communications, such as weekly ‘Love’ emails, detailing initiatives, recognising accomplishments and raising awareness • We invested in improvements to our internal IT infrastructure of key matters in the Company. (thecost of which is included in the annual budget approved bythe Board), bettering the user experience for our employees. • Employees took part in an ESG materiality assessment, which included both a survey and interviews, to better understand • A review of salaries for certain roles was undertaken and which ESG issues matter most to them. endorsed by the Board. See case study below. • Feedback on employee pay is collated through a variety of sources, including through the employee engagement survey and exit interviews. The Board received regular updates on employee attrition levels and on pay conditions. CASE STUDY: ### Employees: pay and progression review At Softcat, our employees are at the centre of what we do. Softcat’s Chief People Officer and Head of Recruitment TheBoard understands that to continue to generate long-term, discussed the results of the review with the Board, reporting sustainable value for our stakeholders, Softcat must ensure that thatremuneration in certain roles and internal progression our employees continue to feel happy and motivated and wereareas that required attention. The Board discussed a fully therefore want to stay at Softcat. Not only is this crucial for costed strategy to better align certain roles’ pay structures to the maintaining long-term relationships with our customers and our market through a larger than usual adjustment and to improve suppliers, but having a reputation as a good place to work is incentives for internal progression. key for attracting the best talent. The plan was announced to employees through an All Hands Softcat continued to grow its headcount during the COVID-19 meeting, and we have since seen improvements in our attrition pandemic, however, like in many companies, Softcat saw an rates. Not only does this help with current employee happiness, increase in the rate of attrition in the first half of the year. The which directly correlates to retaining talent, but it helps attract Board was eager to understand the underlying cause and good talent. The Board continues to receive updates on attrition management presented a full review, collating data from our and recruitment, specifically on retention statistics and factors, in annual employee engagement survey, and from exit interviews addition to existing updates on employee satisfaction, developed to better capture information from leavers. conditions and pay. 35Annual Report and Accounts 2022 Softcat plc SECTION 172  STAKEHOLDER ENGAGEMENT CONTINUED ### Customers Suppliers and vendors Understanding the needs of our customers in order to build Softcat’s strong relationships with its suppliers and vendors help enduring relationships is critical to Softcat’s strategy. usprovide the best solutions and support for our employees andcustomers. How we engaged and monitored • Our annual customer experience survey, sent out to customers, How we engaged and monitored requests honest feedback, the results of which are reported to • Direct engagements between the Executive Directors and key the Board against the results of the previous year to track vendors. Regular updates at Board meetings from the CEO. progress. • Our dedicated internal ‘Vendor Alliance Teams’ manage and • Interaction between our Sustainability Team and our customers maintain Softcat’s relationships with key vendors. regarding what they want to see from us in terms of products • In order to make sure we understood the ESG issues which and services provided from a sustainability perspective. Any matter to suppliers and vendors, the Sustainability Committee major feedback from these interactions is discussed with the had oversight of an ESG materiality assessment which included Sustainability Committee of the Board. suppliers and vendors. • Customers also took part in our ESG materiality assessment. • Our Sustainability Team has continued its engagement work to • The Board asked management to provide a demonstration of better understand the sustainability commitments and net zero eCat, Softcat’s online platform for customers to make purchases. targets of our major suppliers and vendors. This is part of a This supported a better understanding of the customers’ views Board-approved target to achieve a carbon net zero supply and experience. chain by 2040 (see page 53 for more information). • Direct engagement between the Board and key customers Key topics of engagement ofSoftcat. • Sustainability of products and services, and future goals andcommitments Key topics of engagement • Understanding actions necessary for increasing • Board reports which provide vendor updates customersatisfaction • Performance of payment practices for our suppliers • Softcat’s sales model Outcomes • Technology propositions for customers The Board reviewed, approved or endorsed outcomes, including: • Understanding customers’ IT priorities and main challenges • Sustainability measures and activities with vendors. • Sustainability • The Board requested updates on how we will maintain improved performance to pay more of our suppliers in a timely Outcomes manner. Through ongoing changes in procedures and systems, The Board reviewed, approved or endorsed outcomes, including: management demonstrated to the Board that payment times to • A comprehensive action plan, developed from the feedback suppliers continued to improve. received through the annual customer experience survey, to • Given the importance of reducing our impact on the further improve customer satisfaction. environment to the success of Softcat’s strategy, the • Arranging further direct engagements between the Board and Remuneration Committee of the Board has agreed from our customers into the Board’s annual cycle. FY2023 to add a new performance metric to the Executive Directors’ annual bonus plan. This will now include actions • Support for the next stages of development for the eCat taken by management to promote environmental sustainability platform to further strengthen engagement with our customers. (see pages 98 to 112 of the Annual Report on Remuneration). • Given the importance of customer satisfaction to the success of Softcat’s strategy, the Remuneration Committee of the Board agreed to change the performance metrics of the Executive Directors’ annual bonus plan to include actions taken by management to maintain good customer satisfaction (see pages 98 to 112 of the Annual Report on Remuneration). • The Board approved the development of our Enexo platform. This will help our customers better understand and manage their carbon footprint. 36 Softcat plc Annual Report and Accounts 2022 Strategic report ### Communities and the ### Investors ### environment Investors are the owners of the Company and have made a We recognise we are part of each community in which we financial commitment in the success of Softcat. operate, and it is vital to make a meaningful commitment to long-term sustainability. How we engaged and monitored • The CFO and CEO regularly engage with major shareholders How we engaged and monitored and analysts in respect of Company performance. • Softcat’s sustainability strategy, progress and performance were regularly monitored at Board level. • The Company Chair undertook his annual engagement programme with major shareholders, discussing governance • Our Charity Team, which reports to members of the Senior and sustainability matters, feedback from which was discussed Leadership Team, has strong connections with local and by the Board. national charities and also engages with our employees. • Shareholder analysis is presented at each Board meeting to • Through our sustainability governance framework, we inform the Directors on key shareholder movements and trends. haveinitiatives and localised Green Teams to support environmental activities. • The Chair of the Remuneration Committee engaged with major shareholders regarding the Remuneration Policy to be proposed • We maintain dialogues with local institutions, such as at the 2022 AGM, set out on pages 113 to 127 of this report. schoolsand colleges, to understand how we can help themand how we can encourage students to join Softcat’s • The Chair of the Audit Committee reached out to major apprenticeship scheme. shareholders on Softcat’s annual audit plan. Key topics of engagement Key topics of engagement • Softcat’s sustainability strategy and goals • Strategy • Selection of charities our employees wish to support • Company performance • How Softcat can best help local communities and groups • Corporate governance • Executive Director remuneration Outcomes The Board reviewed, approved or endorsed outcomes, including: • Sustainability • The establishment of a Sustainability Committee, with delegated Outcomes responsibility for setting Softcat’s sustainability strategy, The Board reviewed, approved or endorsed outcomes, including: monitoring Softcat’s performance against its emissions targets and for oversight of sustainability initiatives and activities. • Feedback from investors/analysts on Company performance and on our strategy. • The Board approved the development of our Enexo platform, (see page 55). • A better understanding of investor expectations in respect of corporate governance. • Softcat signed up to the Social Mobility Pledge, further demonstrating our commitment to being a purpose- and • Consideration of the views of major shareholders prior people-led company by boosting opportunities in the tofinalising our review of the proposed 2022 communities in which we operate. RemunerationPolicy. • Given the importance of reducing our impact on the • Additional disclosures in the Annual Report to support our environment to the success of Softcat’s strategy, the investors’ understanding of the business. Remuneration Committee of the Board has agreed from FY2023 to add a new performance metric to the Executive Directors’ annual bonus plan. This will now include actions taken by management to promote environmental sustainability (see pages 98 to 112 of the Annual Report on Remuneration). 37Annual Report and Accounts 2022 Softcat plc SOCIAL VALUE ## INVESTING FOR OUR ## SUSTAINABLE FUTURE At Softcat we continue to invest and build to make our business responsible and sustainable. We believe this will be an important part of our long-term success. This report covers our approach to good corporate responsibility and sustainability. Highlights •Near-term and net zero carbon targets approved by SBTi •Highly rated again by Glassdoor and by UK’s BestWorkplaces •Enexo platform launched to help customers better understand their carbon footprint •Various community and charitable activities •Established the Sustainability Committee of the Board •Flourishing Softcat Communities network •Joined the Social Mobility Pledge •Around half of our employees have taken our Allyship programme on diversity and inclusion •Record number of apprentices hired ### Our people Diversity as at 31 July Gender breakdown Ethnicity breakdown Board of Directors Total permanent employees | | 2022 | | 2 0 21 | | 2020 | | 2019 | | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |  | |  | |  | |  | |  | | | | Female: 57% | | Female: 50% | | Female: 50% | | Female: 33% | | Ethnic: 15% | White British and Male: 43% Male: 50% Male: 50% Male: 67% White Other: 85% Senior Leadership Team ### 2 0 21 ### 2022 2 0 21 2020 2019 ##  ##     Ethnic: 13% White British and Female: 22% Female: 20% Female: 20% Female: 8% White Other: 87% Male: 78% Male: 80% Male: 80% Male: 92% Total permanent employees | | 2022 | | 2 0 21 | | 2020 | | 2019 | | --- | --- | --- | --- | --- | --- | --- | --- | |  | |  | |  | |  | | | | Female: 33% | | Female: 33% | | Female: 30% | | Female: 30% | | | Male: 67% | | Male: 67% | | Male: 70% | | Male: 70% | 38 Softcat plc Annual Report and Accounts 2022 Strategic report ### Great Place to Work People Creating an inclusive workplace From a people perspective, the last twelve months at Softcat have We have seen our diversity and inclusion (‘D&I’) initiatives continue been focused on growth. Growth in headcount, skills, development to evolve, strengthen and make a difference to our employees opportunities and career paths. We’ve hired a record-breaking over the last year. Our final network launched in September 2021: 628 new starters, an increase of 48% on the previous year. We Empowering Disability and Neurodivergence. We are delighted also hired more apprentices than ever before, and this will be that our seven D&I networks now cover most of our minority groups increasing even further next year. Transforming our sales career and our employees tell us that they feel represented, empowered paths and progression opportunities have helped our employees and listened to. For more information on our D&I networks, please have a clearer picture of their future at Softcat, hopefully leading to see pages 6 and 7. Furthermore, our Allyship programme continues a long-term positive impact on retention. 37 of our high potential to raise awareness throughout the organisation of how to support employees took part in leadership development programmes this and respect each other’s differences, with approximately 50% of year, developing their existing skills and adding new competencies the Company undertaking the course so far. to help them realise their career ambitions. Our employees tell us in our regular surveys that career progression is of utmost importance to them and with that in mind, we are now running a career progression workshop giving hints ### Softcat is one of the rare corporations that and tips to employees about how they can develop themselves at ### takes its commitment to people seriously… Softcat. PathFinder was also launched in September 2021 to ### provide an internal tool for employees to access career guidance there is consistent and wide-ranging discussion and internal job opportunities. ### that is aimed at making everyone feel heard ### and leaving nobody behind.” Response from the annual employee engagement survey At the CRN Women & Diversity in Channel Awards 2022, Softcat PathFinder has secured a record 31 places on the shortlist, made up of 27 individual nominees and four Company awards. ## 1, 921 We continue our efforts to improve our diversity, realising that it may take some time before the diversity of our workforce fully employees as at 31 July 2022 matches that of the outside world. For gender diversity, at 33%, there has been no change in respect of overall percentage of women in our workforce, but we did recruit 207 women in the Reward and recognition 2022 financial year and women in management roles has Reward and recognition are vital to our success at Softcat, and this improved by 6% to 31%. We are continuing with programmes year has been no different. A larger than average pay rise was which support our efforts on gender diversity, for example our awarded, substantial increases were made to basic salaries in TechStarter programme for women who have had significant some areas, and external benchmarking was conducted across career breaks. the board to ensure competitive packages. With our sustainability commitments in mind, we have also launched a service in the UK Our efforts to increase employee representation from the ethnic allowing employees to lease electric cars and we will continue to community have continued. There has been a small increase promote the new benefit over the coming year. inethnic diversity, with employees from a ethnic background now accounting for just under 15% of the workforce. For prospective On our recognition platform, Spotlight, we introduced the ability employees, we have introduced a new system to improve our torecognise employees for their behaviour against our values. ability to draw insights on the number of employees from a minority Thishelps to further cement the importance of the values in our ethnic background at each key stage of the recruitment process. employees’ minds. This gives us a good starting point to look deeper into the roles/ interview feedback of those candidates to see if there are any themes we should address. We continue to voluntarily publish an ethnic minority pay gap in conjunction with our gender pay gap. Women now make up the majority of our Board, including important roles such as chairs of the Nomination Committee, Remuneration Committee, Audit Committee and the Sustainability Committee. Our Senior Independent Director and our Designated Director for Workforce Engagement are both women. The composition of our Board meets the recommendations set by FTSE Women Leaders (formerlythe Hampton-Alexander review) and by the Parker ReviewCommittee. 39Annual Report and Accounts 2022 Softcat plc SOCIAL VALUE CONTINUED ### Great Place to Work continued TC4RE One of our proudest achievements this year has been the growth offices, who we identified as having a large proportion of students of Technology Channel for Racial Equality (‘TC4RE’). As a with this background, we invited ten students to work with us for founding member, Softcat has played a huge part in getting this aweek, learning about the IT industry, receiving training in CV group up and running and encouraging more organisations to join. writing and interview skills and also having lunch and a Q&A We have participated in several videos, podcasts, panels, and withour CEO, Graeme Watt. Q&A and education sessions with other companies in our industry. Softcat recently signed the Social Mobility Pledge, joining All with the aim of improving racial equality within the IT channel. hundreds of well-known organisations committed to social mobility. The pledge encompasses three main areas: outreach, access and Social mobility recruitment. We are already underway with our plans to meet the This year has seen a focus on social mobility, with a desire to criteria for the pledge. increase the number of candidates, and ultimately employees, who come from a lower socio-economic background. To that end, we introduced our first formal work experience programme. Working closely with two local schools to our Manchester and Marlow Awards and accolades This year we were delighted to rank incredibly highly in the To see the latest about TC4RE, prestigious Great Place to Work awards. Highlights were being scan this QR ranked first for the UK’s Best Workplaces in Tech 2021 (Super code: Large), third for the UK’s Best Workplaces for Wellbeing 2022 (Super Large) and fourth for the UK’s Best Workplaces for Women 2022 (SuperLarge). Our Glassdoor reviews continue to be exceptionally high with a 99% approval rating of our CEO, Graeme Watt, and 82% of current and former employees recommending us as a great place to work. Both Great Places to Work and Glassdoor mean the most to us because the responses come directly from people who have worked at Softcat. ### Our responsibilities Charity, community, volunteering and contribution tosociety Softcat’s annual Charity Ball was traditionally the major contributor Softcat strives to be an ethical and responsible workplace, in our annual fundraising, which was not possible given the impacts supporting all of our stakeholders. Our dedicated Charity Team is and concerns around COVID-19 again this year. However, we did responsible for managing fundraising at Softcat with each office not let this impact our fundraising spirit. Volunteering activities were having input and representation. We recognise the importance of tailored to reflect our hybrid working policy, with a mixture of giving back to the communities in which we operate and strive to remote and in office fundraising events being held. We supported provide continuing support. This financial year our staff helped to an array of local, national and international charities including raise over £96,000 and our charity work has helped to raise over TheDisasters Emergencies Committee, Macmillan Cancer Support, £2.7m to date. Alzheimer’s Society, Social Bite, Movember and Children inNeed. ## £2.7m in charitable donations to date 40 Softcat plc Annual Report and Accounts 2022 # LOVE2GIVE To enable our employees to take full advantage of their two volunteering days a year, and maximise their impact, we merged our fundraising and Volunteering networks into one community of like-minded Softcatters – Love2Give. Love2Give is a resource employees can use to support the same good causes and projects, together. Activities have included coffee mornings, charity football matches, food collections, taking part in the annual CRN Fight Night, and the 'Break the Cycle' bike ride from Glasgow to Edinburgh to name a few – we certainly feel that we are making a difference for the better. This year we gave our customers even more reason to engage with our annual customer satisfaction survey, by offering a charitable donation for each response. Each customer was given the opportunity to select from a range of charities selected by our internal networks: The Albert Kennedy Trust was selected by our Pride Network. Other charities included Mind, The Brain Charity, Nabsiyat, SSAFA and Refuge. Nearly £9,000 was donated. The conflict in Ukraine struck a chord with many at Softcat, so we were happy to provide some practical help. During the year, we made a donation of 18 laptops to families who had fled Ukraine. Our Love2Give network also came together to target fundraising activities to raise money for the Disasters Emergency Committee, who bring together 15 leading charities to help people overseas during times of crises, by rapidly deploying funds and aid to people who need it. Softcat's strong financial performance also contributes to the UK economy. In 2022, our total tax contribution to the UK economy was £150.9m (2021: £141.8m). This includes corporation tax, payroll taxes, VAT and other business rates and taxes. ## Our tax contribution 2022 ![img-2.jpeg](img-2.jpeg) - Corporation tax: £25.3m - Employment taxes: £52.0m - VAT: £71.8m - Other rates/taxes: £1.8m 2021 ![img-3.jpeg](img-3.jpeg) - Corporation tax: £22.5m - Employment taxes: £45.2m - VAT: £71.4m - Other rates/taxes: £2.7m ## Ethical behaviour We do not currently operate a specific human rights policy. Our policies and Employee Handbook (which is our Code of Conduct) already operate within a framework to comply with relevant laws, to behave in an ethical manner and to respect the rights of our employees and other stakeholders in the business. Most of our business is focused in the UK and in jurisdictions where human rights are generally well observed. We are conscious human rights risks exist within our business and supply chain, including labour risk, unsafe workplace conditions and bribery and corruption. We therefore continue to be compliant with the annual reporting requirements contained within Section 54 of the Modern Slavery Act 2015, being a relevant commercial organisation as defined by Section 54, and produced an updated Modern Slavery Statement this year, which is available on our website. We also provide additional disclosures as required in respect of modern slavery and other matters in respect of corporate responsibility when bidding for large Public Sector contracts. Strategic report ![img-4.jpeg](img-4.jpeg) £34,000+ raised by Softcat and Mimecast teams in the 2021 'Break the Cycle' Challenge, in support of Social Bite's fight to end homelessness. Annual Report and Accounts 2022 Softcat plc 41 SOCIAL VALUE CONTINUED ### Our responsibilities continued We also operate a register which requires all employees to seek approval from their line manager and to disclose any gifts or hospitality Ethical behaviour continued received or given which is valued over the applicable disclosure Softcat is aware that fraud is a growing threat which can have a threshold. Guidance on accepting or giving gifts and hospitality is considerable impact both for our business and for our stakeholders. contained in the anti-bribery, corruption and tax evasion policy We realise a key part of good anti-fraud management comes from and the gifts and hospitality register is reviewed by management. increasing awareness of the types of frauds which might be Underpinning our approach to ethical behaviour is our Employee perpetrated, so during the year we have rolled out compulsory Handbook (which is our Code of Conduct), which is applicable to refresher training for all employees on fraud awareness in order to all employees and to those who work for or on behalf of Softcat. The protect our business and important stakeholders such as our customers. Employee Handbook sets out the expected standard of behaviour. We also operate a Speak Up hotline for all employees to widen Softcat publishes twice-yearly details of its payment practices to its trade employees’ channels of raising any issues they may encounter. This suppliers. This is reviewed by the Board during the year as part of the provides our employees with an externally provided, secure and Directors’ wider responsibilities to consider how Softcat impacts on its key confidential channel to voice issues, in addition to internal channels stakeholders. We take these responsibilities seriously and the Board already available. We also operate an anti-bribery, corruption noted during the year that management had maintained improvements and tax evasion policy, which is regularly reviewed by in respect of invoices paid within agreed terms. management to ensure it is comprehensive. Employee training is provided where appropriate. The anti-bribery, corruption and tax The Company adopts an open and honest relationship when evasion policy provides that we take a zero-tolerance approach dealing with Government agencies. For example, during the year to bribery, corruption and tax evasion and that we are committed the Board approved an update to Softcat’s tax strategy, which is to acting professionally, fairly and with integrity in all our dealings. published on our website (www.softcat.com/corporate-responsibility). The policy also sets out the types of behaviour which are The tax strategy includes an outline of our approach to dealing unacceptable in the conduct of business and procedures to with HMRC and confirms that Softcat’s primary tax objective is to prevent bribery, corruption and tax evasion. ensure that it pays the right amount of tax, in the right jurisdiction, atthe right time, as dictated by legislation. 42 Softcat plc Annual Report and Accounts 2022 TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY Strategic report ### Environment, climate change and Task Force on Climate-related ### Financial Disclosures (‘TCFD’) We continue to make progress in respect of climate change and sustainability, as explained below. Key sustainability highlights and progress • Softcat’s net zero targets have been approved by the Science Based Targets initiative (‘SBTi’). Softcat was the first IT company in Europe to receive this. Introduction • We are making progress towards full compliance with the This section explains our approach to sustainability and includes Task Force on Climate-related Financial Disclosures (‘TCFD’). the disclosures required under TCFD and other disclosure obligations in respect of sustainability. • We continue to make good progress on our key commitments to take action on CO . We believe we can be a successful business and do good to 2 protect our people and the planet for future generations to come. • Softcat was the winner of the Sustainable Reseller of the We are motivated to drive change within our own organisation Year award at the CRN Tech Impact Awards 2021. whilst working with our partners, our supply chain, and supporting our customers on their socially responsible journey through the technology solutions we provide. The Board takes ultimate responsibility for Softcat’s sustainability and we have established a Sustainability Committee to provide a more focused Board-level oversight on thisaspect of our business. TheBoard is fully committed to Softcat’s responsibilities to the environment. To find out more about what we are doing on sustainability, please see our website at www.softcat.com/about-us/sustainability. This can also be viewed by scanning the QRcode with your tablet orsmartphone. In order to make sure we are considering the right aspects, we started our journey by identifying the most relevant areas of the United Nations Sustainable Development Goals for our business. These areas have not changed since last year and remain an important underpin to our approach on climate change and wider corporate responsibility: Achieve gender equality and empower Ensure sustainable consumption allwomen to achieve their goals. andproduction patterns. Promote sustained, inclusive and sustainable economic growth, full and Take urgent action to combat productive employment and decent climatechange and impact. work for all. Strengthen the means of implementation Reduce inequality within and and revitalise the global partnership amongcountries. forsustainable development. 43Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force Enhancing our understanding of the climate-related risks facing us and the opportunities that may be available to Softcat was a focus ### on Climate-related Financial Disclosures for this year. ### (‘TCFD’) continued To progress our TCFD journey, we undertook an assessment of our Action on climate change climate-related financial risks and performed a qualitative potential We recognise that climate change is having an impact on our impact assessment on our business, details of which are provided planet and that we have a role to play to mitigate our contribution on the following page. to that impact. The Board also recognises that climate change has The following disclosures are aligned to the four TCFD-supporting potential business and financial impacts as well as opportunities recommended disclosures: governance, strategy, risk-management, for Softcat and it is its responsibility to lessen and take advantage and metrics and targets. We have provided a summary of our of these, respectively. compliance against the recommended disclosures below with a We are taking steps to make our business more resilient to climate reference table detailing where you can find the disclosures. change. Over the financial year, we have made important As we learn more about climate science and projections become progress against the ambitious environmental targets we set in clearer, we will continue to refine our approach to identifying, 2020, and we received approval from the Science Based Targets assessing and managing our climate-related financial risks and initiative for the plans that back up our targets (see below). opportunities. For our 2023 Annual Report and Accounts we will The Board fully supports the adoption of the Task Force on Climate- disclose in full against the TCFD regulations as required by the related Financial Disclosures (‘TCFD’) as it considers that TCFD will Companies (Strategic Report) (Climate-related Financial help organisations and Softcat’s stakeholders to focus their efforts Disclosure) Regulations 2022. and ambitions towards achieving net zero. Softcat is a constituent of the FTSE4Good Index Series – an index of companies that demonstrates strong environmental, social and governance practices, measured against globally recognised standards. 44 Softcat plc Annual Report and Accounts 2022 TCFD cross-reference and compliance table Strategic report In meeting the requirements of Listing Rule 9.8.6R in respect of TCFD in this Annual Report, we have concluded that: • we fully comply with recommended disclosures 1, 2, 6, 8 and 10; and • we partially comply with recommended disclosures 3, 4, 5, 7, 9 and 11. In the table below we cross-refer to where the disclosures are located in this Annual Report or provide reason for non-compliance. Weplan to achieve full compliance during FY2023. Cross-reference (within this AnnualReport) or reason | TCFD pillar TCFD recommended disclosures | | | fornon-compliance Comments and next steps | | | --- | --- | --- | --- | --- | | Governance | 1) Board oversight of | | (Pages 46 to 47) | The Sustainability Committee monitors | | | | climate-related risks and | | climate-related risks, opportunities and | Compliant | | | opportunities. | | disclosures and reports into the Board. | | --- | --- | --- | --- | --- | | Governance | 2) Management’s role in | | (Pages 46 to 47) | We will continue to develop the roles | | | | assessing and managing | | and responsibilities on the management | Compliant climate-related risks and of climate-related issues across Softcat. opportunities. Strategy 3) Climate-related risks and (Page 48) In FY2023, we will undertake a opportunities the organisation financial impact assessment of our Partially compliant – we have has identified over the short, climate-related risks and opportunities, completed a scenario analysis in medium and long term. to improve our understanding. respect of climate change risks and opportunities. Strategy 4) Impact of climate-related risks (Pages 48 to 51) In FY2023, we will further integrate and opportunities on the climate-related planning into our key Partially compliant – through our business, strategy and strategic planning. For example, we climate scenario analysis, no major financial planning. will consider the impact on climate or catastrophic net risk exposures through our annual Board Strategy were identified in the short-term time Review and when the Board updates horizon assessed. its Three Year Plan. Strategy 5) Resilience of strategy, taking (Pages 48 to 51) In FY2023, we will further review and into consideration different report on how climate change may Partially compliant – through our future climate scenarios. impact our strategy. climate scenario analysis of risks and mitigating actions and potential opportunities, we believe our business is resilient in the short-term time horizon assessed. Risk management 6) Processes for identifying and (Page 52) As we look to continue our growth, assessing climate-related risks. evolve our offerings and work with our Compliant supply chain, we will increase our level of knowledge on climate-related risks. Risk management 7) Processes for managing (Page 52) In FY2023, we will undertake a climate-related risks. financial impact assessment of our Partially compliant – we explain in climate-related risks and opportunities, our assessment of climate-related to improve our understanding. risks mitigating actions which we can take or have taken. We are yet to complete how climate-related risks will impact our materiality determinations. Risk management 8) Processes for identifying, (Page 52) We will continue to monitor and assessing and managing manage our climate-related risks and Compliant climate-related risks ensure that each risk is monitored and integrated into the managed appropriately. organisation’s overall risk management. 45Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force on Climate-related Financial Disclosures ### (‘TCFD’) continued TCFD cross-reference and compliance table continued Cross-reference (within this AnnualReport) or reason | TCFD pillar TCFD recommended disclosures | | | fornon-compliance Comments and next steps | | | --- | --- | --- | --- | --- | | Metrics and | 9) Metrics used to assess | | (Pages 52 to 54) | In FY2023, we will continue the | | targets | | climate-related risks and | | process of developing climate-related | Partially compliant – we have opportunities. performance metrics. In FY2023, the notyet fully set opportunity metrics annual bonus plan for Executive related to low carbon products Directors will include a non-financial andservices. element in respect of the achievement of key steps towards our climate change strategy. Metrics and 10) Scope 1, scope 2 and, if (Pages 52 to 54) We disclose for the first time in this targets appropriate, scope 3 Annual Report our scope 3 emissions. Compliant greenhouse gas emissions, Softcat’s net zero targets have and the related risks. beenapproved by the SBTi, usingour FY2021 emissions as our baseline year. Metrics and 11) Targets used to manage (Pages 52 to 54) In FY2023, we will continue the targets climate-related risks and process of developing climate-related Partially compliant – our net opportunities and performance metrics. zerotargets have been approved performance against targets. by the SBTi. However, we have We will regularly monitor progress notyet fully set opportunity metrics towards our targets. related to low carbon products andservices. Governance Sustainability is an important issue at Softcat and is discussed both This approach has been designed to focus on what is required to by management and the Board. The Board retains ultimate support Softcat, its supply chain and its customers on our vision. responsibility and accountability for the oversight of the Company’s Graham Charlton is the Executive lead for sustainability and he is strategy, approach and compliance in respect of sustainability and supported by various managers and employees. In particular, the climate change, including the approval of material environmental Business Development Director (who is a member of the Senior targets. During the financial year, the Board established a Leadership Team) provides Executive-level support on strategy and Sustainability Committee as a committee of the Board. The direction. Both Graham and the Business Development Director Sustainability Committee meets twice per year and is chaired by are supported by a small Sustainability Team, which has the full Vin Murria, having recently taken over from Graham Charlton, the time responsibility for the day-to-day implementation of CFO. The Sustainability Committee is responsible for, on behalf of sustainability initiatives. the Board, setting the sustainability strategy of Softcat, including goals, targets and objectives and it monitors management’s The Sustainability Team works in collaboration with other teams performance against these. Monitoring and reviewing the asnecessary to ensure the effectiveness of the climate-related effectiveness of management’s processes for identifying and riskassessment process and to explore any opportunities. Once assessing climate-related risks and opportunities and management’s identified, the team works together to organise initiatives and responses to such risks and opportunities has also been delegated actions to mitigate these risks and to further explore opportunities, to the Committee. A report from the Sustainability Committee is involving other stakeholders in the business where necessary. provided on page 96. The business also retains relevant ISO accreditations to support To successfully manage sustainability and implement associated itsapproach to environmental matters and Softcat holds both initiatives effectively, Softcat has created a tiered governance ISO14001 (Environmental Management) and ISO 50001 approach. This ensures that all areas of sustainability get the right (Energy Management) accreditations. The ISO standards levels of focus throughout the business, including both the effective areinternationally recognised and help Softcat to improve monitoring of climate-related risks and taking advantage of itsenvironmental performance through more efficient use of climate-related opportunities. resources, reduction of waste and an improved energy management system. 46 Softcat plc Annual Report and Accounts 2022 Sustainability governance structure Strategic report Board Overall strategic direction Sustainability Committee (see page 96) Board-delegated responsibility Board-delegated responsibility for Oversight of key climate-related foroversight of sustainability strategy monitoring climate-related risks, compliance and disclosures andpolicy opportunities and targets Sustainability Leadership Team Comprises the CFO, Business Development Director, Responsible for providing Executive-level direction and support Sustainability Lead and Company Secretary on climate-related risks, opportunities, targets and compliance Sustainability Delivery Team Comprises the Sustainability Leadership Responsible for operational management Team plus selected senior representatives Responsible for operational requirements of key environmental targets and responsible for key climate-related from a sustainability perspective engagement with stakeholders stakeholder management Green Teams Comprises a Green Team Executive Responsible for local delivery of Raises awareness and champions the Committee and local Green Teams environmental initiatives importance of environmental issues ### To me, sustainability within Softcat is multifaceted. ### It means supporting our customers to make ### greener choices within their organisations, whilst ### also working to reduce our own environmental ### impact as a business aswell as individuals.” Kerry Kelly Green Team Member 47Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force on Climate-related Disclosures ### (‘TCFD’)continued Strategy Softcat’s purpose is to help customers use technology to succeed, by putting our employees first. Our overarching strategy is to sell more to our existing customers and to grow our customer base. As an IT reseller, we do not manufacture products. Our strategic exposure to climate-related risks and opportunities is through our ability to procure goods and services from our vendors and add value as our employees apply their IT expertise to provide services, products and support for our customers. To enable Softcat to keep delivering value for its stakeholders, our strategy must be sustainable, which is why we consider sustainability to be an important element of the way our business operates. We have developed a framework for sustainability which defines our approach, guides our actions and supports the steps we take to mitigate the impacts of climate change: Softcat’s framework for sustainability Softcat Supply chain Solutions Making sustainability a core element Softcat will work with its partners, Softcat will review services and to its business and embedding it in suppliers and vendors to ensure they solutions offered to its customers. Softcat’s future. Softcat will support all are working to Softcat’s values and Softcat will enable its employees to of its priority goals and continue to doing what they can do to enable, create and deliver sustainable drive and develop a more efficient deliver and support a sustainable products to assist its customers on and reduced carbon industry. supply chain. their own sustainability journey. We have taken steps to put our strategy and framework into effect, including: • We have set environmental targets and have developed action plans to achieve them. • We are working closely with our key stakeholders, particularly: • vendors and our supply chain, to help us both reduce our environmental footprint; • customers, using our knowledge and solutions to help customers take a more environmentally responsible approach to how they use IT; and • employees, to reduce our environmental impact through our operations. We do not envisage that adaptation and transition to a lower carbon world will require a fundamental shift to the way in which wedo our business or a major change to our business model (which is shown on pages 20 to 21), nor do we envisage that we will need to make major divestments, acquisitions or other significant capital allocation decisions (including access to capital or financing, if required) to take climate change into consideration. In FY2023, we will undertake a financial impact assessment of our climate-related risks and opportunities, to further improve our understanding of any inputs into the annual operating budget approved by the Board or other longer-term financial plans approved by the Board. We expect to make relatively minor changes in expenditure; for example, we are replacing over time our internal combustion car fleet for electric vehicles. 48 Softcat plc Annual Report and Accounts 2022 ## Climate-based scenario analysis In 2022, we strengthened our approach to align with TCFD recommendations. The first step was to develop a robust climate scenario analysis to assess potential impacts and opportunities for Softcat against possible climate futures. We assessed three different climate scenarios, set by the latest science and known as Representative Concentration Pathways ('RCPs'). RCPs are used by the Intergovernmental Panel on Climate Change to illustrate future concentrations of greenhouse gases in the atmosphere. The climate scenarios we used were: | **Low emission scenario (RCP 2.6)** | A predicted global temperature increase between 1.5°C and 1.7°C by 2100, compared to pre-industrial levels. This would bring the world in line with the Paris Agreement of 1.5°C. This is commonly referred to as the best-case and most ambitious scenario. | | --- | --- | | **Medium emission scenario (RCP 4.5)** | A predicted global temperature increase between 1.7°C and 3.2°C, in line with current climate change policies, pledges and commitments. If the world continues on its current trajectory, this is seen as the most likely scenario. | | **High emission scenario (RCP 8.5)** | A global temperature increase between 3.2°C and 5.4°C, where carbon emissions continue growing unmitigated. With no mitigation, this is deemed the worst-case scenario. | We selected the UK as the location for our assessment due to its significance for our operations and our revenue (representing over 95% of both headcount and revenue). Most of our key vendors also have operations in the UK. We conducted the analysis across three time horizons: short term (2022 to 2030), medium term (2030 to 2040) and long term (2040 to 2050). Consistent with TCFD, our assessment covered the following: - **Physical risks:** resulting from climate change events and changes in weather. These can be acute (event-driven) or chronic (long-term shifts). - **Transition risks:** associated with the implications from the measures taken to reach a low carbon economy. These can be policy and legal, technology, market and reputation. - **Opportunities:** realised capitalisation of benefits upon the low carbon market and technological drivers. These can be from resource efficiencies, energy sources, new products or services, markets and resilience. ## Climate-related risks and opportunities Through the application of our risk management approach, we summarise below the most relevant climate-related risks and opportunities. These are in respect of the three emission scenarios and the three time horizons as set out above. Through our initial analysis, no major or catastrophic net risk exposures were identified in the short-term time horizon assessed. We believe there are opportunities, which we continue to explore and develop: ### Risks | Physical risk category | Identified risk | Current or future control measure | | --- | --- | --- | | **Acute** | Increased frequency and intensity of extreme rainfall and weather events could disrupt Softcat's supply chain, operations and services. | Most of our vendors (see page 27) are major international businesses, which have the resilience and investment to mitigate the future risk of climate-related risks to their organisation. We work with a wide breadth of technology partners to reduce concentration risks. | | **Chronic** | Sea level rise resulting in disruption to freshwater systems in the south-east and low lying coastal areas of the UK could disrupt Softcat's operations or damage infrastructure. | Alternative workplaces for employees are available if needed to avoid low lying areas. **Link to principal risk:** we have robust plans to combat the risk of business interruption (see page 62). | Strategic report Annual Report and Accounts 2022 Softcat plc 49 TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force on Climate-related Financial Disclosures ### (‘TCFD’) continued Climate-related risks and opportunities continued Risks continued Transition risk Identified risk Current or future control measure category Policy and legal Increasing policies and regulations could place Management regularly reviews the impact of changes in new requirements on Softcat, such as enhanced legislation, taxes, etc. and oversees initiatives to ensure emissions reporting regulations and carbon taxes compliance. that present the risk of fines, reputational damage The Sustainability Committee has oversight in respect of and loss of business partnerships. sustainability reporting and progress towards our emissions targets. Link to principal risk: N/A Technology Insufficient transition to using low carbon We have signed up to the SBTi and have a goal to achieve 100% technology in Softcat’s operations may increase renewable energy by 2024. Weare actively developing our net operational costs and reputational damage. zero delivery plan. Link to principal risk: N/A Market Suppliers being unable to transition to a low We are working with our supply chain and with the wider IT carbon economy at the same pace as Softcat, industry as part of our framework for sustainability. We understand making Softcat unable to achieve its net zero many of their goals to achieve net zero and these will be reflected goal and commitments. in our target to achieve a carbon net zero supply chain by 2040. Link to principal risks: we have robust plans to combat the risk of business interruption and against a failure to evolve our technology offering with changing customer needs (see page 62). Risks associated with not having a carbon-literate We are developing further sustainability and carbon training and workforce able to promote low carbon awareness internally. technology to our customers could generate Link to principal risk: we have robust plans against a failure to lower customer satisfaction engagement. evolve our technology offering with changing customer needs (see page 62). Our global supply chain would be affected due We work with a wide breadth of technology partners to reduce to physical risks occurring in other regions, concentration risks. generating supply chain disruptions and delays in Link to principal risks: we have robust plans to combat the risk of procurement. business interruption and against a failure to evolve our technology offering with changing customer needs (see page 62). Reputation Negative perceptions from stakeholders, We have developed and are communicating a clear climate including customers, potential investors and change strategy and our targets to reduce carbon emissions. existing shareholders, as a result of failure to Link to principal risk: we have robust plans against a failure to embed sustainability into the business or take evolve our technology offering with changing customer needs action on climate change. (see page 62). 50 Softcat plc Annual Report and Accounts 2022 Opportunities Strategic report Category Identified opportunity Potential impact Market and Demand for energy efficient and sustainable We expect growth in demand for more energy-efficient and reputation ITsolutions sustainable IT solutions. This presents opportunities for us, as our customers will require support to implement and manage technology solutions. Taking advantage of this opportunity will also mitigate the risk of failing to evolve our technology offering with changing customer needs. We have strong relationships with many IT vendors and we are well positioned to support our customers. We leverages our expertise through our Solutions service. Thisallows customers to maximise the use and lifespan of an asset and to support the circular economy through recycling, refurbishing and reuse. Softcat will continue to develop its Solutions service to support growing demand. Increased customer emphasis on social values We are seeing more customers place greater emphasis on working with suppliers which have strong social values, including sustainability. Some Public Sector contracts provide for a framework which assesses the social value credentials of the prospective supplier. Our approach to sustainability will provide agreater opportunity to be considered as a partner to suchcustomers. Helping our customers understand their Softcat has launched Enexo (see page 55), a new cloud-based carbonemissions sustainability platform that gives UK organisations accurate carbon emissions intelligence. This can support our customers’ journey to net zero and deepen our relationship with our customers. Attracting and retaining talent The market for good talent remains highly competitive. Ensuring we have a credible approach to sustainability, a strong sustainability brand and a good reputation provides a competitive edge to attract and retain talent. We are proactive in our support for employees to benefit from environmental initiatives, such as: • local Green Teams throughout the business; • the provision of a tax efficient salary sacrifice scheme to enable employees to lease electric vehicles for their use; and • flexible hybrid working, allowing employees to work somedays at home, thus reducing carbon emissions arisingfromcommuting. Resource Investing in more sustainable technology to Most of our offices already use energy-efficient products but this efficiency improve Softcat’s day-to-day operations, such as will be kept under review for further opportunities. We aim to utilising green energy tariffs and office equipment. decrease energy consumption where possible and reduce emissions through the consumption of energy. Our approach to risk management is set out on pages 59 to 64. Through our regular risk assessments, new risks, including emerging climate-related issues, will be identified and assessed for materiality. There is a Board-approved definition for material emerging risks and a process is in place which requires the CFO to escalate promptly any such risk to the attention of the Board. Following our assessment of climate risk to Softcat, we are confident that our business strategies are resilient against the physical impactsof climate change, due to the nature of our business operations and the breadth of global technology vendors with which we work. In the coming years, we will further test the resilience of our business strategies against climate-related transition risks to ensure Softcat remains resilient. 51Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force liquidity or ability to operate. Furthermore, none of the actions taken so far (or currently planned) to reduce our environmental ### on Climate-related Financial Disclosures impact have resulted in a significant financial impact on our ### (‘TCFD’) continued business. Through our risk management process, we will continue to assess likely effects that climate change may have on our Risk management business, to ensure our current assumptions remain valid. To the We recognise that climate change may have an impact on our extent that we do identify material risks, these will be modelled into strategy and operations. It also provides us with opportunities to our scenario analysis for longer-term viability assessment and help our customers to reduce their environmental impact and for disclosed in future Annual Reports. The Board is comfortable that Softcat to differentiate its offerings compared to our competitors. climate change has not had a material effect on our accounting Climate change is already a component of the failure to evolve judgements and estimates this financial year and has determined our offering risk with regard to the products and services our that it has had no material impact on our asset and liability customers consume and how they might be affected by the drive valuations for the financial year. The impact of climate change towards carbon neutrality (see our principal risks and uncertainties risksis not currently considered by the Board as a key source on pages 62 to 63). We also have robust plans to mitigate the ofestimation uncertainty. impact of business interruption. At Softcat, we are also conscious that there are ‘emerging trends’ This year, we have made progress in our approach to assessing that we do not currently expect to impact the business within our and disclosing climate change risks and opportunities that could associated time horizons. Therefore, within the register, we have pose a financial impact to the business. We have incorporated identified emerging trends that may impact the business in future, theidentification and assessment of climate-related risks into our and we will maintain a watching brief to track risks which may overarching corporate risk management framework by adapting become of significance. our current corporate risk framework to account for climate risk and then use this methodology to identify climate-related risks Metrics and targets through a risk identification workshop. The workshop was attended The Board of Softcat has approved three key target commitments by senior managers in the business, including the CFO, Business and the Sustainability Committee regularly monitors progress. Our Development Director and Sustainability Lead. The Internal Audit metrics are our CO emissions and these are assessed through the 2 Manager (who is responsible for day-to-day management of the intensity measurements set out on page 58. The Sustainability corporate risk register) also attended the workshop to ensure Committee has also endorsed the CO reduction targets approved 2 alignment of the approach between climate change risks and by the SBTi. Achieving these key targets forms the focus of our corporate risks. A summary of the climate change risk framework sustainability initiatives: and climate change risks and opportunities was reviewed by • to use carbon offsetting to operate as a carbon neutral business theSustainability Committee, which has oversight for the climate (by 2022) and to use other activities to reduce emissions; change risk management framework. Additional assurances ontheeffectiveness of controls around the climate change • to use where possible green/renewable energy across all riskmanagement framework may be requested by the Audit office locations (by 2024); Committee, as part of its responsibility for reviewing the overall • to work with our supply chain to ensure that it is committed to effectiveness of key controls. becoming carbon net zero (by 2040); and Our climate-related risks and opportunities and their associated • SBTi has approved Softcat’s targets to reduce greenhouse gas business impacts are captured within our internal climate change (‘GHG’) emissions by 45% by 2030 for scopes 1, 2 and 3 risk and opportunities register. The register provides a coherent and to reduce GHG emissions by 90% by 2040. Both targets framework to identify, assess, manage and monitor the impacts use FY2021 emissions (see page 58) as our base year. ofclimate change on our business. We identify current or future mitigation measures and controls for the risks in order to reduce We are committed to improving the measurement of our carbon theimpact and likelihood of each arising. In FY2023, we will footprint and are taking steps to make these more robust. We are deepen our understanding of the potential financial implications an organisation with a relatively low scope 1 and 2 emissions ofour commitment to transition to a low carbon world by footprint and, as such, we understand that in order to transition to undertaking financial risk analyses of the key climate-related alow carbon future, an important aspect will be more work with riskswe have identified. our supply chain and customers to help lower the carbon footprint on scope 3 emissions. This year, we have also quantified and Our primary business is an IT reseller and the majority of our disclosed our scope 3 emissions footprint for the first time. business is conducted in the UK and Ireland. We do not manufacture Ouremissions are disclosed on page 58. goods and we have no production facilities such as factories. Given the nature, locations and operation of our business, we Given the nature of our business, water and land use are believe that the direct impact of climate change on Softcat will be notmaterial metrics. Progress on initiatives to reduce energy low. Our current view is that we do not believe we are materially consumption are shown on page 57. exposed to climate change as a business and that these risks do not represent a material threat to our strategy, long-term viability, 52 Softcat plc Annual Report and Accounts 2022 Progress on our targets on CO 2 Strategic report Softcat has made commitments and goals on its environmental impact in the business and its supply chain. As mentioned above, the Board approved a target over the longer term to become a net zero carbon business and this will be achieved primarily by completing three key stages. Below is a summary of the targets and the progress being made: Timing Goal Summary and progress update 2022 Carbon neutral Softcat will use offsetting schemes to help offset its scope 1 and scope 2 emissions. We will also offset selected scope 3 emissions and will continue to reduce GHG emissions produced. Complete 2024 100% renewable energy Softcat will use, where possible, green/renewable energy across all office locations. Using renewable energy will reduce scope 2 emissions and reduce the environmental impact of energy used in the business. 70% of Softcat locations are now using certified green energy, with more to follow. In FY2022, this target was expanded to include changing Softcat’s pool car fleet from internal combustion to electric vehicles. Work in progress 2040 Carbon net zero supply chain Softcat will work with its supply chain to ensure that it is committed to becoming carbon net zero. Good progress continues with our vendors. Softcat has also received high recognition from some leading market vendors and sustainability organisations. Work in progress On the journey to reduce emissions, Softcat is committed and has signed up to the SBTi. This will commit the business to reduce its GHG emissions in line with the Paris Agreement. Under the SBTi, businesses are encouraged to commit to setting targets in line with a 1.5°C reduction and to achieve net zero emissions across their value chain by 2050. In FY2022, Softcat became the first IT company in Europe to have its targets on climate action approved by the SBTi. The targets approved cover emissions for scopes 1, 2 and 3. Our target to become carbon net zero by 2040 is ambitious and is ten years ahead of the targets set by the UK Government. Softcat has therefore developed a carbon reduction plan to support the achievement of the targets approved by the SBTi. This includes ten high level steps in the next ten years (our ‘10 in 10’) which will help us reduce our emissions. We will communicate our key steps to our customers, our suppliers and Softcat employees improve their awareness of actions and targets to reduce emissions. ### It is fantastic that we have officially had our ### climate change targets approved by SBTi. This ### keeps us laser-focused and motivated to drive ### change in our own organisation and work with ### our partners, supply chain and customers on ### their social responsibility journey through the ### technology we provide.” Graeme Watt Chief Executive Officer 53Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES ('TCFD') AND SUSTAINABILITY CONTINUED # **Environment, climate change and Task Force on Climate-related Financial Disclosures ('TCFD') continued** Metrics and targets continued ![img-5.jpeg](img-5.jpeg) # **Remuneration** For FY2023, the Remuneration Committee has determined that remuneration practices for the Executive Directors shall for the first time include an assessment of performance against some of our key environmental targets and actions. This will be included in the annual bonus plan for Executive Directors for FY2023. No change in Remuneration Policy is required for these changes and achievement against the environmental targets and actions will be disclosed in the 2023 Annual Report on Remuneration. Please see pages 98 to 112 for further information about executive remuneration practices. # **Internal carbon prices** We have not introduced internal carbon prices and the matter will be kept under review in FY2023 by management. 54 Softcat plc Annual Report and Accounts 2022 Working with our stakeholders Strategic report Partnerships To help us achieve our net zero targets we are working closely with the key parts of our supply chain, vendors and other industry and business forums. We continue to make good progress. Our vendors have continued their dedication to sustainability and are making major commitments towards tackling climate change. We are working with our vendors to ensure they understand Softcat’s commitments and to ensure that Softcat understands their sustainability journeys. For example, we have improved our understanding of our vendors’: • progress to reduce energy usage during manufacturing; • use of renewable energy; • use of sustainable packaging materials; and • approach to extend the life expectancy of devices. Our work with industry and business forums raises the profile and importance of reducing carbon emissions. It also supports better collaboration and improved disclosures to allow stakeholders to better understand how they can play their part in the journey to net zero. Below are some of our important partnerships. Softcat is a signatory of the UN Sustainable Softcat is accredited with key internationally Development Goals (‘SDGs’). The SDGs recognised environmental standards. are a collection of 17 interlinked global ISO 14001 sets out the requirements for an goals designed to be a ‘blueprint to environmental management system. It helps achieve a better and more sustainable organisations improve their environmental future for all’. performance through more efficient use of resources and reduction of waste. ISO 50001 specifies the requirements for establishing, implementing, maintaining and improving an energy management system. Softcat is a member of Support the Goals, Techies Go Green is a recently established an initiative to rate and recognise forum driving and supporting sustainability businesses that support the UN Global across the technology industry. Softcat is a Goals. The key aims of the initiative are to member and we participate in the steering raise awareness of the Global Goals in the committee to support its development business community, and promote a anddirection. structured approach to planning, target setting and reporting in respect of the goals. Softcat has approved near and long-term Softcat is a member of TechUK, the UK’s science-based emissions reductions targets technology trade association. It champions with the SBTi. technology’s role in preparing and empowering the UK for what comes next, delivering a better future for people, society, the economy and the planet. Customers Softcat does not manufacture physical goods and most of Softcat’s reportable emissions are in respect of scope 3, which includes the supply of goods and services in our supply chain and on to customers. Softcat therefore makes an active contribution to help its customers understand and reduce their environmental impact. During the year, Softcat launched Enexo, which aims to help other organisations in theUK tackle climate change. The sustainability platform allows a UK organisation to measure, manage and help to reduce its carbon emissions and is already being used by many of Softcat’s customers. The platform draws on data from approximately 12 million points of records and leverages on Softcat’s own experience in reducing carbon in its business. Enexo also enables organisations to benchmark their emissions against other organisations and to review data and actionable information. This will help users to plan their net zero journey, explore emission reduction mitigations across their supply chain and to comply with public reporting requirements. 55Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force on Climate-Related Financial Disclosures ### (‘TCFD’) continued Customers continued Softcat leverages its expertise in IT through its Solutions services to help our customers be more sustainable. Our comprehensive approach to customer support underpins key drivers of future sustainability – maintain, refurbish and reuse. Softcat’s sustainable solutions offer value when providing solutions to customers, allowing customers to maximise the use of an asset and to support the circular economy through recycling, as well as ensuring the customers’ supply chains are as efficient as possible. Making it sustainable for our customers Pre-supply Supply chain Post-supply Mission: Mission: Mission: Ensure our customers understand their Supply sustainable solutions and Offer sustainable maintenance, IT estate’s carbon footprint. services to assist our customers on management and retirement services their sustainable journey. to our customers. Opportunity and deliverables: • IT sustainability assessment Opportunity and deliverables: Opportunity and deliverables: • Sustainable products • Support services (TPM) • Consultancy/pre-sales • Sustainable services • Device lifecycle management • Enexo • Supply chain/logistics • Supply chain services Softcat will continue to develop solutions in line with vendor offerings and new sustainable developments. This will include: • from FY2023 improving training across our Sales teams to provide more help to customers when they make sustainable choices; • promoting greater use of sustainable products and services to our customers; • helping our customers to understand more sustainable solutions, for example greater adoption of cloud services if appropriate; and • further promotion of refurbished items. Employees Our employees have a major role to play in the success of our response to the climate risks and opportunities. Management has acknowledged that more work is required across the workforce to improve the awareness of climate-related issues. In particular, we will need to make it easier for employees to engage with our key stakeholders when selling or procuring products and services. Softcat will be concentrating on ensuring that all employees across all areas of the business understand the different elements of sustainability and what they can do to not only become more sustainable in their own and professional lives, but how they can use products and solutions offered by Softcat and its suppliers to assist them on their own digital sustainability journeys. This will be a focal point for development over the next year. To find out more about what we are doing on sustainability, please see our website at www.softcat.com/about-us/ sustainability. This can also be viewed by scanning the QRcode with your tablet orsmartphone. 56 Softcat plc Annual Report and Accounts 2022 Softcat has ‘Green Teams’ in place in its offices, which are great at helping to drive awareness and innovative ideas and co-ordinating Strategic report events. The employees who form the Green Teams volunteer their time to support Softcat and communities in the battle against climate change. The Green Teams meet regularly to discuss the latest sustainability news, developments and to arrange Softcat initiatives. The highlight of the Green Teams’ year is ‘Green Week’, where Green Teams hold various activities to celebrate ‘World Environmental Day’ and to help drive better awareness across the business. Environmental initiatives There will always be ways we can play our part towards a more sustainable world and we are running a number of activities to improve our environmental footprint, as highlighted below. We are pleased that some of these are complete, whilst others are still in progress. Activity Progress Reduction in printing across all offices using printing software solutions Reduce energy consumption through new, efficient, lighting and technology, throughout all offices Electric vehicle chargers at Marlow HQ for use of staff, visitors and pool cars Single use plastic cups and cutlery removed from all offices Secure WEEE/recycling of internal IT when no longer required Investment in new collaboration solutions across all offices to reduce internal business travel Carbon Disclosure Project disclosure for FY2021 (including all scopes) Hybrid working policy introduced so that employees can work remotely reducing employee commuting by approximately40% ISO 14001 Environmental Management: ISO 50001 Energy Management Commitment to 1.5°C science-based target Installation of power meters across all Softcat offices to get accurate power usage data to support reduction plans Direct delivery to customers from Softcat’s suppliers with no middle management which results in minimal logistics emissions Promotion of remote professional services engagements where possible to reduce business travel. Softcat will plant a tree orahedge foreach remote engagement taken. Softcat planted over 3,500 trees or hedges for the remote engagements delivered in FY2022 Certified green energy to be used across all Softcat office locations Replacement of existing pool car fleet with electric vehicles where possible Supply Chain Review, including all vendors, suppliers and partners Reduction in business travel (client and supplier meetings) Integration of a Biodiversity Conservation Project Softcat ‘Sustainability/Responsibility Framework’ Key: To be progressed Goal complete Regulatory disclosures GHG emissions Our emissions have been calculated using the GHG Protocol Corporate Accounting and Reporting Standard (revised edition), together with the latest emission factors from DEFRA and DECC. • Scope 1: comprises emissions from our pool cars and natural gas burnt in boilers we control. • Scope 2: comprises our electricity consumption in leased and owned buildings. • Scope 3: comprises all indirect emissions (not included in scope 2) that occur across our value and supply chain. Softcat intensity measurements We have chosen to present our total emissions relative to the average number of employees, in order to represent how our emissions are impacted by the growth of our business. We also present, for additional information, our emissions relative to our turnover. In FY2022 there was an increase in these figures and further commentary on these changes is provided on the following page. 57Annual Report and Accounts 2022 Softcat plc TASK FORCE ON CLIMATERELATED FINANCIAL DISCLOSURES (‘TCFD’) AND SUSTAINABILITY CONTINUED ### Environment, climate change and Task Force on Climate-related Disclosures (‘TCFD’) ### continued Regulatory disclosures continued Scope 3 emissions Softcat intensity measurements continued 600 FY2022 FY2021 FY2020 FY2019 500 tCO e/£m 0.21 0.20 0.30 0.51 2 400 e ‘000 tCO e/employee 0.28 0.23 0.22 0.39 2 2 300 tCO 200 383 Energy consumption and energy efficiency 249 This disclosure is made in accordance with The Companies 100 (Directors’ Report) and Limited Liability Partnerships (Energy and 0 FY2022 FY2021 Carbon Report) Regulations 2018, which requires certain companies to report on energy consumption and efficiency. Softcat has seen an increase in emissions across all scopes in FY2022 compared to FY2021. The increase in scope 1 and 2 3.00 emissions in part reflects more employees returning to the office to 2.50 work following the lifting of remaining restrictions on COVID-19, 2.00 increased office space and also ongoing growth in headcount. Softcat has also been improving the accuracy of data collated 1.50 2.75 which also contributed to the reported rise in scope 1 and 2 1.00 Million kilowatt hours 1.79 emissions. Scope 3 figures for FY2022 show an increase primarily 0.50 1. 12 due to increased revenue from the sale of hardware compared to 0 FY2021. Business travel also increased during FY2022, which also FY2022 FY2020 FY2021 contributed to the increase in scope 3 emissions. The above figure relates to Softcat plc, which was a single Waste management and water are included within our emissions entitycompany as at 31 July 2022. It consists of the aggregate calculations. Given the nature and operation of our business, we ofthe annual quantity of energy: (i) consumed from activities; and do not consider impacts relating to biodiversity and use of land to (ii) consumed resulting from the purchase of electricity or certain be material. other energy products. The figure was calculated following Use of carbon offsetting UKGovernment Environmental Reporting Guidelines including Whilst on our journey to net zero Streamlined Energy and Carbon Reporting guidance and our commitment to (March2019). science-based targets, Softcat is The aggregate number of energy consumed in FY2022 includes working with its accredited offsetting partners to offset its scope 1 0.1m kilowatt hours in respect of the office in Ireland and the and scope 2 emissions and its operational scope 3 emissions remaining portion relates to energy consumed in the UK. This (including waste, business travel and employee commuting). We use Annual Report describes elsewhere measures taken to increase carbon credit approved offsetting schemes, in which we make energy efficiency. The increased figures for FY2022 reflect more financial contributions to the equivalent of the emissions to be offset. employees returning to the office to work following the lifting of All of Softcat’s scope 1, scope 2 and operational scope 3 emissions remaining restrictions on COVID-19, increased office space and for FY2021 have been offset and will be offset for FY2022. also ongoing growth in headcount. We use a mixture of initiatives to offset our emissions and all GHG emissions offsetting meets the Verified Carbon Standard (‘VCS’) for reducing GHG emissions are calculated using methods contained in the emissions from deforestation and degradation. In the UK, trees are GHG Protocol Corporate Accounting and Reporting Standard typically planted across school grounds, parks, farms, woodlands using UK Government greenhouse gas reporting: conversion and other biodiversity sites, providing wildlife habitats and often factors 2022. bringing educational and community benefits. Scope 1 and Scope 2 emissions Scope 1 Scope 2 600 563 504 500 386 e | 2 | 400 | 334 | | | | --- | --- | --- | --- | --- | | | | | 326 | 289 | | tCO | 300 | | | | 304 200 258 229 215 100 82 68 0 FY2022 FY2021 FY2020 FY2019 58 Softcat plc Annual Report and Accounts 2022 RISK MANAGEMENT Strategic report ## RISK MANAGEMENT Our approach relatively low. However, we also have a strong desire to grow our The Board has overall responsibility for ensuring that risk is technical capabilities, our customer base and our income. As a managed appropriately in the Company. Risk assessment and result, we rely on our open culture to empower our employees to reporting are designed to provide the Board with a Company- develop the business and will review individual opportunities as wide view of the key risks faced by the business. From this process, they arise. In situations where our financial and/or reputational the Board has identified the key risks facing the Company and exposure is limited or can be mitigated, our appetite for risk in considered the likely impact that each could have on the business. order to achieve strategic growth may be higher. The Company’s This has enabled the Board to target risks on a prioritised basis. risk appetite has remained unchanged since last year. Risk appetite Risk identification and monitoring Consideration of risk is set against the backdrop of the Company’s Risks are identified in the business through a variety of methods, ‘risk appetite’, which the Board considers and approved during the including twice-yearly formal assessments conducted by the year. Our risk appetite is the level of risk that we are willing to Internal Audit Manager with various senior managers in the accept in the pursuit of a specific objective or strategy and is set business. Assessments consider current risks which could hinder based on Softcat’s values, strategy and ability to absorb risk. Our theachievement of our strategic objectives and whether the steps approach to risk appetite continues to evolve and mature in order to mitigate them remain effective. Emerging risks which have the to manage and monitor our risk exposure more effectively. potential in the future to create threats are also considered. Following review by management and the Audit Committee, risk Theoutputs of the assessments are captured in an updated risk appetites are now defined for each key category of risks. Our risk register which considers the gross risk (the potential impact appetite ratings are defined as follows: withoutmitigating controls), mitigating controls and the net risk (thepotential impact after mitigating controls have been applied). • Low: We aim to mitigate these risks to the fullest extent possible Theupdated risk register is discussed and reviewed with the Audit • Balanced: We accept broadly predictable risks where there Committee. This process provides an effective combined ‘bottom-up’ are business benefits of carrying that risk and ‘top-down’ approach to ensure risks have been considered from different perspectives. The risk register is reviewed periodically • High: We seek out opportunities with attractive potential to ensure that it remains current as the business and its markets upsides, take considered risks and manage the consequences evolve and that identified remedial actions are progressed. Assessing key risks against our risk appetite also provides the Consideration of the risk profile is also factored into strategic opportunity to identify where our current risk appetite may be planning and annual budgeting. different to our target risk appetite and for management to Ownership for each risk is assigned to a senior manager basedupon consider the actions required to achieve the target appetite. Senior alignment with operational duties. Risk owners take responsibility management is responsible for operating the business within the for designing appropriate internal controls and policies to mitigate risk appetite approved by the Board. The Company operates a the likelihood and potential impact of the risk materialising. cautious approach to risk and in general its risk appetite is Climate change Please see our report on TCFD and Sustainability on pages 43 In our consideration of emerging risks, climate change continues to 58. Climate change is already a component of the failure to as an area requiring greater analysis. During the year, we evolve our offering risk with regard to the products and services started a formal assessment of the potential impact of climate our customers consume and how they might be affected by the change to our business and supply chain. Our analysis will drive towards carbon neutrality. We also have robust business support more comprehensive evaluation and reporting in line interruption plans in the event of a disruption to our business. Our with the approach of the Task Force on Climate-related initial analysis suggests that no other climate change-related risk is Financial Disclosures (‘TCFD’). a principal risk which needs to be incorporated into the list of principal risks shown. 59Annual Report and Accounts 2022 Softcat plc RISK MANAGEMENT CONTINUED Risk identification and monitoring continued Key risks Senior managers also take responsibility for ensuring appropriate Set out on the pages 62 and 63 is the Board’s view of key risks mitigation for risks which might emerge or accelerate with little or currently facing the Company, along with commentary on how this no warning and for ensuring that employees play an active part might impact progress against our strategic goals. We provide a inprotecting our business from risk. For example, during the year, view on the change in risk compared to the prior year’s assessment. all employees undertook refreshed training to improve awareness There is a Board-approved definition for material emerging risks of fraud. and a process is in place which requires the CFO to escalate promptly any such risk to the attention of the Board. No new The Company’s internal control framework is based on a three lines principal risks were identified during the 2022 financial year. of defence model. The first line of defence comprises operational Issues associated with each of the key risks below have been management, which is responsible for the direct management of discussed and reviewed by the Board or relevant Committee on risk. This includes ensuring appropriate mitigating controls are in aregular basis, for example the Board/relevant Committee have place and that they are operating effectively. The second line of discussed updates on cyber security, the impact of the conflict in defence is made up of the Company’s internal compliance and Ukraine, customer satisfaction and changes in Softcat’s leadership oversight functions such as Company Secretariat, Finance and team. During the year the Board also considered other emerging Legal. The third line includes both internal and external audit external matters, such as the possible impacts of the increase in the reporting tothe Audit Committee. The Internal Audit Manager rate of inflation and the cost of living. enhances theeffectiveness of the three lines of defence, particularly on the monitoring of risks and completion of remedial actions to Some of the key risks are also reflected in the scenario planning as improve the control environment. part of the Company’s assessment of viability over the longer term. Please see the Viability Statement on page 64 for furtherdetails. The Audit Committee is responsible for reviewing the effectiveness of the risk management functions and receives assurances on the An explanation of how the Company manages financial risks is effectiveness of key controls in the business. The Audit Committee provided in note 21 to the financial statements. An explanation of also reviews the Viability Statement (see below), which considers the Company’s approach to critical accounting judgements and the potential impact over the longer term of some of the key risk key sources of estimation uncertainty is also provided in note 1 to factors. The Audit Committee receives reports from management the financial statements. and from internal audit on key areas of risk and control and challenges management on the timelines and effectiveness of corrective action. The Audit Committee also considers the findings and recommendations of the external auditor with regard tofinancial controls. 60 Softcat plc Annual Report and Accounts 2022 Risk management framework Strategic report STRATEGIC GOVERNANCE BOARD Audit Remuneration Nomination Sustainability Committee Committee Committee Committee Operational and First line Second line Third line financial governance of defence of defence of defence Audit and risk function (including internal audit, Senior management team Operational management Central support functions riskmanagement and externaladvisers) Risk categories and time horizons We identify our current key risks under the below categories. The effective operation of each of these categories forms a major underpin for our key performance indicators (see pages 30 and 31). Business strategy Operational Financial People Risks that could impact Risks which have the potential day-to-day operations and Risks that could impact the Risks that could impact our to impede the achievement of prevent business-as-usual profitability or financial ability to attract, retain and our strategic goals or impact activities. This includes external viability of the Company or motivate the very best our business model. macro-economic and increase economic exposure. employees. geo-political events. The principal risks currently identified could occur either in the short term or over the longer term. The mitigating actions reflect steps already being taken to manage the risks. 61Annual Report and Accounts 2022 Softcat plc RISK MANAGEMENT CONTINUED ### Principal risks and uncertainties Business strategy Operational Customer Failure to evolve our Cyber and data Business dissatisfaction technology offering security, including interruption with changing data protection customer needs andregulation | Change from 2021 | | Change from 2021 | | Change from 2021 | | Change from 2021 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | No change | | No change | | No change | | No change | | Target risk appetite: low | | Target risk appetite: low | | Target risk appetite: | | Target risk appetite: low | | low/ balanced Potential impacts Potential impacts Potential impacts Potential impacts • Reputational damage • Loss of customers • Inability to deliver customer • Customer dissatisfaction services • Loss of competitive • Reduced profit per • Business interruption advantage customer • Reputational damage • Reputational damage • Financial loss • Financial loss Management Management Management Management andmitigation andmitigation andmitigation andmitigation • Graduate training • Processes in place to act • Company-wide • Roll-out of a new ERP programme on customer feedback information security policy finance system to support about new technologies growth and ease of • Ongoing vendor training • Appropriate induction doing business for sales staff • Training and development and training procedures programme for all • Operation of backup • Annual customer survey for all staff technical staff operations centre and with detailed follow-up • External penetration datacentre platforms on negative responses • Regular business reviews testing programme with all vendors • Established and • Process for escalating undertaken documented processes | cases of dissatisfaction to | • Sales specialist teams | | | | --- | --- | --- | --- | | | | • ISO 27001 accreditation | todeal with incident | | Chief Revenue Officer | aligned to emerging | | | management, change (‘CRO’) and CEO technologies to support • In-house technical ofcontrol, etc. general account expertise managers • Continued investment • All employees issued with inoperations centre • Regular specialist and corporate devices with management and service offering reviews standardised access otherresources with senior management monitoring and controls • Ongoing upgrades tonetwork • Regular testing of disaster recovery plans and business continuity plans Link to strategy Link to strategy Link to strategy Link to strategy Link to strategy: | Acquire more customers | Sell more to existing customers | People and culture | | --- | --- | --- | | (see page 28) | (see page 29) | (see pages 38 to 42) | | Ease of doing business | Addressable market expansion | | | (see pages 10 to 11) | (see pages 22 to 26) | | 62 Softcat plc Annual Report and Accounts 2022 Strategic report Operational continued Financial People Macro-economic Profit margin pressure Culture change Poor leadership factors including the including rebates conflict in Ukraine, inflationary pressures, interest and foreign currency volatility Change from 2021 Change from 2021 Change from 2021 Change from 2021 Slight increase (due No change No change No change to ongoing external Target risk appetite: Target risk appetite: low Target risk appetite: low factors outside of the balanced Company’s control) Target risk appetite: balanced Potential impacts Potential impacts Potential impacts Potential impacts • Short-term supply • Reduced margins • Reduced staff engagement • Lack of strategic direction chaindisruption • Negative impact on • Deteriorating vendor • Reduced margins customer service relationships • Reduced customer demand • Loss of talent • Reduced staff engagement • Reduced profit per customer • Higher operating costs • Customer insolvencies and cash collection challenges Management Management Management Management andmitigation andmitigation andmitigation andmitigation • Close dialogue with • Ongoing training to Sales • Culture embedded in • Succession planning supply chain partners and Operations teams to theorganisation over process keep pace with new along history • Customer-centric culture • Experienced and broad vendor programmes • Branch structure with senior management team • Breadth of proposition • Rebate programmes are empowered local and customer base industry standard and not management • Additional customer credit specific to the Company • Quarterly staff satisfaction review processes • Rebates form an survey with feedback introduced important, but only acted upon • Focus and resources minority, element of total • Regular staff events and allocated to cash operating profits incentives collection procedures • Enhanced internal • Customer base is well communication processes diversified in terms of both and events revenue concentration but also public and commercial sector exposure • Operating costs are budgeted and reviewed regularly Link to strategy Link to strategy Link to strategy Link to strategy 63Annual Report and Accounts 2022 Softcat plc RISK MANAGEMENT CONTINUED # Viability statement In accordance with the UK Corporate Governance Code, the Directors have assessed the viability of the Company over a three-year period to 31 July 2025, which is a longer period than the twelve-month outlook required in adopting the going concern basis of accounting. This assessment period remains appropriate given the timescale of the Company's planning and investment cycle. The Directors confirm that they have performed a robust assessment of the principal risks facing the Company as detailed on pages 59 to 63, including those that will threaten its business model, future performance and solvency or liquidity. The Company's GII has grown on average 21% in the last three years. This has been achieved by gaining market share through increasing the number of customers as well as increasing spend per customer year on year. Against a backdrop of a global pandemic, increasing energy costs and global macro-economic turbulence, the Company has enjoyed a large degree of resilience to challenging conditions, evidenced by an increase in gross profit of 18% in FY2022, a year of significant uncertainty, lockdowns and the formal adoption of remote working. The year-to-date trading to the end of September 2022 shows growth in line with the base case forecast. As of September 2022, the principal challenges to short term business performance are the expected downturn in the UK economy, resulting from higher broad-based inflation and increasing interest rates which affect both our direct customers and limit the discretionary spend of the end users of their products and services. The business continues to be affected by hardware supply issues, resulting from the global semi-conductor shortage, although this is forecast to improve and is isolated to a select few vendors. Higher than normal risk of credit losses remains, with those who were temporarily supported through COVID-19 government schemes such as furlough, now facing further challenges through higher energy costs, staff costs and a fall in demand from customers. These factors have been assessed within the Company risk review and discussed within the Strategic Report. The assessment of the Company's viability considers severe but plausible scenarios aligned to the principal risks and uncertainties set out on pages 62 to 63, and the assessment was based on the severe but plausible scenario set out in our going concern assessment. The realisation of these risks, to the extent modelled, is considered remote. The testing continues to go above and beyond the impacts seen to date from the COVID-19 pandemic. The degree of severity applied in the viability scenarios was based on management's experience and knowledge of the industry to determine plausible changes in assumptions. The most relevant potential impact of the key risks on viability are: - a substantial and sustained shortfall in revenue and gross invoiced income compared to the budget and strategic three-year plan resulting from a significant and extended downturn in the UK economy and resulting fall in spend, paired with a worsening of supply chain shortages; - a fall in achievable gross margins resulting from margin pressure associated with lower demand and increased competition for the remaining business; - significantly increased levels of bad debt losses in the first year of the modelled period, to coincide with the fallout from COVID-19 together with the challenges of higher inflation, interest rates and less discretionary spend for consumers; and - an ongoing increase in the working capital cycle, specifically driven by a delay in customer payments versus historical levels. The following stress testing over a three-year period has been performed (i) against the budget approved by the Board for the 2023 financial year; and (ii) against the remaining two financial years (i.e. 2024 and 2025) of the three-year plan: - an average 7.5% year-on-year reduction, compared to the original budget and three-year strategic plan, in revenue and gross invoiced income; - reduced gross profit margins of 1%; - savings in discretionary areas of spend; - bad debt write offs of £5m above budgeted levels in FY2023, FY2024 and FY2025; and - extending the length of debtor days by two days in each of the three years (thus negatively impacting working capital). The Company benefits from a flexible business model with a high proportion of costs linked to performance, such as commission, no warehousing of unsold products and a low operating cost base, consisting of mostly staff costs. On top of the natural reduction in some of these outflows as profitability reduces, management could, if necessary, take mitigating actions (for example, the ability to adjust the level of discretionary special dividend) providing opportunities for the business to make further decisions on the cost base of the business. Despite the minimum desired cash position being achieved in the severe but plausible model through a reduction in planned special dividends, the following options also exist for management: - reduced salary costs, through recruitment restrictions on new heads and not replacing leavers; - no interim dividend in H2 of FY2023 or thereafter; - savings in discretionary areas of spend; - delay payments to suppliers foregoing early settlement payments; and - short-term supplier payment management. The Company operates a flexible model in a resilient industry that incorporates an increasing level of non-discretionary spend from UK corporates as IT has become vital to establish competitive advantage in an increasingly digital age. In Public Sector, a fast-growing area of the business, spending has also continued to be strong as investment in IT continues apace in order to provide the best level of service to the public. Financially, significant free cash flow generation and the strength of the Company's balance sheet provide comfort around the ability to absorb the impact of the stress tests outlined above. # Confirmation of viability Based on the analysis, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period of their assessment. 64 Softnet plc Annual Report and Accounts 2022 Corporate governance ## COMPLIANCE WITH ## THEUK CORPORATE ## GOVERNANCE CODE ## We have structured this year’s report in the Corporate governance ## following way, primarily basedupon the ## principles set out in the 2018 UK Corporate ## Governance Code. ### Board leadership and Company purpose Audit, risk and internal control The Board is responsible for establishing Softcat’s purpose, We present a fair, balanced and understandable assessment of engaging and building strong relationships with our shareholders Softcat’s position and prospects. Our decisions are discussed and stakeholders, and promoting the long-term success of Softcat. within the context of the risks involved. Read more on pages 66 to 69 Read more on pages 80 to 89 ### Division of responsibilities Remuneration The Board has clear divisions of responsibilities and promotes Director remuneration is designed to support Softcat’s strategy, aculture of openness and debate. purpose and values, and promote the long-term success of theCompany. Read more on pages 70 and 71 Read more on pages 98 to 127 ### Composition, succession and evaluation Sustainability We regularly evaluate the composition of the Board to ensure we During the year the Board established a Sustainability Committee are effective, considering diversity and the balance of experience, to sharpen our focus on our sustainability strategy, targets and skills, knowledge and independence. progress towards a lower carbon business. Read more on pages 74 to 75 and pages 90 to 95 Read more on pages 96 and 97 ### In this section: 66 Introduction to corporate governance 68 Board leadership and company focus 70 Governance report 80 Audit Committee report 90 Nomination Committee report 96 Sustainability Committee report 98 Remuneration Committee report 128 Directors’ report 65Annual Report and Accounts 2022 Softcat plc INTRODUCTION TO CORPORATE GOVERNANCE ### The outcome of our first externally ### conducted Board evaluation since ### 2019 was reassuring, as it ### concluded that your Board ### continues to work effectively.” Martin Hellawell Non-Executive Chair ## INTRODUCTION ## TO GOVERNANCE ### Dear shareholder The 2018 UK Corporate Governance Code (the ‘Code’) (a copy acknowledges again that the appointment of the CEO into the role of which is available at www.frc.org.uk) is applicable to Softcat for of the Chair is not in line with the recommendations of Provision 9 the financial year ended 31 July 2022. of the Code. However, the clear and successful operating model of the CEO running the Company (not the Chair) will continue I am pleased to confirm that your Company has complied with the when Graeme becomes the Chair. All of Graeme’s Executive principles and provisions of the Code during the year with one authorities and responsibilities will cease when he assumes the role exception. In respect of Provision 9 of the Code, I was not of Chair. I believe we have broad support from our shareholders on independent on my appointment as Chair in April 2018. When our succession plans, which your Board believes to be in the best deciding on my appointment the Board recognised that the Code interests of its stakeholders. The Board will also benefit from states that the chair should on appointment meet the independence aninfusion of new thinking when Graham Charlton’s replacement criteria and that ordinarily the chief executive should not go on to as CFO is appointed. be the chair of the same company. Your Board has a strong and effective system of governance and This is the fourth full year of my role as Chair and I consider my role continues to demonstrate good leadership and oversight of its to be very clear to myself, the Board, our shareholders and the responsibilities. I firmly believe this will continue with the succession employees of the organisation. We remain conscious that it is not changes planned in 2023. seen as best practice for a former CEO to be chair of the same company. However, all of the Board have confirmed they believe I was pleased with the Board’s engagement with key stakeholders this is working well and there remains a clear separation between during the year which, thankfully, included many more face-to-face the CEO and Chair. I am not involved in any operational matters meetings than in the previous year following the relaxation of other than acting as an occasional sounding board for Graeme restrictions following the COVID-19 pandemic. The outcome of Watt (our current CEO), apoint I re-emphasise when I meet with ourfirst externally conducted Board evaluation since 2019 was the Company’s shareholders on governance matters. reassuring, as it concluded that your Board continues to work effectively. I would like to thank my fellow Directors for their As I have said before Graeme is very clearly ‘the boss’ of the ongoing support. Company. The Board is grateful for the continued support shown by our shareholders, as evidenced at the last AGM, where The following reports explain how the Board and its Committees shareholders voted 92.3% in favour for my reappointment. operate and explain some of the work theyhave undertaken during the year. As announced earlier this year and covered elsewhere in this Annual Report, I will step down from the Board on 31 July 2023 and Graeme Watt will succeed me as the Chair. The Board was unanimous that Graeme’s deep knowledge of the business, Softcat’s culture and its markets made him the ideal candidate Martin Hellawell tocontinue supporting the interests of all our stakeholders. This Non-Executive Chair move has been very carefully considered by the Board, which 24 October 2022 66 Softcat plc Annual Report and Accounts 2022 ### Board overview Tenure of Directors Directors’ experience Director 1 Finance: 3 M Hellawell 16yrs 7mths Marketing: 4 | G Watt | 4yrs 6mths | | | | | --- | --- | --- | --- | --- | | | | | Operations: 7 | Corporate governance | | G Charlton | | 7yrs 7mths | | | Management: 7 V Murria 6yrs 11mths Technology: 4 ##  | K Slatford | | 2yrs 10mths | | --- | --- | --- | | R Perriss | | 3yrs 3mths | | L Weedall | 5mths | | 1. Includes six years and eleven months since Softcat was listed on the London Stock Exchange. Board composition (%) Board gender diversity (%) Chair: 14% Independent Male: 43% Non-Executive Directors: 57% Female: 57% Executive Directors: 29% ##   Allocation of time Corporate governance and investor relations: 24% Financial performance: 21% Risk:12% Strategy and operations: 43% ##  67Annual Report and Accounts 2022 Softcat plc BOARD LEADERSHIP AND COMPANY FOCUS ## YOUR BOARD OF DIRECTORS Our business is led by our Board of Directors. Biographical and other details of the Directors as at 24 October 2022 are as follows: Committee key A Audit Committee N Nomination Committee R Remuneration Committee D Disclosure Committee S Sustainability Committee Chair | Key strengths | | Prior to Softcat, Martin spent 13 years at | | --- | --- | --- | | • Over 16 years’ experience at the Company, | | Computacenter plc, where he was responsible | | | witha detailed understanding of all operations | forthe marketing function, ran Computacenter’s | French subsidiary and led acquisitions in the • Significant experience within the IT industry UnitedKingdom, Belgium and Germany. He was • Developing people and teams to be successful part of Computacenter’s initial public offering team • Strategy and development execution in 1998, ran operations, chaired Computacenter’s Current external commitments international joint venture, ICG, and was chief Chair of Raspberry Pi Trading Limited. Non-Executive operating officer of the dot-com spin-off Biomni director of Team17 Group plc and Chair of Limited. Martin has also worked for Specialist Martin Hellawell musicMagpie plc. Computer Centres PLC and for Canalys.com Non-Executive Chair Limited as an independent consultant. Martin Appointed to the Board: 24 March 2006 Previous roles started his career at Miles 33, a software (andbecame Chairon 1 April 2018) Martin held the positions of Managing Director solutionsprovider for the publishing industry. and then Chief Executive of Softcat between 2005 N D S and 2018, during which time he led the Company through a highly successful IPO. | Key strengths | | Previous roles | | --- | --- | --- | | • Extensive knowledge of the sector, distribution | | Graeme has over 30 years of experience in the | | | and the reseller channel | ITdistribution industry. Prior to joining Softcat in | | • Strong commercial skills | | 2018, Graeme was most recently senior vice | president EMEA, Advanced and Specialist • Business and system transformations Solutions, Tech Data Corporation (‘Tech Data’), • Mergers and acquisition experience aposition he held from March 2017. Prior to that, • Strong leadership skills and delivery of growth hewas president for Avnet Technology Solutions, invery sizeable business units EMEA, for almost seven years and a member of • Deep understanding of the Softcat business Graeme Watt Avnet’s global executive committee. He previously andculture spent six years at Bell Micro (as president of global Chief Executive Officer • Wealth of financial and risk knowledge distribution) and his earlier career included roles at Appointed to the Board: 1 April 2018 Tech Data (president EMEA) and Computer 2000 Current external commitments D S (Managing Director UK & Ireland). Graeme is a None. qualified accountant (ICAEW). Key strengths Previous roles • Strong leadership skills Graham previously spent four years as finance • Strong financial and commercial skills director at comparethemarket.com. Prior to that, Graham spent one year as finance director at See • Extensive experience in both financial Tickets (the trading name of See Group Limited) andgeneral management and over five years in various roles, including group • Deep understanding of the Softcat business financial accountant, finance manager and finance andculture director, decision analytics, at Experian Ltd. • Significant experience of financing and Graham is a Chartered Accountant and began his capitalraising Graham Charlton career with Andersen. Current external commitments Chief Financial Officer None. Appointed to the Board: 19 March 2015 D S 68 Softcat plc Annual Report and Accounts 2022 | Key strengths | | Previous roles | | --- | --- | --- | | • A seasoned and successful entrepreneur | | Prior to joining Softcat, Vin spent seven years | | | withextensive board experience | asthefounder and chief executive at Advanced | | • A strong background in technology-based | | Computer Software plc, before its acquisition by | | | businesses coupled with a strong network | Vista Equity Partners in 2015, and five years as | chiefexecutive of Computer Software Group plc, • Well-developed strategic and commercial skills before its acquisition by HG Capital and then Current external commitments Hellman &Friedman in 2007. Previously, Vin was Chair of AdvancedAdvT Limited, non-executive anon-executive director at Sophos Group plc, director at Bunzl plc and Silicon Valley Bank. Zoopla Plc, Chime Communications plc, MC Vin Murria OBE Saatchi plc and DWF Group plc, and Chief Independent Non-Executive Director and Operating Officer at Kewill Systems plc. Designated NED for Workforce Engagement Appointed to the Board: Corporate governance 3 November 2015 A N R S | Key strengths | | Previous roles | | --- | --- | --- | | • Substantial global technology and business | | Having commenced her career at ICL, Karen | | | sector experience | worked at Hewlett Packard for 20 years, ultimately | | • Significant experience of chair of the board | | becoming Vice President and General Manager | | | andcommittee chair positions | Worldwide Sales & Marketing for the Business | Customer Organisation. Since then, Karen has held Current external commitments a number of non-executive appointments in a Chair of Molten Ventures plc and Non-Executive range of technology companies, most recently Director of Accesso Technology Group plc. serving as Chair of The Foundry, a company Karen Slatford specialising in developing software for the creative industries, as a non-executive director of Intelliflo, a Senior Independent Non-Executive Director SaaS-based financial services software company, Appointed to the Board: and as a non-executive director at Micro Focus 5 December 2019 International plc. A N R S | Key strengths | | Previous roles | | --- | --- | --- | | • Wealth of financial, risk and governance | | Robyn was Finance Director at Rightmove plc, | | | knowledge | theUK’s largest property portal, until 30 June 2019. | | • Significant investor relations and capital | | Prior to being Finance Director at Rightmove, Robyn | | | marketsexperience | also held senior roles as Financial Controller and | Company Secretary. Before joining Rightmove, • Extensive experience of strategic roles, Robyn was Group Financial Controller at the particularly within a dynamic and fast-paced onlinemedia business Auto Trader. progressive environment She qualified as a Chartered Accountant in Current external commitments Robyn Perriss SouthAfrica with KPMG and worked in both Non-Executive Director at Next 15 Independent Non-Executive Director auditand transaction services. Communications Group PLC and Dr. Martens plc. Appointed to the Board: 1 July 2019 A N R S Key strengths Previous roles • Significant experience of senior positions in Previous senior executive positions include Group Human Resources People & Culture Director of Selfridges Group, and • Extensive experience as a non-executive director Group Human Resources & Strategy Director of of listed companies Carphone Warehouse. Previous non-executive roles include Treatt plc, William Hill plc and Current external commitments Greene King plc. Non-Executive Director at Dr. Martens plc and Greggs plc and Stagecoach Group Limited. Lynne Weedall Independent Non-Executive Director Appointed to the Board: 3 May 2022 A N R S 69Annual Report and Accounts 2022 Softcat plc GOVERNANCE REPORT ### Division of responsibilities ## OUR GOVERNANCE ## FRAMEWORK Board meeting attendance ### Our Board The Board met eight times during the year and met both physically and via video conference, following the applicable rules at the time in respect of the UK Government’s Roles and responsibilities Matters reserved for the Board COVID-19guidance. The Board is collectively responsible for the oversight of The Board has a formal schedule of matters reserved our business and is responsible for Softcat’s long-term for the Board’s approval which is regularly reviewed The Board is committed to fostering an open and transparent success. The Board provides leadership to the Company, and updated. Matters include: culture at Softcat and recognises the importance of regular establishing its purpose, culture, values and strategy. The engagements with employees as a part of this culture. This year, • our strategy, business objectives and annual Board reviews important aspects of the business with the Board was very pleased to be able to resume its usual budgets to ensure we can deliver long-term value to management and monitors management’s performance practice of holding some of its meetings in different offices our shareholders; against targets. The Non-Executive Directors use their across the country. The Board took advantage of the opportunity • annual and half-year results and our dividend policy; experience and expertise to provide strategic guidance to engage with employees, holding question and answer and views to the Board. Non-Executive Directors • material acquisitions, disposals and contracts; sessions in both the London and Birmingham offices. constructively challenge management, so wehave a • major changes to internal controls, risk management Eachsession was led by Vin Murria (the Board’s Designated robust assessment of how the business is operating and or financial reporting policies and procedures; Director for Workforce Engagement) and provided a valuable they provide additional perspective on awide range of opportunity for the Board to better understand the matters of • determining our risk appetite; matters. The Board sets the Company’s strategic aims and particular importance to each office, and for the employees to • oversight of strategic sustainability objectives; has oversight as management ensures we have the right get to know the Directors, some of whom had not met the skills and resources for theCompany to meet its objectives. Boardbefore. The Company held four meetings of the Audit Committee, four ### Board Committees meetings of the Remuneration Committee, seven meetings of the Nomination Committee and one meeting of the Sustainability The Board delegates a set of defined responsibilities Audit Committee Committee. Attendance for each Committee is shown in the and authorities to the Audit, Disclosure, Nomination, Provision of effective governance over: respective Committee Report. Additionally, from time to time, Remuneration and Sustainability Committees so that authority will be delegated to a sub-committee of the Board or the appropriateness of the Company’s financial • specific functions and duties can be undertaken. This one of its Committees to authorise specific actions, for example reporting; helps to support the overall good governance of the the publication of a trading statement. Sub-committee meetings Board and the interests of shareholders and other • the performance and appointment of both the are held as and when they are necessary throughout the year. stakeholders. Each Committee operates within internal audit function and the external auditor; and Name Board attendance 2022 written terms of reference which are regularly the Company’s system of internal control, risk • reviewed to make sure the committees focus their management and compliance activities. M Hellawell attention on matters 80 to 89 relevant for the good Read more on pages 80 to 89 G Watt governance of the business. A summary of the G Charlton keyresponsibilities of each committee is briefly Disclosure Committee K Slatford outlined below. The full terms of reference of eachof • Supports the Board in overseeing the accuracy and the Audit, Remuneration, Nomination and V Murria timeliness of Softcat’s formal business disclosures, Sustainability committees can be found on our R Perriss including disclosures made in Softcat’s half and website at www.softcat.com/about-us/investor- full-year results. L Weedall centre/governance. Attended Did not attend n/a Karen Slatford was unable to attend one Board meeting due to illness. ### Executive leadership Lynne Weedall joined the Board in May 2022. She attended all meetings during the financial year following her appointment. Senior Leadership Team The SLT is led by the CEO and is responsible for leading The members of the Senior Leadership Team (‘SLT’) the day-to-day operation of Softcat. The SLT focuses on: can be found on Softcat’s website at www.softcat. com/about-us/people#senior-leadership-team. 70 Softcat plc Annual Report and Accounts 2022 ### Our Board Corporate governance • major changes to capital, corporate or management structure; and • succession planning for the Board and senior management. Matters reserved can be found at www.softcat.com/ about-us/investor-centre/governance. The Code expects certain roles of the Board to be clearly setout. The Board has a formal document outlining the key aspects of the role of the Chair, Chief Executive, Senior Independent Director (‘SID’), Non-Executive Directors (‘NEDs’) and Designated Director for Workforce Engagement. This is regularly reviewed, and the current version can be found at https://www. softcat.com/about-us/investor-centre/governance. ### Board Committees | Nomination Committee | | Remuneration Committee | | Sustainability Committee | | | --- | --- | --- | --- | --- | --- | | | • Evaluates Board composition and | | • Sets, reviews and recommends the policy | | • Sets and approves the sustainability | | | ensures Board diversity and a balance | | on remuneration of the Chair, Executive | | strategy of the Company. | | | of skills. | | Directors and Senior Leadership Team. | | | | | | | | | • Reviews performance against | | | • Reviews Executive succession plans, | | • Sets the pay of the Executive Directors | | climate-related targets, goals and | | | performance on diversity and plans to | | and agrees their participation inbonus | | initiatives, and oversees compliance | | | improve diversity in the business. | | plans and share-based incentives. | | withclimate-related regulations. | | | • Oversees the performance evaluation | | • Sets a Remuneration Policy for approval | | • Reviews the effectiveness of | | | of the Board, itsCommittees and | | by shareholders and then manages the | | management’s practices for identifying | | | individual Directors. | | implementation of the Policy. | | and monitoring climate-related risks | | | | | Read more on pages 98 to 127 | | andopportunities. | | | • Reviews employee engagement and | | | | | | | the culture within the business. | | | | • Reviews other corporate responsibility | issues as requested. Read more on pages 90 to 95 Read more on pages 96 to 97 ### Executive leadership •strategy implementation; •succession planning below Board level; •operational, financial and competitive •organisational development; and performance; •maintaining Softcat’s culture. •commercial developments; 71Annual Report and Accounts 2022 Softcat plc GOVERNANCE REPORT CONTINUED ## WHAT THE BOARD ## DIDTHISYEAR ### Strategy Stakeholder engagement The development and implementation of Softcat’s strategy The Board knows the importance of being aware of the remained a key focus for the Board. This has been covered in views of its key stakeholders. These include our shareholders, a number of ways including: employees, customers and vendors. Duringthe year we maintained our engagement withstakeholders, which • recurring updates from the CEO; included the following: • specific strategy review discussions with the Board and key • the Board met with a major customer. The meeting was senior management in February 2022; and very helpful in gaining perspectives from outside the Board; • discussion of critical items to support the growth of the • the Board discussed sustainability with management, business, such as the implementation of a new finance inparticular performance against environmental targets system and discussion with management on high level and commitments, and the development of Softcat’s operational plans for the coming year. plansubmitted and approved by the Science Based Targets initiative; • discussions with investors and analysts, including their feedback following meetings and after the release of ourannual and half-year announcements. We maintain ### Performance monitoring aninvestor relations programme of meetings with existing and potential shareholders; The Board has a robust process in place for setting • Vin Murria is Softcat’s Designated Non-Executive Director expectations and for regular monitoring of business for Workforce Engagement. She led, with the other performance. During the year thisincluded: Non-Executive Directors present, engagements with our • review and approval of a three-year plan atthesame time employees at the London and Birmingham offices; as the strategy review in order to provide a comprehensive • reviewing the feedback from employee surveys. This longer-term outlook. Forecasts in the three-year plan are includes regular surveys of the managers in the business subsequently refreshed as needed during the year; and our annual all-employee survey to gauge the • approval of an annual budget, followed by a report each wellbeing and satisfaction of employees; month comparing performance against budget; • the Chair undertook an investor engagement programme • consideration of year-end and half-year performance inviting engagement with our top 50 shareholders and andsubsequent review, approval and publication of the with the key proxy advisory agencies, to further strengthen year-end andhalf-year results; our mutual understanding of governance matters. Martin setting of a dividend policy. Determining whether an updated the Board regularly; • interim dividend should be paid and proposals for a • the Remuneration Committee Chair engaged with our top year-end dividend, after taking into account performance, shareholders on the revised Remuneration Policy, which will the Company’s financial situation and the needs of the be proposed for shareholder approval at the 2022 Annual business and any other relevant circumstances; General Meeting (see pages 113 to 127); • discussion of the performance and resilience of the business • the Board reviewed the outcomes of Softcat’s annual against the background of certain IT component shortages customer satisfaction survey and the actions to further in the market and macro-economic pressures; and improve engagement with customers; and • an update from the Company’s brokers on investor themes • the Audit Committee Chair reached out to our top and equity market matters. shareholders for feedback on key areas of audit focus forthe coming year. 72 Softcat plc Annual Report and Accounts 2022 | Governance and risk | | Other | | | | --- | --- | --- | --- | --- | | During the year the Board: | | The Board has also: | | | | | • increased its focus on environmental strategy, targets and | | • approved the 2022 Annual Report andAccounts; | Corporate governance | performance by establishing a Sustainability Committee • approved the 2022 Notice of AGM; and of the Board (see pages 96 to 97); • reviewed monthly reports which analysed key changes • approved the appointment of Lynne Weedall as Chair of inour shareholder base. the Remuneration Committee. This rebalanced the workload of the Non-Executive Directors as Karen Slatford was until that time Chair of both the Nomination Committee and the Remuneration Committee; • monitored the longer-term impact post the COVID-19 pandemic and other macro-economic considerations, such as inflation, on the Company’s performance and finances, and the economy more widely; • 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, which was externally facilitated; • reviewed the Company’s risk appetite, principal risks anduncertainties; • 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: • approved the Board succession changes which will takeeffect in 2023 and commenced the search for a new CFO; • met with many of the members of the Senior Leadership Team (‘SLT’) and other senior managers in the business. 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, levels of employee turnover and diversity and inclusion; • considered the results of the annual employee survey andthe quarterly management team surveys; and • engaged with employees in our London and Birminghamoffices. 73Annual Report and Accounts 2022 Softcat plc GOVERNANCE REPORT CONTINUED ## COMPOSITION, SUCCESSION ## AND EVALUATION Stage 1: Selection and appointment Composition and succession This is discussed in the report from the Nomination Committee on pages 90 to 95. The Company Secretary reviewed the capabilities of RRA to conduct the evaluation and discussed this with the Chair, who was satisfied with RRA’s strong track record and experience. Board evaluation The Board approved the appointment of RRA to conduct the exercise. RRA discussed with the Chair and the Company Secretary a proposed approach and timing for the Board evaluation exercise. The Chair approved the approach on ### This is a Board that functions well, with a behalf of the Board. ### good mix of skills and personalities, and ### well defined roles between the NEDs Stage 2: Document review ### and the Executives. The Board members ### are passionate about Softcat and RRA reviewed key documents to build on its knowledge of the ### engaged with the business.” operation and activities of the Board, including: • Board and Committee papers and minutes covering the Extract from the external evaluation report prepared by Russell Reynolds Associates financial year; and • governance documents such as Matters Reserved to the Board evaluation process Board, the roles of the Board and the terms of reference Each year the performance of the Board is assessed for the Committees of the Board. through an evaluation exercise. In accordance with the UK Corporate Governance Code, the process this year was conducted independently by an external company (the Board having last conducted an external evaluation in Stage 3: Observation 2019). The Board appointed Russell Reynolds Associates (‘RRA’), which has a well-established board evaluation RRA observed in person the Board and Committee meetings team and service, to conduct the evaluation. RRA in May 2022. This provided useful insight into the work, supported the Board in respect of the Board succession dynamics and culture of the Board and its Committees. changes which will take place in 2023 and also assisted the Board in its recruitment of Lynne Weedall as a Non-Executive Director during the year. As a result of its work with the Board, RRA had developed a deep understanding in respect of the Board’s composition, its target skillset, succession planning priorities and longer- ### There are good relationships between the term succession considerations. The Board considered that ### Executive and Non-Executive teams. The NEDs RRA would therefore be well placed to conduct the Board evaluation. Other than the foregoing, RRA has no other ### view the Executive team as being of high connections with Softcat. ### quality, enjoy working with them, and feel they The key stages of the process this year were: ### are listened to. The Executives feel appropriately ### challenged in the right areas by the Board and ### point to the value these discussions are adding ### to the business.” Extract from the external evaluation report prepared by Russell Reynolds Associates 74 Softcat plc Annual Report and Accounts 2022 | | • Non-Executive Directors contribute openly and broadly across | | --- | --- | | Stage 4: Questionnaires and interviews | the range of issues. | | | • The Board has an inclusive and open culture, and all | RRA sent an online questionnaire to each Director, asking contributions are welcome and discussed by the Board. them to provide their assessment on a number of critical • The Executive team appreciates the support and trust it is given areas in respect of the effectiveness of the Board. The areas by the Board. included: • All Board members are well prepared for Board meetings and • oversight of strategy, risk, values and purpose; spend the necessary time to keep up with the business outside • people and composition; of the meetings. • Board leadership; • The Board leadership is very strong, with a Chair valued for his Corporate governance insights into the business and for his support of the broader • structures and processes; management team. The Board has good support from the • use of Board Committees; Company Secretary’s team. • Board culture; and RRA’s report included a rating out of five for each important area further self-development of Directors. under review. No area scored less than 4.5 and the average score • was 4.7 out of five. The Board is satisfied with this assessment. RRA collated the questionnaire responses. RRA then interviewed each Director, selected Executives and the Outputs and recommendations Company Secretary to validate and gain a better The Board was pleased with the outcome of the independent interpretation of the responses to the questionnaire. Board evaluation, which reflects the Directors’ commitment to the business, strong processes, and positive culture and attitudes for the successful operation of the Board. RRA has suggested some minor areas for improvement, which the Board has considered Stage 5: Board report further. These improvement points include: • further deepening the Non-Executive Directors’ understanding RRA prepared a comprehensive report, with the individual of broader market trends, best practice, market risks and responses of each Director anonymised. A draft of the report sustainability to further strengthen strategic oversight and was discussed with the Chair and then distributed to the riskoversight; Board in July in advance of a Board meeting. RRA attended the Board meeting to present and discuss its findings and additional considerations of complementary skills and • recommendations with the Board. experiences which will further strengthen the composition oftheBoard when considering the next appointment of Non-Executive Directors; Stage 6: Action planning • considering ways to support deeper discussions on the most important topics, for example by holding additional Board dinners or a pre-Board discussion prior to the annual Board An action plan was prepared to address points of Strategy Review; and recommended improvements. Progress will be tracked during the year. arranging Board discussions on the self-development points • identified through RRA’s questionnaire and interviews. The Company Secretary has prepared an action plan based on Outcome the recommendations and the Board’s discussions, which will be The outcome of the review was once again positive and progressed and monitored. An update will be provided in next concluded that the Board and its Committees continue to function year’s Annual Report. well, consider the right issues and work in a transparent and Good progress had been made on the actions arising from the internal constructive way. There was strong alignment between the Board evaluation conducted in the previous year. This included: Company’s and the Board’s values and culture. Some of the points • increasing the amount of direct feedback and engagement made by RRA included: between employees and the Board; • The Board functions well, with a good mix of skills • additional interaction with members of the Senior Leadership andpersonalities, and well-defined roles between Team at Board meetings; and theNon-Executive Directors and the Executives. • improving the format and overall usability of certain Board and • The Board members are passionate about Softcat and Committee papers. engaged with the business. 75Annual Report and Accounts 2022 Softcat plc GOVERNANCE REPORT CONTINUED # OPERATION OF THE BOARD ## Workforce engagement Vin Murris is the Board's Designated Director for Workforce Engagement. After a year of virtual engagements in 2021, Vin was very happy to be able to lead in-person engagements again during 2022. Engagements this year were held in Softcat's London and Birmingham offices, both of which were attended by the Non-Executive Directors. Various topics were discussed, including the Board's strategic outlook, the role of the Board, retention and recruitment of staff, work-life balance, progression and pay, and various commercial and operational matters. The discussions provided valuable insight and actions were 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 management's confirmation that the Company has sufficient distributable reserves before a dividend payment is made or proposed to shareholders. 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 2022 amounted to £202.5m (as disclosed in the Statement of financial position). In addition to the reviews of distributable reserves prior to a dividend being paid or proposed, the Board regularly reviews the performance of the business, particularly in respect of cash flow, receivables and the minimum amount of cash required to operate the business. Since 2020, the Board has approved a minimum cash holding in the business of £45m. The Board has reviewed the matter and, given the continuing increase in the size and scale of the business, has agreed to increase this level to £60m. A special dividend is also proposed which has been calculated to take into account the increase in minimum cash holding in the business. The Directors have proposed a final dividend and a special dividend for the financial year ended 31 July 2022. Further information in respect of the proposed dividends can be found on page 33. 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 viability and going concern can be found on page 64 and pages 133 and 134 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 2022 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 and a twelve-month forward plan is maintained by the Company Secretary to ensure that emerging topics or repeat topics which require further debate by the Board can be effectively scheduled. 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. When a new Director has been appointed, it is important to accelerate their understanding of the business so the Director can maximise their contribution to the Board and fulfil their responsibilities and duties successfully and effectively. An extensive and tailored induction programme was conducted following the appointment of Lynne Weedall in May 2022. The programme included meetings with the Chair, the Chief Executive Officer, the Chief Financial Officer, members of the Senior Leadership Team and other key management, and representatives from the Company's Remuneration Committee advisers, PwC. The Company Secretary also highlighted key Board documents for Lynne to review, such as the Board's current annual Budget, Board Strategy Review and Three Year Plan. This helped to accelerate Lynne's understanding of the business. 76 Softcat plc Annual Report and Accounts 2022 All Directors have the opportunity to approach the Company • through the Sustainability Committee, scrutinise management’s Secretary (who acts as Secretary to the Board and all its activities and policies for pursuing Softcat’s sustainability Committees) for advice. The Company Secretary is appropriately strategy and achieving its climate-related targets. qualified and highly experienced and is responsible for advising Organisation of Board meetings the Board on certain regulatory, legislative and governance matters and other ad hoc issues when required. Each Board The following are key features of how our Board and Committee meeting includes an update from the Company Secretary on meetings are organised to support the good governance of Corporate governance anymajor developments of which the Board should be aware. thebusiness: Therole of the Company Secretary also includes: • Board meetings are scheduled to consider issues requiring Board informing the Board of their key obligations as Directors oversight and adequate time for discussion of each agenda • ofapubliclisted company; item is provided. Agendas are set to provide the Directors with opportunities to discuss the longer-term outlook of the business. • assisting the Chair by organising induction and training Additional meetings are arranged when the need arises; programmes and ensuring that all Directors have full and timely access to all relevant information; • an annual calendar of scheduled Board and Committee meetings is structured to allow the Board/Committees to review • developing the agenda for each meeting of the Board cyclical and ad hoc items, such as key projects; anditsCommittees for approval by the respective Chair; • the Directors have access to key governance documents, such • working with the Directors to develop the long-term agenda for as the Matters Reserved to the Board, Terms of Reference for the Board and its Committees to enable them to discharge their each Committee, and the Delegated Authorities Matrix; responsibilities effectively; and • Non-Executive Board members make themselves available outside • ensuring that the correct Board procedures are followed, in of scheduled meetings should the need occur. In particular, accordance with the Company’s constitution, applicable theChairs of the standing committees often hold preliminary legislation and good governance practice. planning discussions with the Company Secretary, management The removal of the Company Secretary is a matter for the Board or external advisers to a Committee prior to a meeting; 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; • offer additional perspectives, advice and strategic guidance; • scrutinise the performance of management in meeting agreed goals and objectives; • have oversight to ensure compliance with key listed company requirements; • through the Audit Committee, satisfy themselves that financial information is accurate, and that internal controls and systems ofrisk management are robust; • through the Remuneration Committee, take responsibility fordetermining appropriate levels of remuneration for seniorexecutives; • 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; and 77Annual Report and Accounts 2022 Softcat plc GOVERNANCE REPORT CONTINUED OPERATION OF THEBOARD CONTINUED Organisation of Board meetings continued Independence and conflicts • reporting packs are provided for each Board/Committee The Board, excluding the Chair, is currently comprised of four meeting, which are designed to be clear, analytical and independent Non-Executive Directors and two Executive Directors concise. Papers are distributed and retained in an electronic and therefore complies with the independence requirements of the system which is managed by the Company Secretary and this Code. Martin Hellawell was formerly the Chief Executive Officer provides Directors with instant access to papers at any time; before being appointed as Chair in April2018. The Board considers for the purposes of the Code thathe was not • reporting packs are normally prepared and presented by independent when he was appointed Chair andthat he remains theExecutive Directors and other senior managers. Packs are not independent. distributed by the Company Secretary to the Board around five days in advance of Board or Committee meetings. This enables The Company announced earlier in the year Board succession the reporting packs to be as up to date as possible whilst allowing changes which will take effect on 1 August 2023. This included sufficient time for their review in advance of the meeting. Verbal that Graeme Watt, the current Chief Executive Officer, will updates cover any subsequent material developments; succeed Martin Hellawell as Chair. Given Graeme’s current Executive role, for the purposes of the Code he will not be • a summary of the actions arising at Board and Committee considered as independent when he succeeds Martin as Chair. meetings is circulated by the Company Secretary following each meeting. The Company Secretary then ensures progress The independence of the Non-Executive Directors is reviewed ismade in respect of each action; annually by the Nomination Committee (described in the Nomination Committee Report on pages 90 to 95). Their • financial updates with commentary are distributed to the independence could be impinged where a Director has a conflict Boardmonthly. This gives the Directors the opportunity to of interest, and the Board therefore operates procedures to identify reviewperformance and any emerging issues in ‘real time’. and manage situations where such a conflict could arise. Board Thefinancial updates include an assessment of performance procedures operate to restrict a Director from voting on any matter against the annual Budget as approved by the Board, giving in which they have a material personal interest, unless the Board the Board additional analysis on developing Company trends; unanimously decides otherwise. If necessary, Directors are • the development of strategy is led by the Executives with required to absent themselves from a meeting of the Board while input,challenge, examination and ongoing testing from such matters are being discussed. theNon-Executive Directors. A dedicated Board Strategy During the year, all Directors confirmed that they are able to Review session is held annually; and allocate sufficient time to discharge their responsibilities effectively • Board discussions are held in an open and collaborative and all Directors continue to devote adequate time to their duties atmosphere of mutual respect allowing for questions, scrutiny at Softcat. Directors are also required to notify the Board of any and constructive challenge. This supports decisions on which major changes to their external commitments that arise during the theBoard seeks a consensus. year with an indication of the time commitment involved. 78 Softcat plc Annual Report and Accounts 2022 ## RELATIONS WITH ## SHAREHOLDERS Governance engagements The Board maintains a proactive and constructive programme of engagement with its stakeholders and recognises within this the ### The Board maintains a proactive and important and valuable role that shareholders play, as owners Corporate governance ### ofthe Company. Further information on the Board’s engagement constructive programme of engagement with its stakeholders is provided on pages 34 to 37. ### withitsstakeholders.” For the fourth year, the Chair undertook an extensive engagement programme with the Company’s largest shareholders on governance matters. Feedback from these sessions was reported back to the The 2022 AGM will be held on 13 December 2022 at Softcat plc, Board to make sure the Board fully understood the views of those Fieldhouse Lane, Marlow SL7 1LW. Details of the meeting and shareholders and the Board discussed whether any actions should theresolutions to be proposed are set out in the Notice of be taken as a result. AGMwhich is available to download on our website (www.softcat. com/about-us/investor-centre/shareholder-information). As part of an ongoing investor relations programme, there was extensive interaction with institutional shareholders and market The AGM gives shareholders an opportunity to vote on key aspects analysts across the year. The Chief Financial Officer provides the of Softcat’s business and to ask questions to the Directors. The Board with briefings and reports on these interactions and on any opportunity to submit questions for the Directors via email will be material changes in the shareholder base of the Company. given again for the 2022 AGM. Details of how to do this can be found in the Notice of AGM. The Chair of the Remuneration Committee conducted a consultation with the Company’s largest shareholders on minor Shareholder meetings changes to the Remuneration Policy which will be proposed at the Throughout the year, numerous meetings were held with existing and AGM to be held in December 2022. Please see pages 113 to 127 potential shareholders. These meetings were attended by either the for more information. Chief Executive or the Chief Financial Officer or sometimes both, The Chairs of each of the Committees welcome the views and with the support as needed of the Commercial Finance Director, questions of shareholders at any time. Each of the Committee whohas responsibility for investor relations. The meetings focused Chairs can be contacted via the Company Secretary at primarily on trading performance and the implementation of our cosec@softcat.com. business strategy. Any significant views expressed by shareholders are recorded and reported to the Board to keep them up to date In the event that shareholders have any concerns, which the normal with investor sentiment. In line with the Market Abuse Regulation, channels of communication to the Chair or Chief Executive have strict protocols are observed to make sure that no unpublished failed to resolve or for which such contact is inappropriate, our pricesensitive information is discussed during these meetings. Senior Independent Director or any independent Non-Executive Director is available (via cosec@softcat.com) to address such Results presentation and investor roadshows issues. The Board continues to make itself available, when requested, The Chief Executive Officer and the Chief Financial Officer provide for meetings with shareholders on issues relating to the Company’s a briefing later in the day after the release of the full-year preliminary governance and strategy. results and also of the half-year results. The briefing is primarily aimed at institutional holders and market analysts but all stakeholders, Annual General Meeting including employees, and all shareholders are welcome to access Due to the additional restrictions on gatherings put in place in the briefing. Any supporting material for the briefing is published on response to the Omicron variant of COVID-19, and to protect the Softcat’s website and is accessible to all stakeholders and the public. health and safety of our employees and Directors, shareholders were encouraged to appoint the Chair as their proxy and not attend Following the release of our full-year preliminary results the Company’s 2021 Annual General Meeting (‘AGM’) in person. announcement and our half-year results, the Chief Executive and This did not affect the shareholders’ right to attend, speak and vote Chief Financial Officer undertake extensive investor engagement atthe meeting, if they still wished to do so. Shareholders were given roadshows (which may be held in person or held virtually). the opportunity to submit questions to the Directors via email; Feedback from the roadshows and from reports by analysts, by however, no such questions were received from shareholders industry experts and in the media are collated and shared with the forthe2021 AGM. Board to improve the Board’s understanding of their views. 79Annual Report and Accounts 2022 Softcat plc AUDIT COMMITTEE REPORT ## ACCOUNTABILITY ### One of the key activities of the Committee was ### the audit tender process, with a significant ### proportion of time devoted to this process.” Robyn Perriss Chair of the Audit Committee Introduction Members As Chair of the Audit Committee (the ‘Committee’), I am pleased to present the Committee’s report for the year ended 31 July 2022. R Perriss (Chair) K Slatford The Committee continues to fulfil a vital role in the Company’s V Murria governance framework, providing valuable independent challenge and oversight of the accounting, financial reporting and L Weedall internal control processes, risk management, the internal audit function and the relationship with the external auditor. These pages Attendance of the Audit Committee outline how the Committee discharged the responsibilities Name Committee attendance 2022 delegated to it by the Board over the course of the year, the key issues it has considered during FY2022 and also areas of focus R Perriss over the next financial year. V Murria Ernst & Young LLP (‘EY’) has been Softcat’s external auditor since 1 K Slatford July 2013 and during FY2021 a decision was made to tender the 2 L Weedall external audit for the year ending 31 July 2023. Consequently one of the key activities of the Committee was the audit tender process, Total meetings held with a significant proportion of time devoted to this process. Following a very comprehensive, high quality and competitive Attended Did not attend n/a tender process, the Committee has recommended the 1. Karen was unable to attend due to illness. reappointment of EY as auditor to the Board at the 2022 AGM. 2. Lynne joined the Committee on 3 May 2022, when she joined the Company Further details of the external audit tender process are set out and attended the remaining Committee meeting for the financial year. onpage 85. Allocation of time Internal audit: 18% External audit: 37% Financial reporting: 20% Risk and internal controls:25% ##  80 Softcat plc Annual Report and Accounts 2022 Areas of focus in 2022 included: Focus areas for 2023: • reviewing the appropriateness of our published half-year • ongoing monitoring of IT general controls and financial and full-year results; reporting controls within the new finance system; • reviewing the application of financial reporting and • an assessment of the readiness to meet the final BEIS proposal governance standards; outcomes announced in May 2022, including future actions and the development of an Audit and Assurance Policy; • assessing the Company’s Going Concern and ViabilityStatements; • continued focus on cyber and IT security with a particular focuson our internal cloud security platforms and business • confirming that the Annual Report and Accounts is fair, continuity planning; Corporate governance balanced andunderstandable; • ongoing maturation of our approach to defining our risk • receiving updates and exercising oversight in relation to appetite; and the implementation of a new finance ERP system to support greater automation and further strengthen the • smooth transition to working with a new lead partner of the financial control environment asthe Company continues external auditor, following the scheduled mandatory rotation to scale; ofthe current partner in accordance with audit regulations. • receiving regular updates in relation to IT systems As noted above, in May 2022, Softcat went live with a new ERP andsecurity; finance system. Throughout the year the Committee and the Board have been kept abreast of the status of the project including key • receiving and discussing internal audit reports on: milestones and decision staging gates together with an appraisal – IT asset governance and user access management; of costs incurred on the project together with a consideration of – organisational fraud maturity; accounting implications such as meeting the criteria for – in-flight and go/no go assurance updates in respect capitalisation and the appropriate useful economic life. of the implementation of a new ERP finance system; – purchase to pay process; During the year, the Committee’s core duties remained unchanged – commission calculation and process; and the usual cadence of activities relating to risk, assurance and internal controls remained in place. The Committee has also • ongoing monitoring of the status of the proposals for carried out a review of the independence and effectiveness of reforms issued by the Department for Business, Energy & EYas auditor and performed an internal questionnaire-based Industrial Strategy (‘BEIS’) to improve trust in audit and review of the effectiveness of the internal audit function. corporate governance; With the assistance of management, the Committee has reviewed • reviewing the effectiveness of internal audit and internal the content in the Annual Report and Accounts and believes that controls, discussing the Company’s risk appetite, principal this explains our strategic objectives and is fair, balanced and risks and risk management and reviewing the Company’s understandable. risk register; Whilst this Report of the Audit Committee contains some of the • evaluating the effectiveness and independence of the matters addressed during the year, it should be read in conjunction external auditor; and with the Independent Auditor’s Report starting on page 136 and • discussing the external audit tender process and indeed the Softcat plc financial statements in general. This includes approving a proposal to recommend the reappointment the significant accounting matters and issues in relation to the of EY as the statutory auditor from FY2023. Company’s financial statements that the Committee has assessed during the year, which can be found on page 83. This report explains why the issues were considered significant and further information can be found in the Auditor’s Report from page 136 which covers its key audit matters. If any shareholders would like to raise any matters with me in respect of the work of the Committee and our key focus areas forFY2023, I can be contacted via the Company Secretary at cosec@softcat.com. I will also be happy to answer any questions about the work of the Committee at the forthcoming AGM. Robyn Perriss Chair of the Audit Committee 24 October 2022 81Annual Report and Accounts 2022 Softcat plc AUDIT COMMITTEE REPORT CONTINUED ACCOUNTABILITY CONTINUED Responsibilities Membership The Committee’s terms of reference are available at www.softcat. The membership of the Committee has been selected with the aim com/investors and in hard copy from the Company Secretary. of providing the range of financial and commercial expertise These provide the framework for the Committee’s work and can necessary to meet its responsibilities and the requirements of the besummarised as providing oversight of: 2018 UK Corporate Governance Code (the ‘Code’), which is applicable for the financial year ended 31 July 2022. Given my • the appropriateness of the Company’s external experience as a qualified Chartered Accountant and as a recent financialreporting; finance director of a listed UK company, I have been designated • the relationship with, and performance of, the external auditor; as the financial expert on the Committee for the purposes of theCode. • the Company’s system of internal control, including the risk management framework, key and emerging risks and the work Vin Murria and Karen Slatford both have considerable sector of the internal audit function; experience, in accordance with Code provision 24. Furthermore, in order to ensure that the Committee continues to have experience • appropriate controls to detect and prevent fraud; and and knowledge relevant to the sector in which Softcat operates, • the Company’s system of compliance activities. allof the Non-Executive Directors receive regular updates on business, regulatory, financial reporting, governance and The terms of reference are reviewed at least annually and are accounting matters. Biographies of the members of the Committee updated as appropriate to ensure there is clarity on the expected are shown on pages 68 and 69. Changes to the membership duties of the Committee. A further review of the terms of reference ofthe Committee during the year are shown on page 80. will be conducted to reflect the final outcomes and Company Allmembers are independent Non-Executive Directors of the implementation of BEIS’ reforms on the audit market and corporate Company. The Company Secretary acts as Secretary to the governance. In advance of the outcome of the reforms, the Committee, supported by the Company Secretarial Assistant. Committee has already approved an express clarification in its terms of reference in respect of the legality of dividend payments How the Committee operates and that the Committee reviews that the Company has sufficient The Committee met formally four times during FY2022 and each distributable reserves in respect of any proposal to pay a dividend. meeting, other than the March meeting (for which Karen Slatford A whistleblowing policy and procedure for colleagues to raise was unwell), had full attendance. Meetings of the Committee issues regarding possible improprieties in matters of financial generally take place on the same day as the Board meeting to reporting or other matters is in place and operated throughout maximise the efficiency of interaction with the Board. The Company theyear. Secretary maintains a twelve-month rolling plan to support an effective process which ensures the Committee reviews all required The Company operates anti-bribery and corruption procedures matters to effectively discharge its duties. which support compliance with the Bribery Act 2010, the Criminal Finances Act 2017 and certain equivalent legislation outside of The external auditor, EY, is invited to each meeting together with the theUK. Company Chair, the Chief Executive, the Chief Financial Officer (‘CFO’), the Company Secretary, the Group Financial Controller, The Committee reviews the Company’s published tax strategy the Internal Audit Manager, the Commercial Finance Director and andduring the year considered and approved an updated Grant Thornton (which provides a co-sourced internal audit service version. The tax strategy is available on the Company’s website to Softcat). This means that each member of the Board is present atwww.softcat.com/corporate-responsibility. The Committee atCommittee meetings. However, I shall, as needed, report to the alsoreviewed the Company’s reporting in respect of payment Board as a separate agenda item on the activity of the Committee practices to suppliers. and matters of particular relevance to the Board regarding the During the year the Committee assessed the adequacy of the conduct of the Committee’s work. The Board as a whole regularly existing fraud control framework and received reports from reviews the performance of the business via monthly reporting management in respect of fraud prevention and detection controls. packs and a CFO’s report at each Board meeting. This provides Management has improved fraud awareness within the Company, the Committee with a good ongoing understanding of the financial including rolling out refreshed fraud awareness training for all standing of the business which accumulates towards the formal employees. The Committee recognises this as an important area, half-year and full-year results. given the evolving nature and increasing sophistication of fraud. The Committee sets time aside at the end of each meeting, in The importance of strong controls over fraud was highlighted in the addition to on an ad hoc basis where necessary, to seek the audit and governance reforms proposed by BEIS and this area will viewsof the external auditor, in the absence of management. The continue to be a key responsibility of the Committee as part of the Committee also meets separately with the internal auditor during safeguarding of the Company’s assets. 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 audit function and the external auditor. 82 Softcat plc Annual Report and Accounts 2022 Financial reporting Accounting policies and practices The Committee’s primary responsibility in relation to the Company’s The Committee received reports from management in relation to financial reporting is to review with both management and the the identification of critical accounting judgements, key sources external auditor the appropriateness of the half-year and annual ofestimation uncertainty, significant accounting policies and financial statements concentrating on, amongst other matters: proposed disclosure of these in the 2022 Annual Report. The Committee’s review of how management approached a change • the quality and acceptability of accounting policies and practices; inthe application of IFRS 15 is summarised on page 84 (a fuller • the impact of any material changes in accounting policies; description is provided in note 1 ‘Accounting policies’ to the financial statements). There were no other new material changes • material areas in which significant judgements have been tosignificant accounting policies adopted during the year. applied or where significant issues have been discussed with the externalauditor; Following discussions with management and the external auditor, the Committee approved these critical accounting judgements and Corporate governance • the clarity of the disclosures and compliance with financial significant accounting policies and disclosures, which are set out in reporting standards and relevant financial and governance note 1 ‘Accounting policies’ to the financial statements. reporting requirements, including the UK Corporate Governance Code; Significant judgements and issues • any correspondence from regulators in relation to our financial An important part of the Committee’s responsibilities is to assess reporting; and keyissues in respect of published financial statements and the Committee pays particular attention to any matters which it • assisting the Board in an assessment of whether the Annual considers may affect the integrity of Softcat’s financial statements, Report and Accounts, taken as a whole, is fair, balanced and with a view to satisfying itself that each matter has been treated understandable and provides the information necessary for appropriately. The significant areas of focus considered, and the shareholders to assess the Company’s position and prospects, actions taken by the Committee, in relation to the 2022 Annual performance, business model and strategy. This assessment Report are outlined below. forms the basis of the advice given to the Board to assist it in making the statement required by the UK Corporate We discussed these with the external auditor during the year and, Governance Code. where appropriate, these have been addressed as areas of audit focus as outlined in the Independent Auditor’s Report on pages 136 to 143. Matter considered Action Going concern and viability In respect of the financial statements for the year ended 2022, management prepared analysis modelling a variety of downside scenarios having regard to the principal risks faced by the business to assess the Company’s viability and ability to continue as a going concern. The analysis including budgets for FY2023 and three-year cash projections were 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 and supported the conclusions reached in respect of the Company’s going concern and longer-term viability (see pages 133 and 134 and page 64 respectively). The Committee will monitor developments in good practice under the BEIS reform proposals in respect of potential additional areas and risks on which companies will be expected to have due regard in future resilience statements. Inappropriate revenue The Committee has reviewed the Company’s revenue recognition policy and discussed in detail with recognition: misstatement management the processes applied to accurately record revenue at period ends. The Committee also ofrevenue recognised at receives detailed monthly reporting on business performance which includes revenue recognition data ornear year end 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 revenue recognition is appropriate. Misstatement of rebate The Committee has taken steps to understand the nature and quantum of supplier rebates received by the income 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. 83Annual Report and Accounts 2022 Softcat plc AUDIT COMMITTEE REPORT CONTINUED ACCOUNTABILITY CONTINUED Significant judgements and issues continued Matter considered Action Application of IFRS 15 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. During the year, the IFRS Interpretation Committee (‘IC’) shared guidance on the “control” criteria which is used to determine whether companies should recognise revenue from the resale of standard software licences on a net basis under IFRS 15. Following this guidance, management presented an analysis to the Audit Committee of the impact of amending its judgement in the Company’s accounts, including a restatement of the prior financial year. Management also presented a revised accounting policy which reflected the application of the IC’s guidance. Please see note 1.5 to the financial statements for more information. EY has audited the disclosures of IFRS 15 and presented the results of their procedures to the Committee. The above provided the Committee with comfort that an appropriate approach continues to be taken on the presentation of revenue under IFRS 15, which also incorporates the new guidance from the IC. Other matters Going concern and viability statements The Committee also undertook a range of further activities in relation The Committee has reviewed the Company’s ability to continue to to the Company’s accounting and external reporting in theyear: operate as a going concern for the twelve-month period post the date of this report and the Company’s assessment of viability over Fair, balanced and understandable a period greater than twelve months. In assessing viability, the The processes and controls that underpin the Committee’s Committee has considered the Company’s position presented in assessment of whether the Annual Report and Accounts, taken as the budget and the three-year plan recently approved by the awhole, is fair,balanced and understandable and provide the Board. The Committee also considered amongst other things a information necessary for shareholders to assess the Company’s number of scenarios modelled by management, including a severe position and prospects, performance, business model and strategy but plausible downside scenario and reverse stress tests carried include ensuring that: out to assess the strength of the Company’s liquidity position. • all team members who provide a material contribution to TheCommittee has concluded that the assumptions and mitigating drafting the Annual Report and Accounts are fully briefed actions are appropriate. Further details are set out in the statements bytheCompany Secretary on the fair, balanced and on page 64 and pages 133 and 134 of this Annual Report. understandable requirement; TheCommittee confirms that, following review, it has recommended both statements for approval by the Board. • an experienced core team is responsible for the co-ordination of content submissions, verification, detailed review and challenge; External audit the Annual Report and Accounts follows a framework which The Committee has primary responsibility for overseeing the • supports the inclusion of key messaging, market and performance relationship with, and performance of, the external auditor. overviews, principal risks and other governance disclosures. Thisincludes making the recommendation on the appointment, Sufficient forward-looking information is provided and abalance is reappointment and removal of the external auditor, assessing sought between describing potential challenges and opportunities; itsindependence on an ongoing basis and negotiating the audit fee. The Committee is also responsible for considering the most • information in the different parts of the Annual Report and appropriate time and circumstances, observing applicable Accounts isconsistent; legislation, to conduct a tender for the external audit. • the Annual Report and Accounts is written to avoid jargon Audit engagement partner rotation where possible andis presented free of unnecessary clutter; In accordance with the Auditing Practices Board’s Ethical • senior management confirms that the content in respect of itsareas of Standards, the term limit of an audit engagement partner is responsibility is considered to be fair, balanced andunderstandable; fiveyears and David Hales will step down as our lead audit • the Committee receives an early draft of the Annual Report and engagement partner following the conclusion of the FY2022 audit Accounts toenable timely review and comment; and in October 2022. During the 2022 financial year, the Committee worked with EY to ensure a suitable handover process for the new • the Committee receives a briefing from management which audit engagement partner. EY confirmed and the Committee setsout the key themes and links in the Annual Report and endorsed that Marcus Butler would take over as the new lead Accounts which contribute to it being a fair, balanced and audit partner. EY confirmed that Marcus was independent from understandabledocument. Softcat, with no known conflicts of interest. Marcus and David Following its review, the Committee is of the opinion that the have been working to ensure a smooth transition. The Committee 2022Annual Report and Accounts, taken as a whole, is fair, would like to thank David for his contribution during his time as balanced and understandable. This allows the Committee to audit engagement partner. provide positive assurance to the Board to assist it in making the statement required by the Code. 84 Softcat plc Annual Report and Accounts 2022 Audit tender EY was appointed as the Company’s auditor in July 2013. The process followed the FRC’s guidance on audit tenders. The2014 Competition and Markets Authority Order requires TheAudit Committee led the process with the assistance of Softcat to tender its external audit at least every ten years. atender panel made up of the Committee Chair, Vin Murria Inaccordance with this requirement, we started planning a (who is a Committee member), the CFO, the Company competitive tender process in 2021 and undertook the process Secretary, the Financial Reporting Manager and other key during our 2022 financial year. The appointment will be stakeholders in the audit process. effective for Softcat’s 2023 financial year audit. October 2021 Timeline finalised by the Committee Corporate governance Informal approaches and meetings with potential candidate audit firms Candidate firms confirmed their independence and that they had no conflict of interest to potentially act as external auditor November 2021 Request for proposal (‘RFP’) sent to four candidate firms, including a ‘challenger’ audit firm Clear assessment criteria were subsequently established and communicated to the candidate firms ahead of submission date for the RFPs December 2021 Company presentation day with the candidate firms. This provided a detailed overview of Softcat and an opportunity to meet with management Population of a ‘data room’ with key relevant information for the candidate firms to consider for their audit proposals January 2022 Detailed follow-up meetings held with the audit tender panel Shortlisting of three candidate firms, including a ‘challenger’ firm, which were invited to tender April 2022 Submission of proposals from two of the shortlisted candidate firms as one firm withdrew from the process May 2022 Presentation of tender proposals by shortlisted candidate firms Completion of a detailed scorecard on each candidate firm by each member of the tender panel Tender panel discussed results and made a recommendation to the Audit Committee to reappoint EY, which was reviewed and supported by the Audit Committee. A recommendation to reappoint EY was made to the Board and approved Conclusion and rationale demonstrated significant commitment to the tender process, and The members of the tender panel had scored each of the good understanding of key areas of risk and of Softcat’s values candidates’ proposals independently, ensuring a fair and and culture. All candidates had expressed a strong desire to consistent review of each proposal. The tender panel then met beSoftcat’s auditor. The tender panel concluded that the todiscuss the scores, share their views and further reflect on the advantages of EY’s strong audit quality record, established proposals. Part of the consideration was given to the long-term positive relationship with and understanding of the business and nature of the audit relationship and the balance of the potential performance as assessed on the scorecard were greater than benefits of maintaining EY as auditor versus those of the potential advantages of changing auditor. changingauditor. A resolution proposing the appointment of EY as Softcat’s Overall, the Committee was impressed by the high quality of the auditor will be put to the shareholders at the 2022 Annual proposals put forward by each candidate firm, all of which General Meeting. 85Annual Report and Accounts 2022 Softcat plc AUDIT COMMITTEE REPORT CONTINUED ACCOUNTABILITY CONTINUED Auditor appointment Following the competitive tender process concluded in May 2022 described above, EY was retained as auditor effective from financial year 2023. A timeline setting out the tenure of EY as auditor and requirements on Softcat to next tender and change auditor is set out below: Prior to July 2013 Rayner Essex LLP conducted the external audit immediately prior to FY2013 July 2013 EY appointed as auditor and conducted the external audit for FY2013 November 2015 Softcat becomes a publicly listed entity October 2017 Mandatory change of EY lead auditpartner May 2022 EY reappointed as auditor, following competitive tender process October 2022 Mandatory change of EY lead audit partner By May 2032 Competitive tender, being ten years since last audit tender By July 2033 Pursuant to legislation, mandatory audit firm rotation, being up to 20 years since appointment. Option, pursuant to transitional provisions, to extend this period to 2035, being 20 years since Softcat became a publicly listed company The Committee will continue to review the auditor’s appointment For the financial year ended 31 July 2022, the Committee has and the need to tender the audit, ensuring the Company’s best recommended to the Board that EY be reappointed under the interests are considered and ensuring compliance with the current external audit contract and the Board has endorsed requirements of the UK Competition and Markets Authority. thatrecommendation. The Board has therefore proposed the Accordingly, the Company confirms that it complied with the reappointment of EY at the Annual General Meeting to be provisions of the Competition and Markets Authority’s Order heldin December 2022. 2014 for the financial year under review. There are no contractual obligations restricting Softcat’s choice of externalauditor. 86 Softcat plc Annual Report and Accounts 2022 Audit risk Effectiveness of the external audit process At the start of the audit cycle we received from EY a detailed The Committee reviewed the quality of the external audit auditplan identifying its audit scope, planning materiality and throughout the year and considered the performance of EY. assessment of key audit risks. Theeffectiveness of the external audit process is dependent on a number of factors. These include the quality, continuity, experience The audit risk identification process is considered a key factor in the and training of audit personnel, business understanding, technical overall effectiveness of the external audit process, and the key risks knowledge and the degree of rigour applied in the review for the 2022 financial year closely align to the significant processes of the work undertaken, communication of key judgements and issues above. The key risks identified included: accounting and audit judgements, together with appropriate audit • inappropriate revenue recognition; risk identification at the start of the audit cycle. The Committee also took into account an assessment of the firm-wide Audit Quality • presentation of revenue in respect of IFRS 15; Inspection (‘AQI’) report issued by the FRC in July 2022 together Corporate governance • misstatement of rebate income; with EY’s responses to that report. The Committee also noted the equivalent AQI reports issued in respect of the other audit firms • a review of the operation of a new finance ERP system which participated in the Company’s tender for the external audit onfinancial reporting; and (see page 85). • going concern and viability. Following the conclusion of the 2022 financial year, the Committee Should the need ever occur, the Committee has the authority conducted an effectiveness evaluation of the external auditor. The torequest for additional areas to be reviewed if it is deemed evaluation was led by the Committee Chair and involved issuing a toberelevant for the integrity of Softcat’s financial statements. tailored evaluation questionnaire for completion by the Committee, by selected managers in the Finance team who regularly work with EY also outlined other areas of audit focus which included a EY, and by Grant Thornton (as co-sourced internal auditor). The combination of standing matters usually associated with an results of the survey were shared with the Committee and external audit each year and additional matters which reflect discussed. The feedback was positive overall, with the Committee potential changes in Softcat’s risk profile, such as exposure to noting comments about the working relationship and good climate change risk. Key audit risks are regularly reviewed by engagement between the EY Team and those involved in the audit theCommittee or the Board. process, and the smooth and timely manner in which the audit was Working with the external auditor run. Some areas were highlighted as opportunities for The external auditor attended all Committee meetings in 2022 improvements, such as the utilisation of technology within the audit andreceived all Committee reading papers (other than papers process as the Company’s control environment matures and inrespect of the competitive audit tender) and minutes. After each greater functionality is utilised within the new ERP finance system. Committee meeting, we hold a private meeting with the external Further opportunities were also identified to improve the auditor to provide additional opportunity for open dialogue and engagement between EY and the wider business. These areas will feedback from the Committee and the auditor without management be further discussed with EY for implementation with the new audit being present. The external auditor has direct access to the lead partner. Based on the above, the Committee concluded that Committee Chair to raise any concerns outside formal Committee EY continued to perform their role well, there had been meetings. Matters typically discussed include: appropriate focus and challenge on the primary areas of audit focus from EY, and that the performance of EY remained effective. • auditor views on the resourcing of internal functions which are important to Softcat’s control environment; During 2022, an Audit Quality Review Team from the FRC undertook an inspection of EY’s audit of the Company’s 2021 • the external auditor’s assessment of business risks; Financial Statements. As part of that process, the Committee Chair • the transparency and openness of interactions with management; shared her and the Board’s view of the quality of the EY audit. The Committee considered the final inspection report, which did not • confirmation that there has been no restriction in scope placed raise any significant findings, and discussed the results and agreed on it by management; and actions with the lead audit partner. The Committee agreed with the • the independence of its audit and how the auditor has overall assessment, which was consistent with its own view of the exercised professional scepticism. quality and effectiveness of the external audit. The Committee Chair, if appropriate, will discuss with management any actions arising from the private meetings with the external auditor. 87Annual Report and Accounts 2022 Softcat plc AUDIT COMMITTEE REPORT CONTINUED ACCOUNTABILITY CONTINUED ### 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 is reviewed annually and was last updated in 2021 (the Committee having agreed in 2022 that no changes were required). The latest version can be found on the Company's website at: www.soltcat.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 of 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 2022 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. Audit fees had increased from the previous year, reflecting the ongoing growth of the Company. 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 £545,000 for statutory audit services in respect of the Company's annual financial statements. In addition to the above statutory audit fee, EY and related member firms charged the Company £132,500 for additional audit fees primarily in connection for the first year of auditing following the implementation of Soltcat new finance ERP system, NetSuite. The Committee also agreed a fee of £40,000 in respect of EY's review of the 2022 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 2022 and 2021 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 2020, 2021 and 2022 financial years and is 6.6%, 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 Company'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. During the year, the Committee considered the proposals in the BEIS reforms on the audit market and on corporate governance, including proposals to further strengthen processes and disclosures on the effectiveness of a company's internal controls. The Committee is monitoring developments and considering its potential next steps. A further update will be provided in next year's Annual Report. ### 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 59 to 63. 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 FY2022. Management has documented certain key controls, including IT general controls, overarching controls for the finance department, financial management controls, audit risk financial reporting controls, and fraud management. 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 the 2022 financial year, the Company had an internal audit function consisting of an internal audit manager (who joined Soltcat during the year) and 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. 88 Soltcat plc Annual Report and Accounts 2022 Monitoring and review of the scope, extent and effectiveness of expected reforms, a review will be conducted to assess the the activity of the Company’s internal audit function is regularly current maturity of financial reporting processes and controls considered by the Committee. Management and the internal audit and to identify any material gaps/priority actions to further manager discuss with Grant Thornton the selection of appropriate develop controls over financial reporting. areas and controls within the business for internal audit. This is then • Cloud adaptation internally and use of managed services: presented by Grant Thornton as a proposed annual internal audit cloud usage is growing rapidly in Softcat. The audit will review plan prior to the start of each financial year. The audit plan is then and give assurance on governance and usage, to drive further reviewed and approved by the Committee. The Committee then improvements on the overall control environment. receives updates from Grant Thornton/the internal audit manager on the audits and receives an audit report on each audit • Business continuity and disaster recovery planning: part of undertaken, which includes the results of their audits, Softcat’s operational effectiveness is to ensure it has robust recommendations for changes and management action plans plans to operate the business in the event of a major disruption. Corporate governance toaddress any unsatisfactory audits or recommendations. The review will focus on Softcat’s business continuity management TheCommittee also receives from the internal audit manager and IT disaster recovery arrangements, against good practice. regular progress updates on previously undertaken audits in • Third party risk management: Softcat relies on a number of IT orderto ensure those actions have been completed or closed. third parties to deliver services to its employees and customers. The internal audit plan for 2022 covered a broad range of core The review will consider the resilience of the Company against financial and operational processes and controls, focusing on incidents or problems at a critical third party supplier. specific risk areas. Reviews were undertaken in the following areas: Effectiveness of the internal audit process • assurance in relation to the ‘go-live’ decision on the new ERP Both Grant Thornton and the internal audit manager have had finance system: this was important given the significant investment access to the relevant documentation, premises, functions and cost and that it is viewed as a key platform to support Softcat’s employees to enable it to perform its activities. Grant Thornton is a growth ambitions; major professional services firm with experience in consulting, IT governance and access management: this was important for assurance and audit and the relationship with the Audit Committee • Softcat’s IT general controls maturity and to protect sensitive is led by an experienced partner of Grant Thornton. data and information; Following the conclusion of the 2022 financial year, the Committee security against the risk of fraud: this was particularly relevant undertook a review of the effectiveness of Grant Thornton’s role as • given the potential external prevalence for fraud and increasing part of the internal audit function. The evaluation was led by the sophistication of fraud attempts; and Committee Chair and involved issuing tailored evaluation questionnaires for completion by Softcat management, who had • purchase to pay procedures: this was important following worked with Grant Thornton on internal audits during the year. A thechange in Softcat’s ERP finance system and associated separate questionnaire was completed by EY (as external auditor), revised procedures. the Committee and Softcat’s internal audit manager. The results of During the year the internal audit manager supported the the questionnaires were collated, reported to, and discussed by the strengthening of the Company’s internal control environment. Committee. The overall feedback was positive, concluding that Inparticular, a more formal process to identify and document Grant Thornton’s work continues to strengthen the control keycontrols is underway. This will further improve our assessment environment in the business. Minor recommendations arose from and assurance on the effectiveness of controls. the evaluation, including the provision of additional expertise within Grant Thornton to support internal audit reviews in respect of IT Approach to developing the 2023 internal audit plan general controls. Implementation of the recommendations will be and scheduled reviews further discussed with Grant Thornton. Following the evaluation, the During the year Grant Thornton worked closely with management Committee concluded that Grant Thornton continue to perform well and the Audit Committee Chair on an internal audit plan for 2023. and remain effective. 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 takes into account the potential impact Robyn Perriss of the BEIS consultation and proposed reforms on improving trust in Chair of the Audit Committee audit and corporate governance and the emerging themes on 24 October 2022 enhanced governance and controls. During 2023 reviews are planned in the following areas: • 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. In preparation for the 89Annual Report and Accounts 2022 Softcat plc NOMINATION COMMITTEE REPORT ## EFFECTIVENESS ### The Board succession changes which will ### takeplace in 2023 reflect the Committee’s ### longer-term succession planning considerations. ### These changes provide a firm foundation for an ### effective composition of the Board over the next ### few years.” Karen Slatford Chair of the Nomination Committee Committee Chair’s introduction Members I am pleased to present this year’s report from the Nomination Committee (the ‘Committee’). This has been a busy and important K Slatford (Chair) year for the Committee, as I note the appointment of Lynne Weedall M Hellawell as a Non-Executive Director and also our significant announcement R Perriss in July in respect of Board succession changes for the Chair, CEO L Weedall and CFO. The Board succession changes which will take place in V Murria 2023 reflect the Committee’s longer-term succession planning considerations, which were briefly mentioned in last year’s report. These changes provide a firm foundation for effective composition Attendance of the Nomination Committee of the Board over the next few years. More details are provided Name Committee attendance 2022 below, but I would like to register my thanks to the other Committee 1 members for their additional time, commitment, support and K Slatford contribution during the year. M Hellawell In addition to considering the changes to the Board, the Committee R Perriss also continued its other work. We have firmly established in the 2 L Weedall Committee’s annual calendar a formal update and discussion on V Murria employee culture, which is in addition to the Committee’s annual review of employee engagement. Diversity and inclusion also Total meetings held continue to receive a high level of attention by the Committee andIremain encouraged by the efforts and dedication across Attended Did not attend n/a thebusiness to continue making Softcat a more diverse and 1. Karen missed one Committee meeting due to illness. inclusive employer. As a Company, we acknowledge that further 2. Lynne joined the Board in May 2022 and she attended each meeting of the improvements are needed on gender and ethnic diversity in some Committee following appointment. roles and in management positions, and some progress is being made in this regard. As explained previously, this is a longer-term Allocation of time endeavour. More details on the above are in the report which follows and in the Sustainability section of this Annual Report. Below Board level, during the year the Committee reviewed and Board composition, discussed with the Executive Directors the succession plans for the skillsetandexperience: 22% Senior Leadership Team (the most senior level of management Succession planning: 40% below the Board). Culture and diversity: 26% If any shareholders or proxy voting advisory agencies would like Corporate governance: 12% toraise any matters with me in respect of the Committee, I can be contacted via the Company Secretary at cosec@softcat.com. ##  90 Softcat plc Annual Report and Accounts 2022 Membership, meetings and operation The key responsibilities of the Committee are to advise on oftheCommittee appointments to the Board, to review Board composition and toreview succession planning both for the Board and senior The members of the Committee are set out above and all the management. The Committee also reviews and provides feedback members are Non-Executive Directors. The Committee is chaired on the initiatives to improve diversity and inclusion. Carrying out by an independent Director. The biographies of the members of Corporate governance these responsibilities is critical to ensure the Board and wider theCommittee can be found on pages 68 and 69. The Chief business have plans in place to have the best available talent to Executive Officer, Chief Financial Officer, Chief People Officer drive the Companyforward. and Head of Engagement, Diversity and Inclusion are invited to attend meetings where appropriate. The Committee met seven Any Director who intends to join the Board is required to times during the year and meetings generally take place on the discloseall significant outside commitments prior to appointment. same day as the Board meeting to maximise the efficiency of On joining the Board, Non-Executive Directors receive a formal interaction with the Board. If needed, the Committee Chair will appointment letter, which, amongst other things, identifies the time report to the Board, as a separate agenda item, on the actions commitment expected of them. Each Director continues to devote taken by the Committee. The Company Secretary acts as Secretary sufficient time to meet their Board responsibilities. to the Committee. The Committee considered and recommended that each Director willing to stand for re-election be proposed for reappointment at the 2021 AGM. The Board endorsed all theappointment and reappointment recommendations oftheCommittee. Key activities during the year The calendar of activities below provides an overview of the May 2022 key topics for the Committee during the year. Discussion on diversity and inclusion • • Discussion on Board composition/Board succession planning October 2021 • Update on Board composition Update and discussion following Company Chair’s • individual reviews with Board members | • Recommendation to reappoint Directors at the 2021 AGM | | | | --- | --- | --- | | • Approval of the 2021 Nomination Committee Report | July 2022 (two meetings) | | | | | • Recommended proposals for Board composition/ | December 2021 succession planning • Review of the results of the annual employee satisfaction • Discussion of a transition plan for the new CEO in 2023 survey and planned actions • Update on recruitment for a new CFO • Discussion on employee culture • Review and discussion of succession plans below Board level • Discussion on diversity and inclusion • Discussion on Board composition/Board succession planning Regular or standing items at each Committee meeting include: February 2022 • Approval of previous Committee meeting minutes and • Discussion on Board composition/Board succession planning review of follow-up on outstanding actions | | • Discussion on appointment of a further Non-Executive Director | | | --- | --- | --- | | | | • Governance updates for Committee discussion or approval | | March 2022 | | • Review of and updates to the Committee’s terms ofreference | | | • Discussion on Board composition/Board succession planning | | | | • Non-Executive Director update, discussion and | | candidateproposal 91Annual Report and Accounts 2022 Softcat plc NOMINATION COMMITTEE REPORT CONTINUED EFFECTIVENESS CONTINUED Board appointments Ibelieve that the composition works well and provides the right mix I am pleased with the progress made this year on the Board’s of challenge and support to the business. composition and on its succession plans. Succession planning As mentioned in last year’s report from the Committee, the Board As mentioned in last year’s report, succession planning is very had discussed the potential benefits of adding a further Non- important to the Committee and for some time particular attention Executive Director, if that person would add further significant value has been given to longer-term succession planning for the Chair, to the Board’s effectiveness, skillset and expertise and be a good CEO and CFO. cultural fit. The Committee, on behalf of the Board, deliberated on this further and concluded that the Board would benefit from the In our regular succession planning reviews, Graham Charlton additional role and a search commenced to select and appoint a hasbeen considered a very strong CEO candidate and during further Non-Executive Director. The Committee considered the theyear he confirmed his interest in the role to the Committee. current composition, workload, expertise and skills of the Board, During his seven years as CFO, Graham has developed a the Board’s strategic priorities and the attributes best required to deepunderstanding of the business and in what makes Softcat complement the Board. The Committee arranged for a detailed successful, not least our culture, which he has championed since role description to be prepared and worked with an external joining. As part the Committee’s consideration of Graham, RRA executive search firm, Russell Reynolds Associates (‘RRA’) to prepared a detailed leadership development report which identify suitable candidates. RRA also conducted the external assessed whether he had the right attributes for the role of CEO. evaluation of the Board’s effectiveness this year (see pages 74 to The report recommended Graham for the role. The Committee 75) but apart from that RRA has no other business relationship with hasalso discussed with Graham his transition plan for moving to the Company. As the Committee remains committed to the Board the role of CEO and particular areas of focus on which he will having a diverse mix, we will usually only engage with search firms continue to build on when he assumes the role. The Committee which have signed up to the relevant Voluntary Code of Conduct recommended Graham’s appointment to the Board as it believes for Executive Search Firms on diversity and best practice. RRA Graham is the right person to lead the business successfully and subscribes to both the Standard and the Enhanced Voluntary Code through the next stage of its growth. of Conduct for Executive Search Firms. By using such firms the Martin Hellawell led Softcat in an executive capacity between Committee can maximise the ability to consider a diverse range of 2006 and April 2018, when he stepped down as CEO to become suitable candidates. the Non-Executive Chair. The Nomination Committee has regularly RRA researched and identified potential candidates for the role discussed longer-term succession planning for this role, given that and following initial interviews a shortlist was presented and under the rules of the UK Corporate Governance Code his discussed with the Committee. Further interviews were held with nine-year term comes to an end in 2024. Graeme Watt, our final candidates. At the conclusion of the process, it was agreed current CEO, hadmade the Board aware recently that he was that Lynne Weedall was our preferred candidate because of her contemplating retirement as a full-time Executive and he had insights from her executive career and significant experience expressed an interest in being considered as Martin’s successor. gained on the boards of other listed companies. Lynne was The Nomination Committee considered this, along with potential appointed to the Board as a Non-Executive Director with effect from alternative options, and was unanimous that Graeme’s deep 3 May 2022. I am delighted that she stepped in to become Chair of knowledge of the business, Softcat’s culture and its markets made the Remuneration Committee. him the ideal candidate to support the interests of all our stakeholders. The Nomination Committee therefore recommended As part of the appointment process, the Committee reviewed the to the Board that Graeme succeed Martin as Non-Executive positions of both Lynne Weedall and Robyn Perriss, who are both Chair. The Board endorsed the recommendation, acknowledging independent Non-Executive Directors of Dr. Martens plc. The that the appointment of the CEO into the role of the Chair is not in Committee noted that neither Lynne nor Robyn are involved in line with the recommendations of the UK Corporate Governance executive duties at Dr. Martens and each have a similar obligation Code. More information about the Board’s compliance with the to be independent for Dr. Martens as they do for Softcat. UK Corporate Governance Code can be found on page 66. Consequently, the Committee did not consider that their positions as independent Non-executive Directors of Softcat are adversely A search for a CFO to succeed Graham Charlton is underway impacted by their roles on the board of Dr. Martens. which considers external as well as internal candidates. Lynne was provided with an extensive, full and tailored induction Following Lynne Weedall’s appointment and the changes which will programme, prepared by the Company Secretary and overseen occur in 2023, the Board will have improved its overall succession by the Company Chair. This included meeting members of the planning and created a more robust and diverse mix of tenure on Senior Leadership Team, other senior managers in the business the Board. The Committee keeps an ongoing watch in respect of andPwC, the Remuneration Committee’s external adviser. There the tenures of the Non-Executive Directors and is keeping in mind was also a comprehensive handover from me (asthe outgoing that in 2024 we will reach the nine-year tenure in respect of Vin Remuneration Committee Chair) and a briefing from the Company Murria. The Committee will continue to review the likely retirement Secretary so that Lynne could quickly assume the responsibilities of dates and required skills on the Board as part of its longer-term the Chair of the Remuneration Committee. succession planning and Board composition refreshment. The Board, particularly after taking into account the appointment ofLynne Weedall, now has a stronger and more diverse range ofskills, experience, mix of tenure, personalities and backgrounds. 92 Softcat plc Annual Report and Accounts 2022 The Committee works with the Chief People Officer and the CEO and reviews annually the plans which are in place for orderly succession planning of our Senior Leadership Team ('SLT'). During the year there were a number of changes on the SLT and these were discussed either with the Committee or with the Board. We have a strong talent pipeline and our review also considers opportunities to develop a more diverse pipeline in leadership roles. #### Board member review process Martin Hellawell as Company Chair is responsible for conducting an annual review of the CEO and each Non-Executive Board member. The CEO performs a similar process with the CFO. The reviews gather additional feedback to support the good running of the Board. The Board also conducted an externally facilitated 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 effectiveness review can be found in the Governance Report on pages 74 to 75. In my capacity as the Senior Independent Director, I 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. 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 2022. #### Diversity and inclusion The Board and the Committee devote 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. It recognises the benefits that different viewpoints can contribute to better decision making and the recent appointment of Lynne Weedall and the future appointment of a new CFO will make this stronger. In February 2022, the annual report from the FTSE Women Leaders (which succeeded the Hampton-Alexander Review) was published. The annual report provides new recommended aspirational targets for gender diversity in FTSE 350 companies by the end of 2025: #### FTSE Women Leaders: targets for FTSE 350 companies by the end of 2025 | | Current Softcat position | | --- | --- | | Boards of FTSE 350 companies to comprise at least 40% women. | Achieved. The Board of Softcat currently comprises 57% women. | | FTSE 350 companies to have at least one woman in the chair or senior independent director role on the board, and/or one woman in the chief executive or finance director role in the company. | Achieved. The role of Senior Independent Director is currently held by a woman. | | Leadership teams (as defined) of FTSE 350 companies to comprise at least 40% women. | Softcat is included in the annual report of FTSE Women Leaders published in February 2022, at which time Softcat reported women comprising 29.3% of leadership roles (as defined). We will continue our efforts to improve diversity in leadership roles. | I am pleased that Softcat already meets two of the above three new targets and the Committee notes the new target on leadership teams for FTSE 350 companies to achieve for 2025. As already noted, we recognise that more progress is needed in respect of the diversity of our leadership team and this has 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 the Board has reached some of the above targets, it is not the policy of the Committee to set a quota in terms of the gender or ethnic diversity mix on the Board or its Committees. Our policy, which we have implemented, is: - the primary criterion for an appointment is that it is made on merit; - the appointment achieves the best fit with the Board and its Committees; and - to keep in mind the benefits of the Board and its Committees having a diverse range of skills, experience and professional backgrounds. Corporate governance Annual Report and Accounts 2022 Softcat plc 93 NOMINATION COMMITTEE REPORT CONTINUED EFFECTIVENESS CONTINUED Diversity disclosures pursuant to Listing Rule 9.8.6R In April 2022, the UK Financial Conduct Authority (‘FCA’) published its final rules to increase the disclosure of diversity on listed company boards and executive committees. This requires listed companies to disclose in a prescribed format information on the diversity of their board and executive committee. The Listing Rules (to which Softcat is subject) have been amended to require disclosure of the prescribed information and the new requirement applies to financial years beginning on or after 1 April 2022. The FCA has, however, asked listed companies to report earlier on a voluntarily basis. The below information has been disclosed on a voluntary basis. The Listing Rules require listed companies to state whether they have met the certain targets on board diversity. The information in the table below is at 31 July 2022, which is the date selected as the reference date within the Company’s accounting period. Thetargets set out in the Listing Rules are that: • at least 40% of the individuals on its board of directors are women; • at least one of the following senior positions on its board of directors is held by a woman: – the chair; or – the CEO; or – the CFO; or – the SID; and • at least one individual on its board of directors is from a minority ethnic background. As at the reference date, the Board of Softcat met all of the above targets. Gender diversity reporting Number of senior positions on the Board Number in Percentage of Number of Percentage of (CEO, CFO, Executive Executive Board members the Board SID, Chair) management management Men 3 43% 3 8 80% Women 4 57% 1 2 20% Not specified/prefer not to say — — — — — Ethnic background diversity reporting Number of senior positions on the Board Number in Percentage of Number of Percentage of (CEO, CFO, Executive Executive Board members the Board SID, Chair) management management White British or other White (including minority White groups) 6 86% 4 9 90% Mixed/multiple ethnic groups — — — — — Asian/Asian British 1 14 % — — — Black/African/Caribbean/Black British — — — 1 10% Other ethnic group, including Arab — — — — — Note: ‘Executive management’ is defined above using the prescribed definition in the Listing Rules. This is defined as the most senior executive or managerial body below the Board, including the Company Secretary. At Softcat, this is the Senior Leadership Team (‘SLT’), which has day-to-day responsibility for the operation of the business, and the Company Secretary. The SLT includes both Executive Directors. Between 31 July and 24 October 2022, being the date at which this report is approved, there have been no changes in the composition of the Board. Each member of the Board or Executive management (as defined) has previously confirmed to the Human Resources team their gender and ethnic background and the above data has been collated from those records. 94 Softcat plc Annual Report and Accounts 2022 Inclusion Documents available for inspection The Committee has also received briefings on the initiatives to Non-Executive Directors are appointed for an initial three-year improve inclusion in the business and the Company employs a term, extendable by a further two additional three-year terms. dedicated manager to co-ordinate our diversity and inclusion Theletters of appointment for Non-Executive Directors and the efforts. The briefings received by the Committee included not only service contracts of the Executive Directors are available to diversity regarding gender, but also on ethnicity, sexual orientation, shareholders for inspection at the Company’s registered office disability, social mobility and updates on various inclusion activities during normal business hours. Letters of appointment and service such as supporting family wellbeing outside of work. More contracts will be available for inspection at the 2022 AGM. information about diversity and inclusion in the business can The formal responsibilities of the Committee are set out in terms befound in the report on Social Value in this Annual Report ofreference. During the year the Committee reviewed an update onpages 38 to 42. to the terms of reference, which was subsequently approved by theBoard. The Committee’s terms of reference are available at Corporate governance Assessment of the independence of the www.softcat.com/about-us/investor-centre/governance. 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: Karen Slatford Chair of the Nomination Committee • report to the Board any material changes to their commitments; 24 October 2022 • 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. 95Annual Report and Accounts 2022 Softcat plc SUSTAINABILITY COMMITTEE REPORT ## CORPORATE RESPONSIBILITY ### In March 2022, the Board delegated authority to ### theCommittee for the monitoring and oversight of ### sustainability matters at Softcat. This is a vital function, ### requiring specific dedication of time and effort at a ### Board level, and is a further demonstration of the ### Board’s commitment to sustainability.” Vin Murria Chair of the Sustainability Committee Introduction Members As Chair of the Sustainability Committee (the ‘Committee’), I am V Murria (Chair) K Slatford pleased to present the Committee’s inaugural report, for the year ended 31 July 2022. In March 2022, the Board delegated M Hellawell R Perriss authority to the Committee for the monitoring and oversight of G Watt L Weedall sustainability matters at Softcat. This is a vital function, requiring G Charlton specific dedication of time and effort at a Board level, and is a further demonstration of the Board’s commitment to sustainability. This report outlines the key responsibilities of the Committee Attendance of the Sustainability Committee delegated to it by the Board, the work it has done over the 2022 Name Committee attendance 2022 financial year and the focus of the Committee going forward. V Murria Membership, Committee Chair M Hellawell andoperationoftheCommittee G Watt The Committee is made up of all of the Directors at Softcat. During G Charlton the year, our sustainability governance structure was developed to 1 better support the business and to clarify responsibilities. Graham K Slatford Charlton, the CFO, was originally appointed as Chair of the R Perriss Committee. However, following further review, the Committee 2 L Weedall recommended in order to increase Board level oversight that a Non-Executive Director should assume the responsibility. The Total meetings held Board approved the Committee’s recommendation. As Designated Non-Executive Director for Workforce Engagement, it is already Attended Did not attend n/a my role to monitor, communicate with and engage with one of our 1. Karen was unable to attend due to illness. key stakeholder groups, our employees. Our employees have an 2. Lynne joined the Board in May 2022, after the Committee meeting had important part to play in the sustainability strategy of Softcat, so the taken place. Committee believed I should be appointed Chair as part of my wider oversight of ESG matters. I am delighted to accept this role Allocation of time and I would like to thank Graham for his part in establishing the Committee and its main areas of focus. Setting climate-related strategy: 22% Graham retains the Executive lead at Softcat for sustainability. Reviewing climate-related Wehave a dedicated internal resource for sustainability disclosures: 17% atSoftcat,including our Sustainability Lead. The Business Climate-related governance, Development Director, who is a member of the Senior Leadership compliance and regulation: 44% Team, also has sustainability in his brief. Both the Sustainability Lead and the Business Development Director attend the meetings Monitoring climate-related ##  performance against strategy: 17% of the Committee. 96 Softcat plc Annual Report and Accounts 2022 The Committee met once during the financial year, with its For more on the Committee’s responsibilities, the Committee’s inaugural meeting in March 2022. However, two meetings each termsof reference are available on our website, at: www.softcat. year (March and September) are held. Meeting frequency will com/about-us/investor-centre/governance. bereviewed to ensure sufficient oversight is maintained by the For further details on Softcat’s approach to sustainability, please Committee. Meetings are scheduled to generally take place on see pages 43 to 58 of this report and our website at www.softcat. the same day as the Board meeting to maximise the efficiency of com/about-us/sustainability. interaction with the Board. If needed, the Committee Chair will report to the Board, as a separate agenda item, on the actions If any shareholders would like to raise any matters with me in taken by the Committee. The Company Secretary acts as Secretary respect of the work of the Committee, I can be contacted via the to the Committee, supported by the Company Secretarial Assistant. Company Secretary at cosec@softcat.com. I will also be happy toanswer any questions about the work of the Committee at the The Committee’s key responsibilities forthcoming AGM. Corporate governance The key responsibilities of the Committee are: • setting the sustainability strategy of Softcat; • oversight and monitoring of the performance of the Company against its sustainability-related goals and targets; Vin Murria Chair of the Sustainability Committee • monitoring the effectiveness of management’s processes for 24 October 2022 identifying and assessing climate-related risks and opportunities; • reviewing our formal public disclosures relating to sustainability; and • oversight of other areas of corporate social responsibility, asrequested by the Board. Areas of focus in 2022 included: Areas of focus in 2023: The Committee decided that Softcat’s response to climate We expect that the focus of the Committee will remain change, and our strategy for reducing our emissions, should onclimate change related matters in 2023. However, this remain its primary focus. This is reflected in the following will be kept under review and will be amended, where areas covered during 2022: necessary, to include other areas of corporate responsibility to ensure the Committee retains adequate oversight of • establishing the primary areas of focus of the Committee matters which are important to Softcat and its stakeholders. through a forward agenda and formal terms of reference; Ianticipate in 2023 the Committee will focus on: • monitoring the Company’s progress against its climate- • progress against our key sustainability targets; related targets and goals, and the appropriateness of these; • further integration of Softcat’s sustainability strategy • overseeing management’s progression on the Task Force intoits overall strategy; on Climate-related Financial Disclosures (‘TCFD’) compliance and development of internal processes. • oversight of the next stages for the development of our Thisincluded the creation of new climate-related risk Enexo platform; andopportunities registers, informed through a climate • the progression of outputs from an ESG materiality scenario risk assessment, and consideration of the steps assessment performed in 2022; needed to integrate climate-related risks into Softcat’s day-to-day risk management framework; • monitoring preparedness for full compliance with TCFD;and • review of sustainability-related disclosures, including the regulatory emissions disclosures; • reviewing Softcat’s level of readiness and approach forforthcoming disclosure standards, such as the • considering management’s plan to take advantage of International Sustainability Standards Board’s climate-related opportunities and integrate these into disclosurestandards. Softcat’s strategy, such as through Softcat’s Enexo platform (see page 55 for more details); and • horizon scanning for future compliance regulations, obligations and best practice trends. 97Annual Report and Accounts 2022 Softcat plc Corporate governance REMUNERATION COMMITTEE REPORT ## LETTER FROM THE CHAIR OF THE ## REMUNERATION COMMITTEE The Committee concluded that the existing Remuneration Policy was broadly fit for purpose, operated well with sufficient flexibility for future growth and was aligned to Softcat’s strategy… the changes proposed to the Policy are relatively minor…” Lynne Weedall Chair of the Remuneration Committee Dear shareholder Members I am very pleased to present this report as Chair of Softcat’s Remuneration Committee (the ‘Committee’). This is my first report L Weedall (Chair) onremuneration since I joined the Board of Softcat in May 2022. K Slatford I would like to thank Karen Slatford, who stepped down as R Perriss Committee Chair, for chairing the Committee so effectively and for V Murria her help whilst I transitioned into this role. I would like to thank the other Committee members for their support and contributions this year. Attendance of the Remuneration Committee Business performance Name Committee attendance 2022 The Company continued to perform well during the year. 1 Therewas double-digit growth in gross profit and operating L Weedall profit.Operational performance was also excellent and we have K Slatford continued to invest for future growth. You will see our performance V Murria and progress explained in more detail inthe Strategic Report but R Perriss Iwould like to pick out some key achievements, which are a continuing credit to the business anditsleadership: Total meetings held • Revenue growth: 37% Attended Did not attend n/a • Gross profit growth: 18% 1. Lynne joined the Board in May 2022 and attended allCommittee meetings during the financial year afterherappointment. • Operating profit growth: 14% • Employee engagement: 90% • Customer satisfaction: 94% Allocation of time In addition to strong financial performance, good employee engagement and customer satisfaction are vital to Softcat. This is closely aligned to our strategy to acquire more customers and to sell more to existing customers. It also encapsulates our corporate Workforce remuneration and conditions: 33% purpose: “to help customers use technology to succeed, by putting our employees first”. We can preserve our competitive edge by Executive remuneration: 21% having happy employees and satisfied customers and this is reflected Remuneration market practice and in our approach to remuneration for the Executive Directors. developments: 21% Furtherdetails on our key performance indicators (‘KPIs’) and Corporate governance: 25% theimportance of each KPI can be found on pages 30 and 31. ##  98 Softcat plc Annual Report and Accounts 2022 Proposed Remuneration Policy (the ‘Policy’) • in respect of awards under our Long Term Incentive Plan (‘LTIP’), A revised proposed Policy will be put to shareholders for binding minor amendments will be made to further clarify the minimum approval at the Annual General Meeting (‘AGM’) to be held in weighting of financial metrics and applicable measures; and December 2022. Our current Policy was approved by shareholders • the Company has recently introduced a salary sacrifice at the 2019 AGM with a vote of 98.6%, which is a high level of programme for employees (which would result in a benefit in Corporate governance support. Our current Policy had already incorporated the kind arising) which allows the leasing of electric vehicles for recommendations and good points of practice set out in the 2018 employees’ personal and business use, commuting, etc. Given UK Corporate Governance Code (the ‘Code’). The Committee this aligns well with our objectives to reduce environmental wishes to ensure that any changes do not move the Policy impact, the Committee plans to make this programme available significantly away from one which has gained such widespread for all Directors, including Non-Executive Directors. The Policy support from shareholders. During the year, the Committee will be amendedaccordingly. reviewed the current Policy and considered in advance the The Committee believes that the proposed minor amendments to approach it would adopt. The key components were: the Policy ensures that our remuneration arrangements remain fit for • a further review of how well the Policy was aligned to the UK purpose and maintains strong alignment of shareholders and our Corporate Governance Code and any recent changes in management team as they strive to continue driving the business good remuneration practice; forward. We have consulted with our largest shareholders and • the ongoing growth of the Company, particularly as Softcat with certain proxy advisory agencies and obtained significant matures from when it listed on the London Stock Exchange shareholder support in respect of our proposed Remuneration in2015; Policy. I trust that we will have your support on the shareholder resolution at our 2022 AGM. • how well the Policy aligns with Company strategy; Remuneration outcomes during the year • whether the Policy continues to effectively attract, retain and motivate executive talent; and Our Board succession plans for 2023 are covered elsewhere in this Annual Report. From a remuneration perspective, both our • the high level of shareholder support for the current Policy. current and proposed Remuneration Policies provide an effective The above parameters allowed the Committee to ensure that any framework for the Board changes and for orderly succession changes were considered holistically and a comprehensive review plansgenerally. was undertaken. Following review, the Committee concluded that During the year, the Board/relevant Board Committee regularly the existing Policy was broadly fit for purpose, operated well with reviewed Softcat’s financial and operational performance. sufficient flexibility for future growth and was aligned to Softcat’s Weconfirmed in trading updates during the year that: strategy. The Committee also concluded that the Policy was generally aligned well to the UK Corporate Governance Code • the Company performed well during the year and has once and to the expectations of most investors. That being the case, the again delivered double-digit year-on-year growth in gross changes proposed to the Policy are relatively minor and designed invoiced income, gross profit and operating profit. Profit growth to further increase the alignment of the Policy to the UK Corporate was ahead ofexpectations; Governance Code and to reflect current market practice. Key • investment in our growth strategy has continued, including changes proposed are: strong increases in headcount; and • we will increase the post-cessation shareholding requirement to • employees had responded well following the removal of 100% of the in-role requirement for two years post-cessation. certain COVID-19 restrictions. The Company had reverted to The current Policy provides for a post-cessation holding ahybrid working policy and our employees were enjoying requirement of 100% in year one and then 50% in year two; being back together in the office. Following an employee • we will make minor amendments to the Policy (and any engagement survey, our employee net promoter score associated Plan Rules in respect of the LTIP and the annual remained at the consistently high levels. Softcat was ranked bonus plan) to extend the malus and clawback event triggers third for wellbeing by the Great Place to Work Institute. tofully align it to recent guidance issued by the UK Financial Reporting Council (‘FRC’). Malus and clawback triggers will beextended to include events relating to corporate failure; 99Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED LETTER FROM THE CHAIR OF THE REMUNERATION COMMITTEE CONTINUED # Main activities during FY2022 # October 2021 - Review of Remuneration Policy - Review and approval of the 2021 Remuneration Report - Update on gender pay gap and ethnic pay gap performance and reporting - Consideration and approval of grants of LTIPs to Executive Directors for FY2022 and other share-based awards to senior managers below Board level - Review and determination of vesting outcomes for LTIPs granted in 2018 - 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 FY2021 - Consideration of the annual bonus arrangements for the Executive Directors and SLT members for FY2022 - Review of achievement against share ownership targets for the Executive Directors # May 2022 - Review and discussion on remuneration benchmarking for the SLT - Review of fees for Non-Executive Directors and the Chair and associated market practice - Update on workforce pay and conditions and discussion of Company-wide pay review - Interim update report on performance of annual bonus plan and outstanding LTIPs - Discussion of executive remuneration and approval of changes for FY2022 - Review of Remuneration Policy to be proposed at the AGM in 2022 # July 2022 (two meetings) - Review of remuneration aspects of proposed changes on the Board (retirement and appointment of the CEO and of the Chair) - Assessment against customer satisfaction and employee engagement actions which form part of the FY2022 annual bonus plan for the CEO and CFO - 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 FY2022 - Update on Remuneration Policy to be proposed at the AGM in 2022 - Review of remuneration trends and remuneration-related corporate governance developments for listed companies - Discussion on all-employee share schemes # 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 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 continued The Board/relevant Board Committee also regularly reviewed key areas of employee/customer engagement, including: - the outcomes of our annual customer experience survey and our employee engagement survey, together with actions to further maintain engagement; - a quarterly survey from managers in respect of each member of the SLT and the key operational functions in the business; and - workforce engagement sessions. The strong financial performance and maintenance of excellent relations with employees and customers are reflected in a strong achievement of many of the Company's KPIs (outlined on pages 30 and 31) and resulted in the following for the annual bonus plan for FY2022: - financial metrics (operating profit) account for 80% of the annual bonus for FY2022. Operating profit achieved exceeded the maximum target set by the Committee, leading to 100% of the maximum annual bonus being earned by the Executive Directors; and - non-financial metrics account for 20% of the annual bonus for FY2022 and the focus for FY2022 was on customer and employee satisfaction. The Committee assessed actions taken by management during the year and on the consistently high overall satisfaction/engagement scores. Following review, the Committee concluded that 80% of the maximum annual bonus had been achieved by the Executive Directors. Good performance has been sustained and during the financial year the LTIP awards granted in November 2018 to Graham Charlton and 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. 100 Softcar plc Annual Report and Accounts 2022 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. In particular the Committee carefully reviewed the outcomes in light of share price performance in the year, noting the fall from an historic high point earlier in the financial year. It is the Committee's view that this reduction in share price is primarily due to the changing valuation of technology stocks in the market and not due to any management action. The Committee firmly believes that the financial and operational performance delivered in the year, as well as the overall investor experience over a number of years, represent exceptional management performance and therefore that the proposed incentive outcomes are appropriate. In respect of LTIPs, the Committee approved a grant in respect of FY2023 to the Executive Directors (see page 107). The Committee considered the fall in the Company's share price as noted above and for the same reasons concluded that it would not be appropriate to reduce the usual award of 150% of salary, but it will review at rest whether there have been any windfall gains. The LTIPs granted in 2019 are due to vest in late 2022. 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. In respect of all LTIPs, 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 FY2023 As can be seen from the activities during 2022, the Committee reviewed executive remuneration and agreed the implementation of the changes below, all of which are within our existing and proposed Remuneration Policies. Further details are provided in the Annual Report on Remuneration. Each year management consider whether to award rises in basic pay across the workforce, in order to maintain the competitiveness of our rewards. We reviewed market practice and discussed with management about the pay and conditions across the Company. The Committee agreed a rise of 5% for each of the CEO and CFO, which was in line with the standard pay rises but lower than rises for many employees in Sales and other roles. In July 2022, Softcat announced changes to the Board which will take place in August 2023. This included the retirement of Graeme Watt as CEO, at which time he will succeed Martin Hellawell as Non-Executive Chair. The Remuneration Committee confirmed that Graeme will be treated as a good learner and further details on the specific treatment of his remuneration in respect of his forthcoming retirement as CEO are contained on page 108 of the Annual Report on Remuneration. In addition we announced that Graham Charlton will be promoted to CEO, effective 1 August 2023. The Remuneration Committee will determine Graham's salary on appointment at that time. #### Wider workforce context Having a dedicated and passionate team and providing excellent customer service is core to what we do at Softcat and this helps to drive our exceptional performance. We believe it is right to recognise and reward our employees through fair remuneration. We also believe it is important to understand the views of employees over a wide range of issues, including remuneration. We continued to receive regular updates on remuneration across the workforce to ensure the Committee's deliberations were well informed. This included actions taken by management to ensure our rewards remained competitive and additional considerations by management on the challenges facing many people on the cost of living crisis. The Committee was pleased to hear of the steps taken by management to address both points. Please see page 35 for a case study on how management approached pay reviews for employees this year. We have taken the opportunity to engage directly with employees over a number of matters, including on our approach to executive remuneration. Please see page 111 for more details. #### What we have done during the year The calendar activities (see page 100) summarise the areas of focus and actions for the Committee during the 2022 financial year, all of which were within the framework of the current Remuneration Policy. #### In conclusion The Committee has been focused on ensuring that our remuneration arrangements remain fit for purpose for the future and aimed at ensuring alignment of both shareholders and our management team as they strive to continue driving the business forward. We have consulted with our largest shareholders and with certain proxy advisory agencies and obtained significant shareholder support in respect of the key elements of our proposed Remuneration Policy. The Annual Report on Remuneration (pages 105 to 112) together with this letter will be subject to an advisory shareholder vote at the forthcoming AGM on 13 December 2022. The revised Remuneration Policy (pages 113 to 127) will be subject to a binding vote at the AGM. I trust that we will have your support on the resolutions at our AGM. If shareholders do wish to discuss any issues about executive remuneration, I can be contacted via the Company Secretary at cosec@softcat.com. **Lynne Weedall** Chair of the Remuneration Committee 24 October 2022 #### Notes: This report has been prepared in accordance with Schedule B to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2006 as amended and the provisions of the current Corporate Governance Code and the Listing Rules. The report consists of three sections: - the Annual Statement by the Remuneration Committee Chair; - the Annual Report on Remuneration, incorporating: - an 'at a glance' section summarising our Remuneration Policy; - details of payments made to the Directors and details of the link between Company performance and remuneration for the 2022 financial year; and - the Directors' Remuneration Policy. The Chair's Annual Statement and the Annual Report on Remuneration will be subject to an advisory shareholder vote at the AGM to be held on 13 December 2022 (AGM). The Directors' Remuneration Policy will be subject to a binding shareholder vote at the AGM. If approved, the Policy will formally supersede the previous Policy with immediate effect. Annual Report and Accounts 2022 Softcat plc 101 Corporate governance REMUNERATION COMMITTEE REPORT CONTINUED # PART A – AT A GLANCE ## Introduction In this section, we set out a summary of our performance and remuneration outcomes for the 2022 financial year and a summary of how we intend to implement our proposed Remuneration Policy for the 2023 financial year. As stated in the letter from the Chair of the Remuneration Committee, we are proposing to make minimal changes to our current Remuneration Policy. Our proposed Remuneration Policy is included in full in Part C (pages 113 to 127). ## How we performed during the 2022 financial year ('FY2022') (audited) In respect of FY2022, the bonus awards payable to Executive Directors were agreed by the Committee having carefully reviewed: - Financial performance (80% weighting): the Committee considered the Company's year-end results and any relevant associated factors in respect of underlying performance. - Non-financial performance (20% weighting): the Committee considered progress against key actions in respect of employee engagement and customer satisfaction and noted the ongoing strong overall engagement/satisfaction scores. The performance measures and targets under the Annual and Deferred Bonus Plan for FY2022 and the extent to which they were satisfied are set out below: | Performance condition | Weighting | Threshold | Target | Maximum | Actual | Actual as a % of maximum opportunity | Annual bonus payout | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | Graeme Watt | Graham Charlton | | **Operating profit** | 80% | £108.1m | £120.1m | £132.1m | £136.1m | 100% | £630,175 | £420,117 | | **Employee engagement and customer satisfaction** | 20% | | See below | | | 80% | £126,035 | £84,023 | | **Overall outcome** | | | | | | 96% | £756,210 | £504,140 | ## Employee engagement and customer satisfaction | Priorities | Achievements and outcome | | --- | --- | | **Employee engagement** Maintain focus on employee engagement | - Management sought regular employee feedback with 1x annual engagement survey, 4x quarterly management surveys and 2x employee pulse surveys conducted during FY2022. The results of each survey were discussed with the Board/the Nomination Committee, together with management's plans which addressed all areas of concern. - A 13-point action plan was created and followed up from the annual survey results. - Overall employee engagement achieved remained high at 90%. - Our employee net promoter score achieved is +52 which is excellent and above market norms. - Excellent external rankings for workplace environment. 8th place in the Great Place to Work/Best Workplaces – Super Large category; 4th place in the UK's Best Workplaces for Women 2022 – Super Large category; Glassdoor Excellence in Employee Wellbeing Award; CRN's Best Company to Work for – £101m+ category. | | Improve feedback relating to flexible working and pay | - Management focused on the approach to hybrid working, particularly on employees maintaining strong connections with their colleagues and preserving our unique culture, which is a vital differentiator for our success. Target of 80% satisfaction rate was overachieved with a result of 8.5%. - Following a detailed review of pay in the workforce, pay rises considerably higher than in previous years were announced by the CEO and CFO for many roles. This received favourable feedback from employees. Employee attrition levels are being monitored and have reduced. | 102 Softcat plc Annual Report and Accounts 2022 | Priorities | Achievements and outcome | | --- | --- | | **Customer satisfaction** Continued attention on customer excellence | - Management implemented its most extensive ever annual customer experience survey (1,870 respondents in FY2022, compared to 1,248 in FY2021) to engage with more of our customers than ever before. - Strong and consistent levels of customer satisfaction achieved at 94%. - Our customer net promoter score achieved is +55 which is excellent and above market norms. - A detailed improvement action plan arising from the FY2021 survey was discussed with the Board and then implemented. An action plan arising from the FY2022 survey is underway. - An internal training programme (the Voice of the Customer) was developed and rolled out to improve customer insights into their wants and needs. This enhances a key part of our strategy to sell more to existing customers. | | Prioritise improvements in customer experience | - Deep dives undertaken to further understand customer feedback and expectations on eCat (our portal for customers to place orders, which accounts for a significant number of customer transactions). Tools were rolled out for customer feedback to be received in real time, to more promptly respond to customer needs and make faster improvements to the portal. Management gave a demonstration of eCat to the Board, which showcased improvements made to enhance the user experience. - Key areas of improvement in our customer Managed Services offering were identified and implemented. This has already resulted in improvements in associated customer satisfaction scores. - Refresher training successfully rolled out and undertaken by over 99% of employees on use of the corporate phone system, to improve the customer experience when they call Softcat. - Revised customer excellence training programme rolled out to ensure we maintain a high level of customer experience at each stage of the customer journey. | 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 will be paid in cash and one-third will be 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. #### Long-term incentives awarded in FY2022 (audited) On 30 November 2021 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 | LTIP award (% of salary) | LTIP award (shares) | Award date | Share price^{1} | | --- | --- | --- | --- | --- | | Graeme Watt | 150 | 42,282 | 30/11/21 | £18.63 | | Graham Charlton | 150 | 28,188 | 30/11/21 | £18.63 | # **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 106. Corporate governance Annual Report and Accounts 2022 Softcat plc 103 REMUNERATION COMMITTEE REPORT CONTINUED PART A  AT A GLANCE CONTINUED 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 FY2022. | | Taxable | Total | | | | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 1 | | 2 | | | | Salary | benefit Pension | fixed Bonus | | LTIP | | variable Total | | 3 Graeme Watt (CEO) £525,146 £4,604 £26,257 £556,007 £756,210 £1,554,917 £2,311,917 £2,867,134 4 Graham Charlton (CFO) £350,097 £4,604 £23,236 £377,937 £504,140 £1,036,592 £1,540,732 £1,918,669 Notes: 1. In respect of performance up 100% of salary, 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 100% of salary, all of the annual bonus earned will be deferred into shares (by way of nil-cost options). 2. LTIP awards made on 21 November 2018 to Graham Charlton and to Graeme Watt vested during FY2022. The award was calculated by reference to a share price of £6.00, which was the prevailing market price of an ordinary share 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. 3. As a result of full achievement of the performance criteria, nil-cost options over 75,000 shares vested and were subsequently exercised by Graeme during FY2022. The share price atthe date of vesting (22 November 2021, being the next business day following the third anniversary of the grant) was £19.22 and the LTIP value shown above reflects this. The total value shown above comprises £1,441,500 (the value of the award at vesting) plus a dividend equivalent of £113,417. The value of the LTIP that is attributable to share price appreciation between grant and vest is £991,500. 4. As a result of full achievement of the performance criteria, nil-cost options over 50,000 shares vested and were subsequently exercised by Graham during FY2022. The share price atthe date of vesting (22 November 2021, being the next business day following the third anniversary of the grant) was £19.22 and the LTIP value shown above reflects this. The total value shown above comprises £961,000 (the value of the award at vesting) plus a dividend equivalent of £75,592. The value of the LTIP that is attributable to share price appreciation between grant and vest is £661,000. Summary of implementation of Policy for 2022/23 A full statement of implementation can be found on page 112. In summary only limited changes are being proposed. There have been no changes to incentive quantum for either Executive Director, with minor changes to measures: • For the Annual Bonus, the measures remain 80% based on Operating Profit and 20% based on ESG. The assessment of ESG for 2022/23 will incorporate sustainability in addition to employee and customer objectives. • For the LTIP, metrics in respect of EPS and TSR will be retained. Following review by the Committee, the weighting between TSR and EPS in respect of the award to Executive Directors in FY2023 will be slightly changed to 60% EPS and 40% TSR (FY2022 grant 50% EPS and 50% TSR). The Committee believes this change will further encourage the Executive Directors to focus on the achievement of superior earnings over the longer term. The EPS targets in respect of the FY2023 grant take into account the announcement by the Government in October 2022 which confirmed that there will be an increase in corporation tax to 25% from April 2023. The Committee will consider using its discretion to adjust the EPS targets if there is a further change in the rate of corporation tax. During the year, the Committee was briefed on the pay reviews and on proposed average increases for the general workforce. In respect of the Executive Directors, the Committee agreed an increase of 5% in the basic pay for the Executive Directors with effect from 1 August 2022. This level reflects a standard pay rise for employees, but is below the level of pay rise received for much of the workforce. In respect of the Company’s Chair, the Committee conducted a market review which concluded that the Chair’s fee was materially below the lower quartile for the FTSE 250. Given the evolution and growth of Softcat as well as the high level of contribution and effectiveness of the Chair, the Committee approved an increase in the Chair’s fee to £200,000 with effect from 1 August 2022. The Committee noted that this places the Chair’s fee slightly above the FTSE 250 lower quartile benchmark but still considerably below the median benchmark, despite Softcat being one of the largest companies within the FTSE 250. The Board (excluding the Non-Executive Directors) is responsible for determining the fees payable to the Non-Executive Directors (‘NED’). Effective 1 August 2022 fee increases were approved in order to better reflect the time commitment and market rate for these roles. Further details are provided on page 112. 104 Softcat plc Annual Report and Accounts 2022 ## 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 FY2022 andFY2021. Corporate governance Taxable | | | 1 | | | 1,4 | | | 1,2 | | | | | 3,5 | | | 3 | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Salary | | | benefits | | | Pension | | | Total fixed Bonus | | | | | LTIP | | | Total variable Total | | | | | 2022 | | 2 021 | 2022 | | 2 021 | 2022 | | 2 021 | 2022 | | 2 021 | 2022 | 2 021 | 2022 | | | 2 021 | 2022 | 2 021 | 2022 | 2 021 | | £’000 | | £’000 | £’000 | | £’000 | £’000 | | £’000 | £’000 | | £’000 | £’000 | £’000 | £’000 | | | £’000 | £’000 | £’000 | £’000 | £’000 | Graeme Watt (CEO) 525.1 477.4 4.6 4.1 26.3 23.9 556.0 505.4 756.7 716.1 1,554.9 1,366.6 2,311.6 2,082.7 2,867.1 2,588.1 Graham Charlton (CFO) 350.1 318.3 4.6 4.1 23.2 15.9 377.9 338.3 504.1 477.4 1,036.6 923.2 1,540.7 1,400.6 1,918.6 1,738.9 Notes: 1. Fixed pay consists of salary, taxable benefits and pensions as set out above. 2. Graham Charlton receives 5% in pension contribution/cash allowance in line with employees; during FY2022 an overpayment exceeded this value against his FY2022 salary by £5,731. For FY2023 his pension contribution/cash allowance will be adjusted to correct this and ensure that over FY2022 and FY2023 this meets 5% of his salary during those periods. 3. 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. 4. See section below setting out details of the benefits provided. 5. Details of the bonus targets, their level of satisfaction and the resulting bonus earned in FY2022 are set out on page 102 to 103. 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 2022 fees Roles 1 Martin Hellawell £157,944 £162,903 Non-Executive Chair 2 Karen Slatford £71,301 £78,819 Senior Independent Director and Chair of the Nomination Committee 3 Vin Murria £68,525 £63,759 Independent Non-Executive Director, Designated Director for Workforce Engagement and Chair of the Sustainability Committee 4 Lynne Weedall — £15,698 Independent Non-Executive Director and Chair of the Remuneration Committee Robyn Perriss £61,902 £63,759 Independent Non-Executive Director and Chair of the Audit Committee Notes: 1. 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 FY2022 and other P11D benefits was £3,768 (2021: £3,444) and is included in the figure for Martin’s fees above. 2. In respect of 2021, the fees for Karen Slatford are pro-rated with effect from the respective date of appointment as Chair of the Nomination Committee. In respect of 2022 the fees for Karen are pro-rated with effect from the respective date she stepped down as Chair of the Remuneration Committee. 3. In respect of 2021, the fees for Vin Murria are pro-rated with effect from the respective date she stepped down as Chair of the Nomination Committee. 4. Lynne joined the Board in May 2022. 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. 105Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART B – ANNUAL REPORT ON REMUNERATION CONTINUED # **2022 annual bonus outcomes** In respect of 2022, the bonus awards payable to Executive Directors were agreed by the Committee, having carefully reviewed: - Financial performance (80% weighting): the Committee considered the Company's year-end results and any relevant associated factors in respect of underlying performance. - Non-financial performance (20% weighting): the Committee considered progress against key actions in respect of employee engagement and customer satisfaction and noted the ongoing strong overall engagement/satisfaction scores. The annual bonus structure operating for 2023 is explained on pages 104 and 112. Details of the targets used to determine bonuses in respect of FY2022 and the extent to which they were satisfied are shown on pages 102 to 103. These figures are included in the single figure table. # **Long-term incentives awarded and vested** # **Awarded in FY2022 (audited)** On 30 November 2021 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 | LTIP award (% of salary) | LTIP award (shares) | Award date | Share price^{1} | | --- | --- | --- | --- | --- | | Graeme Watt | 150 | 42,282 | 30/11/21 | £ 18.63 | | Graham Charlton | 150 | 28,188 | 30/11/21 | £ 18.63 | 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 is subject to the Company's relative TSR performance against the FTSE 250 (excluding real estate and investment trusts) over a three-year performance period to the end of FY24 and the remaining 50% subject to adjusted EPS targets at the end of the period. These conditions are set out below: | Measure | Weighting | Details | | --- | --- | --- | | Adjusted EPS | 50% | - Nil vesting of this element for adjusted EPS at end of performance period of less than 49.5p - 20% vesting (threshold) for achieving 49.5p - 67% vesting for achieving 53.8p - Full vesting for achieving 59.4p or above - Straight-line vesting between 20% and 67% and between 67% and full vesting | | Relative TSR – assessed against the constituents of the FTSE 250 (excluding real estate and equity investment trusts) | 50% | - Nil vesting for below median performance against the comparators - 30% vesting (threshold) for median performance - Full vesting for upper quartile performance - Straight-line vesting between threshold and full vesting | The EPS targets were set following the end of the 2021 financial year based on an assessment of the business and were included in the 2021 Annual Report on Remuneration. 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. 106 Softcut plc Annual Report and Accounts 2022 ### Vested in FY2022 (audited) Awards under the Company's LTIP granted in November 2018 to Graham Charlton and to Graeme Watt vested and were exercised by Graham and Graeme in FY2022. Options over 50,000 shares were granted to Graham and options over 75,000 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 | Weighting | Details | | --- | --- | --- | | Adjusted EPS | 50% | - No vesting of this element for adjusted EPS at end of performance period of below 29.3p - 20% vesting (threshold) for achieving 29.3p - Full vesting for achieving 35.7p or above - Straight-line vesting between threshold and full vesting | | Relative TSR – assessed against the constituents of the FTSE 250 (excluding real estate and equity investment trusts) | 50% | - No vesting for below median performance against the comparators - 30% vesting (threshold) for median performance - Full vesting for upper quartile performance - Straight-line vesting between threshold and full vesting | EPS for FY2021 was 48.4p 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 FY2023 Vesting of the awards will be subject to the following performance conditions: | Measure | Weighting | Details | | --- | --- | --- | | Adjusted EPS | 60% | - No vesting of this element for adjusted EPS at end of performance period of below 55.8p - 20% vesting of this element for adjusted EPS at end of performance period of 55.8p - 67% vesting of this element for adjusted EPS at end of performance period of 59.6p - Full vesting for 67.0p - Straight-line vesting between 20% and 67% and between 67% and full vesting | | Relative TSR – assessed against the constituents of the FTSE 250 (excluding real estate and equity investment trusts) | 40% | - No vesting for below median performance against the comparators - 30% vesting (threshold) for median performance - Full vesting for upper quartile performance - Straight-line vesting between threshold and full vesting | ### Pension entitlements (audited) 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 FY2022, both Graham Charlton and Graeme Watt were entitled to 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 FY2022 (FY2021: 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 121 and 124 partnership shares respectively during the year. The total SIP holdings are provided on page 108 as part of the Directors' share interest table. Corporate governance Annual Report and Accounts 2022 **Softcut plc** 107 REMUNERATION COMMITTEE REPORT CONTINUED PART B  ANNUAL REPORT ONREMUNERATION CONTINUED Payments to past Directors/payments for loss of office (audited) There were no payments for loss of office made to Directors in the year. In July 2022, Softcat announced changes to the Board which will take place in August 2023. This included the retirement of Graeme Watt as CEO, at which time he will succeed Martin Hellawell as the Non-Executive Chair. The Committee has confirmed that Graeme will be treated as a good leaver under the terms of the Remuneration Policy and associated plan rules. All remuneration terms and payments are in line with both the current and the proposed Remuneration Policy. Below are the key elements of Graeme’s remuneration arrangements in respect of his retirement as CEO: • Loss of office: on stepping down as CEO, Graeme will receive no termination payments from the Company. • Base pay: this will be paid until the date of retirement. Graeme’s service agreement provides for twelve months’ notice, which will be deemed as served. • Pension contributions or allowance: this will be paid until the date of retirement. • Existing LTIPs: these will pro-rated from the date of grant to the date of retirement. They will vest on the original vesting dates and be subject to applicable performance conditions. • Grant of LTIPs expected in November 2022: Graeme will be eligible to participate in this grant. The LTIP will be pro-rated as per the above. • Deferred bonus shares: these will vest in full on their original respective vesting dates. Deferred awards are not subject to performanceconditions. • Annual bonus plan: full participation in the FY2022 and FY2023 annual bonus plans. • Benefits: the Committee has exercised its discretion and permitted Graeme to retain whilst he is Chair the following benefits currentlybeing provided to him: life assurance, private medical insurance, health cash plan, dental plan, income protection and critical illness cover. Statement of Directors’ shareholding and share interests (audited) Other shares held Options Deferred | | | | | | | | | | LTIP interests | | shares not | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Shareholding | | | Current | | | | | subject to | | subject to | | Shareholding | | | | requirement | | shareholding | | | Beneficially | | | performance | performance | | Vested and | requirement | | | | | 1 | | | 2 | | | 3 | | | | | | | | Director | (% of salary) | | (% of salary) | | | | owned | | conditions | | conditions | unexercised Unvested Exercised | | met? | Executive Directors | | 3 | 4 | | | | --- | --- | --- | --- | --- | | Graeme Watt 200 283 78,670 | 124,783 53,940 | — — — Yes | | | | | 3 | 4 | -— | | | Graham Charlton 200 528 113,947 | 83,188 35,960 | — — | | Yes | Non-Executive Directors 5 Martin Hellawell n/a n/a 4,201,857 n/a n/a n/a n/a n/a n/a Karen Slatford n/a n/a — n/a n/a n/a n/a n/a n/a Vin Murria n/a n/a 165,397 n/a n/a n/a n/a n/a n/a Lynne Weedall n/a n/a 1,300 n/a n/a n/a n/a n/a n/a Robyn Perriss n/a n/a 15,000 n/a n/a 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. T his is based on a closing share price of £13.95 on 29 July 2022 (being the last business day before 31 July 2022) and the year-end salaries of the Executive Directors. The calculation includes the value of ‘Deferred shares not subject to performance conditions’ on a net of tax basis, based on the tax rates applicable on 31 July 2022. 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 35 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. 108 Softcat plc Annual Report and Accounts 2022 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 2022. 1,000 900 FTSE 250 Softcat 800 Corporate governance 700 600 500 400 300 200 100 0 18/11/2015 18/07/2016 18/11/2016 18/07/2017 18/11/2017 18/07/2018 18/11/2018 18/07/2019 18/11/2019 18/11/2020 18/07/2021 18/11/2021 18/03/2016 18/03/2017 18/03/2018 18/03/2019 18/03/2020 18/07/2020 18/03/2021 18/03/2022 18/07/2022 Chief Executive’s historical remuneration The table below sets out the relative importance of spend on pay in the 2022 financial year. All figures provided are taken from the relevant Company accounts. Chief Executive 2022 2 021 2020 2 019 2 018 2 017 2016 2 015 G Watt Total single figure £2,867,134 £2,588,093 £991,372 £919,518 £305,539 — — — 1 M Hellawell — — — — £532,716 £774,908 £562,117 £335,762 G Watt Annual bonus 96 100 72 100 100 — — — payment level 1 M Hellawell achieved — — — — 100 100 99 72 (% of maximum opportunity) G Watt LTIP vesting level 100 100 n/a n/a n/a n/a n/a n/a achieved 1 M Hellawell (% of maximum n/a n/a n/a n/a n/a n/a n/a n/a 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. Relative importance of the spend on pay The table below sets out the relative importance of spend on pay in the 2022 financial year. All figures provided are taken from the relevant Company accounts. Total shareholder return | | Disbursements | | Disbursements | | --- | --- | --- | --- | | from profit in 2022 | | from profit in 2021 | | | | financial year | | financial year | Profit distributed by way of dividend £84.0m £60.8m 1 Total tax contributions £41.9m £36.4m Overall spend on pay, including Executive Directors £148.3m £127.8m 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. 109Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART B  ANNUAL REPORT ONREMUNERATION CONTINUED Change in the Directors’ remuneration compared with employees The table below sets out the annual change in Directors’ 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 | | | | | % increase/(decrease) in remuneration in | | | | | % increase/(decrease) in remuneration in | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 2020 compared with remuneration in 2019 | | | | | 2021 compared with remuneration in 2020 | | | | | 2022 compared with remuneration in 2021 | | | | | | Salary or | | | | | Salary or | | | | | | Salary | | | | | | | 2 | | 3 | | | 2 | | 3 | | | 2 | | 3 | | | fees Bonus | | Benefits | | | fees Bonus | | Benefits | | | or fees Bonus | | Benefits | | 1 Graeme Watt 3% 12 % 0% 3% 43% 37% 10% 6% 12 % 1 Graham Charlton 3% 12 % (9)% 3% 43% 37% 10% 6% 12 % Martin Hellawell 3% 0% 1% 0% 0% 1% 5% 0% 9% 4 Vin Murria 23% 0% 0% 4% 0% 0% (7)% 0% 0% Robyn Perriss 0% 0% 0% 3% 0% 0% 3% 0% 0% 5 Karen Slatford n/a n/a n/a 6% 0% 0% 11 % 0% 0% 6 Lynne Weedall n/a n/a n/a n/a n/a n/a n/a n/a n/a 7 All employees 5% (14)% (14)% 3% 12 % 1% 5% 7% 34% Notes: 1. For the Directors, the percentage change reflects the figures set out in the single figure table on page 105. 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. In respect of 2020/21, Vin Murria stepped down as Chair of the Nomination Committee during the year. Fees receivable for these duties were in addition to the fees payable as a Non-Executive Director. 5. In respect of 2020/21, Karen Slatford was appointed as Chair of the Nomination Committee during the year. Fees receivable for these duties were in addition to the fees payable as a Non-Executive Director. In respect of 2021/22, Karen stepped down as Chair of the Remuneration Committee during the year. 6. Lynne Weedall joined the Board of Softcat in May 2022. 7. 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. 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 2022, with comparative figures for 2019 to 2021, which were disclosed in previous Directors’ Remuneration Reports. The data shows how the CEO’s single figure remuneration for 2022 (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 Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio 2022 Option A 100:1 64:1 36:1 2 021 Option A 89:1 57:1 32:1 2020 Option A 33:1 21:1 12:1 2 019 Option A 35:1 22:1 12:1 The Government’s methodology of Option ‘A’ has been used to calculate the remuneration of 1,882 employees (FY2021: 1,655) 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 the 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 above ratio increased from 2021 reflecting LTIP awards which vested and were exercised during each period. The value of each LTIPwhen it was exercised is included in the single remuneration figure for the year. The ratio further increased in 2022, reflecting the increased value of the LTIP exercised due to a growth in the Company’s share price and in part a 10% increase in the CEO’s base pay, which was fully disclosed in last year’s Annual Report on Remuneration. The Committee believes that the median pay ratio is consistent with the Company’s pay, reward and progression policies. 11 0 Softcat plc Annual Report and Accounts 2022 Pay in respect of the CEO and UK workforce is shown in the table below. | | CEO | All employees | | | | --- | --- | --- | --- | --- | | | (See single figure table, page 105) | 25th percentile | Median | 75th percentile | | 2022 salary | £525,146 | £21,228 | £25,159 | £36,945 | | 2022 total pay | £2,867,134 | £28,574 | £44,594 | £79,816 | ### 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 Chief People Officer and the Reward, Payroll & HR Operations Manager attend by invitation and when appropriate. 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. 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 Munia). There are also regular employee engagement meetings led by the CEO and CFO. The Committee Chair (assisted by the Chief People Officer and the Company Secretary) has directly engaged with a small group of employee representatives to explain Softcat's executive remuneration policy and how it aligns with wider Company pay policy. During the engagement session, the Committee Chair explained the purpose and work of the Committee and the key decisions which were made during the year. The employee representatives asked questions about executive remuneration and how it aligns to pay elsewhere in the Company and also provided feedback on pay in certain other roles in the business and were provided with responses. The engagement provided useful feedback and further assurance to the Committee that executive remuneration is considered to be well-aligned with the Company's wider philosophy on pay, particularly in respect of the importance of setting appropriate benchmarks for fixed pay and on the importance of variable pay as an incentive to drive stretching performance. The Committee believes there is strong alignment between executive pay, wider workforce pay, the Company's culture and strategy. ### 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 £90,000 (excluding VAT) (2021: £87,750) 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 at the 2019 AGM and the advisory vote on the Annual Report on Remuneration at the 2021 AGM. | | Votes for | % | Votes against | % | Votes withheld | | --- | --- | --- | --- | --- | --- | | Directors' Remuneration Policy (2019 AGM) | 161,238,582 | 98.60 | 2,296,086 | 1.40 | 109 | | Annual Report on Remuneration (2021 AGM) | 169,210,527 | 97.36 | 4,591,454 | 2.64 | 9,561 | Corporate governance Annual Report and Accounts 2022 Softcat plc 111 REMUNERATION COMMITTEE REPORT CONTINUED PART B  ANNUAL REPORT ONREMUNERATION CONTINUED Statement of implementation of the Remuneration Policy in the 2022 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. In respect of the implementation in 2022/23 below, a revised Remuneration Policy will be proposed at the 2022 AGM and where applicable the implementation will be subject to the new Remuneration Policy being approved by shareholders. Implementation in 2022/23 What was implemented in 2021/22 Base salary For FY2023, base salaries for the CEO and CFO CEO: £525,146. willbe £551,403 and £367,602. CFO: £350,097. The above increases represent a rise of 5%, which was the standard pay rise for employees but lower than pay rises for much of the workforce. Pension No change. 5% of salary. Benefits All Directors, including Non-Executive Directors, will No change. be entitled to participate in the Company salary sacrifice scheme for electric vehicles for personal use and commuting. | Annual bonus plan | | For FY2023 the annual bonus measure will retain | Maximum opportunity: 150% of salary for CEO | | --- | --- | --- | --- | | (‘ABP’) | | 80%based on Operating Profit and 20% based | andCFO. | | | • Cash | onrobust ESG goals. In addition to customer and | | Measures: 80% Operating Profit, 20% ESG (based on employee satisfaction, sustainability measures will • Deferred share customer and employee satisfaction goals). beadded. award | LTIP FY2023 LTIP awards: | | FY2022 LTIP awards: | | | --- | --- | --- | --- | | | • 150% of salary for CEO and CFO | | • 150% of salary for CEO and CFO. | | | • Measures against TSR (40%) and EPS (60%) | | • Measures against TSR (50%) and EPS (50%). | | | • Targets shown on pages 106 to 107 | | • Targets are shown on pages 106 to 107 | Shareholding No change. 200% of salary for CEO and CFO. requirements Chair and Chair fee: £200,000. Chair fee: £159,135. Non-Executive fees | Board fee: £60,000. | Board fee: £52,167. | | --- | --- | | Senior Independent Director fee: £13,500. | Senior Independent Director fee: £5,796. | | Committee Chair fee (per Committee): £15,000. | Committee Chair fee (per Committee) and fee for the | Designated Director for Workforce Engagement: Fee for the Designated Director for Workforce £11,592. Engagement (which includes Chair of the Sustainability Committee): £15,000. Lynne Weedall Chair of the Remuneration Committee 24 October 2022 112 Softcat plc Annual Report and Accounts 2022 ## PART C  DIRECTORS’ ## REMUNERATION POLICY Introduction The Committee will review annually all elements of remuneration, In accordance with the remuneration reporting regulations, the including: the base salary, annual bonus levels and annual and Directors’ Remuneration Policy (the ‘Policy’) as set out below will long-term incentive performance conditions for the Executive become formally effective at the AGM on 13 December 2022, Directors and selected members of the senior management team, subject to shareholder approval, and will apply for a period of drawing on trends and adjustments made to all employees across Corporate governance three years from the date of approval unless a new Policy is the Company and taking into consideration: approved by the Company’s shareholders prior to expiry. • our business strategy; The Company’s core principles of remuneration are: • overall Company performance; • to ensure top Executives are attracted, retained and motivated • market conditions; to drive the Company in its next stage of development; • views of key stakeholders of the business; • to incentivise management in extending the Company’s • corporate governance considerations; and leadership in the IT infrastructure solutions industry; and • changing views of institutional shareholders and their • to deliver long-term sustainable growth. representative bodies. The Remuneration Committee is comprised of independent Non-Executive Directors. The Committee operates within terms ofreference which: • authorise it to review and implement the Policy; and • provide a framework to avoid conflicts of interest. 113Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Our Remuneration Policy and its link to our Company strategy The Company’s strategy is laid out on page 28 and 29. Ensuring the alignment of the proposed Policy to the Company strategy was key for the Remuneration Committee in refining the existing Policy as proposed below. The key elements of the Company’s strategy and how its successful implementation is linked to the Company’s remuneration are set out in the following table. Strategic priorities Retain Equity and reward ownership Executive team Remuneration Policy (from the dateof Generate sector-leading Growth in profit and retention to deliver the shareholder approval) value for shareholders from existing customers Win new customers of shares strategy Annual bonus • The maximum bonus Operating profit (including any part of the The key performance indicator for the Company. The Committee believes bonus deferred into an ABP that the Directors should focus on this key metric during the financial year to award) deliverable under maintain high profit growth and the success of the business to deliver value the ABP will not exceed for our shareholders. 200% of a participant’s annual base salary. 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. Non-financial measures The Committee also believes in the importance of wider non-financial metrics to measure the success of a business, including the use of environmental, social and governance (‘ESG’) measures. The Committee will consider appropriate measures linked to strategic priorities. LTIP Maximum annual award is EPS and TSR TSR EPS normally 200% of salary. The success in The generation of profit An incentive to grow this Awards will vest at the end of maximising profit growth targeted by the market in the longer term three years. growth will be annual bonus will help is provided through EPS measured through the enhance the value of growth targeted by the For FY2022 the performance long-term EPS growth the Company, which LTIP. The success of this conditions for awards were targeted by the LTIP. will be measured element of the strategy equally weighted between: through the success of should be reflected in In addition, sustained • adjusted earnings per share the Company’s TSR long-term TSR value generation will (‘EPS’) growth; and performance against its performance. be reflected in the comparators (a • comparative total share price of the performance condition shareholder return (‘TSR’). Company, which will under the LTIP). be measured through For FY2023, awards will be the Company’s TSR weighted 60% EPS and 40% performance under TSR. the LTIP. Share Incentive Plan (‘SIP’) Minimum shareholding requirements • Chief Executive Officer: 200% of salary. • Chief Financial Officer: 200% of salary. 114 Softcat plc Annual Report and Accounts 2022 Alignment with provision 40 of the UK Corporate Governance Code As part of its review of the proposed Policy and remuneration practices, the Committee has considered the factors set out in provision 40 of the UK Corporate Governance Code (the ‘Code’). In the Committee’s view, the proposed Policy addresses those factors as set out below: Provision 40 element How our Remuneration Policy aligns Clarity Our Policy is simple, designed to support long-term, sustainable performance and aligned to our strategy. Remuneration It clearly sets out the performance conditions that will be used for the annual bonus and the LTIP, as well arrangements should be as the maximum potential value of the elements of remuneration and the areas in which discretion can be transparent and promote applied. Achievement against performance conditions is fully disclosed. effective engagement Our Policy is in line with UK corporate governance good practice, which makes it understandable to our with shareholders and key stakeholders. This also promotes effective stakeholder engagement. theworkforce. Corporate governance Simplicity Our executive remuneration structure comprises fixed and variable remuneration through the use of Remuneration structures market standard annual bonus and LTIP structures. The performance conditions for variable elements should avoid complexity areclearly communicated to stakeholders and understood by the executive participants. Our executive and their rationale and reward structures are clearly aligned to the delivery of key strategic indicators of success and this helps operation should be easy to ensure simplicity. In respect of variable remuneration, we keep this simple by operating just one plan to understand. for our short-term incentive (annual bonus plan) and one plan for longer-term performance (LTIP). Risk The majority of our Executive Directors’ total remuneration is focused on the long term and provided Remuneration inSoftcat shares (through our LTIP and through the deferred share element of the annual bonus plan). arrangements should Rewards are aligned to our strategy and are designed for Executive Directors to drive the right behaviours ensure reputational and for both the Company and its shareholders. other risks from excessive We operate minimum shareholding requirements for Executive Directors whilst they are in employment and rewards, and behavioural for two years post-vesting. Executive Directors must also retain shares (net of sales for taxes and costs) risks that can arise from arising from the exercise of an LTIP for two years. These measures ensure a strong alignment between target-based incentive Executive Directors and shareholders and discourage unnecessary risk taking by Executive Directors. plans, are identified Significant rewards on the long-term element can only be achieved if there is sustained performance. andmitigated. Our Remuneration Policy explains, where appropriate, defined limits on the maximum awards which can be earned. The Committee retains discretion to override formulaic outcomes, if appropriate, on variable remuneration. Malus and clawback provisions are included in both the annual bonus plan and in the LTIP. Predictability Our Policy sets out, where applicable, the maximum potential value for each element of remuneration. The range of possible Our Policy also explains the use of any discretion. The potential total remuneration outcomes can be values of rewards to assessed from this and we include both in our Policy and in each Annual Report on Remuneration individual directors and illustrations of the application of our Policy. We observe in our share plans the dilution limits set by the any other limits or Investment Association (10% in any rolling ten-year period and for executive share plans 5% in any rolling discretions should be ten-year period). identified and explained at the time of approving the policy. Proportionality Remuneration is appropriately balanced between fixed and variable pay and the annual bonus and The link between LTIP reward the successful implementation of our strategy over the short and long term. Stretching targets individual awards, the ensure payments are only made for strong corporate performance and for the successful execution delivery of strategy and ofourstrategy, providing a direct link between Company performance and individual rewards. the long-term TheCommittee has discretion to override formulaic outcomes to ensure that remuneration always performance of the reflectsoverall performance. company should be clear. Outcomes should not reward poor performance. Alignment to culture Executive rewards are aligned to our strategy and are designed for Executive Directors to drive the right Incentive schemes should behaviours for both the Company and its shareholders. The performance measures used by the Committee drive behaviours consistent are designed to help underpin our culture and strategy. The weighting towards long-term remuneration with company purpose, emphasises the importance of strong performance over the longer term. Our annual bonus plan includes values and strategy. non-financial metrics which support our values and culture on how we do business and this will help us to maintain a competitive advantage. 115Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Remuneration Policy table Remuneration Policy aim The Committee has developed a remuneration framework and policy which adhere to practice that is fit for purpose for a FTSE 250 company. 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 we compete fortalent in. How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Salary Provides a base level of remuneration An Executive Director’s basic salary is set on appointment and reviewed The Committee ensures that maximum salary levels are positioned in line with companies of a similar size to Softcat and validated against Changes from to support recruitment and retention annually or when there is a change in position or responsibility. companies operating in a similar sector, so that total remuneration opportunity (base salary, benefits, annual bonus and long-term incentives) for previous policy: none. ofExecutive Directors with the necessary the Executive Directors is competitive against the market. When determining an appropriate level of salary, the Committee considers: experience and expertise to deliver the When assessing salary levels, the Committee will consider levels in the comparator group, made up of organisations in the FTSE 250 (excluding Company’s strategy. • remuneration practices within the Company; financial services, real estate and equity investment trusts) and sector peer companies of comparable size to Softcat. • the general performance of the Company; The Committee intends to review the comparator groups each year and may add or remove companies from the group as it considers • salaries within the ranges paid by the companies in the comparator appropriate. Any changes to the comparator group will be set out in the section headed Implementation of Remuneration Policy in the following group used for remuneration benchmarking; financial year. • any change in scope, role and responsibilities; and In general salary increases for Executive Directors will be in line with the increase for employees. • the economic environment. The Company will set out in the section headed Implementation of Remuneration Policy, in the following financial year, the salaries for that year for each of the Executive Directors. 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 Provides a benefits package in line The Executive Directors receive benefits which include, but are not limited See description of benefits in previous column. Changes from withpractice relative to its comparator to, private health insurance, life insurance and death in service benefit. previous policy: group to enable the Company to recruit The Committee recognises the need to maintain suitable flexibility in the following introduction and retain Executive Directors with the benefits provided to ensure it is able to support the objective of attracting of a salary sacrifice experience and expertise to deliver the and retaining personnel in order to deliver the Company strategy. programme for Company’s strategy. Additional benefits may therefore be offered, such as relocation employees to lease allowances on recruitment. electric vehicles, this Policy specifies that The maximum will be set at the cost of providing the benefits described. Directors can Non-Executive Directors may participate in benefit programmes available participate. to employees which have the purpose of reducing environmental emissions. Pensions Provides a pension provision in line Pension arrangements are provided in line with practice to enable the The maximum contribution into the defined contribution plan or a salary supplement in lieu of pension will be in line with the wider workforce. Changes from withpractice to enable the Company Company to recruit and retain Executive Directors with the experience This ensures that Softcat’s approach is fully in line with corporate governance expectations and shareholder sentiment to align Executives’ previous policy: none. torecruit and retain Executive Directors andexpertise to deliver the Company’s strategy. pension with the wider workforce. with the experience and expertise to The Company operates a defined contribution (‘DC’) scheme. deliver the Company’s strategy. TheExecutive Directors are entitled to receive a maximum employer contribution into the DC scheme or a salary supplement in lieu of pension which is in line with the employer contribution for the wider workforce. New joiners will receive a pension contribution in line with the wider workforce. The current level is 5% of basic salary per annum. Increases will only be in line with employer pension contribution in the wider workforce, but shall not exceed 10% within the period of this Policy. 11 6 Softcat plc Annual Report and Accounts 2022 Remuneration Policy table Remuneration Policy aim The Committee has developed a remuneration framework and policy which adhere to practice that is fit for purpose for a FTSE 250 company. 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 we compete fortalent in. How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Salary Provides a base level of remuneration An Executive Director’s basic salary is set on appointment and reviewed The Committee ensures that maximum salary levels are positioned in line with companies of a similar size to Softcat and validated against Changes from to support recruitment and retention annually or when there is a change in position or responsibility. companies operating in a similar sector, so that total remuneration opportunity (base salary, benefits, annual bonus and long-term incentives) for previous policy: none. ofExecutive Directors with the necessary the Executive Directors is competitive against the market. When determining an appropriate level of salary, the Committee considers: experience and expertise to deliver the Corporate governance When assessing salary levels, the Committee will consider levels in the comparator group, made up of organisations in the FTSE 250 (excluding Company’s strategy. • remuneration practices within the Company; financial services, real estate and equity investment trusts) and sector peer companies of comparable size to Softcat. • the general performance of the Company; The Committee intends to review the comparator groups each year and may add or remove companies from the group as it considers • salaries within the ranges paid by the companies in the comparator appropriate. Any changes to the comparator group will be set out in the section headed Implementation of Remuneration Policy in the following group used for remuneration benchmarking; financial year. • any change in scope, role and responsibilities; and In general salary increases for Executive Directors will be in line with the increase for employees. • the economic environment. The Company will set out in the section headed Implementation of Remuneration Policy, in the following financial year, the salaries for that year for each of the Executive Directors. 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 Provides a benefits package in line The Executive Directors receive benefits which include, but are not limited See description of benefits in previous column. Changes from withpractice relative to its comparator to, private health insurance, life insurance and death in service benefit. previous policy: group to enable the Company to recruit The Committee recognises the need to maintain suitable flexibility in the following introduction and retain Executive Directors with the benefits provided to ensure it is able to support the objective of attracting of a salary sacrifice experience and expertise to deliver the and retaining personnel in order to deliver the Company strategy. programme for Company’s strategy. Additional benefits may therefore be offered, such as relocation employees to lease allowances on recruitment. electric vehicles, this Policy specifies that The maximum will be set at the cost of providing the benefits described. Directors can Non-Executive Directors may participate in benefit programmes available participate. to employees which have the purpose of reducing environmental emissions. Pensions Provides a pension provision in line Pension arrangements are provided in line with practice to enable the The maximum contribution into the defined contribution plan or a salary supplement in lieu of pension will be in line with the wider workforce. Changes from withpractice to enable the Company Company to recruit and retain Executive Directors with the experience This ensures that Softcat’s approach is fully in line with corporate governance expectations and shareholder sentiment to align Executives’ previous policy: none. torecruit and retain Executive Directors andexpertise to deliver the Company’s strategy. pension with the wider workforce. with the experience and expertise to The Company operates a defined contribution (‘DC’) scheme. deliver the Company’s strategy. TheExecutive Directors are entitled to receive a maximum employer contribution into the DC scheme or a salary supplement in lieu of pension which is in line with the employer contribution for the wider workforce. New joiners will receive a pension contribution in line with the wider workforce. The current level is 5% of basic salary per annum. Increases will only be in line with employer pension contribution in the wider workforce, but shall not exceed 10% within the period of this Policy. 117Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Remuneration Policy table continued How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Performance metrics Annual and The Bonus Plan provides a significant The maximum bonus (including any part of the bonus deferred into share awards) For FY2023 the maximum opportunity will be 150% An award under the Bonus Plan is subject to satisfying financial and strategic/ Deferred incentive tothe Executive Directors linked deliverable under the Bonus Plan will be up to 200% of a participant’s annual ofsalary. Percentage of bonus maximum earned operational performance/personal performance conditions and targets measured | ShareBonus Plan | to achievement in delivering goals that | base salary. | forlevels of performance: | overa period of one financial year. | | --- | --- | --- | --- | --- | | (the‘Bonus Plan’) | are closely aligned with the Company’s | | | | | | | The Board will determine the bonus to be delivered following the end ofthe | Below threshold: 0%. | A minimum of 50% of the bonus shall be based on financial performance measures. | | Changes from | strategy and the creation ofvalue for | | | | | | | relevant financial year. | | Measures and weightings will be disclosed in the Annual Report on Remuneration for | | previous policy: | shareholders. | | Threshold: 20%. | | the year ahead. malus/clawback The Company will set out, in the section headed Implementation ofRemuneration In particular, the Bonus Plan supports the Maximum: 100%. triggers extended. Policy, in the following financial year, the nature ofthetargets and their weighting The Committee is of the opinion that given the commercial sensitivity arising in relation to Company’s objectives, allowing the for each year. the detailed targets used for the annual bonus, disclosing precise targets for the Bonus setting of annual targets based on the Plan in advance would not be in shareholders’ interests. Targets and performance business strategy at the time, meaning Details of the performance conditions, targets and their level ofsatisfaction for the achieved will be published at the end of the performance period so shareholders can that a wider range of performance year being reported on will be set out in theAnnualReport on Remuneration. fully assess the basis for any payouts under the Bonus Plan. metrics can be used that are relevant The annual bonus will be paid in cash and deferred shares. A minimum level of and achievable. In exceptional circumstances the Committee retains the discretion to: deferral into shares of one-third will apply for the first 100% of salary awarded as The Committee operates deferral forpart a bonus. Any bonus awarded above 100% of salary will be deferred into shares. • change the performance measures and targets and the weighting attached to the of the annual bonus earned inshares performance measures and targets partway through a performance year if there is Deferred bonus share awards vest: under the Bonus Plan. Theadvantage of asignificant and material event which causes the Committee to believe the original deferral is: • after a minimum deferral period of three years, during which no performance measures, weightings and targets are no longer appropriate; and conditions will apply; and • increased alignment between • make downward or upward adjustments to the amount of bonus earned resulting Executives and shareholders created • subject to the participant’s continued employment at the end of the deferral from the application of the performance measures, if the Committee believes that the through deferral and the increased period unless he/she is a good leaver. bonus outcomes are not a fair and accurate reflection of business performance. equity stake of management in the The Committee may award dividend equivalents on those shares to plan Any adjustments or discretion applied by the Committee will be fully disclosed in the Company; and participants to the extent that they vest. following year’s Remuneration Report. • amounts deferred in shares are The Committee will apply a two-year post-cessation shareholding requirement for The Bonus Plan contains clawback and malus provisions. subject to aDirector’s continuing all deferred share awards granted after 5 December 2019 which vest under the employment, which provides an Bonus Plan (see ‘Minimum shareholding requirement’ below). effective lock-in. Long Term Incentive The purpose of the LTIP is to incentivise Awards are granted annually to Executive Directors in the form of a Normal maximum value of up to 200% of salary p.a. The performance conditions for the 2022 LTIP awards are earnings per share (‘EPS’) | Plan (‘LTIP’) | and reward Executive Directors in | conditional share award, nil-cost option or restricted share award. | | based on the market value at the date of grant set | growth and relative total shareholder return (‘TSR’). | | --- | --- | --- | --- | --- | --- | | Changes from | relation to long-term performance and | | | inaccordance with the rules of the LTIP. | | | | | Awards will vest at the end of a three-year period subject to: | | | At least 50% of the LTIP will be based on financial metrics. The Committee may | | previous policy: | achievement of Company strategy. | | | | | | | | | | In exceptional circumstances the Committee | changethe balance of the measures, or use different measures for subsequent awards, | | malus/clawback | | | • the Executive Director’s continued employment at the date | | | | | This will better align Executive Directors’ | | | maygrant an award with a maximum of up to | as appropriate. | | triggers extended. | | | of vesting; and | | | | | interests with the long-term interests | | | 250%of salary. | | No material change will be made to the type of performance conditions without prior ofthe Company and act as a • satisfaction of the performance conditions. Across the LTIP award metrics up to 25% of the award shareholder consultation. retentionmechanism. The Committee may award dividend equivalents on awards to the extent willvest for threshold performance. Details of the performance conditions for each award will be disclosed in the Annual The use of comparative TSR measures that these vest. 100% of the award will vest for maximum Report on Remuneration for the year ahead. the success of the implementation ofthe Awards are subject to a mandatory two-year post-vesting holding performance. Company’s strategy in delivering an In exceptional circumstances the Committee retains the discretion to: period.The total time period between award and release of shares above-market level of return. istherefore five years. • vary, substitute or waive the performance conditions applying to LTIP awards The use of EPS ensures Executive iftheBoard considers it appropriate and the new performance conditions are The Committee will apply a two-year post-cessation shareholding Directors are focused on long-term deemed reasonable and are not materially less difficult to satisfy than the requirement for all awards granted after 5 December 2019 which vest financial performance to ensure this originalconditions; and under the LTIP (see ‘Minimum shareholding requirement’ below). flows through to long-term sustainable • make downward or upward adjustments to the amount vesting under the LTIP EPS growth. resulting from the application of the performance measures if the Committee believes that the outcomes are not a fair and accurate reflection of business performance. Any adjustments or discretion applied by the Committee will be fully disclosed in the following year’s Remuneration Report. The LTIP contains clawback and malus provisions. 118 Softcat plc Annual Report and Accounts 2022 How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Performance metrics Annual and The Bonus Plan provides a significant The maximum bonus (including any part of the bonus deferred into share awards) For FY2023 the maximum opportunity will be 150% An award under the Bonus Plan is subject to satisfying financial and strategic/ Deferred incentive tothe Executive Directors linked deliverable under the Bonus Plan will be up to 200% of a participant’s annual ofsalary. Percentage of bonus maximum earned operational performance/personal performance conditions and targets measured | ShareBonus Plan | to achievement in delivering goals that | base salary. | forlevels of performance: | overa period of one financial year. | | --- | --- | --- | --- | --- | | (the‘Bonus Plan’) | are closely aligned with the Company’s | | | | | | | The Board will determine the bonus to be delivered following the end ofthe | Below threshold: 0%. | A minimum of 50% of the bonus shall be based on financial performance measures. | | Changes from | strategy and the creation ofvalue for | | | | | | | relevant financial year. | | Measures and weightings will be disclosed in the Annual Report on Remuneration for | | previous policy: | shareholders. | | Threshold: 20%. | | the year ahead. malus/clawback The Company will set out, in the section headed Implementation ofRemuneration In particular, the Bonus Plan supports the Maximum: 100%. triggers extended. Policy, in the following financial year, the nature ofthetargets and their weighting The Committee is of the opinion that given the commercial sensitivity arising in relation to Company’s objectives, allowing the for each year. the detailed targets used for the annual bonus, disclosing precise targets for the Bonus Corporate governance setting of annual targets based on the Plan in advance would not be in shareholders’ interests. Targets and performance business strategy at the time, meaning Details of the performance conditions, targets and their level ofsatisfaction for the achieved will be published at the end of the performance period so shareholders can that a wider range of performance year being reported on will be set out in theAnnualReport on Remuneration. fully assess the basis for any payouts under the Bonus Plan. metrics can be used that are relevant The annual bonus will be paid in cash and deferred shares. A minimum level of and achievable. In exceptional circumstances the Committee retains the discretion to: deferral into shares of one-third will apply for the first 100% of salary awarded as The Committee operates deferral forpart a bonus. Any bonus awarded above 100% of salary will be deferred into shares. • change the performance measures and targets and the weighting attached to the of the annual bonus earned inshares performance measures and targets partway through a performance year if there is Deferred bonus share awards vest: under the Bonus Plan. Theadvantage of asignificant and material event which causes the Committee to believe the original deferral is: • after a minimum deferral period of three years, during which no performance measures, weightings and targets are no longer appropriate; and conditions will apply; and • increased alignment between • make downward or upward adjustments to the amount of bonus earned resulting Executives and shareholders created • subject to the participant’s continued employment at the end of the deferral from the application of the performance measures, if the Committee believes that the through deferral and the increased period unless he/she is a good leaver. bonus outcomes are not a fair and accurate reflection of business performance. equity stake of management in the The Committee may award dividend equivalents on those shares to plan Any adjustments or discretion applied by the Committee will be fully disclosed in the Company; and participants to the extent that they vest. following year’s Remuneration Report. • amounts deferred in shares are The Committee will apply a two-year post-cessation shareholding requirement for The Bonus Plan contains clawback and malus provisions. subject to aDirector’s continuing all deferred share awards granted after 5 December 2019 which vest under the employment, which provides an Bonus Plan (see ‘Minimum shareholding requirement’ below). effective lock-in. Long Term Incentive The purpose of the LTIP is to incentivise Awards are granted annually to Executive Directors in the form of a Normal maximum value of up to 200% of salary p.a. The performance conditions for the 2022 LTIP awards are earnings per share (‘EPS’) | Plan (‘LTIP’) | and reward Executive Directors in | conditional share award, nil-cost option or restricted share award. | | based on the market value at the date of grant set | growth and relative total shareholder return (‘TSR’). | | --- | --- | --- | --- | --- | --- | | Changes from | relation to long-term performance and | | | inaccordance with the rules of the LTIP. | | | | | Awards will vest at the end of a three-year period subject to: | | | At least 50% of the LTIP will be based on financial metrics. The Committee may | | previous policy: | achievement of Company strategy. | | | | | | | | | | In exceptional circumstances the Committee | changethe balance of the measures, or use different measures for subsequent awards, | | malus/clawback | | | • the Executive Director’s continued employment at the date | | | | | This will better align Executive Directors’ | | | maygrant an award with a maximum of up to | as appropriate. | | triggers extended. | | | of vesting; and | | | | | interests with the long-term interests | | | 250%of salary. | | No material change will be made to the type of performance conditions without prior ofthe Company and act as a • satisfaction of the performance conditions. Across the LTIP award metrics up to 25% of the award shareholder consultation. retentionmechanism. The Committee may award dividend equivalents on awards to the extent willvest for threshold performance. Details of the performance conditions for each award will be disclosed in the Annual The use of comparative TSR measures that these vest. 100% of the award will vest for maximum Report on Remuneration for the year ahead. the success of the implementation ofthe Awards are subject to a mandatory two-year post-vesting holding performance. Company’s strategy in delivering an In exceptional circumstances the Committee retains the discretion to: period.The total time period between award and release of shares above-market level of return. istherefore five years. • vary, substitute or waive the performance conditions applying to LTIP awards The use of EPS ensures Executive iftheBoard considers it appropriate and the new performance conditions are The Committee will apply a two-year post-cessation shareholding Directors are focused on long-term deemed reasonable and are not materially less difficult to satisfy than the requirement for all awards granted after 5 December 2019 which vest financial performance to ensure this originalconditions; and under the LTIP (see ‘Minimum shareholding requirement’ below). flows through to long-term sustainable • make downward or upward adjustments to the amount vesting under the LTIP EPS growth. resulting from the application of the performance measures if the Committee believes that the outcomes are not a fair and accurate reflection of business performance. Any adjustments or discretion applied by the Committee will be fully disclosed in the following year’s Remuneration Report. The LTIP contains clawback and malus provisions. 119Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Remuneration Policy table continued How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Performance metrics All employee share Softcat currently operates a SIP. The SIP The Company operates a SIP in which the Executive Directors are eligible The maximums set by legislation from time to time. The Company, in accordance with the legislation, may impose objective conditions on plans is an all-employee share ownership plan to participate (which is in line with HMRC legislation and is open to all participation in the SIP for employees. Changes from which has been designed to encourage eligible staff). previous policy: none. all eligible employees to become The Executive Directors will also be eligible to participate in any other shareholders inthe Company and all-employee arrangement implemented by the Company, on the same thereby align theirinterests with terms as other employees. shareholders. Element of remuneration How it supports the Company’s short and long-term strategic objectives Maximum opportunity Minimum The Committee has adopted formal shareholding guidelines that will encourage the Executive Directors to build The following table sets out the minimum shareholding requirements: shareholding up,over a five-year period, and then subsequently hold, a shareholding equivalent to a percentage of base salary. Role Shareholding requirement (% of salary) requirement Executive Directors shall retain all vested share-based awards (net of taxes and brokerage costs) as part of the Changes from build-up towards their respective target. Adherence to these guidelines is a condition of continued participation inthe Chief Executive Officer 200 previous policy: equity incentive arrangements. This policy ensures that the interests of Executive Directors and those ofshareholders Chief Financial Officer 200 increase in in-role are closely aligned. requirement for CFO The Committee retains the discretion to increase the shareholding requirements. A post-cessation shareholding requirement will operate. Executives must hold 100% of their shareholding requirement for from 150% to 200%. two years post-cessation. This is applicable to share awards granted after 5 December 2019 which vest under the Bonus Increase in post- Plan and the LTIP. An Executive Director’s attainment against their respective requirement will be disclosed each year in cessation requirement the Annual Report on Remuneration. from 50% to 100% of in-role requirement in year two. 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 2023 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. 1,769 2,800 2,651 1,800 1,493 2,400 2,238 1,500 | 2,000 | | 47% | | | | 47% | | --- | --- | --- | --- | --- | --- | --- | | | 37% | | 1,200 | | 37% | | | 1,600 | | | | 942 | | | 1,411 900 £’000 1,200 29% 29% 37% 31% 37% 31% 600 800 29% 29% 585 391 300 400 | | | | | 41% | 26% | | 22% | | | | 41%100%100% | 26% | | 22% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 0 | | | | | | | 0 | | | | | | | | | | Minimum | On target Maximum Maximum | | | | | | Minimum | On target Maximum Maximum | | | | | | | | | | | | (including | | | | | | | (including | | | | | | | | | 50% share | | | | | | | 50% share | | | | | | | | | price growth) | | | | | | | price growth) | | | Chief Executive Oicer (Graeme Watt) | | | | | | Chief Financial Oicer (Graham Charlton) | | | | | | | | | £’000 12 0 Softcat plc Annual Report and Accounts 2022 FixedBonus LTIP FixedBonus LTIP How it supports the Company’s Element of remuneration short and long-term strategic objectives Operation Maximum opportunity Performance metrics All employee share Softcat currently operates a SIP. The SIP The Company operates a SIP in which the Executive Directors are eligible The maximums set by legislation from time to time. The Company, in accordance with the legislation, may impose objective conditions on plans is an all-employee share ownership plan to participate (which is in line with HMRC legislation and is open to all participation in the SIP for employees. Changes from which has been designed to encourage eligible staff). previous policy: none. all eligible employees to become The Executive Directors will also be eligible to participate in any other shareholders inthe Company and all-employee arrangement implemented by the Company, on the same thereby align theirinterests with terms as other employees. shareholders. Element of remuneration How it supports the Company’s short and long-term strategic objectives Maximum opportunity Corporate governance Minimum The Committee has adopted formal shareholding guidelines that will encourage the Executive Directors to build The following table sets out the minimum shareholding requirements: shareholding up,over a five-year period, and then subsequently hold, a shareholding equivalent to a percentage of base salary. Role Shareholding requirement (% of salary) requirement Executive Directors shall retain all vested share-based awards (net of taxes and brokerage costs) as part of the Changes from build-up towards their respective target. Adherence to these guidelines is a condition of continued participation inthe Chief Executive Officer 200 previous policy: equity incentive arrangements. This policy ensures that the interests of Executive Directors and those ofshareholders Chief Financial Officer 200 increase in in-role are closely aligned. requirement for CFO The Committee retains the discretion to increase the shareholding requirements. A post-cessation shareholding requirement will operate. Executives must hold 100% of their shareholding requirement for from 150% to 200%. two years post-cessation. This is applicable to share awards granted after 5 December 2019 which vest under the Bonus Increase in post- Plan and the LTIP. An Executive Director’s attainment against their respective requirement will be disclosed each year in cessation requirement the Annual Report on Remuneration. from 50% to 100% of in-role requirement in year two. 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 2023 financial year, under three The table below sets out the assumptions used to calculate the elements of remuneration for each of the scenarios set out in the charts opposite. different performance scenarios: (i) minimum; (ii) on target; and (iii) maximum. The elements of remuneration have been categorised into Maximum including three components: (i) fixed; (ii) annual bonus (deferred bonus); and (iii) LTIP. 50% share price Element Description Minimum Target Maximum growth 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. 1 Fixed Salary, benefits and pension Included Included Included Included 2 Annual bonus Annual bonus (including No annual variable 50% of the 100% of the 100% of the deferredshares) maximumbonus maximumbonus maximumbonus Maximum opportunity of 150% of salary for the CEO andfor the CFO 2,3 | LTIP | Award under the LTIP | No multiple-year | 50% of the | 100% of the | 100% of the | | --- | --- | --- | --- | --- | --- | | | Maximum annual award | variable | maximumaward | maximumaward | maximum award | | | of 150% ofsalary | | | | plus 50% share | pricegrowth Notes: 1. Based on FY2022 benefits payments and pension values as per the single figure table. The actual benefits and pension contributions for FY2023 will only be known at the end of the financial year. Basic pay reflects a 5% increase awarded for FY2023. 2. See page 105 for the single figure table and the accompanying notes. Share price growth has been included in the final illustration in accordance with 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. Chief Executive Oicer (Graeme Watt) Chief Financial Oicer (Graham Charlton) 1,769 2,800 2,651 1,800 1,493 2,400 2,238 1,500 | 2,000 | | 47% | | | | 47% | | --- | --- | --- | --- | --- | --- | --- | | | 37% | | 1,200 | | 37% | | | 1,600 | | | | 942 | | | 1,411 900 £’000 £’000 1,200 29% 29% 37% 31% 37% 31% 600 800 29% 29% 585 391 300 400 | | | | 41% | 26% | | 22% | | | | 41%100%100% | 26% | | 22% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 0 | | | | | | | 0 | | | | | | | | | Minimum | On target Maximum Maximum | | | | | | Minimum | On target Maximum Maximum | | | | | | | | | | | (including | | | | | | | (including | | 121Annual Report and Accounts 2022 Softcat plc | | 50% share | | 50% share | | --- | --- | --- | --- | | | price growth) | | price growth) | | FixedBonus LTIP | | FixedBonus LTIP | | REMUNERATION COMMITTEE REPORT CONTINUED PART C – DIRECTORS' REMUNERATION POLICY CONTINUED # **Pay at risk** The charts below set out the single figure of each Executive Director based on whether the elements remain 'at risk'. For example: - • payment is subject to continuing employment for a period (deferred shares and LTIP awards); or - • performance conditions have to still be satisfied (annual bonus plan and LTIP awards); or - • elements are subject to clawback or malus for a period over which the Company can recover sums paid or withhold vesting. Further details of what triggers clawback or malus are set out below. Figures have been calculated based on target performance. The charts have been based on the same assumptions as set out above for the illustrations of the application of the Remuneration Policy. # **Chief Executive Officer (Graeme Watt)** ![img-6.jpeg](img-6.jpeg) # **Chief Financial Officer (Graham Charlton)** ![img-7.jpeg](img-7.jpeg) # **Malus and clawback** The following describes the malus and clawback provisions in the incentive plans: - • Malus is the adjustment of unpaid bonus, outstanding LTIP awards and deferred share bonus awards under the Bonus Plan as a result of the occurrence of one or more circumstances listed below. The adjustment may result in the value being reduced to zero. - • Clawback is the recovery of payments under the Bonus Plan or vested LTIP awards as a result of the occurrence of one or more of the circumstances listed below. The circumstances in which malus and clawback could apply are as follows: - • the discovery that the assessment of any performance target or condition in respect of a bonus award or LTIP award was based on error, or inaccurate or misleading information; and/or - • the discovery that any information used to determine the number of ordinary shares subject to a bonus award or LTIP award was based on error, or inaccurate or misleading information; and/or - • the action or conduct of a holder of a bonus award or LTIP award which, in the reasonable opinion of the Board, amounts to fraud or gross misconduct; and/or - • events or behaviour of a holder of a bonus award or LTIP award leading to the censure of the Company by a regulatory authority or having a significant detrimental impact on the reputation of the Company, provided that the Board is satisfied that the relevant holder of a bonus award or LTIP award was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to him or her; and/or - • the Company, or entities representing a material proportion of the Group, becomes insolvent or otherwise suffers a corporate failure. 122 **Softcut plc** Annual Report and Accounts 2022 Annual Bonus Plan Deferred Share Bonus Plan Long Term Incentive Plan Malus Up to the date of payment To the end of the three-year To the end of the three-year ofacashbonus deferralperiod vestingperiod Clawback Three years post the bonus n/a Two years post-vesting determination The rules of the plans will be amended to include an event of insolvency or a corporate failure. The Committee believes otherwise that the rules of the plans provide sufficient powers to enforce malus and clawback where required. Discretion Corporate governance The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has the discretion to amend policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval. It is the Committee’s intention that any outstanding commitments made in line with its policies prior to admission to the London Stock Exchange in 2015 will be honoured, even if satisfaction of such commitments may be inconsistent with policy. Recruitment policy The Company’s principle is that the remuneration of any new Executive Director recruited will be assessed in line with the same principles as for the incumbent Executive Directors, as set out in the Remuneration Policy table above. The Committee is mindful that it wishes to avoid paying more than it considers necessary to secure a preferred candidate with the appropriate calibre and experience needed for the role. In setting the remuneration for new recruits, the Committee will have regard to guidelines and shareholder sentiment regarding one-off or enhanced short-term or long-term incentive payments as well as considering the appropriateness of any performance measures associated with an award. The Company’s detailed policy when setting remuneration for the appointment of new Directors is summarised in the table below: Remuneration element Recruitment policy Salary, benefits These will be set in line with the policy for existing Executive Directors. and pension Annual bonus Maximum annual participation will be set in line with the Company’s policy for existing Executive Directors and will not exceed 200% of salary. LTIP Maximum annual participation will be set in line with the Company’s policy for existing Executive Directors and will not exceed 200% of salary in normal circumstances and 250% of salary in exceptional circumstances. ‘Buyout’ of incentives Where the Committee determines that the individual circumstances of recruitment justify the provision of a buyout, the forfeited on cessation equivalent value of any incentives that will be forfeited on cessation of an Executive Director’s previous employment will be ofemployment calculated taking into account the following: • the proportion of the performance period completed on the date of the Executive Director’s cessation ofemployment; • the performance conditions attached to the vesting of these incentives and the likelihood of them being satisfied; and • any other terms and conditions having a material effect on their value (‘lapsed value’). The Committee may then grant an award up to the same value as the lapsed value, where possible, under the Company’s incentive plans. To the extent that it was not possible or practical to provide the buyout within the termsof the Company’s existing incentive plans, a bespoke arrangement would be used. Maximum variable The maximum variable remuneration which may be granted in normal circumstances is 400% of salary remuneration (450%ofsalary if the maximum LTIP grant is made). Where an existing employee is promoted to the Board, the policy set out above would apply from the date of promotion but there would be no retrospective application of the policy in relation to subsisting incentive awards or remuneration arrangements. Accordingly, prevailing elements of the remuneration package for an existing employee would be honoured and form part of the ongoing remuneration of the person concerned. These would be disclosed to shareholders in the Remuneration Report for the relevant financial year. The Company’s policy when setting fees for the appointment of new Non-Executive Directors is to apply the policy which applies to current Non-Executive Directors. 123Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Payment for loss of office The Committee will honour Executive Directors’ contractual entitlements. Service contracts do not contain liquidated damages clauses and do not contain a fixed term of appointment. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in each case. There is no agreement between the Company and its Executive Directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. The Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation), or by way of settlement or compromise of any claim arising in connection with the termination of an Executive Director’s office or employment. Element Overview of policy Principles The Committee will honour Executive Directors’ contractual entitlements. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable ineach case. Salary, benefits These will be paid over the notice period. The Company has discretion to make a payment as set out above. and pension Inaddition, provision is retained to make a payment in lieu of notice. Cash bonus awards Good leavers: performance conditions will be measured at the bonus measurement date. Bonuses will normally bepro-rated for the period worked during the financial year. Other leavers: no bonus payable for year of cessation. Discretion: the Remuneration Committee has the following elements of discretion: • to determine that an Executive is a good leaver. It is the Committee’s intention to only use this discretion in circumstances where there is an appropriate business case, which will be explained in full to shareholders; and • to determine whether to pro-rate the bonus to time. The Remuneration Committee’s normal policy is that it willpro- rate bonus for time. It is the Committee’s intention to use discretion to not pro-rate in circumstances where there is an appropriate business case, which will be explained in full to shareholders. Share bonus awards Good leavers: all subsisting deferred share awards will vest at the end of the original deferral period. Other leavers: lapse of any unvested deferred share awards. Discretion: the Remuneration Committee has the following elements of discretion: • to determine that an Executive is a good leaver. It is the Remuneration Committee’s intention to only use this discretion in circumstances where there is an appropriate business case, which will be explained in full to shareholders; • to vest deferred shares at the end of the original deferral period or at the date of cessation. The Remuneration Committee will make this determination depending on the type of good leaver reason resulting in the cessation; and • to determine whether to pro-rate the maximum number of shares to the time from the date of grant to the date ofcessation. The Remuneration Committee’s normal policy is that it will not pro-rate awards for time. The Committee will determine whether to pro-rate based on the circumstances of the Executive Director’s departure. LTIP Good leavers: pro-rated to time and performance in respect of each subsisting LTIP award. Other leavers: lapse of any unvested LTIP awards. Discretion: the Remuneration Committee has the following elements of discretion: • to determine that an Executive is a good leaver. It is the Remuneration Committee’s intention to only use this discretion in circumstances where there is an appropriate business case, which will be explained in full to shareholders; • to measure performance over the original performance period or at the date of cessation. The Remuneration Committee will make this determination depending on the type of good leaver reason resulting in the cessation; and • to determine whether to pro-rate the maximum number of shares to the time from the date of grant to the date ofcessation. The Remuneration Committee’s normal policy is that it will pro-rate awards for time. It is the Remuneration Committee’s intention to use discretion to not pro-rate in circumstances where there is an appropriate business case, which will be explained in full to shareholders. Other contractual There are no other contractual provisions other than those set out above. obligations 124 Softcat plc Annual Report and Accounts 2022 A good leaver reason is defined as cessation in the following circumstances: • death; • ill health; • injury or disability; • redundancy; • retirement; • transfer of employment to a company which is not a Group company; and • at the discretion of the Committee (as described above). Cessation of employment in circumstances other than those set out above is cessation for other reasons. Corporate governance Change of control The Committee’s policy on the vesting of incentives on a change of control is summarised below: Name of incentive plan Change of control Discretion ABP cash awards Pro-rated to time and performance to the date The Committee has discretion regarding whether to pro-rate the of the change of control. bonus to time. The Committee’s normal policy is that it will pro-rate the bonus for time. It is the Committee’s intention to use its discretion to not pro-rate incircumstances only where there is an appropriate business case, which will be explained in full to shareholders. ABP deferred Subsisting deferred share awards will vest on a The Committee has discretion regarding whether to pro-rate the share awards change of control. award to time. The Committee’s normal policy is that it will not pro-rate awards for time. The Committee will make this determination depending on the circumstances of the change of control. LTIP The number of shares subject to subsisting LTIP The Committee will determine the proportion of the LTIPaward awardswill vest on a change of control, pro-rated which vests taking into account, among other factors, the period totimeand performance. of time the LTIP award has been held by the participant and the extent to which any applicable performance conditions have been satisfied at that time. Non-Executive Director remuneration How it supports the Company’s short and long-term strategic Performance Element of remuneration objectives Operation Opportunity metrics Non-Executive Provides a level of fees to The Board is responsible for setting The fees for Non-Executive None. Director and support recruitment and theremuneration of the Non-Executive Directors and the Chair are Chairfees retention of Non-Executive Directors. The Remuneration Committee is set atbroadly the median Directors and a Chair with responsible for setting the Chair’s fees. ofan appropriate Changes from the necessary experience to comparator group. previous policy: none. Non-Executive Directors are paid anannual advise and assist feeand additional fees for chairing Committees. In general, the level of fee withestablishing and The Chair does not receive any additional fees increase for the Non- monitoring the Company’s for membership of Committees. A fee isalso Executive Directors and the strategic objectives. paidto the Designated Non-Executive Director Chair will be set taking responsible forwider workforce engagement. account of any change in responsibility and will take Fees are reviewed annually based into account the general onequivalent roles in the comparator group rise in salaries across the used to review salaries paid to theExecutive UK workforce. Directors. Feesareset atbroadly the median of the comparator group. The Company will pay reasonable expenses Non-Executive Directors and the Chair do incurred by the Non- notparticipate in any variable remuneration. Executive Directors and Non-Executive Directors and the Chair do not theChair and may settle participate in benefits arrangements, with the any tax incurred in relation exception of benefit programmes available to to these. employees which have the purpose of reducing environmental emissions. 125Annual Report and Accounts 2022 Softcat plc REMUNERATION COMMITTEE REPORT CONTINUED PART C  DIRECTORS’ REMUNERATION POLICY CONTINUED Executive Director contracts and letters of appointment for Chair and Non-Executive Directors Executive Directors Notice periods Compensation Nature From From provisions for Name Date of service contract of contract Company Director early termination Graeme Watt 1 April 2018 Rolling Twelve months Twelve months None Graham Charlton 11 July 2022 Rolling Twelve months Twelve months None Non-Executive Directors Name Date of letter of appointment Martin Hellawell 1 April 2018 Robyn Perriss 21 May 2019 Vin Murria 3 November 2015 Karen Slatford 22 October 2019 Lynne Weedall 21 March 2022 Note: Graham Charlton’s original service contract was revised and amended during the year to reflect changes in legislation since his original contract was signed and also to provide more consistency with Graeme Watt’s service contract. 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 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. Statement of considerations of employment conditions elsewhere in the Company The Remuneration Policy 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 the development of our Policy. The remuneration strategy of the Company has been designed to ensure all employees share in its success through performance-related remuneration and share ownership. Two remuneration arrangements operate: the LTIP for Executive Directors and for some members of the senior team and annual bonus deferral for Executive Directors. Awards under both these plans will provide alignment between senior leaders and our shareholders based on overall corporate performance of the business. For all employees, the Company operates a SIP. Under the SIP, eligible employees will have the opportunity to purchase shares in the Company subject to certain restrictions. The Company does not use remuneration comparison measurements. The Board has designated a Non-Executive Director responsible forgeneral workforce engagement. The Chair of the Remuneration Committee has directly engaged with a group of employee representatives to explain how executive remuneration aligns with wider Company pay policy. The engagement provided useful feedback and further assurance to the Committee that executive remuneration is considered to be well-aligned with the Company’s wider philosophy on pay, particularly in respect of the importance of setting appropriate benchmarks for fixed pay and on the importance of variable pay as an incentive to drive stretching performance. The Committee believes there is strong alignment between executive pay, wider workforce pay, the Company’s culture and strategy. In setting and operating the Policy, the pay and conditions of other employees of the Company are taken into account, including any base salary increases awarded and any changes in pension and benefits. The Committee is provided with data on the remuneration structure for management-level tiers below the Executive Directors and uses this information to ensure consistency of approach throughout the Company. The Committee is also informed of the proposed remuneration of Softcat’s Company Secretary. 126 Softcat plc Annual Report and Accounts 2022 Link to objectives The following table demonstrates how key objectives are reflected consistently in plans operating at various levels within the Company and how our incentive schemes support the Company strategy. Strategic objectives Retain and Generate Equity reward sector-leading Growth in profit ownership Executive team value for from existing Win new and retention to deliver the Plan Purpose Eligibility shareholders customers customers of shares strategy SIP To broaden share ownership All eligible employees and share in corporate success over the medium term Corporate governance Annual Incentivise and reward Executive Directors, bonus short-term performance senior executives, At senior level, an element of senior managers bonus is deferred in shares andmanagers LTIP Incentivise and reward Executive Directors long-term performance andsenior executives 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. Statement of consideration of shareholder views The Committee takes the views of the shareholders seriously and these views are taken into account in shaping Remuneration Policy and practice. Shareholder views are considered when evaluating and setting the remuneration strategy and the Committee commits to consulting with key shareholders prior to any significant changes to its Remuneration Policy. This year the Committee has consulted with major shareholders in advance of the new Remuneration Policy which will be proposed at the Company’s 2022 AGM. We have obtained significant shareholder support as a result of the consultations. The Committee also consulted with certain proxy voting advisory bodies, including the Investment Association (‘IA’) and the Institutional Shareholder Services (‘ISS’). The Committee explained the rationale for the changes to the Remuneration Policy 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 2021 AGM received 97.4% votes in favour. TheCommittee is grateful for the continuing support of shareholders. Historical awards All historical awards that were granted under any current or previous bonus or share schemes operated by the Company, and which remain outstanding, remain eligible to vest on the basis of their original award terms. Policy on external appointments Executive Directors are permitted to accept appropriate outside non-executive director appointments so long as the overall commitment iscompatible with their duties as Executive Directors and is not thought to interfere with the business of the Company. Any fees received inrespect of these appointments are retained directly by the relevant Executive Director. Lynne Weedall Chair of the Remuneration Committee 24 October 2022 127Annual Report and Accounts 2022 Softcat plc DIRECTORS' REPORT # The following is the report of the Directors of the Company for the financial year ended 31 July 2022. # 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 reporting on the Task Force on Climate-related Financial Disclosures ('TCFD'). Our Green Teams continue to raise awareness of the importance of environmental issues through their activities. • 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 report on Social Value and in the report on TCFD and Sustainability on pages 38 to 58. Please also see the Governance Report on pages 70 to 79. | | --- | --- | | Human rights and anti-bribery-related matters | • 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 report on Social Value on pages 38 to 42 and in the Governance Report on pages 70 to 79. | | 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. • 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 34 to 37 of this report, and our approach to diversity in the report on Social Value on pages 38 to 42, in the Chair's Statement on pages 12 to 15 and in the Nomination Committee Report on pages 90 to 95. | | Business model, policies, principal risks and KPIs | • 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 20 and 21 and key risks on pages 59 to 63 and selected KPIs are reported on pages 30 and 31. Our strategy is discussed in various places in the Strategic Report, including pages 28 and 29. | # Directors' Report The Directors present their report for the year to 31 July 2022. 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. 128 Softcat plc Annual Report and Accounts 2022 ## 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 page 66 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 34 to 37 of this report; - strategy and relevant future developments – refer to pages 22 to 26 and pages 28 to 29 of the Strategic Report; and - financial risk management objectives and policies – refer to the 'Risk Management' section included in the Strategic Report on pages 59 to 64 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 2021: | Name | Position | Date of appointment | | --- | --- | --- | | M Hellawell | Chair | Appointed as a Director on 24 March 2006 and Chair on 1 April 2018 | | G Watt | Chief Executive | Appointed 1 April 2018 | | G Charlton | Chief Financial Officer | Appointed 19 March 2015 | | V Murris | Independent Non-Executive Director | Appointed 3 November 2015 | | K Stafford | Independent Non-Executive Director | Appointed 5 December 2019 | | R Perras | Independent Non-Executive Director | Appointed 1 July 2019 | | L Weedell | Independent Non-Executive Director | Appointed 3 May 2022 | Biographies of the Directors as at 24 October 2022 can be found on pages 68 and 69. ## 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 2022 are disclosed in the Remuneration Report on page 108. 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 2022 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 2022 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. Corporate governance Annual Report and Accounts 2022 Softcut plc 129 DIRECTORS' REPORT CONTINUED ### Compensation for loss of office and change of control There are no agreements in place with any Director that would provide compensation for loss of office or employment resulting from a change of control. Change of control provisions for the Company's share plans may cause options and awards granted under such plans to vest on a takeover. The Company is not party to any other significant agreements that take effect after, or terminate upon, a change of control. ### Articles of Association The Articles may be amended by a special resolution of the members. At the AGM held on 12 November 2015, shareholders approved by special resolution the amended Articles which took effect at the date of the initial public offering ('IPO') on 18 November 2015. ### Share capital and control The Company's ordinary issued share capital as at 31 July 2022 was 199,354,076 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 2022, the SIP Trust held 187,771 shares (2021: 214,622) awarded to employees as part of the free share award, subject to service conditions. A further 353,586 shares (2021: 346,958) 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 (2021: 51,007). During the year ended 31 July 2022, share options were exercised pursuant to the Long Term Incentive Plan and the Annual and Deferred Bonus Plan, resulting in the additional listing and allotment of 312,266 new ordinary shares. Holders of ordinary shares are entitled to attend and speak at general meetings of the Company, and to appoint one or more proxies and, if they are corporations, corporate representatives who are entitled to attend general meetings and to exercise voting rights. The deferred shares carry no voting rights or rights to receive any of the profits of the Company available for distribution by way of dividend or otherwise. On a return of capital on a winding up of the Company (but not otherwise), the holder is entitled only to the repayment of the amount paid up on that share after payment of the capital paid up on each other share in the capital of the Company and the further payment of £10,000,000 on each such share. The deferred shares represent less than 0.01% of the Company's total issued share capital. Further information on the Company's issued share capital can be found in note 17 to the financial statements. The Company passed the following resolutions on 15 December 2021: - an ordinary resolution providing the Directors with authority to: - (i) allot ordinary shares up to a maximum nominal amount of £33,175, 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 £66,350 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 £4,976; and - (ii) allot shares or sell treasury shares for cash up to a maximum nominal amount of £4,976, 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 19,905,081 of the Company's ordinary shares. These authorities are due to expire at the Company's AGM to be held on 13 December 2022 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. 130 Softcat plc Annual Report and Accounts 2022 ## Substantial shareholders The substantial shareholdings in the table below represent those interests notified to the Company as at 31 July 2022 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. | | As at 31 July 2022 | | As at 24 October 2022 | | | --- | --- | --- | --- | --- | | | Ordinary shares | Voting rights | Ordinary shares | Voting rights | | Peter Kelly^{1} | 64,976,058 | 32.6% | 64,976,058 | 32.6% | | Mawer Investment Management Limited | 9,946,370 | 5.0% | 9,946,370 | 5.0% | | John Nash | 7,244,714 | 3.6% | 7,244,714 | 3.6% | Note: 1. The ordinary shares held by Peter Kelly and John Nash include shares held beneficially on 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 24 October 2022, 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. 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 (2021: none). ## Political donations The Company did not make any political donations during the year (2021: ENI). 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 2022. 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 report on TCFD and Sustainability, on pages 43 to 58 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 report on Social Value on pages 38 to 42 of the Strategic Report. Corporate governance Annual Report and Accounts 2022 Softcat plc 131 DIRECTORS' REPORT CONTINUED ### 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 report on Social Value on page 38. The Company places considerable value on the involvement of its employees and continues to keep them informed on matters affecting them as employees. This is undertaken through a variety of methods including, but not limited to, regular Company meetings, team briefings, Company days, emails and the intranet. Vin Munia serves as the Designated Non-Executive Director for Workforce Engagement. At team meetings, managers are responsible for ensuring that information sharing, discussion and feedback take place on a regular basis. As a result of these meetings management can communicate the financial and economic factors affecting the Company and ensure that the views of employees are taken into account in Company decisions which are likely to affect their interests. ### Post-balance sheet events #### Dividend The Board recommends a final ordinary dividend of 16.6p per ordinary share and a special dividend of 12.6p per ordinary share to be paid on 19 December 2022 to all ordinary shareholders who were on the register of members at the close of business on 11 November 2022. Shareholders will be asked to approve the final and special dividends at the AGM on 13 December 2022. The Company's dividend and distributions policy is detailed in the Governance Report on page 76. ### 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 98 to 127 | | 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 98 to 127 | | Details of any non-pre-emptive issues of equity for cash. | Directors' Report, page 130 | | Details of any non-pre-emptive issues of equity for cash by any unlisted major subsidiary undertaking. | 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. | Not applicable | | Details of waiver of dividends by a shareholder. | Not applicable | | Board statement in respect of Relationship Agreement with the controlling shareholder. | Directors' Report, page 131 | ### 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 2022 AGM. ### Branches The Company operates branches in Australia, the United States of America, the Netherlands, Singapore, Hong Kong and Ireland. 132 Softcut plc Annual Report and Accounts 2022 ## 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 64) and Chief Financial Officer's review sections (see pages 32 to 33) of this Annual Report. Given the current macro-economic environment 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 13-month period from the date of this report (the going concern period) until 30 November 2023. All the forecasts reflect the payment of the FY2022 dividend of £58.2m which will be paid in December 2022 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 invest in technology to provide efficient services to the public and this has continued apace despite the pandemic and recent turbulence in the UK economy. 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 2022, the Company held instantly accessible cash and cash equivalents of £97.3m, while net current assets were £190.7m. 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. Operational cash flow forecasts for the going concern period are sufficient to support the business with the £60m 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. ### Challenging economic environment Management have, in all three scenarios, considered the principal challenges to short term business performance which are expected to be: - an economic downturn in the UK economy, aided by high broad-based inflation and increasing interest rates; - continued impact of hardware supply constraints, resulting from the global semi-conductor shortage, although this is forecast to improve and is isolated to a select few vendors; and - higher risk of credit losses. Despite the impact of Omicron and further lockdown period on the year just finished, the Company has traded well, delivering double-digit year-on-year growth. 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 2022, takes into account the FY2023 budget process which includes estimated growth and increased costs across the going concern period and is consistent with the actual trading experience through to September 2022. The key inputs and assumptions in the base case include: - continued revenue growth in line with historic rates; - rebate income continues to be received in proportion to cost of sales as in FY2022; - employee commission is incurred in line with the gross margin; and - increased levels of cost to reflect continued investment in our people, the businesses IT infrastructure as well as a return of travel and staff entertainment costs more in line with pre-COVID levels than we have seen in the past twelve months. 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 have in place a hybrid working model with a balance of remote working and return to the office, which has not had a noticeable impact on the operational performance of the Company. Year to date trading to the end of September 2022 is consistent with the base case forecast. ### Severe but plausible case Given the current economic challenges facing 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 below any historic trend and more severe than experienced during the height of the pandemic. Further impacts of this scenario, such as reduced margins and greater credit losses, have also been considered. The key inputs and assumptions include: - an average 7.5% 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 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. Corporate governance Annual Report and Accounts 2022 **Softnet plc** 133 DIRECTORS’ REPORT CONTINUED Going concern continued Going concern conclusion Severe but plausible case continued Based on the forecast and the scenarios modelled, together with The purpose of this scenario was to consider if there was a significant the performance of the Company to date, the Directors consider risk that the Company would move to being cash negative in any of that the Company has significant liquidity headroom to continue in the months in the going concern period. Even at these lower levels operational existence for the thirteen-month period from the date of of activity, which the Directors believe is a highly unlikely outcome, this report (the going concern period) until 30 November 2023. the Company continues to be profitable, and maintains a positive Accordingly, at the October 2022 Board meeting, the Directors cash balance at all times. Despite this, management have modelled concluded from this analysis it was appropriate to continue to further cost saving and working capital action (see mitigating adopt the going concern basis in preparing the financial actions) that will enable the Company to mitigate the impact of statements. Should the impact of these conditions be even more reduced cash generation further and achieve the Board’s desired prolonged or severe than currently forecast by the Directors under minimum cash position, should this scenario occur. The Directors the severe but plausible case scenario, the Company would need are confident that they can implement these actions if required. to implement additional operational or financial measures. Mitigating actions Disclosure of information to the auditor There are several potential management actions that have not The Directors in office at the time of approval of the Directors’ been included in the severe but plausible forecast and it is Report are listed on pages 68 to 69 and have each confirmed estimated that the total cash impact of these actions is in excess that: ofa £18m cost reduction on an annualised basis and additional • so far as he or she is aware, there is no relevant audit annual working capital savings of £30m, before considering the information of which the Company’s auditor is unaware; and cost of delivering them and the point at time at which they were delivered. The actions which if implemented would offset the • he or she has taken all the steps that he or she ought to have reduced activity: taken as a Director to make himself or herself aware of any such relevant audit information and to establish that the • bonus costs scaled back in line with performance; Company’s auditor is aware of that information. • no interim dividend in H2 of FY2023; This confirmation is given and should be interpreted in accordance • savings in discretionary areas of spend; with the provisions of Section 418 of the Companies Act 2006. • delayed payment to suppliers foregoing early settlement Annual General Meeting discount; and The Company’s 2022 AGM will take place on 13 December 2022 • short term supplier payment management. atthe Company’s registered office: Softcat plc, Fieldhouse Lane, Marlow, Buckinghamshire SL7 1LW. The mitigations are deemed achievable and reasonable as the Company benefits from a flexible business model with a high The Chair of the AGM intends for a poll to be called in respect proportion of costs linked to performance. ofeach of the resolutions to be voted on at the 2022 AGM. Intheevent of a show of hands every holder of ordinary shares Reverse stress test who is present in person or by proxy at a general meeting has one The Directors have performed a reverse stress test exercise to see vote on each resolution and, on a poll, every holder of ordinary how extreme conditions would need to be for the Company to shares who is present in person or by proxy has one vote on become cash negative within a twelve-month period. The eachresolution for every ordinary share of which he/she is the conditions go significantly further than the severe but plausible registered holder. A proxy will have one vote against a resolution scenario and reflect a scenario that the business consider remote. in the event of a show of hands in certain circumstances specified The four combined stresses modelled are as follows: in the Articles. The Notice of AGM specifies deadlines for 1. reduction of 15% in gross invoiced income, compared to the exercising voting rights. The Notice of AGM can be found in the base case; Investor Centre section of the Company’s website, www.softcat.com, and is being posted at the same time as this Annual Report. The 2. reduced achievable gross margin by 3%; Notice of AGM sets out the business of the meeting and provides 3. additional bad debt write offs of £10m per year across the explanatory notes on all resolutions. Separate resolutions are forecast period; and proposed in respect of each substantive issue. 4. extending the debtor days by three days from historic levels A holder of ordinary shares may usually vote personally or by achieved and no change to historic supplier payment days. proxy at a general meeting. Any form of proxy must be delivered to the Company not less than 48 hours before the time appointed All four inputs are greater than the business has ever experienced for holding the meeting or adjourned meeting at which the person in its history. In the modelled scenario, prior to mitigations, the named in the appointment proposes to vote (for this purpose, the business could become cash negative within twelve months. Directors may specify that no account shall be taken of any part of Whilst the Board considers such a scenario to be extremely remote a day that is not a working day). A corporation which is a holder a programme of further actions to mitigate the impact, in excess of of ordinary shares in the Company may authorise such persons as those set out above, would be actioned should the likelihood of it thinks fit to act as its representatives at any general meeting of such a scenario increase. The Board considers the forecasts and theCompany. assumptions used in the reverse stress test, as well as the event that could lead to it, to be extremely remote. 134 Softcat plc Annual Report and Accounts 2022 No holder of ordinary shares shall be entitled to attend or vote, The Directors are responsible for keeping adequate accounting either personally or by proxy, at a general meeting in respect of records that are sufficient to show and explain the Company’s any ordinary share if any call or other sum presently payable to the transactions and disclose with reasonable accuracy at any time the Company in respect of such ordinary share remains unpaid or in financial position of the Company and enable them to ensure that certain other circumstances specified in the Articles where there is the Company financial statements comply with the Companies Act default in supplying the Company with information concerning 2006. They are also responsible for safeguarding the assets of the interests in the Company’s ordinary shares. The results of each of Company and hence for taking reasonable steps for the the resolutions to be voted on at the 2022 AGM will be published prevention and detection of fraud and other irregularities. to the London Stock Exchange and will be available on the Under applicable law and regulations, the Directors are also Company’s website. responsible for preparing a strategic report, directors’ report, The AGM is the Company’s principal forum for communication with directors’ remuneration report and corporate governance statement private shareholders and the Directors recognise its important role. that comply with that law and those regulations. The Directors are Corporate governance The Chair of the Board and the Chairs of the Committees, together responsible for the maintenance and integrity of the corporate and with the other Directors, will be available to answer shareholders’ financial information included on the Company’s website. questions at the meeting. Additionally, shareholders will be given Fair and balanced reporting the opportunity to submit questions via email, to the Directors, ahead of the meeting. Questions may be submitted to cosec@ Having taken advice from the Audit Committee, the Board softcat.com or by letter addressed to the Company Secretary at considers that the Annual Report and Accounts, taken as a whole, the Company’s registered office. Questions should be received up is fair, balanced and understandable and that it provides the to 24 hours in advance of the meeting and a response will be information necessary for shareholders to assess the Company’s provided. Further information and requirements can be found within position and performance, business model and strategy. the Notice of AGM. Responsibility statement pursuant to FCA’s Disclosure Statement of Directors’ responsibilities in relation Guidance and Transparency Rule 4 (‘DTR 4’) tothe financial statements Each Director of the Company (whose names and functions The Directors are responsible for preparing the Annual Report and appear on pages 68 to 69) confirms that (solely for the purpose of the financial statements in accordance with applicable United DTR 4) to the best of his or her knowledge: Kingdom law and regulations. • the financial statements, prepared in accordance with Company law requires the Directors to prepare financial statements UK-adopted international accounting standards give a true and for each financial year. Under that law the Directors have elected to fair view of the assets, liabilities, financial position and profit of prepare the Company’s financial statements in accordance with the Company; UK-adopted international accounting standards (‘IFRSs’). Under • the Annual Report, including the Strategic Report, includes a fair company law the Directors must not approve the financial statements review of the development and performance of the business unless they are satisfied that they give a true and fair view of the state and the position of the Company, together with a description of affairs of the Company and of the profit or loss of the Company ofthe principal risks and uncertainties that they face; and for that period. • they consider the Annual Report and Accounts, taken as a In preparing these financial statements the Directors are required to: whole, is fair, balanced and understandable and provides the • select suitable accounting policies in accordance with IAS 8 information necessary for shareholders to assess the Company’s Accounting Policies, Changes in Accounting Estimates and position, performance, business model and strategy. Errors and then apply them consistently; The responsibility statement has been approved by the Board • make judgements and accounting estimates that are ofDirectors and is signed on its behalf by: reasonable and prudent; • present information, including accounting policies, in a mannerthat provides relevant, reliable, comparable and understandable information; Graeme Watt Graham Charlton Chief Executive Officer Chief Financial Officer • provide additional disclosures when compliance with the 24 October 2022 24 October 2022 specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and The Directors’ Report has been approved by the Board of Directors financial performance; and is signed on its behalf by: • state that UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis Luke Thomas unless it is inappropriate to presume that the Company will Company Secretary continue in business. 24 October 2022 135Annual Report and Accounts 2022 Softcat plc Financial statements 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 2022 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 UK adopted international accounting standards. In our opinion, the financial statements: • give a true and fair view of the Company’s affairs as at 31 July 2022 and of its profit for the year then ended; • have been properly prepared in accordance with UK adopted international accounting standards; 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence 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. 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. 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 including discussion with management to assess whether all key factors were taken into account; • checking the arithmetical accuracy of the cash flow forecast models and assessing the Company’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 to 30 November 2023. These forecasts include an assessment of available cash balances given the Company has no external debt arrangements as well as understanding how the impact of the ongoing macro-economic uncertainty had been reflected in the forecasts; • considering the downside scenarios, including the reverse stress case, 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, inflation and working capital in the going concern period, including searching for sources of contradictory evidence in our assessment of management’s forecasting, such as assessing historical budgeting accuracy and comparing the forecast with analyst expectations. Due to uncertainty in the wider economic markets, we have focused our work on further sensitivities to the severe but plausible scenario and whether the reverse stress test scenario is considered remote; • assessing the adequacy of the going concern assessment period until 30 November 2023, considering whether any events or conditions foreseeable after the period indicated a longer review period would be appropriate; • inquired of management as to their knowledge of events or conditions beyond the period of their assessment that may cast significant doubt on the entity’s ability to continue as a going concern; • 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. 13 6 Softcat plc Annual Report and Accounts 2022 Our key observations • The Directors’ assessment is that Softcat plc, on a standalone basis, has sufficient liquidity and headroom in cash throughout the going concern period to 30 November 2023. Management’s reverse stress testing demonstrated a 18% reduction in gross profit compared to prior year (prior to mitigations) would be required to eliminate cash held, which is more than the impact of all of management’s downside scenarios combined. We have not identified any material climate-related risks that should be incorporated into Softcat plc’s forecasts to 30 November 2023. 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 the period to 30 November 2023. 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. Overview of our audit approach Key audit matters • 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 Materiality • Overall materiality of £6.5m which represents 5% of profit before tax Financial statements An overview of the scope of our audit Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the UK-based audit engagement team. Climate change There has been increasing interest from stakeholders as to how climate change will impact Softcat plc. The Company has determined that the most significant future impacts from climate change on its operations will be from business interruption driven by extreme climate or failure to evolve technology product offerings in line with consumer and investor demands. These are explained on pages 49 to 50 in the required Task Force for Climate related Financial Disclosures and on page 62 in the principal risks and uncertainties, which form part of the “Other information,” rather than the audited financial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated. As explained in note 1, the impact of climate change is not considered to have a material impact at this time. Governmental and societal responses to climate change risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into account when determining asset and liability valuations and the timing of future cash flows under the requirements of UK adopted International Accounting Standards (‘IFRS’). Our audit effort in considering climate change was focused on evaluating management’s assessment of the impact of climate risk, physical and transition, and ensuring that the effects of climate risks disclosed on pages 49 to 50 do not gave a material impact on the financial statements. We also challenged the Directors’ considerations of climate change in their assessment of going concern and viability and associated disclosures. Whilst the Company has stated its commitment to the aspirations of the Paris Agreement to achieve net zero emissions by 2050, the Company is currently unable to determine the full future economic impact on their business model, operational plans and customers to achieve this and therefore as set out above the potential impacts are not fully incorporated in these financial statements. 137Annual Report and Accounts 2022 Softcat plc INDEPENDENT AUDITOR’S REPORT CONTINUED To the members of Softcat plc 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 Risk Our response to the risk to the Audit Committee Overstatement of We performed the following procedures: We concluded that the revenue performance through recognised at or near year • Performed walkthroughs within the new ERP system to end was properly accounted the misstatement of understand key changes in the revenue recognition process. for and that revenue has revenue recognised at or We amended our audit strategy to reflect changes in appropriately been recognised near year end the process for accounting for unbilled receivables and in accordance with IFRS. During the year the Company deferred income. recognised revenue of £1,077.9m We concluded that • Updated our understanding of management’s cut off (2021: £784.0m). management’s disclosures in assessment, including the delivery lead time assumptions relation to revenue, including Refer to the Audit Committee Report utilised, which we validated to historic averages. disclosed accounting policies (pages 80 to 89); Accounting • Tested revenue cut off by obtaining management’s sales cut off and those relating to key critical policies (pages 148 to 159); and assessment and independently testing a sample of transactions accounting judgements, to be note 2 of the Company Financial therein by vouching to invoices and proof of delivery. appropriate. Statements (page 159 to 160). • Tested unbilled receivables by obtaining management’s We did not identify any • Management’s process for analysis and independently testing transactions therein by issues over revenue cut-off accounting for certain revenue vouching to invoices and proof of delivery. as a result of the new ERP transactions, particularly the system implemented in the review process at year end to • Tested an independent sample of transactions invoiced in current period. record revenue in the appropriate the two weeks either side of the year end. We stratified the period, is mostly manual and population between revenue type and selected our sample As part of our procedures, therefore susceptible to error based on the following criteria: we noted no indication (either deliberate or without intent). of deliberate or other – key items based on a quantitative threshold or specific The accounting is made more manipulation of revenue cut-off qualitative factors; and challenging due to the reliance on or management override. – statistical sample of items invoiced within the seven days suppliers to notify the Company prior to the balance sheet date, which we considered to be of delivery, and for international of higher risk based on average delivery lead times. shipments which results in a longer delivery lead time needing to • We tested our sample by vouching to invoices and proof be built into the assumptions of delivery, to confirm these had been recorded in the utilised by management. There is correct period. a risk that revenue is recognised • To address the risk of management override - we tested a prematurely or fictitiously. sample of journal entries recorded at or near year end as well • Certain compensation incentives as top-side adjustments by verifying to appropriate supporting are based on quarterly and documentation. annual gross margin targets, • Tested a statistical sample of sales transactions deferred at the creating a risk of revenue year end. We recalculated the split of revenue recognised and misstatement through management the deferred elements based on a review of the supporting override via top side revenue documentation to obtain assurance over the recognition of journals with no associated cost revenue. We also selected a sample of invoices from billing or revenue recognised in the data and assessed whether the revenue was appropriately incorrect period prematurely. recognised or deferred, based on completion of the performance obligation. • Analysed sales related journal entry data to track sales from revenue through to accounts receivable through to cash collection using data analytics tools. We used this analysis to validate the appropriateness of transaction flows and tested a sample of transactions to determine if the journals accurately reflected the substance of transactions recorded. 13 8 Softcat plc Annual Report and Accounts 2022 Key audit matters continued Key observations communicated | Risk Our response to the risk | | to the Audit Committee | | --- | --- | --- | | IFRS 15 Presentation of | We performed the following procedures: | We concluded that the | | revenue in respect of | | judgements made by | • Performed incremental walkthroughs within the new ERP system to principal vs agent management are consistent understand key changes in the revenue recognition process. There During the year the Company with the level of control were no significant changes driven by the change in system that recognised revenue of we have observed, the affected our planned audit procedures. £1,077.9m (2021: £784.0m). presentation and disclosure of • Updated our understanding of management’s judgement revenue is materially correct, Refer to the Audit Committee over the classification of transactions between gross and net and has been recognised in Report (pages 80 to presentation, specifically in relation to the change in accounting accordance IFRS. 89); Accounting policies policy for software revenue following responses made by the IFRS Accounting policies (pages We concluded that Interpretations Committee in relation to revenue recognition from 148 to 159); and note 2 of the management’s disclosures in the resale of software licenses. Our procedures with respect to the Company Financial Statements relation to revenue, including change in accounting policy included: (page pages 159 to 160). disclosed accounting policies – obtaining and reviewing management’s paper to the and those relating to key critical There is a risk that the reported auditcommittee, including involvement of internal IFRS technical accounting judgements, to be revenue may be incorrectly reviewers; and appropriate. presented on a gross basis as a result of the incorrect – benchmarking the conclusions reached to publicly available We concluded that assessment of whether the information for comparative companies that have already management’s rationale for Company has control over the communicated a change in accounting policy. including the APM to be Financial statements products or services sold and reasonable. The disclosures • Assessed management’s judgement made for any significant new consequently if the Company in respect of the APM is product types by independently assessing the nature of such products is principal or agent in its appropriate and is correctly and meeting with key members of the sales and solutions teams to arrangements with customers. reconciled to revenue. We develop an understanding of Softcat’s responsibilities in relation to As products and services conclude the disclosures made the sale. We challenged whether Softcat has primary responsibility offered continually evolve in the accounts, including for fulfilling the promise of the goods or service and whether Softcat is the assessment of control the use of APMs, to be fair, exposed to inventory risk during the delivery period, in order to help needs to be revisited on an balances and understandable. ascertain the exercise of control of goods prior to their delivery, and ongoing basis. | | ultimately concluded if the principal (gross) or agent (net) treatment | We did not identify any issues | | --- | --- | --- | | The nature of the current | applied was appropriate according to the criteria set out within IFRS | over presentation of revenue | | systems is to process all | 15 and management’s revised accounting policies. | as a result of the new ERP | | revenue streams gross, and a | | system implemented in the | • Tested a sample of transactions across the year to determine the manual adjustment ismade by current period. Company’s control over the product or service including: management at year end to – Verified the product type to external sources, such as supplier record revenue on a net basis websites, and met with key members of the sales and solutions where Softcat is the agent teams to develop an understanding of Softcat’s responsibilities inthe arrangement. in relation to the sale. For each sample selected we challenged whether Softcat has primary responsibility for fulfilling the promise of the goods or service and whether Softcat is exposed to inventory risk during the delivery. – Corroborated the related cost for each sample item to supporting purchase invoices. – 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 IFRS 15. • Reperformed management’s calculation of the adjustment to record revenue on a net basis, including reperforming management’s calculation of the prior period revenue net down to confirm the impact of the restatement of prior period comparatives. • Tested that the methodology utilised to calculate the adjusted performance measure (APM) ‘gross invoiced income’ is consistent with the FY2021 financial statements and in accordance the definition of the APM disclosed in the financial statements. Weassessed management’s rationale for including the APM and ensured that the amount reported is reconciled to reported revenue. 139Annual Report and Accounts 2022 Softcat plc INDEPENDENT AUDITOR'S REPORT CONTINUED To the members of Softcat plc # Key audit matters continued | Risk | Our response to the risk | Key observations communicated to the Audit Committee | | --- | --- | --- | | **Misstatement of rebate income to overstate reported results at or near year end** Accrued rebate income at 31 July 2022 amounts to £10.5m (2021: £8.2m). Refer to the Audit Committee Report (pages 80 to 89); Accounting policies (pages 148 to 159); and note 11 of the Company Financial Statements (page 165). 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: • Performed walkthroughs within the new ERP system to understand key changes in the rebate process. There were no significant changes driven by the change in system that affected our planned audit procedures. • Obtained confirmations from a sample of sales personnel to confirm no rebate agreements outside of standard practice. • Tested the year end accrued income 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 92% of the balance) against the 31 July 2021 comparative to identify unusual movements that are not in line with our expectation or understanding of the business. Performed analysis to understand the drivers of increases or decreases in the underlying balances. • Assessed the cash conversion of rebates accrued at the year end and tested a sample to subsequent receipts. • Tested a sample of rebate transactions recorded in the statement of profit and loss throughout the year and obtained underlying support to consider whether the transactions have been recorded in the correct period. | We concluded that the rebate receivable and corresponding income are materially correct and have been recognised in accordance with IFRS. We concluded that management's disclosures in relation to accrued income, including disclosed accounting policies, to be appropriate. We did not identify any issues over accrued income as a result of the new ERP system implemented in the current period. As part of our procedures, we noted no indication of deliberate or other manipulation of accrued income or management override. | # 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 £6.5m (2021: £6.0m), which is 5% (2021: 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 did not amend our initial materiality. # 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 50% (2021: 75%) of our planning materiality, namely £3.2m (2021: £4.4m). We have set performance materiality at this percentage, decreasing from the prior year, to reflect the heightened risk of misstatement arising as a result of the transition of the primary ERP system and related process and controls during the period. # 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 (2021: £0.3m), 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. 140 Softcat plc Annual Report and Accounts 2022 Other information The other information comprises the information included in the annual report set out on pages 1 to 135, including the Strategic report set out on pages 1 to 65 and the Corporate governance report set out on pages 70 to 79, 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 this gives rise to 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. Financial statements 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 We have reviewed 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 by the Listing Rules. 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 page135; • 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 64; • Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities set out on page 133; • Directors’ statement on fair, balanced and understandable set out on page 135; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 59; • the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out onpage 59; and • the section describing the work of the audit committee set out on page 80. 141Annual Report and Accounts 2022 Softcat plc INDEPENDENT AUDITOR'S REPORT CONTINUED To the members of Softcat plc Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 135, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud 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, relevant employment law in the UK and Data Protection Act 2018. 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 inquiries of management, those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of board minutes, discussions with the Audit Committee and any correspondence received from regulatory bodies. - We assessed the susceptibility of the Company's financial statements to material misstatement, including how fraud might occur by meeting with management to understand where they considered there was susceptibility to fraud. We also considered performance targets and their propensity to influence efforts made by management to manage earnings or influence the perceptions of analysts. Where this risk was considered to be higher, we performed audit procedures to address each identified fraud risk. The key audit matters section above addresses procedures performed in areas where we have concluded the risks of material misstatement are highest (including where due to the risk of fraud). In addition, we completed procedures to conclude on the compliance of the disclosures in the Annual Report and Accounts with the requirements of the relevant accounting standards, UK legislation and the UK Corporate Governance Code 2018. - Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved review of board minutes to identify non-compliance with such laws and regulations, review of reporting to the Audit Committee on compliance with regulations and 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 re-appointed by the Company on 15 December 2021 to audit the financial statements for the year ending 31 July 2022. During the year the Company undertook a formal competitive tender process. Following completion of such process, Ernst & Young LLP was recommended by the chair to the Audit Committee to continue as the external auditor with effect for the financial year ending 31 July 2023. This recommendation was approved by the Board on 18 May 2022, subject to approval by shareholders at the Company's 2022 Annual General Meeting. The period of total uninterrupted engagement including previous renewals and reappointments is ten years, covering the years ending 2013 to 2022. - The audit opinion is consistent with the additional report to the audit committee. 142 Softcat plc Annual Report and Accounts 2022 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 24 October 2022 Financial statements 14 3Annual Report and Accounts 2022 Softcat plc # STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 31 July 2022 | | Notes | 2022 £'000 | 2021 £'000 | | --- | --- | --- | --- | | **Revenue** | 2 | 1,077,946 | 784,049 | | Cost of sales | | (750,736) | (507,691) | | **Gross profit** | | 327,210 | 276,358 | | Administrative expenses | | (191,065) | (156,942) | | **Operating profit** | 3 | 136,145 | 119,416 | | Finance income | 4 | 252 | 28 | | Finance cost | 4 | (253) | (477) | | **Profit before tax** | | 136,144 | 118,967 | | Income tax expense | 5 | (25,739) | (22,782) | | Profit for the year | | 110,405 | 96,185 | | **Other comprehensive income** | | | | | Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | | | | | Foreign exchange differences on translation of foreign branches | | 3,562 | — | | Total other comprehensive income | | 3,562 | — | | Total comprehensive income for the year | | 113,967 | 96,185 | | Profit attributable to: | | | | | Owners of the Company | | 110,405 | 96,185 | | Total comprehensive income attributable to: | | | | | Owners of the Company | | 113,967 | 96,185 | | **Earnings per ordinary share (p)** | | | | | Basic | 18 | 55.5 | 48.4 | | Diluted | 18 | 55.3 | 48.2 | # **Note:** 1. The prior-year comparatives have been restated in line with the change in accounting policy for the IFRS IC agenda decision – IFRS 15 Revenue from Contracts with Customers, treatment of Software revenue as agent revenue, for further information, see Note 1.5. The Statement of profit or loss and other comprehensive income has been prepared on the basis that all operations are continuing operations. 144 **Softcat plc** Annual Report and Accounts 2022 # STATEMENT OF FINANCIAL POSITION As at 31 July 2022 | | Notes | 2022 £'000 | 2021 £'000 | | --- | --- | --- | --- | | **Non-current assets** | | | | | Property, plant and equipment | 7 | 11,270 | 11,753 | | Right-of-use assets | 8 | 6,162 | 7,022 | | Intangible assets | 9 | 7,978 | 5,202 | | Deferred tax asset | 15 | 2,508 | 3,149 | | | | **27,918** | **27,126** | | **Current assets** | | | | | Inventories | 10 | 5,104 | 38,411 | | Trade and other receivables | 11 | 541,424 | 329,666 | | Income tax receivable | | 296 | 432 | | Cash and cash equivalents | 14 | 97,316 | 101,724 | | | | **644,140** | **470,233** | | **Total assets** | | **672,058** | **497,359** | | **Current liabilities** | | | | | Trade and other payables | 12 | (419,108) | (293,528) | | Contract liabilities | 13 | (31,564) | (12,759) | | Income tax payable | | — | — | | Lease liabilities | 8 | (2,716) | (2,598) | | | | **(453,388)** | **(308,885)** | | **Non-current liabilities** | | | | | Contract liabilities | 13 | (3,620) | (3,626) | | Lease liabilities | 8 | (3,950) | (5,704) | | | | **(7,570)** | **(9,330)** | | **Total liabilities** | | **(460,958)** | **(318,215)** | | **Net assets** | | **211,100** | **179,144** | | **Equity** | | | | | Issued share capital | 17 | 100 | 100 | | Share premium account | | 4,979 | 4,979 | | Reserves for own shares | | — | — | | Foreign exchange translation reserve | | 3,562 | — | | Retained earnings | | 202,459 | 174,065 | | **Total equity** | | **211,100** | **179,144** | These financial statements were approved by the Board of Directors and authorised for issue on 24 October 2022. On behalf of the Board Graeme Watt Chief Executive Officer Graham Charlton Chief Financial Officer Softcat plc company registration number: 02174990 Financial Statements Annual Report and Accounts 2022 Softcat plc 145 STATEMENT OF CHANGES IN EQUITY For the year ended 31 July 2022 Equity attributable to owners of the Company Foreign | | | Share | exchange | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | premium | translation | | Reserves for | | Retained | | | Share capital | | account | | reserve | own shares | | earnings | Total | | | £’000 | £’000 | | £’000 | | £’000 | £’000 | £’000 | Balance at 1 August 2020 100 4,979 — — 135,668 140,747 Total comprehensive income for the year — — — — 96,185 96,185 Share-based payment transactions — — — — 2,267 2,267 Dividends paid — — — — (60,815) (60,815) Shares issued in the year — — — — — — Dividend equivalents paid — — — — (196) (196) Tax adjustments — — — — 1 , 117 1, 117 Other — — — — (161) (161) Balance at 31 July 2021 100 4,979 — — 174,065 179,144 Profit for the period — — — — 110,405 110,405 Impact of foreign exchange on reserves — — 3,562 — — 3,562 Total comprehensive income for the year — — 3,562 — 110,405 113,967 Share-based payment transactions — — — — 2,541 2,541 Dividends paid — — — — (84,020) (84,020) Shares issued in the year — — — — (215) (215) Dividend equivalents paid — — — — ( 214 ) ( 214 ) Tax adjustments — — — — (317) (317) Balance at 31 July 2022 100 4,979 3,562 — 202,459 211,100 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 2022, 305,266 share options (2021: 362,639) were exercised and new shares were issued to satisfy this exercise. Proceeds of £Nil (2021: £Nil) were realised from the exercise of these share options. As at 31 July 2022, the SIP Trust held 187,771 shares (2021: 218,258) awarded to employees as part of the free share award, subject to service conditions. A further 353,797 shares (2021: 348,779) 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 (2021: 51,007). 14 6 Softcat plc Annual Report and Accounts 2022 # STATEMENT OF CASH FLOWS For the year ended 31 July 2022 | | Notes | 2022 £'000 | 2021 £'000 | | --- | --- | --- | --- | | **Net cash generated from operating activities** | 19 | 83,644 | 91,252 | | **Investing activities** | | | | | Finance income | 4 | 252 | 28 | | Purchase of property, plant and equipment | 7 | (1,890) | (2,265) | | Purchase of intangible assets | 9 | (3,334) | (4,199) | | **Net cash used in investing activities** | | (4,972) | (6,436) | | **Financing activities** | | | | | Issue of share capital | | — | — | | Dividends paid | 6 | (84,020) | (60,815) | | Payment of principal portion of lease liabilities | 8 | (2,369) | (2,125) | | Payment of interest portion of lease liabilities | 4,8 | (253) | (291) | | **Net cash used in financing activities** | | (86,642) | (63,231) | | **Net (decrease)/increase in cash and cash equivalents** | | (7,970) | 21,585 | | Cash and cash equivalents at beginning of year | 14 | 101,724 | 80,139 | | Exchange gains/(losses) on cash and cash equivalents | | 3,562 | — | | **Cash and cash equivalents at end of year** | 14 | 97,316 | 101,724 | Financial Statements Annual Report and Accounts 2022 Softest plc 147 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 July 2022 ## 1 Accounting policies ### 1.1 Corporate information The financial statements of Softcat plc for the year ended 31 July 2022 were authorised for issue in accordance with a resolution of the Directors on 24 October 2022. 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 UK-adopted international accounting standards (IFRS) in accordance 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 2021. The accounting policies set out below have, unless otherwise stated (see 1.4 and 1.5 below), been applied consistently to all periods presented in these financial statements. The potential climate change-related risks and opportunities to which the Company is exposed, as identified by management, are disclosed in the Company's TCFD disclosures on pages 49 to 51. Management has assessed the potential financial impacts relating to the identified risks and exercised judgement in concluding that there are no further material financial impacts of the Company's climate-related risks and opportunities on the financial statements. These judgements will be kept under review by management as the future impacts of climate change depend on environmental, regulatory and other factors outside of the Company's control which are not all currently known. ### 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 64) and Chief Financial Officer's review sections (see pages 32 and 33) of this Annual Report. Given the current macro-economic environment 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 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 2023. All the forecasts reflect the payment of the FY2022 dividend of £58.2m which will be paid in December 2022 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 invest in technology to provide efficient services to the public and this has continued apace despite the pandemic and recent turbulence in the UK economy. 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 2022, the Company held instantly accessible cash and cash equivalents of £97.3m, while net current assets were £190.7m, 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. Operational cash flow forecasts for the going concern period are sufficient to support the business with the £60m 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. #### Challenging economic environment Management have, in all three scenarios, considered the principal challenges to short term business performance which are expected to be: - An economic downturn in the UK economy, aided by high broad-based inflation and increasing interest rates; 148 Softcat plc Annual Report and Accounts 2022 1 Accounting policies continued 1.2 Basis of preparation continued Going concern continued Challenging economic environment continued • Continued impact of hardware supply constraints, resulting from the global semi-conductor shortage, although this is forecast to improve and is isolated to a select few vendors; and • Higher risk of credit losses. Despite the impact of Omicron and further lockdown period on theyear just finished, the Company has traded well, delivering double-digit year-on-year growth. 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 2022, takes into account the FY2023 budget process which includes estimated growth and increased costs across the going concern period and is consistent with the actual trading experience through toSeptember 2022. The key inputs and assumptions in the base case include: • continued revenue growth in line with historic rates; • rebate income continues to be received in proportion to cost of sales as in FY2022; • employee commission is incurred in line with the gross margin; and • increased levels of cost to reflect continued investment in our people, the businesses IT infrastructure as well as a return of travel and staff entertainment costs more in line with pre-covid levels than we have seen in the past twelve months. The Company has taken a measured approach to the base case and has balanced the expected trading conditions with available Financial statements 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 have in place a hybrid working model with a balance ofremoteworking and return to the office, which has not had a noticeable impact on the operational performance of the Company. Yearto date trading to the end of September 2022 is consistent with the base case forecast. Severe but plausible case Given the current economic challenges facing 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 below any historic trend and more severe than experienced during the height of the pandemic. Further impacts of this scenario, such as reduced margins and greater credit losses, havealso been considered. The key inputs and assumptions include: • an average 7.5% 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 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 £18m cost reduction on an annualised basis and additional annual working capital savings of £30m, 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 FY2023; • savings in discretionary areas of spend; 149Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 1 Accounting policies continued 1.2 Basis of preparation continued Going concern continued Mitigating actions continued • 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: 1. reduction of 15% in gross invoiced income, compared to the base case; 2. reduced achievable gross margin by 3%; 3. additional bad debt write offs of £10m per year across the forecast period; and 4. extending the debtor days by three 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 the thirteen-month period from the date of this report (the going concern period) until 30 November 2023. Accordingly, at the October 2022 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, the current economic environment and the cost of living crisis continue to impact both customers and suppliers and create market uncertainty. Should the impact of these conditions be even 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. Management 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: 15 0 Softcat plc Annual Report and Accounts 2022 1 Accounting policies continued 1.3 Critical accounting judgements and key sources of estimation uncertainty continued Principal versus agent Significant judgement is required in determining whether the Company is acting as principal, reporting revenue on a gross basis, or agent, reporting revenue on a net basis. Softcat evaluates each revenue stream against the following indicators when determining whether it is acting as principal or agent in a transaction: (i) primary responsibility for fulfilling the promise to provide the specified goods or service, (ii) inventory risk before the specified good or service has been transferred to a customer and (iii) discretion in establishing the price for the specified good or service. Certain revenue streams present a more balanced judgement than others when assessed against the above criteria and the conclusion may be reliant on the weighting applied to the responses to these criteria. When applying the weighting and concluding on whether principal or agent treatment is appropriate, the Company exercises significant levels of judgement due to the balanced nature of the assessment. The specific judgements made for each revenue category are discussed in the accounting policy for revenue as disclosed below. Determining the lease term of contracts with renewal and termination options Softcat determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. Softcat has several property leases that include termination options and Softcat applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, that Softcat considers all relevant factors that create an economic incentive to exercise either the renewal or termination option. Factors in considering extension or termination options include, but are not limited to, capacity constraints and growth plans, budgets and forecasts, trading relationships as well as current state of the 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 in the period to 31 July 2022, that materially affect Softcat other than the accounting policy Financial statements change in note 1.5. The standards in issues but not yet effective at the reporting date are not expected to materially affect Softcat. 1.5 Changes to Accounting Policies The following changes in accounting policies are effective in the year to 31 July 2022. Other than those mentioned below, there are no further changes to accounting policies applicable in the period. Change in Accounting Policy – IFRS 15 The IFRS Interpretation Committee (IC) recently concluded on a response to an industry request to clarify whether a company should recognise revenue from the resale of standard software licenses on a gross or net basis under IFRS 15 – Revenue from Contracts with Customers. The fact pattern provided to the IC was very similar to that faced by the Company when transacting software sales with customers. Whilst not providing a direct clarification on the topic, as they stated that the specifics of each case may vary and must be analysed in detail, the IC provided further guidance on the ‘control’ criteria which is used to determine whether revenue is recognised on a principal or agent basis. The staff paper, the published discussions within the IFRS IC and the ultimate decision indicate, in management’s view, support of revenue recognition on a net basis. Prior to this conclusion, Softcat recognised cloud-hosted and security software revenue on a ‘net’ basis, together with other lines of business where its role is considered more aligned to that of a billing agent or introducer. The remaining software lines of business were recorded on a ‘gross’ basis. However, this gross conclusion required significant judgement and consisted of elements that were indicative of either net or agent treatment with the ultimate conclusion being dependent on an assessment of the relative weighting of the various factors. The guidance provided by the IC set out the following factors that previously aided the principal conclusion for software, specifically: • The removal of pre-sales advice as an explicit or implicit promise in a contract. Softcat did not previously consider pre-sales advice asa separate performance obligation but factored these services into the consideration of control of licenses. • In the case of software products, there is no inventory risk before the customer is provided with the licences, the risk arises after that point until the customer accepts the licences. • In the case of software products, the software manufacturer is responsible for the software’s functionality, in addition to issuing and activating the licenses, and is therefore responsible in those respects for fulfilling the promise to provide the licenses to the customer. As a result of this guidance in favour of agent, the Company has amended its finely balanced judgement in favour of principal (and gross) presentation and concluded, considering the facts presented, that an accounting policy change in favour of agent (and net) presentation should be adopted for all software products that were previously recorded as principal and presented gross. As prescribed in IAS 8, the business has applied this accounting policy change retrospectively, so the prior year and current year are presented consistently. The impact of this change in accounting policy on the prior year financial statements is as follows; • revenue and cost of sales would decrease by a further £372.6m on top of the current IFRS 15 software adjustment net down; and • gross profit, operating profit, and profit before and after taxes will be unchanged in all periods. The Statement of financial position, Statement of cash flows and the Statement of changes in equity also remain unchanged. 151Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 1 Accounting policies continued 1.5 Changes to Accounting Policies continued Change in Accounting Policy – IFRS 15 continued Revenue | | as reported | | Increase in | | Revised | | --- | --- | --- | --- | --- | --- | | | | IFRS 15 | net down | | revenue | | Year ended 31 July 2021 | | £’000 | | £’000 | £’000 | Software revenue 501,058 (372,618) 128,440 | 31 July 2021 | | | Impact of | | | | | --- | --- | --- | --- | --- | --- | --- | | as originally | | | change | | 31 July 2021 | | | | presented | | in policy | | as restated | | | | | £’000 | | £’000 | | £’000 | Revenue 1,156,667 (372,618) 784,049 Cost of sales (880,309) 372,618 (507,691) Gross profit 276,358 — 276,358 Administrative expenses (156,942) — (156,942) Operating profit 119,416 — 119,416 Finance income 28 — 28 Finance cost (477) — (477) Profit before tax 118,967 — 118,967 Income tax expense (22,782) — (22,782) Profit and total comprehensive income for the year 96,185 — 96,185 Profit attributable to: Owners of the Company 96,185 — 96,185 1.6 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. Costsrelating to the provision of consulting services are expensed as incurred. 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. 152 Softcat plc Annual Report and Accounts 2022 1 Accounting policies continued 1.6 Revenue recognition continued Principal versus agent continued Software revenue Revenue from software licence sales is recognised on a net basis as the Company is acting as an agent in these transactions at the point the software licence is delivered to the customer. The Company is deemed to be acting as agent in these transactions as these products are intangible, customer specific and in most cases sent directly to customers by the vendor electronically, removing inventory risk for the Company, prior to delivery. Despite the ability to set pricing, the lack of inventory risk and the vendor having primary responsibility for the product meeting customer specifications, through largely standardised products, underline that these sales should be recorded as agent. 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. Financial statements 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. 15 3Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 1 Accounting policies continued 1.6 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 associated goods or services received. 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. 1.7 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 1.8, 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. 1.8 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. 1.9 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. 154 Softcat plc Annual Report and Accounts 2022 1 Accounting policies continued 1.10 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. Financial statements The residual values, useful lives and methods of depreciation are reviewed for reasonableness at each financial year end and adjusted for prospectively if appropriate. 1.11 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. 1.12 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: 15 5Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 1 Accounting policies continued 1.12 Leases continued i) Right-of-use assets continued Property lease assets three to ten years straight line The right-of-use assets are also subject to impairment reviews. ii) Lease liabilities At the commencement date of the lease, Softcat recognises lease liabilities measured at the present value of lease payments to be made over the lease term adjusted for any termination options. The lease payments include fixed payments, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. Payments to be made under the reasonably certain extension option are also included. In calculating the present value of the lease payments, Softcat uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments from a change in index or rate, or a change in the assessment of an option to purchase the underlying asset. iii) Short-term leases and leases of low value assets Softcat 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. 1.13 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. 1.14 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. 15 6 Softcat plc Annual Report and Accounts 2022 1 Accounting policies continued 1.14 Financial instruments continued Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into. The Company’s financial liabilities comprise trade and other payables. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method. i) Trade payables Trade payables are initially measured at fair value. Trade payables due after one year are measured at amortised cost, using the effective interest rate method. Derecognised financial instruments For a small number of customers, Softcat acts as intermediary to provide financing arrangements between the customer and a third-party financing provider. Following the delivery of the goods or services, which represents our performance obligation in full, Softcat receives settlement of the customer invoice, by the third-party financing company. Receivables are derecognised only when Softcat has transferred the receivable, meaning that it has retained the contractual rights to the cash flows, but has assumed an obligation to pay those cash flows to the finance provider, in the case where all three of the following conditions are met: • Softcat has no obligation to pay amounts to the finance provider unless it collects equivalent amounts from the receivable; • Softcat is prohibited from selling or pledging the receivable; and • Softcat has an obligation to remit the cash received without material delay. 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 Financial statements 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. 1.15 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. 1.16 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 2021 and 31 July 2022. 157Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 1 Accounting policies continued 1.17 Current taxation Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Company operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the Statement of profit or loss and other comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Softcat applies judgement in identifying uncertainties over income tax treatments and considered whether it has any uncertain tax positions and determined that it is highly probable that its tax treatments will be accepted by the taxation authorities. Where it is not probable that an uncertain tax treatment will be accepted the most likely amount or expected amount is recognised depending on which method better predicts the resolution of the uncertainty. 1.18 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. The assets and liabilities of foreign operations are translated into Pounds Sterling at the rates of exchange ruling at the balance sheet date. Income and expense items are translated using average exchange rates, which approximate to actual rates, for the relevant accounting period. Exchange differences arising, if any, are classified as other comprehensive income and recognised in the foreign exchange translation reserve in the statement of financial position. 1.19 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 was determined by the share price at date of grant, on 9 December 2015. A fair value charge was recognised as an expense in the income statement over the vesting period with a corresponding increase in equity. The charge was recognised only on the expected number of shares to vest. The assumption used for expected leavers within three years from the date of award was 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 103. 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 bonus up to 100% of salary is paid in deferred shares and any bonus above 100% of salary 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. 15 8 Softcat plc Annual Report and Accounts 2022 ## 1 Accounting policies continued ### 1.20 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. ### 1.21 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. A reconciliation to the adjusted measure for cash conversion is provided below: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Cash generated from operations | 108,988 | 113,797 | | Purchase of property, plant and equipment | (1,890) | (2,265) | | Purchase of intangible assets | (3,334) | (4,199) | | Cash generated from operations, net of capital expenditure | 103,764 | 107,333 | | Operating profit | 136,145 | 119,416 | | Cash conversion ratio | 76.2% | 89.9% | ## 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 B, 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: | | 2022 £'000 | Restated 2021^{1} £'000 | | --- | --- | --- | | Revenue by type: | | | | Software | 150,000 | 128,440 | | Hardware | 797,897 | 556,472 | | Services | 130,049 | 99,137 | | | 1,077,946 | 784,049 | | Gross invoiced income by type: | 2022 £'000 | 2021 £'000 | | Software | 1,365,343 | 1,109,198 | | Hardware | 810,241 | 566,305 | | Services | 331,953 | 262,937 | | | 2,507,537 | 1,938,440 | Note: 1. The prior year comparatives have been restated in line with the change in accounting policy for the IFRS IC agenda decision – IFRS 15 Revenue from Contracts with Customers, treatment of software revenue as agent revenue. For further information, see note 1.5. Financial Statements Annual Report and Accounts 2022 Softcat plc 159 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 ## 2 Segmental information continued Revenue and gross invoiced income can also be disaggregated by type of business$^{2}$: | | 2022 £'000 | Restated 2021 £'000 | | --- | --- | --- | | Revenue by type of business: | | | | Small and medium | 535,823 | 471,076 | | Enterprise | 222,064 | 164,468 | | Public sector | 320,059 | 148,505 | | | **1,077,946** | **784,049** | | Gross invoiced income by type of business: | | | | Small and medium | 1,169,255 | 839,398 | | Enterprise | 427,249 | 336,013 | | Public sector | 911,033 | 763,029 | | | **2,507,537** | **1,938,440** | Note: 2. 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. 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. | | 2022 £'000 | Restated 2021 £'000 | | --- | --- | --- | | Gross invoiced income | 2,507,537 | 1,938,440 | | Income recognised as agent under IFRS 15 | (1,429,573) | (1,154,391) | | Revenue | **1,077,946** | **784,049** | The total revenue for the Company for the year has been derived from its principal activity as an IT reseller. During the period there was one direct customer (FY2021: none) that individually accounted for greater than 10% of both the Company's total revenue and gross invoiced income, and a considerably lower proportion of Gross Profit. Gross invoiced income and revenue generated from this customer in FY2022 was £251.3m and £227.5m, respectively (FY2021: £80.3m and £74.2m). The revenues related to this direct customer were derived within the USA branch of the Company. Substantially all of the remaining trading of the Company is undertaken in the United Kingdom. ## 3 Operating profit | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Operating profit is stated after charging: | | | | Depreciation of property, plant and equipment | 2,373 | 2,332 | | Depreciation of right-of-use assets | 1,594 | 2,263 | | Amortisation of intangible assets | 558 | 297 | | Low value asset and short-term lease expense | 32 | 102 | | Foreign exchange gain/(loss) | 2,938 | (68) | | Inventories expensed in the year | 705,539 | 476,442 | | Movement in trade receivables provision as potentially uncollectable, recovered or written off during the year | 1,544 | 552 | | **Auditor's remuneration** | | | | Fees payable for the audit of the Company's annual accounts | 545 | 435 | | Additional fees payable for the audit of the Company's annual accounts | 133 | 7 | | **Total for statutory audit services** | **678** | **442** | | Fees payable for the half year review of the condensed financial statements | 40 | 35 | | **Total for non-audit-related services** | **40** | **35** | For details on employee numbers and employee costs, please see note 24. 160 Softcat plc Annual Report and Accounts 2022 #### 4 Finance income and finance cost | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Bank interest income | 60 | 28 | | Interest on tax | 192 | (186) | | Lease liability interest cost | (253) | (291) | #### 5 Income tax The major components of the income tax expense for the years ended 31 July 2022 and 31 July 2021 are: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Statement of profit or loss** | | | | Current income tax charge in the year | 25,979 | 22,909 | | Adjustment in respect of current income tax of previous years | 52 | 80 | | Foreign tax relief | (2) | (1) | | Foreign tax suffered | 3 | 1 | | **Total current income tax charge** | **26,032** | **22,989** | | **Deferred tax** | | | | Current year | (110) | (303) | | Adjustments in respect of prior periods | 7 | 168 | | Effect of changes in tax rates | (190) | (72) | | **Deferred tax credit** | **(293)** | **(207)** | | **Total tax charge** | **25,739** | **22,782** | | **Reconciliation of total tax charge** | | | | Reconciliation of tax expense and accounting profit multiplied by the Company's domestic tax rate for 2022 and 2021: | | | | Profit on ordinary activities before taxation | 136,144 | 118,967 | | Profit on ordinary activities before taxation multiplied by the standard rate of UK corporation tax of 19% (2021: 19%) | 25,867 | 22,604 | | Effects of: | | | | Non-deductible expenses | 112 | 118 | | Adjustment to previous periods | 59 | 248 | | Effect of changes in tax rates | (190) | (72) | | Effects of overseas tax rates | 1 | — | | Share options | (110) | (92) | | Other differences | — | (24) | | | **(128)** | **178** | | Income tax charge reported in profit or loss | **25,739** | **22,782** | In the year ended 31 July 2022, £616,745 (2021: £582,785) of current tax was credited to equity and £933,778 (2021: £534,278 credit) of deferred tax was debited to equity. Financial Statements Annual Report and Accounts 2022 **Softcut plc** 161 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 6 Dividends 2022 2 021 £’000 £’000 Declared and paid during the year Special dividend on ordinary shares (20.5p per share (2021: 7.6p)) 40,806 15,100 Final dividend on ordinary shares (14.4p per share (2021: 16.6p)) 28,663 32,981 Interim dividend on ordinary shares (7.3p per share (2021: 6.4p)) 14,551 12,734 84,020 60,815 A final dividend of 16.6p per share has been recommended by the Directors and if approved by shareholders will be paid on 19December 2022. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of businesson 11 November 2022. Shares in the Company will be quoted ex-dividend on 10 November 2022. The dividend reinvestmentplan (‘DRIP’) election date is 28 November 2022. In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 12.6p has been proposed. If approved this will also be paid on 19 December 2022 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. 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. 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 64 and pages 133 and 134 respectively. 7 Property, plant and equipment | Freehold | | | | | | Fixtures, | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | land and | | Building | Computer | | fittings and | | Motor | | | buildings | improvements | | equipment | | equipment | | vehicles | Total | | £’000 | | £’000 | | £’000 | | £’000 | £’000 | £’000 | Cost At 1 August 2020 2,649 7,529 8,143 4,071 363 22,755 Additions — 1,236 442 586 — 2,264 Disposals — (802) (7,293) (936) (211) (9,242) At 31 July 2021 2,649 7,963 1,292 3,721 15 2 15,777 Additions — 98 647 1,082 63 1,890 Disposals — — — — — — At 31 July 2022 2,649 8,060 1,940 4,803 215 17,667 Depreciation At 1 August 2020 200 1, 513 7,357 1,525 263 10,858 On disposals — (784) (7,240) (931) (211) (9,166) Charge for the year 31 1, 19 7 506 547 51 2,332 At 31 July 2021 231 1,926 623 1, 141 102 4,024 On disposals — — — — — — Charge for the year 25 1,149 512 642 45 2,373 At 31 July 2022 256 3,075 1,135 1,783 14 8 6,397 Net book value At 31 July 2022 2,393 4,985 805 3,020 67 11 , 2 7 0 At 31 July 2021 2 ,418 6,037 669 2,580 49 11 , 75 3 162 Softcat plc Annual Report and Accounts 2022 7 Property, plant and equipment continued Freehold land amounting to £1.4m (2021: £1.4m) has not been depreciated. No assets are subject to restrictions on title or are pledged as security for liabilities (2021: £Nil). There is no material difference between the carrying and fair value of the underlying assets as at both 31 July 2022 and 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 three and ten 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: 2022 2 021 Property leases £’000 £’000 Opening right-of-use asset as at 1 August 7,022 8,698 Lease additions and modifications 734 587 Depreciation (1,594) (2,263) Closing right-of-use asset as at 31 July 6,162 7, 0 2 2 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: Financial statements 2022 2 021 Property leases £’000 £’000 Opening lease liability as at 1 August 8,302 9,839 Lease additions and modifications 734 588 Accretion of interest 253 291 Payments (2,623) (2,416) Closing lease liability as at 31 July 6,666 8,302 Split as: Short-term 2,716 2,598 Long-term 3,950 5,704 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: | | Within five | | More than | | | | --- | --- | --- | --- | --- | --- | | | | years | five years | | Total | | As at 31 July 2022 | | £’000 | | £’000 | £’000 | Termination options expected to be exercised 4,376 1,279 5,655 | | Within five | | More than | | | | --- | --- | --- | --- | --- | --- | | | | years | five years | | Total | | As at 31 July 2021 | | £’000 | | £’000 | £’000 | Termination options expected to be exercised 3 , 613 2,428 6,041 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 £31,656 (2021: £101,617). 163Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 9 Intangible assets Software | | under | Computer | | | Total | | --- | --- | --- | --- | --- | --- | | development | | software | | Intangibles | | | | £’000 | | £’000 | | £’000 | Cost At 1 August 2020 906 2,540 3,446 Additions 3,927 272 4,199 Disposals — (1,924) (1,924) At 31 July 2021 4,833 888 5,721 Additions 3,195 13 9 3,334 Disposals — — — Reclassifications (8,028) 8,028 — At 31 July 2022 — 9,055 9,055 Amortisation At 1 August 2020 — 2,145 2,145 Charge for the year — 297 297 Disposals — (1,923) (1,923) At 31 July 2021 — 519 519 Charge for the year — 558 558 Disposals — — — At 31 July 2022 — 1,077 1,077 Net book value At 31 July 2022 — 7, 978 7, 978 At 31 July 2021 4,833 369 5,202 Software under development capitalised related to the new enterprise resource planning (ERP) system being designed and built internally. This was completed and put in to use in FY2022. The amortisation of intangible assets is included in administrative expenses within the income statement. See note 3. 10 Inventories 2022 2 021 £’000 £’000 Finished goods and goods for resale 5,104 38,411 The decrease in stock is predominantly driven by stock in transit for a specific customer yet to be delivered as at the end of FY2021 as well as timing of the balance sheet date. The amount of any write down of inventory recognised as an expense in the year was £Nil (2021: £Nil). 164 Softcat plc Annual Report and Accounts 2022 11 Trade and other receivables 2022 2 021 £’000 £’000 Trade and other receivables 497,308 300,058 Provision against receivables (4,958) (3,415) Net trade receivables 492,350 296,643 Unbilled receivables 26,192 10,500 Prepayments 4,338 3,584 Accrued income 10,534 8,171 Deferred costs 8,010 10,768 541,424 329,666 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: | | Related | | | | Related | | | --- | --- | --- | --- | --- | --- | --- | | 2022 | provision | | Net | 2 021 | provision | Net | | £’000 | £’000 | £’000 | | £’000 | £’000 | £’000 | Current 335,579 (3,453) 332,126 232,372 (2,369) 230,003 0–30 days 79,981 (622) 79,359 46,370 (463) 45,907 31–60 days 28,402 (227) 28,175 12,775 (80) 12,695 61–90 days 26,332 (43) 26,289 4,780 (48) 4,732 Financial statements Over 90 days 27, 014 (613) 26,401 3,761 (455) 3,306 Total due 497,308 (4,958) 492,350 300,058 (3,415) 296,643 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: 2022 2 021 £’000 £’000 Balance at beginning of year 3,415 2,863 Increase for trade receivables regarded as potentially uncollectable 4,206 2,880 Decrease in provision for trade receivables recovered, or written off, during the year (2,663) (2,328) Balance at end of year 4,958 3,415 Set out below is the information about the credit risk exposure on Softcat’s trade receivables: Current <30 days 31–60 days 61–90 days >91 days Total 31 July 2022 £’000 £’000 £’000 £’000 £’000 £’000 Expected credit loss rate 1.03% 0.78% 0.80% 0.16% 2.27% 1.00% Estimated total gross carrying amount at default 335,579 79,981 28,402 26,332 27, 014 497,309 Expected credit loss (3,453) (622) (227) (43) (613) (4,958) Current <30 days 31–60 days 61–90 days >91 days Total 31 July 2021 £’000 £’000 £’000 £’000 £’000 £’000 Expected credit loss rate 1.02% 1.00% 0.63% 1.00% 12.10% 1.14% Estimated total gross carrying amount at default 232,372 46,370 12,775 4,780 3,761 300,058 Expected credit loss (2,369) (463) (80) (48) (455) (3,415) Whilst successful, the system implementation in the year created some temporary disruption to collection procedures, but this is expected to return to normal during the first half of the new year. Unbilled receivables and accrued income have been reviewed by management and have been determined to have an immaterial impact on expected credit losses. The Company does not hold collateral as security. As part of our assessment of expected credit losses, an assessment of specific potentially uncollectable debt as well as wider macroeconomic factors that may require a provision, is performed. See note 21 for details on how the Company approaches its exposure to credit risk. 165Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 ## 12 Trade and other payables | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Trade payables | 280,769 | 220,305 | | Other taxes and social security | 23,078 | 12,378 | | Accruals | 115,261 | 60,845 | | | 419,108 | 293,528 | The Directors consider that the carrying amount of trade and other payables approximates to their fair value. ## 13 Contract liabilities | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Deferred income | 35,184 | 16,385 | Deferred income is split as follows: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Short term deferred income | 31,564 | 12,759 | | Long term deferred income | 3,620 | 3,626 | | | 35,184 | 16,385 | ### 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, £12,759m (2021: £13,929m) has been recognised in revenue resulting from these contract liabilities existing as at 31 July 2021. As at 31 July 2022, £31,558m remains on the Statement of Financial position as a contract liability resulting from transactions arising from the year to 31 July 2022. Softcat expects that £31,564m of the balance as at 31 July 2022 will be released in the following year with the remainder released within 2–5 years of the end of the current year. ## 14 Cash and cash equivalents | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Cash at bank and in hand | 97,316 | 101,724 | 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: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Accelerated capital allowances | 95 | 120 | | Share-based payments | 1,442 | 2,154 | | Other temporary differences | 971 | 875 | | **Deferred tax assets** | **2,508** | **3,149** | | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Reconciliation of deferred tax asset** | | | | Balance at 31 July 2021 (PY: 31 July 2020) | 3,149 | 2,408 | | Adjustment in respect of prior years | (7) | (236) | | Profit and loss account | 300 | 375 | | (Charge)/credit to equity | (934) | 602 | | **Balance at 31 July 2022 (PY: 31 July 2021)** | **2,508** | **3,149** | 166 Softcat plc Annual Report and Accounts 2022 15 Deferred tax continued The Company recognises all deferred tax movements in the year within the income statement, except for £933,778 debited to equity (2021: £534,278 credit) 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. 2022 2 021 | | Income | | | Income | | | | --- | --- | --- | --- | --- | --- | --- | | statement | | SOCIE | Total | statement | SOCIE | Total | | | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | Current tax Movement in respect of prior years 52 — 52 80 — 80 Movement in respect of current year 25,979 (617) 25,362 22,909 (583) 22,326 Total current tax 26,031 (617) 25,414 22,989 (583) 22,406 Deferred tax Movement in respect of prior years 7 — 7 168 68 236 Movement in respect of current year: Share options (222) 934 712 (151) (602) (753) Fixed assets 18 — 18 (66) — (66) Other temporary differences 95 — 95 (158) — (158) Total deferred tax (293) 934 642 (207) (534) (741) Total tax 25,739 317 26,056 22,782 (1,117) 21,665 Financial statements 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 £570,782 (2021: £482,087) were outstanding. 2022 2 021 £’000 £’000 Contributions payable by the Company for the year 2,813 2,484 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. 2022 2 021 £’000 £’000 Allotted and called up 199,354,076 (2021: 199,041,810) ordinary shares of 0.05p each 100 10 0 1 18,933 (2021: 18,933) deferred shares of 1p each — — 100 10 0 Note: 1. At 31 July 2022 deferred shares had an aggregate nominal value of £189.33 (2021: £189.33). In the year ended 31 July 2022, 305,266 (2021: 362,639) new ordinary shares were issued to satisfy the exercise of share options and no ordinary shares (2021: 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 2022 (2021: 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 2022 the SIP Trust returned £Nil (2021: £Nil) to the Company through share recycling. 167Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 # **18 Earnings per share** | | 2022 p | 2021 p | | --- | --- | --- | | **Earnings per share** | | | | Basic | 55.5 | 48.4 | | Diluted | 55.3 | 48.2 | The calculation of the basic earnings per share and diluted earnings per share is based on the following data: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | **Earnings** | | | | Earnings for the purposes of earnings per share, being profit for the year | 110,405 | 96,185 | The weighted average number of shares is given below: | | 2022 '000 | 2021 '000 | | --- | --- | --- | | Number of shares used for basic earnings per share | 198,976 | 198,559 | | Number of shares deemed to be issued at nil consideration following exercise of share options | 656 | 884 | | **Number of shares used for diluted earnings per share** | **199,632** | **199,443** | # **19 Notes to the Statement of cash flows** # **Reconciliation of operating profit to net cash inflow from operating activities** | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Operating profit | 136,145 | 119,416 | | Depreciation of property, plant and equipment | 2,373 | 2,332 | | Depreciation of right-of-use assets | 1,594 | 2,263 | | Amortisation of intangibles | 558 | 297 | | Loss on disposal of fixed assets | — | 76 | | Dividend equivalents paid | (215) | (196) | | Cost of equity-settled employee share schemes | 2,541 | 2,267 | | **Operating cash flow before movements in working capital** | **142,996** | **126,455** | | Decrease/(increase) in inventory | 33,307 | (26,667) | | Increase in trade and other receivables | (211,694) | (15,544) | | Increase in trade and other payables and contract liabilities | 144,379 | 29,553 | | **Cash generated from operations** | **108,988** | **113,797** | | Income taxes paid | (25,344) | (22,545) | | **Net cash from operating activities** | **83,644** | **91,252** | # **20 Financial commitments** # **Guarantees** As at the reporting date, Softcat plc has a class guarantee facility of ENII (2021: £2,000,000) with HSBC UK Bank plc. 168 Softcat plc Annual Report and Accounts 2022 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: 2022 2 021 £’000 £’000 Cash at bank and in hand 97, 316 101,724 Trade and other receivables 529,076 315 , 313 626,392 417, 037 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 2022, there remained a receivable of £627,779 (2021: £369,200 payable) on the Statement of financial position. The receivable recognised at the 31 July 2022 was due to timing differences between the transfer of cash that spanned the year end date. Financial liabilities The financial liabilities of the Company were as follows: | | 2022 | 2 021 | | | --- | --- | --- | --- | | | £’000 | £’000 | | | Trade payables (280,769) (220,305) | | | Financial statements | Accruals (115,261) (60,845) Lease liabilities (6,666) (8,302) (402,696) (289,452) 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 year, no external debt was required and no facilities were entered in to. 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 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. 169Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 ## 21 Financial instruments and 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 2022, the Company had 2,173 customer accounts (2021: 1,623) that owed the Company more than £25,000 each. These accounts accounted for approximately 20% (2021: 17%) of total customers and 92% (2021: 98%) of the total value of amounts receivable. There were 841 customers (2021: 562 customers) with balances greater than £100,000 accounting for just over 8% (2021: 6%) of the total number of receivable accounts and 79% (2021: 81%) 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. We monitor the impact of COVID-19 as well as the Ukraine conflict and current UK economic uncertainty. The receivables balance remains well diversified and individual customers typically represent a very small proportion of the outstanding balance. In this regard, we consider the provision for expected credit losses to be appropriate. 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 2022, no more than 3% (2021: 7%) 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: | | Within 1 year £'000 | 1 to 2 years £'000 | 2 to 5 years £'000 | Over 5 years £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | | **2022** | | | | | | | Trade payables | (280,769) | — | — | — | (280,769) | | Accruals | (115,261) | — | — | — | (115,261) | | Lease liabilities | (2,716) | (1,829) | (1,722) | (1,098) | (7,365) | | | (398,746) | (1,829) | (1,722) | (1,098) | (403,395) | | **2021** | | | | | | | Trade payables | (220,305) | — | — | — | (220,305) | | Accruals | (60,845) | — | — | — | (60,845) | | Lease liabilities | (2,598) | (2,502) | (2,681) | (1,497) | (9,278) | | | (283,748) | (2,502) | (2,681) | (1,497) | (290,428) | 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. 170 Softart plc Annual Report and Accounts 2022 ## 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 2022 the Company had ENII capital commitments (2021: ENII). ## 23 Directors' remuneration | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Remuneration for qualifying services | 2,619 | 2,358 | | Company pension contributions to defined contribution schemes | 15 | 3 | | | 2,634 | 2,361 | During the year ended 31 July 2022 the Directors of the Company were awarded a total of 70,470 LTIP shares (2021: 67,466) at an average exercise price of ENII (2021: ENII) and 35,590 shares (2021: 22,830) under the Deferred Share Bonus Plan. The number of Directors for whom retirement benefits are accruing under defined contribution schemes amounted to one (2021: one). The number of Directors who are entitled to receive shares under long-term incentive schemes during the year was two (2021: two). Gains on share options exercised in the year were £2,612,553 (2021: £2,300,922). Share-based payment charges include £983,983 (2021: £1,019,135) in respect of Directors. For further information on Directors remuneration, please also see pages 98 to 112. ## 24 Employees ### Number of employees The average monthly number of employees (including Directors) during the year was: | | 2022 Number | 2021 Number | | --- | --- | --- | | Sales | 1,141 | 1,068 | | Services | 332 | 286 | | Administration | 323 | 282 | | | 1,796 | 1,636 | ### Employment costs | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Salaries, commissions and bonus | 131,296 | 110,470 | | Social security costs | 16,205 | 14,862 | | Other pension costs | 2,813 | 2,484 | | Employment costs – subtotal | 105,314 | 127,816 | | Share option charge | 2,541 | 2,267 | | Total employment costs including share option charge | 152,855 | 130,083 | Financial Statements Annual Report and Accounts 2022 **Softcut plc** 171 NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 # **25 Share option schemes** The Company operates a Long Term Incentive Plan ("LTIP") for Executive Directors and senior management and a Share Incentive Plan ("SIIP") for all employees. The Company recognised the following expenses related to equity-settled share-based payment transactions: | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | LTIP | 2,541 | 2,267 | | Share option charge | 2,541 | 2,267 | | Employer's national insurance contributions payable on all plans | 220 | 1,468 | | Share option charge including Employer's national insurance | 2,761 | 3,735 | 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 106. During the year 70,470 (2021: 67,466) 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 £980,942 (2021: £497,224). 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: | | 31 July 2022 | | 31 July 2021 | | | --- | --- | --- | --- | --- | | | EPS | TSR | EPS | TSR | | Proportion of LTIP award | 50% | 50% | 50% | 50% | | Share price at grant date (£) | 18.63 | 18.63 | 11.46 | 11.46 | | Weighted average exercise price at grant date | — | — | — | — | | Risk-free interest rate | 0.10% | 0.10% | 0.10% | 0.10% | | Expected volatility | 51% | 51% | 55% | 55% | | Dividend yield | —% | —% | 3% | 3% | | Performance period (years) | 3 | 3 | 3 | 3 | | **Fair value (£)** | **18.63** | **9.22** | **7.94** | **6.80** | Expected volatility has been determined using historical data reflecting share price movements covering the audited financial year. During the year 125,000 (2021: 140,938) LTIP options were exercised with an average weighted share price at the date of exercise of £18.45 (2021: £14.86). # **Deferred Share Bonus Plan** One-third of the Executive Directors' annual bonus up to 100% of salary is paid in deferred shares and any bonus above 100% of salary is paid in deferred shares. In the year 35,590 (2021: 22,830) 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 £663,063 (2021: £262,548). During the year 16,596 (2021: 18,177) options arising from deferred share bonus plans were exercised with an average weighted share price at the date of exercise of £18.47 (2021: £11.37). 172 Softcat plc Annual Report and Accounts 2022 25 Share option schemes continued LTIP continued Executive Directors continued Senior management An award of 121,508 (2021: 164,245) 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 £2,037,325 (2021: £1,692,545). 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 £18.63 (2021: £11.45) at grant date. The resultant fair value isthen recognised over the performance period. During the year 51,032 shares (2021: 17,467) 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 8.05 years (2021: 8.08 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 were subject to a minimum holding period of three years. Historical employee attrition rates were used to calculate the expected number of shares expected to vest. The resulting income statement charge was 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. Financial statements As at 31 July 2022 the SIP Trust held 592,575 (2021: 618,044) ordinary shares in the Company. The market value of the shares held by the SIP Trust as at 31 July 2022 was £8.3m (2021: £11.9m). The weighted average remaining contractual life of share-based payment arrangements at the year end was 3.36 years (2021:4.36 years). All share-based payment arrangements The number and weighted average exercise price of all share-based payment arrangements (including LTIP) are as follows: | Weighted | | | | | Weighted | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | average | | | | No. of | average | | | | No. of | | exercise | | | | shares | exercise | | | | shares | | | price | | | as at | | price | | | as at | | | | £ | 31 July 2022 | | | | £ | 31 July 2021 | | Outstanding at 1 August — 1,098,374 — 1,330,096 Granted during the year — 232,832 — 254,541 Forfeited during the year — (51,032) — (17,467) Exercised during the year — (353,153) — (468,796) Outstanding at 31 July 927,021 1,098,374 Exercisable at 31 July 251,268 264,291 The fair value of share-based payment arrangements granted in the year was £3,747,316 (2021: £2,452,317), relating entirely to Long Term Incentive Plan awards. The weighted average remaining contractual life of share-based payment arrangements at the year end was 7.21 years (2021:7.25 years). 26 Post balance sheet events Dividend A final dividend of 16.6p per share has been recommended by the Directors and if approved by shareholders will be paid on 19December 2022. The final ordinary dividend will be payable to shareholders whose names are on the register at the close of businesson 11 November 2022. Shares in the Company will be quoted ex-dividend on 10 November 2022. The dividend reinvestmentplan (‘DRIP’) election date is 28 November 2022. In line with the Company’s stated intention to return excess cash to shareholders, a further special dividend payment of 12.6p has been proposed. If approved this will also be paid on 19 December 2022 alongside the final ordinary dividend. 173Annual Report and Accounts 2022 Softcat plc NOTES TO THE FINANCIAL STATEMENTS CONTINUED For the year ended 31 July 2022 # **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. | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | Short-term employee benefits | 3,061 | 2,758 | | Post-employment benefits | 23 | 19 | | | 3,084 | 2,777 | Key management personnel received a total of 117,228 share awards (2021: 99,902) at a weighted average exercise price of ENII (2021: ENII). 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 £1,083,687 (2021: £1,049,849) in respect of key management personnel. # **Dividends to Directors** | | 2022 £'000 | 2021 £'000 | | --- | --- | --- | | M Hellawell | 1,773 | 1,555 | | G Watt | 18 | — | | G Charlton | 37 | 17 | | R Perriss | 6 | 5 | | V Munro | 70 | 51 | | K Slatford | — | — | | L Weedall | — | — | | | 1,904 | 1,628 | 174**Softcut plc**^{}[] Annual Report and Accounts 2022 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 Munia OBE (Independent NED) Karen Stafford (Senior Independent NED) Lynne Weedall (Independent NED) Company Secretary Luke Thomas Investor relations contact investors@softcat.com Softcat LEI 213800N42Y2LR9GLVC42 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 5.30pm, 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 ![img-8.jpeg](img-8.jpeg) Softcat plc's commitment to environmental issues is reflected in this Annual Report, which has been printed on Avena Smooth Extra White, an FSC® certified material. This document was printed by Paraprist Group using its environmental print technology, with 99% of dry waste diverted from landfill, minimising the impact of printing on the environment. The printer is a CarbonNeutral® company. Both the printer and the paper mill are registered to ISO 14001. Produced by designportfolio Annual Report and Accounts 2022 Softcat plc 175 ## TEAM ## PASSI IGENCE ## COMMUNITY ## TOG ## ERSA ## PONSIBILITY ## CUST ## CUL