TIDMSGE
RNS Number : 3000X
Sage Group PLC
05 May 2016
The Sage Group plc unaudited results for the six months ended 31
March 2016
Thursday 5 May 2016
Accelerating performance and transforming the business
Operating performance
-- Improved organic revenue growth to 6.2% (H1 2015: 5.0%),
achieving double digit recurring revenue growth of 10.0% (H1 2015:
8.1%);
-- Accelerated software subscription growth to 35.3% (H1 2015:
25.4%) in line with planned transition and corresponding decline in
SSRS revenue of 6.3% (H1 2015: -2.0%);
-- Customers embracing closer relationships with a 50% increase
in subscription contracts to 842,000 (H1 2015: 561,000);
-- Strong results in Europe, North America and Africa were
balanced by a slower performance in Asia, which benefitted from
non-repeating revenues in the prior period;
-- Progress made on areas targeted for improved performance
(Enterprise Europe, Payments North America and Small and Medium
Business North America).
FINANCIAL SUMMARY(1,2) H1 16 H1 15 Change
--------------------------------- -------- -------- ------------
Organic revenue GBP747m GBP703m +6.2%
* Recurring revenue GBP513m GBP466m +10.0%
* Processing Revenue GBP97m GBP91m +6.6%
* SSRS Revenue GBP137m GBP146m * 6.3%
Organic operating profit GBP189m GBP186m +1.9%
Organic operating profit margin 25.4% 26.4%
Underlying basic EPS 12.09p 12.28p * 1.5%
Underlying cash conversion 111% 114%
Ordinary dividend per share 4.80p 4.45p +8%
--------------------------------- -------- -------- ------------
STATUTORY SUMMARY(2) H1 16 H1 15 Change
---------------------- -------- -------- -------------
Revenue GBP747m GBP717m +4.1%
Operating profit GBP152m GBP179m * 15.1%
Profit before tax GBP142m GBP168m * 15.6%
Basic EPS 9.88p 11.65p * 15.2%
---------------------- -------- -------- -------------
(1) Organic operating profit is stated before non-recurring
items (exceptional costs).Unless otherwise stated, all revenue
growth measures referred to in the CEO report are stated on the
constant exchange organic basis. Refer to Appendix II on page 16
for information on Non-GAAP measures and note 3 of interim
financial statements for details of items excluded from underlying
operating profit.
(2) All H1 15 comparatives and growth rates in the Chief
Executive Officer's Review and Chief Financial Officer's Review
have been stated after the revenue reporting changes described in
the FY15 full year results. Refer to notes 1 and 2 of interim
financial statements for further details.
Investing for accelerated growth
-- Organic operating margin of 25.4% reflects previously
communicated first half strategic investment bias in sales and
marketing;
-- Underlying cash conversion remains strong at 111%, supporting
free cash flow of GBP142m and the 8% increase of the interim
dividend to 4.80p;
-- Consistent focus on improving the quality organic growth,
superior operating margins, strong free cash flow conversion and
progressive dividends;
-- Reaffirm confidence in achieving full year organic operating
margin of at least 27% and delivering at least 6% organic revenue
growth
Business transformation
-- Remain on-track to secure annualised savings of c.GBP50m from
General & Administrative (G&A) functions by the end of FY16
with a target payback of under two years; Actions taken to deliver
GBP17m of annualised G&A savings taken by end of H1, with an
associated exceptional cost of GBP22m at the half year;
-- Notices served on 46 property leases, which will take
locations down to fewer than 100, with 25 exits by end of March
2016;
-- Continued to strengthen management to accelerate growth, with
over a dozen new joiners to the top 100 leadership team.
Technology driving growth
-- Achieved 17% (H1 2015: 10%) revenue growth for Sage X3, the
solution for larger businesses; Highlights include in excess of 60%
growth from International; 20% growth in France; and 25% growth in
UK & Ireland;
-- Increased paying subscriptions for Sage One, the cloud
solution for small businesses, by 100% year-on-year to 230,000;
-- Sage 50 Cloud, our market leading accounting solution for
small businesses, supported software subscription growth of 31% in
Europe and just under 100% in North America.
Stephen Kelly, Chief Executive Officer said: "Sage continues to
perform and transform. We made a good start to FY16 with double
digit recurring revenue growth as validation that customers are
embracing closer subscription relationships. High quality organic
revenue growth continued to accelerate H1 over H1.
"In this phase of the transformation, we have been very focussed
on improving the capability of our management and creating a
culture where customer obsession and innovation becomes a way of
life at Sage. Our customers are the entrepreneurs who drive
economic growth and prosperity. These entrepreneurs deserve awesome
technology that is an enabler to their growth and success. The Sage
cloud and partner ecosystem places the customer at the centre to
provide a complete business solution from business start-up through
scale-up to vibrant enterprise businesses.
"We are pleased with the early progress made and recognise there
is still much to do in the transformation. We remain confident in
achieving our full year targets of at least 6% organic revenue
growth and organic operating margin of 27%."
Enquiries:
The Sage Group plc Tulchan Communications
+44 (0) 20 7353
+44 (0) 191 294 4190 4200
Simon John, Investor David Shriver
Relations
Amy Lawson, Corporate Jonathan Sibun
PR
An analyst presentation will be held at 8.45am today at the
London Stock Exchange plc, 10 Paternoster Square, London, EC4M 7LS.
A live webcast of the presentation will be hosted on
www.sage.com/investors, dial-in number +44 (0) 203 427 1908, pin
code: 7939458. A replay of the call will also be available for two
weeks after the event: Tel: +44(0)20 3427 0598, pin code:
7939458#
Rounding
As a result of rounding throughout this document, it is possible
that tables may not cast and change percentages may not calculate
precisely.
Chief Executive Officer's Review
Operational performance
Sage continues to perform and transform. I want the Sage
management team to be known for doing what we say and for providing
absolute transparency, identifying what is going well and what
areas require greater focus. In 2015, we committed to driving an
improvement in three targeted underperforming areas:
Enterprise Europe:
- Following replacement of the entire management team and
reorganisation of the sales team structure, Enterprise Europe
delivered growth of 5% for H1, reversing decline in the prior
year.
- Sage X3 revenue growth of 16% achieved for H1 in Europe, with
25% growth in UK & Ireland and 20% growth in France.
Small & Medium Businesses North America:
- Rate of revenue growth has nearly doubled to 5% for the half.
- Launched Sage 100 Cloud and Sage 300 Cloud in November 2015,
from which we are targeting further momentum.
Payments North America:
- Following reorganisation of the sales team and the
introduction of new leadership, the business returned to modest
growth of 2% versus a flat performance for H1 2015.
- Signed agreements with seven Independent Software Vendors
(ISVs) to integrate with their applications and broaden the Sage
Payments customer base.
- Launched the Sage Payment Centre in April, embedding
integration within our accounting software to accelerate
cross-sell.
Overall, we achieved 6% organic revenue growth for the first
half, led by recurring revenue growth of 10%. Within recurring
revenue, software subscription grew by 35%, with Q2 2016 being the
tenth successive quarter delivering double digit year on year
growth for this revenue stream. Higher quality software
subscription revenue is supported by over 842,000 contracts, up
from 561,000 year on year.
Software subscription is being driven by the transition from
perpetual license revenues, as outlined at our Capital Markets Day
in 2015. Correspondingly, SSRS declined by 6% as expected,
comprising software license revenues falling by 18% and Software
related services growing by 7%. Processing revenues grew by 7% for
the half, which represents a modest uptick in the payments business
and strong payroll processing in North America, building on the
platform created by the acquisition of Paychoice.
Solid revenue growth of 7% for Europe was complimented by
accelerated revenue growth in North America of 6%. The revenue
performance for International, which delivered growth of 5%, falls
short of our ambitions for the region. Whilst Africa delivered 17%
revenue growth, performance was slower in some other geographies,
particularly Asia, where the prior half-year comparator included
some non-repeating revenue of GBP3.5m in Malaysia. We have made
changes in leadership and priorities in Asia.
Investing for accelerated growth
As indicated at the time of the 2015 full year results, there is
a planned strategic investment bias towards the first half of FY16
and the organic operating margin of 25.4% is in line with
expectations. Areas of investment included the sales and marketing
functions, where for instance we have added net around 180 heads in
sales. We remain confident in achieving our full year organic
margin guidance of at least 27%, as secured savings are realised
during the second half.
Business transformation
(MORE TO FOLLOW) Dow Jones Newswires
May 05, 2016 02:00 ET (06:00 GMT)
Our transformation remains on track and has progressed in both
back-office (G&A) functions and sales and marketing functions.
We remain confident of securing annualised G&A savings of
GBP50m by the end of FY16. For more details on the financial
impact, refer to the Financial Review section of the Chief
Financial Officer's Review below.
Technology driving growth
We have driven continued market share momentum with Sage One,
where paying subscriptions have grown by 100% over the past 12
months to 230,000. Countries in which Sage One was launched during
FY15 also supported growth, with over 10,000 paying subscriptions
achieved in Brazil in 12 months. In common with the agile
development of all growth products, Sage One updates are available
every two weeks.
We are generating significant subscription momentum with the
Sage 50 cloud family. Sage 50 cloud products enable users to access
their data from multiple locations and on mobile devices. This
functionality has encouraged customers onto the latest versions of
the product and also helped to drive subscription uptake. Sage 50
subscription units in North America have increased by around 25,000
with a third of these being either new customers or
reactivations.
Sage Live was fully launched in February in the UK, via the
Customer Business Centre (CBC) for Europe. Whilst it is still early
since initial development of Sage Live, we are seeing success with
our go to market model, progressing some customers to purchase
within hours of first web-hit and going live within days. There are
live customers in both North America and the UK with strong
pipeline generated by digital marketing efforts. Over 100 new ISV
partners have been recruited in last 6 months with 10 already
integrated with Sage Live as we expand the Sage Ecosystem.
Accelerated growth from the Sage X3 family has been achieved,
with global revenues growing at 17% (H1 2015: 10%). Highlights
include greater than 60% growth in the International region which
now represents c.17% of X3 global revenues. X3 Cloud was launched
in July 2015, offering more choice to customers. We have
strengthened our strategic partnership with Fairsail, a leading
provider of cloud human capital management (HCM) solutions.
Fairsail's product will be made available as an integrated cloud
HCM solution for Sage X3 as well as being implemented internally at
Sage.
Progress of execution
Progress has been made under the five pillars of our strategy
with continued focus for improvement.
Customers for Life
Progress:
- Delivering value for customers via subscription relationships;
The number of subscription contracts was increased by 50% over the
last 12 months from 561,000 to 842,000;
- Based on interviews with Sage X3 enterprise customers, the
research firm Forrester created a Total Economic Impact (TEI)
Study, showing that a composite organisation using Sage X3 achieved
a 177% return on investment from cost savings over three years and
an expected payback period of only five months;
- Early success in cross-sell of payroll with accounting,
achieving a 26% increase in cross-sell of these products for Small
& Medium Businesses in South Africa.
Focus:
- Already achieving some limited success, we need to scale up
cross-sell campaigns to improve the average number of products held
by our customers.
Winning in the Market
Progress:
- Momentum maintained with 100% increase in Sage One
subscriptions; In Australia we added over 1,000 units in our peak
month since launch; In Brazil we achieved 10,000 subscriptions in
the 12 months since launch;
- Partnerships continue to strengthen, for example, strategic
partnerships with Apple, Deloitte, Google, PwC and Salesforce;
- Established the digital platform; 10 web domains have been
consolidated onto Sage.com; Achieved over 130% more web traffic
year on year on Sage.com.
Focus:
- Partnership recruitment and CBC acceleration.
Revolutionise Business
Progress:
- Expanding the Sage ecosystem, by launching Sage marketplace,
an online hub to access complimentary partner applications
(initially 50); Our dedication to partner collaboration has enabled
two ISVs to integrate with Sage One within 24 hours of signing up
(Fundbox and SalesSeek).
- Launched Sage Payment Centre in North America, providing
seamless payments integration embedded in Sage 50 and Sage 100
accounting solutions.
- Upgraded over 25,000 Sage Instant Accounts customers in the UK onto Sage 50 cloud.
Focus:
- The R&D function is starting to operate on a coordinated
basis and we are implementing centres of excellence to fully
leverage our talent and resources. We are also expanding our
technology labs to accelerate innovative technology creation.
Capacity for Growth
Progress:
- Investment in our digital marketing capability is starting to
deliver. Our global media capability has been consolidated with all
paid search spending under one account structure replacing over 150
accounts in FY15. Combined with other initiatives such as social
media content and demand campaigns, the approach is starting to
generate thousands of leads per week.
- We have implemented our own product, Sage X3, in the UK &
Ireland, with a further 5 countries planned for deployment in the
next 12 months.
Focus:
- Whilst restructuring our back-office functions, we are
starting to reshape our go to market functions, including sales,
marketing, customer services, professional services and
training.
One Sage:
Progress:
- Management capability strengthened with new joiners to the top 100 leadership team;
- Increasing employee engagement through the Sage Foundation,
with over 2,500 volunteer days donated by colleagues during the
first half;
- Launched a global induction site as we continue to hire top
talent in order to harmonise the joiner experience for new staff
wherever they join and over 10,000 hours of training were logged
through Sage Academy during the period.
- Driving Excellence in Governance, making progress with code of
conduct certification and the risk, assurance and control
environment.
Focus:
- Integrated business planning for FY17 and cultural change to encourage consistency.
Organisation
Marc Scheipe has been permanently appointed as President of Sage
North America having filled the role on an interim basis during a
period when performance in North America improved and the target
operating model was implemented. Ivan Epstein, the co-founder of
Softline, will retire as President of Sage International. He has
been instrumental in his various leadership roles for Sage since
our acquisition of Softline in 2003 and has overseen a period of
sustained growth in our International businesses. Ivan will remain
in his current executive role until 30 September 2016. Ivan will
then continue as Chairman of the Sage Foundation.
Summary
Sage continues to perform and transform. We made a good start to
FY16 with double digit recurring revenue growth as validation that
customers are embracing closer subscription relationships. High
quality organic revenue growth continued to accelerate H1 over
H1.
In this phase of the transformation, we have been very focussed
on improving the capability of our management and creating a
culture where customer obsession and innovation becomes a way of
life at Sage. Our customers are the entrepreneurs who drive
economic growth and prosperity. These entrepreneurs deserve awesome
technology that is an enabler to their growth and success. The Sage
cloud and partner ecosystem places the customer at the centre to
provide a complete business solution from business start-up through
scale-up to vibrant enterprise businesses.
We are pleased with the early progress made and recognise there
is still much to do in the transformation. We remain confident in
achieving our full year targets of at least 6% organic revenue
growth and organic operating margin of 27%.
Chief Financial Officer's Review
Group performance
The Group delivered organic revenue growth of 6.2% (H1 2015:
5.0%) and an organic operating profit margin of 25.4% (H1 2015:
26.4%).
The quality of the growth is demonstrated by recurring revenue
growing at 10% (H1 2015: 8%) which includes growth of 35% (H1 2015:
25%) for software subscription revenue.
Organic figures neutralise the impact of foreign currency
fluctuations and exclude the contribution from current and prior
period acquisitions when relevant. A reconciliation of organic
operating profit to statutory operating profit is shown on page 12.
All H1 2015 comparatives and growth rates have been stated after
the revenue reporting changes described in the FY15 full year
results. Refer to notes 1 and 2 of interim financial statements for
further details.
Statutory performance has been impacted by movements in key
exchange rates during the year, particularly in Europe, South
Africa and Brazil. Statutory figures also include the impact of
acquisitions and disposals.
Revenue
STATUTORY ORGANIC
--------------------------------- ---------------------------
H1 16 H1 15 Change H1 16 H1 15 Change
--------------- --------- --------- ----------- -------- -------- -------
Europe GBP398m GBP377m +6% GBP398m GBP373m +7%
North America GBP256m GBP235m +9% GBP256m GBP242m +6%
International GBP93m GBP105m * 12% GBP93m GBP88m +5%
--------------- --------- --------- ----------- -------- -------- -------
Group GBP747m GBP717m +4% GBP747m GBP703m +6%
--------------- --------- --------- ----------- -------- -------- -------
(MORE TO FOLLOW) Dow Jones Newswires
May 05, 2016 02:00 ET (06:00 GMT)
Operating profit
STATUTORY ORGANIC
------------------ ----------------------------------------
H1 16 H1 15 Change H1 16 H1 15 Change
-------- -------- -------- ----------- -------- -------- -------
Group GBP152m GBP179m * 15% GBP189m GBP186m +2%
Margin 20.3% 24.9% 25.4% 26.4%
-------- -------- -------- ----------- -------- -------- -------
The organic operating profit margin has reduced during the half,
as expected, due to planned investments indicated at the time of
the FY15 full year results. The investment is being made in the go
to market functions, particularly the sales and marketing
functions. We remain confident of our performance in the second
half to meet the full year operating margin guidance of at least
27%.
The current year statutory operating profit is stated after
exceptional costs incurred relating to business transformation and
after the benefit of costs recovered relating to litigation, both
of which are excluded from organic profit (net impact is a
reduction of GBP29m in statutory operating profit).
Significant progress has been made in implementing the sequenced
transformation outlined at the time of the FY15 results. G&A
savings of GBP17m relating to people and facilities have been
secured as at the half year, to be realised fully in future
periods. An exceptional charge of GBP31m has been incurred in H1,
of which GBP22m relates to G&A functions. Business
transformation will continue in the second half, costing around
GBP100m cumulatively and including actions to secure the full year
target of GBP50m of annualised G&A savings.
The percentage of revenue spent on G&A remains at around 19%
for the half due to the timing difference between securing and
realising the savings. Total spending on Research and Development
(R&D) remains at around 10% and the vast majority of R&D
expenditure remains focussed on Growth products. All R&D
expenditure incurred is expensed, in line with our policy.
Revenue mix
Segmental reporting
Consistent with our FY15 results, we consider the business split
into three Strategic regions, Europe, North America and
International.
RECURRING REVENUE PROCESSING REVENUE SSRS REVENUE
---------------------------- -------------------------- -------------------------- --------------------------
ORGANIC H1 16 H1 15 Change H1 16 H1 15 Change H1 16 H1 15 Change
---------------------------- -------- -------- ------ -------- -------- ------ -------- -------- ------
Europe GBP301m GBP276m +9% GBP17m GBP16m +9% GBP80m GBP81m -1%
North America GBP146m GBP134m +9% GBP76m GBP72m +6% GBP34m GBP37m -9%
International GBP66m GBP56m +17% GBP4m GBP3m +12% GBP23m GBP29m -19%
---------------------------- -------- -------- ------ -------- -------- ------ -------- -------- ------
Group GBP513m GBP466m +10% GBP97m GBP91m +7% GBP137m GBP146m -6%
% of total organic revenue 69% 66% 13% 13% 18% 21%
---------------------------- -------- -------- ------ -------- -------- ------ -------- -------- ------
Recurring revenue
The Group has delivered an improvement in organic recurring
revenue growth to 10% (H1 2015: 8%). Growth was driven purely by
software subscription (35%, H1 2015: 25%), whilst traditional
maintenance and support declined by 2% due to the planned
transition to subscription.
Organic recurring revenue represents 69% of the Group's total
organic revenue (H1 2015: 66%) with the contract renewal rate at
84% (H1 2015: 84%). Subscription initiatives for all growth
products are maintaining a long-running strategic shift to higher
quality revenue, building on the recurring revenues derived from
our maintenance and support contract base. Subscription contracts
also typically attract higher renewal rates than stand-alone
maintenance and support contracts, currently at c.90%.
Processing revenue
Processing revenue has grown organically by 7% (H1 2015: 1%),
which represents a modest uptick in the payments business and a
strong result from Sage Payroll Solutions in North America. Growth
in payments processing revenues in Europe remained strong at 10%
(H1 2015: 8%).
SSRS revenue
Organic SSRS revenue declined during the year by 6% (H1 2015:
-2%), due to the planned transition towards subscription
relationships. Within SSRS, revenue from perpetual licenses
represents less than 9% of Group revenue and demonstrates the
continued emphasis on subscription and recurring revenue
relationships.
Regional performance - Europe
ORGANIC REVENUE GROWTH H1 2016 H1 2015
------------------------ -------- --------
UK & Ireland +9% +6%
France +7% +2%
Spain +6% +1%
Germany +6% +3%
Rest of Europe -4% +2%
------------------------ -------- --------
Europe +7% +4%
------------------------ -------- --------
Revenue in Europe grew organically by 7% (H1 2015: 4%), with
organic recurring revenue growth of 9% (H1 2015: 8%). The
acceleration in revenue growth was driven by our larger European
businesses, whilst the result of rest of Europe was more
challenging.
The performance of the products which constituted Enterprise
Europe in the prior year has been improved, generating 5% revenue
growth, reversing revenue decline in the prior year. The steps
taken to reintegrate the management of our Enterprise customers
within the country management structure, has enabled a more
coherent approach to lead generation.
Organic software subscription revenue growth remained strong,
accelerating to 31% (H1 2015: 25%) and driving this revenue stream
to 31% (H1 2015: 25%) of total revenue in Europe. A key driver for
subscription success across Europe is the Sage 50 cloud family of
products. The latest versions of the product enable customers to
expose their data to the cloud, enabling multi location access for
colleagues and accountants and data access via mobile devices. This
feature is a significant enhancement, enabling customers to
continue enjoying the rich and familiar functionality of their
desktop solution whilst experiencing the power of the cloud.
Organic processing revenue growth of 9% (H1 2015: 8%), primarily
relates to our UK payments business, and demonstrates sustained
growth in excess of the group average.
Organic SSRS revenue decline of 1% (H1 2015: decline of 9%)
reflects an expected decline in license revenues, due to
subscription transition, balanced by good growth for training and
professional services.
UK & Ireland - continued success with key initiatives
UK & Ireland revenue grew organically by 9% (H1 2015: 6%) to
GBP165m, supported by organic subscription revenue growth of 47% to
GBP50m. This acceleration in software subscription growth reflects
that subscription is now the default relationship for growth
products. We have driven continued success with the Auto-Enrolment
pensions module for Sage 50 Payroll, selling a further 10,000 units
during the period. Cloud Sage 50 Accounts also helped to drive
significant growth for the UK&I. Over 25,000 customers were
upgraded from Sage Instant Accounts to Sage 50 Essentials during
the period, which has brought cloud access to thousands of smaller
business.
Cloud momentum was also maintained with Sage One, achieving unit
growth of 88% to 120,000. The launch of Sage One Start during the
period provides a pathway for micro-businesses to use Sage software
and then migrate to a fuller solution when required, all in the
cloud.
Processing revenue, primarily related to payments, grew
organically by 8% to GBP17m. We are expanding our service offering
to existing customers, for instance offering e-invoicing which
includes a pay now button in order to help customers to get paid
faster for goods and services. Our payments-out service, enabling
customers to initiate payments to employees and suppliers from
within their accounting solution, is also building in scale since
launch in the prior year. Cross-sell of payments remains a top
priority.
France - improving growth supported by Enterprise
In France, organic revenue grew by 7% (H1 2015: 2%) to GBP118m.
Subscription momentum continued, with software subscription revenue
growing by 16% to GBP59m for the half.
The i7 upgrade to Sage 100 and Sage Paie (the core payroll
product for medium sized businesses in France) continued to drive
adoption of subscription relationships. The penetration of the
customer bases of each product with the i7 upgrade, only available
on subscription, now stands at 68% and 83% for Sage 100 and Sage
Paie respectively. The latest version delivers increased
functionality and addresses additional legislation concerning the
submission of real-time information to the local tax
authorities.
For smaller business, the Sage Ciel Flex offering (Sage 50
family), continues to drive subscription adoption. Consistent with
our cloud strategy across Europe, around half of the Ciel
subscribers are opting for the highest tier of subscription which
includes mobile data access.
Overall growth was also supported by improved results for the
Enterprise products following targeted actions taken in the prior
period, delivering growth of nearly 10%.
Spain - rate of revenue growth increasing
(MORE TO FOLLOW) Dow Jones Newswires
May 05, 2016 02:00 ET (06:00 GMT)
Organic revenue in Spain grew by 6% to GBP46m (H1 2015: 1%).
Cloud for Contaplus (Sage 50 family) supported software
subscription growth of more than 50% for this product. Sage Murano,
our flagship product for medium sized businesses in Spain grew
organic revenues by 13% overall. Over 80% of growth for the cloud
version of the product, Murano Online, was driven by new customer
acquisition.
Germany - cloud and reengaged partner channel drive growth
In Germany, organic revenue of GBP46m represents organic growth
of 6% (H1 2015: 3%). As with other major European markets, Sage 50
Cloud supported software subscription growth of over 50% in Germany
for Sage 50. A renewed focus on the partner channel contributed to
over 15% revenue growth for Office Line, our flagship product for
medium sized businesses.
Rest of Europe - drag on regional growth rate
In Rest of Europe, growth in Portugal was balanced by more
challenging conditions in Switzerland and Poland, with revenue
decline dragging the regional result down marginally. Changes in
leadership have been made in Switzerland and Poland and we are
confident of improving the performance through the second half.
Regional performance - North America
ORGANIC REVENUE GROWTH H1 2016 H1 2015
------------------------ -------- --------
North America +6% +3%
------------------------ -------- --------
North America delivered organic revenue growth of 6% supported
by organic recurring revenue growth of 9% (H1 2015: 7%) and organic
processing revenue growth of 6% (H1 2015: -2%). Organic SSRS
revenue contracted by 9% (H1 2015: -5%) due to the planned
transition to subscription.
Growth accelerated from full year 2015
The improvement of growth for the region has been supported by
improved results for accounting, payroll and payments solutions.
Consistent with the cloud strategy in Europe, we have driven
success with the Sage 50 Cloud throughout the period in Canada and
more recently in the US, following launch in February. The
availability of our very latest technology on subscription has
contributed to triple digit software subscription revenue growth
and around 25,000 additional subscription units for Sage 50. In
addition to a significant number of migrations from traditional
maintenance and support (M&S) to subscription, around one third
of the unit growth was driven by new customer acquisition or
reactivation.
The performance of our products suited to medium business (SMB
products) improved, with revenue growth nearly doubling to 5% for
the half. We are targeting a better performance in the second half
with the cloud version of our leading business management
solutions, Sage 100C and Sage 300C, through increased engagement
and support for our partner network.
Processing revenue growth of 6% was driven by a modest uptick in
the payments business to 2% growth (H1 2015: Flat) and strong
growth from the payroll processing business. Cross-sell of both
payroll and payments into the accounts base is a top priority and
specific sales teams have been established to target this
opportunity and accelerate in H2.
Regional performance - International
ORGANIC REVENUE GROWTH H1 2016 H1 2015
------------------------ -------- --------
Africa +17% +16%
Brazil +7% +7%
Australia +7% +5%
Middle East and Asia -29% +63%
------------------------ -------- --------
International +5% +16%
------------------------ -------- --------
Organic revenue growth was below our ambition in the
International region at 5% (H1 2015: 16%). Organic recurring
revenue growth of 17% (H1 2015: 12%) and processing revenue growth
of 12% (H1 2015: 21%) were highlights, balanced by SSRS revenue
declining by 19%. The prior year H1 result benefitted from
non-repeating revenue in Malaysia, indicated at the time of the H1
2015 results.
The performance of Sage X3 was encouraging for the region,
delivering in excess of 60% revenue growth. Africa led the
performance, registering success in the oil, gas and mining sector
and adding to the partner network.
Africa - double-digit growth performance maintained
Organic revenue of GBP44m for Africa represents sustained
organic growth of 17% (H1 2015: 16%), supported by strong recurring
revenue growth of 26% (H1 2015: 17%). Growth is being achieved with
both Sage X3 and local growth products. Strong regional leadership
is being developed to grow the African business more quickly
outside of South Africa.
Brazil - resilient software growth despite tough economic
conditions
Organic revenue in Brazil grew by 7% (H1 2015: 7%) to GBP20m.
Double digit revenue growth was maintained in accounting and
payroll software, but sales of technical learning materials in the
content business were subdued. The focus for Brazil is new customer
acquisition and early success has been achieved following the
launch of Sage One, which has delivered over 10,000 paying
subscriptions as at March 2016.
Australia, Middle East and Asia
In Australia, organic revenue growth of 7% (H1 2015: 5%) to
GBP19m was driven by local growth products. We have also made a
good start with Sage One in Australia, adding over 1,000 paying
subscriptions in the peak month since launch.
Organic revenue in the Middle East and Asia declined by 29% (H1
2015: growth of 63%) to GBP10m. The key factor contributing to the
decline is the prior year one-off revenue delivered by Malaysia,
where a goods and sales tax was introduced in the prior year,
driving software uptake and generating GBP3.5m of non-repeating
revenue. Our newly recruited manager for Asia is currently focussed
on building pipeline to deliver an improved H2.
Financial review
H1 2016 H1 2015
ORGANIC TO STATUTORY RECONCILIATIONS Revenue Operating profit Margin Revenue Operating profit Margin
Organic GBP747m GBP189m 25.4% GBP703m GBP186m 26.4%
Organic adjustments(1) - - - -
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
Underlying GBP747m GBP189m 25.4% GBP703m GBP186m 26.4%
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
Impact of foreign exchange(2) - - GBP14m GBP3m
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
Underlying (as reported) GBP747m GBP189m 25.4% GBP717m GBP189m 26.3%
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
Recurring items(3) - (GBP8m) - (GBP10m)
Non-recurring items(4) - (GBP29m) - -
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
Statutory GBP747m GBP152m 20.3% GBP717m GBP179m 24.9%
-------------------------------------- --------- ------------------ ------- -------- ----------------- -------
(1) Organic adjustments comprise contributions from
acquisitions, disposals and products held for sale.
(2) Impact of retranslating H1 2015 results at H1 2016 average
rates.
(3) Recurring items comprise amortisation of acquired intangible
assets, acquisition-related items and fair value adjustments.
(4) Non-recurring items comprise items that management judge to
be one-off or non-operational including business transformation
costs.
Revenue
Statutory revenue grew by 4% to GBP747m, reflecting organic
growth, offset by adverse foreign exchange movements experienced
during H1. The average exchange rates used to translate the
consolidated income statement for the year are set out on page
14.
Operating profit
Organic operating profit increased by 2% to GBP189m and the
organic operating profit margin decreased to 25.4% due to the
planned and indicated strategic investment bias towards the first
half. We remain confident in our full year organic margin guidance
of at least 27%, as identified savings are realised during the
second half. Statutory operating profit declined by 15% to GBP152m
due primarily to non-recurring costs related to business
transformation.
Progress has been made in implementing the sequenced
transformation outlined at the time of the FY15 results. We are
undergoing this transition in order to concentrate our resources on
delivering for customers with innovative technology and outstanding
levels of support. Annualised G&A savings of GBP17m relating to
people and facilities have been secured by the actions taken during
the half, to be fully realised in future periods. Within the total
exceptional charge of GBP31m incurred in H1, GBP22m relates to
G&A functions. 46 lease notices have been served thus far,
which will reduce total offices to fewer than 100 and create a
better office footprint to serve our customers.
Looking forward, we are confident of securing GBP50m of
annualised G&A savings by the end of FY16, to be fully realised
in future periods and reinvested in market-facing functions. The
total exceptional cost related to business transformation is
anticipated to around GBP100m for the full year, including actions
relate to restructuring the G&A functions. The remaining
non-G&A exceptional charge relates to restructuring other
market-facing functions, in order to align them with our target
global operating model. Net spending in sales and marketing
functions is projected to increase.
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Adjustments between underlying and statutory operating
profit
Non-recurring items separated from underlying operating profit
of GBP29m include GBP31m of non-recurring costs in relation to the
Business Transformation, offset by GBP2m in respect of the recovery
of litigation costs shown as non-recurring consistent with the
treatment of the associated costs in prior years. Recurring items
of GBP8m represents amortisation of acquisition related intangible
assets and other acquisition related charges.
Net finance cost
The statutory net finance cost for the period was GBP10m (H1
2015: GBP10m) and the underlying net finance cost was GBP11m (H1
2015: GBP11m). The difference between underlying and statutory net
finance costs for the period reflects a fair value adjustment to a
debt related instrument of GBP1m (H1 2015: GBP1m).
Taxation
The statutory income tax expense was GBP36m (H1 2015: GBP44m).
The effective tax rate on statutory profit before tax was 25% (H1
2015: 26%). The effective tax rate on underlying profit before tax
was 27%
(H1 2015: 25%). This increase is due to a number of
non-recurring benefits in the prior period.
Earnings per share
Underlying basic earnings per share decreased by 1.5% to 12.09p
(H1 2015: 12.28p) due to the higher effective tax rate experienced
during the period. Statutory basic earnings per share decreased to
9.88p (H1 2015: 11.65p), which reflects the decrease in statutory
operating profit and higher effective tax.
Cash flow and net debt
CASH FLOW H1 16 H1 15
---------------------------------------------- --------- ---------
Underlying operating profit GBP189m GBP186m
Exchange rate translation movements - GBP3m
---------------------------------------------- --------- ---------
Underlying operating profit (as reported) GBP189m GBP189m
Non-recurring items (GBP12m) (GBP1m)
Depreciation/amortisation/profit on disposal GBP15m GBP15m
Share-based payments GBP6m GBP5m
Working capital and balance sheet movements GBP15m GBP18m
Exchange rate translation movements GBP1m GBP20m
Statutory cash flow from operating activities GBP214m GBP246m
Net interest (GBP9m) (GBP10m)
Tax paid (GBP48m) (GBP60m)
Net capital expenditure (GBP15m) (GBP11m)
---------------------------------------------- --------- ---------
Free cash flow GBP142m GBP165m
---------------------------------------------- --------- ---------
Statutory cash flow from operating activities GBP214m GBP246m
Non-recurring cash items GBP12m GBP1m
Net capital expenditure (GBP15m) (GBP11m)
Eliminate exchange rate translation movements (GBP1m) (GBP20m)
------------------------------------------------ --------- ---------
Underlying cash flow from operating activities GBP210m GBP216m
------------------------------------------------ --------- ---------
Underlying cash conversion(1) 111% 114%
------------------------------------------------ --------- ---------
(1) Refer to Appendix II on page 16 for information on Non-GAAP
measures.
The Group remains highly cash generative with underlying cash
flows from operating activities of GBP210m, representing strong
underlying cash conversion of 111% (H1 2015: 114%).
A total of GBP93m (H1 2015: GBP86m) was returned to shareholders
through ordinary dividends. Net debt stood at GBP404m at 31 March
2016 (31 March 2015: GBP510m), which is equivalent to 1.0 times
rolling 12-month EBITDA.
Treasury management
The Group continues to be able to borrow at competitive rates
and currently deems this to be the most effective means of raising
finance. The Group's current syndicated bank multi-currency
Revolving Credit Facility ("RCF"), with a facility level of GBP555m
(US$551m and EUR218m tranches) expires in June 2019. At 31 March
2016, GBP110m (H1 2015: GBP156m) of the RCF was drawn. Higher RCF
drawings in the prior year were due to funding the US Paychoice
acquisition in October 2014.
Total US Private Placement ("USPP") loan notes outstanding at 31
March 2016 were GBP519m (US$650m and EUR85m) (H1 2015: GBP533m,
US$700m and EUR85m). Approximately GBP35m (US$50m) of USPP loan
notes were repaid in March 2016. This repayment was funded by free
cash flow and RCF drawings.
Foreign exchange
The Group does not hedge foreign currency profit and loss
translation exposures and the statutory results are therefore
impacted by movements in exchange rates.
The average rates used to translate the consolidated income
statement and to neutralise foreign exchange in prior year
underlying and organic figures are as follows:
AVERAGE EXCHANGE RATES (EQUAL TO GBP1) H1 2016 H1 2015 Change
---------------------------------------- -------- -------- ----------
Euro (EUR) 1.34 1.32 +2%
US Dollar ($) 1.48 1.54 * 4%
South African Rand (ZAR) 22.12 17.75 +25%
Australian Dollar (A$) 2.05 1.90 +8%
Brazilian Real (R$) 5.71 4.22 +35%
---------------------------------------- -------- -------- ----------
Capital structure and dividend
With consistent and strong cash flows, the Group retains
considerable financial flexibility going forward. The Board's main
strategic priority remains an acceleration of growth, both
organically and through targeted acquisitions. This growth
underpins the Board's sustainable, progressive dividend policy,
with surplus capital being returned to shareholders from time to
time. Consistent with this policy, the Board is proposing an 8%
increase in the interim ordinary dividend per share for the period
to 4.80p per share (H1 2015: 4.45p per share).
Appendix I - Key Performance Indicators ("KPIs") and other
measures
H1 2016 FY15 H1 2015
------------------------ ---------------------------------------------------------- ------------ -------- --------
STRATEGIC KPIs KPI DESCRIPTION
------------------------ ---------------------------------------------------------- ------------ -------- --------
As we focus on providing exceptional customer
experiences, we track the response of our customers
by measuring the number of contracts successfully
Customers for life: renewed for the last twelve months as a
Contract renewal rate percentage of those that were due for renewal. 84% 84% 84%
------------------------ ---------------------------------------------------------- ------------ -------- --------
Winning in the market: The number of paying subscriptions for our portfolio of
Adoption of Sage One Sage One products. 230,000 173,000 115,000
------------------------ ---------------------------------------------------------- ------------ -------- --------
Winning in the market: The percentage increase in underlying revenue derived
Adoption of Sage X3 from Sage X3. 17% 11% 10%
------------------------ ---------------------------------------------------------- ------------ -------- --------
Revolutionise business: Our latest technologies are delivered to customers via GBP425m GBP351m GBP314m
Annualised software software subscription relationships
subscription base which drives growth in the ASB, calculated as the amount
("ASB") of organic software subscription
revenue recorded in the last month of the period
multiplied by 12.
------------------------ ---------------------------------------------------------- ------------ -------- --------
Investing for growth is enabled by releasing efficiencies
in General and Administrative ("G&A")
expenses. We track progress by expressing G&A as a
Capacity for growth: percentage of revenue (both on an organic
G&A% basis). 19% 19% 19%
------------------------ ---------------------------------------------------------- ------------ -------- --------
One Sage We use multiple measures to track progress in areas such as employee engagement, social
responsibility
and brand strength. One Sage supports our entire strategy and enables all other strategic
pillars, therefore does not have association with any single measure in the KPI suite.
------------------------ --------------------------------------------------------------------------------------------
FINANCIAL DRIVERS KPI DESCRIPTION H1 2016 FY15 H1 2015
------------------------ ---------------------------------------------------------- ------------ -------- --------
Organic revenue neutralises the impact of foreign
exchange in prior period figures and excludes
the contribution of current and prior period
acquisitions, disposals and products held for
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Organic revenue growth sale when required. 6.2% 6.0% 5.0%
------------------------ ---------------------------------------------------------- ------------ -------- --------
Organic operating profit excludes:
* Recurring items including amortisation of acquired
intangible assets, acquisition-related items and f
air
value adjustments;
* Non-recurring items that management judge to be
one-off or non-operational; and
* The contribution of current and prior period
acquisitions, disposals and businesses or products
held for sale.
Organic operating The impact of foreign exchange is neutralised in prior
profit margin period figures. 25.4% 27.0% 26.4%
------------------------ ---------------------------------------------------------- ------------ -------- --------
Underlying basic EPS is defined as underlying profit
after tax divided by the weighted average
number of ordinary shares in issue during the period,
excluding those held as treasury shares.
Underlying profit after tax is defined as profit
attributable to owners of the parent excluding:
* Recurring items including amortisation of acquired
intangible assets, acquisition-related items, fair
value adjustments and imputed interest; and
* Non-recurring items that management judge to be
one-off
All of these adjustments are net of tax. The impact of
Underlying basic EPS foreign exchange is neutralised in
growth prior period figures. * 1.5% 12.6% 8.3%
------------------------ ---------------------------------------------------------- ------------ -------- --------
Underlying cash conversion is underlying cash flow from
operating activities divided by underlying
operating profit. Underlying cash flow from operating
activities is statutory cash flow from
operating activities less net capital expenditure and
adjusted for movements on foreign exchange
rates and non-recurring cash items. In the prior year,
underlying cash flow from operating
activities was calculated before net capital expenditure
and included movements on foreign
Underlying cash exchange, which would have shown underlying cash
conversion conversion of 110% in FY15 (FY14: 106%). 111% 106% 114%
------------------------ ---------------------------------------------------------- ------------ -------- --------
The net value of cash less borrowings expressed as a
multiple of rolling 12-month EBITDA.
EBITDA is defined as earnings before interest, tax,
depreciation, amortisation of acquired
intangible assets, acquisition-related items, fair value
adjustments and non-recurring items
Net debt leverage that management judge to be one-off or non-operational. 1.0:1 1.0:1 1.2:1
------------------------ ---------------------------------------------------------- ------------ -------- --------
Statutory operating profit for the last twelve months excluding non-recurring
items that management
judge to be one-off or non-operational, expressed as a multiple of finance costs
excluding
Interest cover imputed interest for the same period. 17x 17x 16x
---------------- ---------------------------------------------------------------------------------- ---- ---- ----
Appendix II - Non-GAAP measures
MEASURE DESCRIPTION WHY WE USE IT
------------------------- ---------------------------------------------------------------- -------------------------
Underlying Prior period underlying measures are retranslated at the Underlying measures
current year exchange rates to neutralise allow management and
the effect of currency fluctuations. investors to compare
performance without the
Underlying operating profit excludes: potentially
* Recurring items: distorting effects of
foreign exchange
movements, one-off items
* Amortisation of acquired intangible assets; or non-operational
items.
* Acquisition-related items; By including part-period
contributions from
acquisitions, disposals
* Fair value adjustments on non-debt-related financial and products held for
instruments; and sale in the current
and/or prior periods,
the impact of M&A
decisions on earnings
* Non-recurring items that management judge are one-off per share
or non-operational growth can be evaluated.
Underlying profit before tax excludes:
* All the items above; and
* Imputed interest; and
* Fair value adjustments on debt-related financial
instruments.
Underlying profit after tax and earnings per share
excludes:
* All the items above net of tax.
------------------------- ---------------------------------------------------------------- -------------------------
Organic In addition to the adjustments made for underlying measures, Organic measures allow
organic measures exclude the management and investors
contribution from acquisitions, disposals and products held for to understand the
sale in the current and prior like-for-like
period. performance
of the business.
------------------------- ---------------------------------------------------------------- -------------------------
Underlying cash Underlying cash conversion is underlying cash flow from Underlying cash
conversion operating activities divided by underlying conversion informs
operating profit. Underlying cash flow from operating management and investors
activities is statutory cash flow from about the cash operating
operating activities less net capital expenditure and adjusted cycle
for movements on foreign exchange of the business and how
rates and non-recurring cash items. efficiently operating
profit is converted into
cash.
------------------------- ---------------------------------------------------------------- -------------------------
Underlying (as reported) Where prior period underlying measures are included without This measure is used to
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retranslation at current period report comparative
exchange rates, they are labelled as underlying (as reported). figures for external
reporting purposes where
it
would not be appropriate
to retranslate. For
instance, on the face of
primary financial
statements.
------------------------- ---------------------------------------------------------------- -------------------------
Revenue Type DESCRIPTION
------------------------------------------------ --------------------------------------------------------------------
Recurring revenue Recurring revenue is revenue earned from customers for the
provision of a good or service,
where risks and rewards are transferred to the customer over the
term of a contract, with
the customer being unable to continue to benefit from the full
functionality of the good or
service without ongoing payments.
------------------------------------------------ --------------------------------------------------------------------
Software subscription revenue Subscription revenue is revenue earned from customers for the
provision of a good or service,
where the risk and rewards are transferred to the customer over the
term of a contract. In
the event that the customer stops paying, they lose the legal right
to use the software and
the Company has the ability to restrict the use of the product or
service. (Also known as
'Pay to play').
------------------------------------------------ --------------------------------------------------------------------
Software and software related services ("SSRS") SSRS revenue is for goods or services where the entire benefit is
passed to the customer at
the point of delivery. It comprises revenue for software or
upgrades sold on a perpetual license
basis and software related services, including hardware sales,
professional services and training.
------------------------------------------------ --------------------------------------------------------------------
Processing revenue Processing revenue is revenue earned from customers for the
processing of payments or where
Sage colleagues process our customers' payroll.
------------------------------------------------ --------------------------------------------------------------------
Consolidated income statement
For the six months ended 31 March 2016
Six Six
months months Year
Six months Six months Six months ended Six months ended ended
ended ended ended 31 ended 31 30
31 March 31 March 31 March March 31 March March September
2016 2016 2016 2015 2015 2015 2015
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
Underlying Adjustments* Statutory Underlying Adjustments* Statutory Statutory
as reported
(Restated) (Restated)
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ==== =========== ============ =========== =========== =============== =========== =========
Revenue 2 746.6 - 746.6 717.3 - 717.3 1,435.5
Cost of sales (47.6) - (47.6) (44.1) - (44.1) (86.7)
============= ==== =========== ============ =========== =========== =============== =========== =========
Gross profit 699.0 - 699.0 673.2 - 673.2 1,348.8
Selling and
administrative
expenses (509.7) (37.5) (547.2) (484.3) (10.2) (494.5) (1,051.6)
Operating
profit 2 189.3 (37.5) 151.8 188.9 (10.2) 178.7 297.2
Finance
income 1.0 1.4 2.4 1.0 1.0 2.0 2.2
Finance costs (12.1) - (12.1) (12.3) - (12.3) (23.6)
============= ==== =========== ============ =========== =========== =============== =========== =========
Finance costs
- net (11.1) 1.4 (9.7) (11.3) 1.0 (10.3) (21.4)
============= ==== =========== ============ =========== =========== =============== =========== =========
Profit before
income tax 178.2 (36.1) 142.1 177.6 (9.2) 168.4 275.8
Income tax
expense 4 (48.2) 12.4 (35.8) (44.2) 0.6 (43.6) (81.5)
============= ==== =========== ============ =========== =========== =============== =========== =========
Profit for
the period 130.0 (23.7) 106.3 133.4 (8.6) 124.8 194.3
* Adjustments are detailed in note 3 to the accounts.
Earnings per
share
attributable
to
the owners of
the parent
(pence)
Basic 6 12.09p 9.88p 12.45p 11.65p 18.11p
Diluted 6 12.01p 9.82p 12.42p 11.62p 18.00p
============= ==== =========== ============ =========== =========== =============== =========== =========
Consolidated statement of comprehensive income
For the six months ended 31 March 2016
Six months ended Six months ended Year ended
31 March 2016 31 March 2015 30 September 2015
(Unaudited) (Unaudited) (Audited)
(Restated)
GBPm GBPm GBPm
============================================================= ================ ================ ===================
Profit for the period 106.3 124.8 194.3
Other comprehensive income/(expenses) for the period:
Items that will not be reclassified to profit or loss:
Actuarial loss on post-employment benefit obligations (0.6) (0.7) (4.8)
Deferred tax credit on actuarial loss on post-employment
benefit obligations 0.2 0.3 0.6
(0.4) (0.4) (4.2)
============================================================= ================ ================ ===================
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations 37.1 4.7 (23.2)
37.1 4.7 (23.2)
============================================================= ================ ================ ===================
Other comprehensive expense for the period, net of tax 36.7 4.3 (27.4)
============================================================= ================ ================ ===================
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Total comprehensive income for the period 143.0 129.1 166.9
The notes on pages 23 to 36 form an integral part of this
condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2016
31 March 31 March
2016 2015 30 September 2015
(Unaudited) (Unaudited) (Audited)
(Restated)
Note GBPm GBPm GBPm
======================================================= ===== ============== ============== ===================
Non-current assets
Goodwill 7 1,520.1 1,540.7 1,446.0
Other intangible assets 7 108.1 120.6 105.5
Property, plant and equipment 7 127.4 126.0 122.7
Deferred income tax assets 38.8 34.7 34.2
Other financial assets 3 1.4 1.0 -
======================================================= ===== ============== ============== ===================
1,795.8 1,823.0 1,708.4
======================================================= ===== ============== ============== ===================
Current assets
Inventories 2.1 2.2 2.0
Trade and other receivables 374.7 345.1 320.9
Cash and cash equivalents (excluding bank overdrafts) 10 356.2 268.0 263.4
======================================================= ===== ============== ============== ===================
733.0 615.3 586.3
======================================================= ===== ============== ============== ===================
Total assets 2,528.8 2,438.3 2,294.7
======================================================= ===== ============== ============== ===================
Current liabilities
Trade and other payables (374.2) (313.0) (311.2)
Current income tax liabilities (24.7) (11.7) (31.4)
Borrowings (35.1) (34.5) (33.6)
Provisions (19.1) (11.0) (9.9)
Deferred income (522.7) (488.4) (436.5)
======================================================= ===== ============== ============== ===================
(975.8) (858.6) (822.6)
======================================================= ===== ============== ============== ===================
Non-current liabilities
Borrowings (592.0) (651.9) (571.4)
Post-employment benefits (21.8) (14.0) (18.7)
Deferred income tax liabilities (7.6) (34.4) (7.3)
Provisions (11.3) (10.9) (10.4)
Deferred income (2.8) (2.8) (2.2)
======================================================= ===== ============== ============== ===================
(635.5) (714.0) (610.0)
======================================================= ===== ============== ============== ===================
Total liabilities (1,611.3) (1,572.6) (1,432.6)
======================================================= ===== ============== ============== ===================
Net assets 917.5 865.7 862.1
======================================================= ===== ============== ============== ===================
Equity attributable to owners of the parent
Ordinary shares 9 11.8 11.7 11.8
Share premium 9 542.6 538.0 541.2
Other reserves 104.0 94.8 66.9
Retained earnings 259.1 221.2 242.2
======================================================= ===== ============== ============== ===================
Total equity 917.5 865.7 862.1
======================================================= ===== ============== ============== ===================
Consolidated statement of changes in equity
For the six months ended 31 March 2016
Attributable to owners of
the parent
=========================================================== =========================================================
Ordinary Share Other Retained Total
shares premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
=========================================================== ======== ======== ========= ================= =======
At 1 October 2015 (Audited) 11.8 541.2 66.9 242.2 862.1
=========================================================== ======== ======== ========= ================= =======
Profit for the period - - - 106.3 106.3
Other comprehensive income/(expense):
Exchange differences on
translating foreign operations - - 37.1 - 37.1
Actuarial loss on post-employment
benefit obligations - - - (0.6) (0.6)
Deferred tax credit on
actuarial loss on post-employment
obligations - - - 0.2 0.2
=========================================================== ======== ======== ========= ================= =======
Total comprehensive income
for the period ended 31
March 2016 (Unaudited) - - 37.1 105.9 143.0
=========================================================== ======== ======== ========= ================= =======
Transactions with owners:
Employee share option scheme:
* Proceeds from shares issued - 1.4 - - 1.4
* Value of employee services, net of deferred ta
x - - - 6.4 6.4
Purchase of treasury shares - - - (2.4) (2.4)
Dividends paid to owners
of the parent - - - (93.0) (93.0)
=========================================================== ======== ======== ========= ================= =======
Total transactions with
owners
for the period ended 31
March 2016 (Unaudited) - 1.4 - (89.0) (87.6)
=========================================================== ======== ======== ========= ================= =======
At 31 March 2016 (Unaudited) 11.8 542.6 104.0 259.1 917.5
=========================================================== ======== ======== ========= ================= =======
Attributable to owners of the
parent (restated)
============================================================= =================================================
Ordinary Share Other Retained Total
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shares premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
============================================================= ======== ======== ========= ========= =======
At 1 October 2014 (Audited) 11.7 535.9 90.1 130.2 767.9
============================================================= ======== ======== ========= ========= =======
Profit for the period - - - 124.8 124.8
Other comprehensive income/(expense):
Exchange differences on
translating foreign operations - - 4.7 - 4.7
Actuarial loss on post-employment
benefit obligations - - - (0.7) (0.7)
Deferred tax credit on
actuarial gain on post-employment
obligations - - - 0.3 0.3
============================================================= ======== ======== ========= ========= =======
Total comprehensive income
for the period ended
31 March 2015 (unaudited) - - 4.7 124.4 129.1
============================================================= ======== ======== ========= ========= =======
Transactions with owners:
Employee share option
scheme:
* Proceeds from shares issued - 2.1 - - 2.1
* Value of employee services, net of deferred tax - - - 4.8 4.8
Purchase of treasury shares - - - (12.5) (12.5)
Close period share buyback
programme - - - 60.0 60.0
Dividends paid to owners
of the parent - - - (85.7) (85.7)
Total transactions with
owners
for the period ended
31 March 2015 (Unaudited) - 2.1 - (33.4) (31.3)
============================================================= ======== ======== ========= ========= =======
At 31 March 2015 (Unaudited) 11.7 538.0 94.8 221.2 865.7
============================================================= ======== ======== ========= ========= =======
Consolidated statement of cash flows
For the six months ended 31 March 2016
Six months
ended
Six months
ended 31 March
Year
ended
31 March 30 September
2016 2015 2015
(Unaudited) (Unaudited) (Audited)
(Restated)
Notes GBPm GBPm GBPm
======================================= ===== ============= ============= =============
Cash flows from operating activities
Cash generated from continuing
operations 10 213.8 246.3 418.6
Interest paid (10.2) (11.2) (19.2)
Income tax paid (48.5) (60.1) (84.6)
Net cash generated from operating
activities 155.1 175.0 314.8
======================================= ===== ============= ============= =============
Cash flows from investing activities
Acquisitions of subsidiaries,
net of cash acquired 11 (6.3) (97.5) (47.3)
Purchases of intangible assets 7 (2.6) (3.1) (6.0)
Purchases of property, plant and
equipment 7 (12.9) (8.9) (16.4)
Proceeds from sale of property,
plant and equipment 1.0 0.8 2.1
Interest received 1.0 1.0 2.2
Net cash used in investing activities (19.8) (107.7) (65.4)
======================================= ===== ============= ============= =============
Cash flows from financing activities
Proceeds from issuance of ordinary
shares 9 1.4 2.1 5.4
Purchase of treasury shares (2.4) (15.5) (17.7)
Finance lease principal payments (0.3) (1.5) (1.4)
Proceeds from borrowings 70.1 456.4 481.2
Repayments of borrowings (78.2) (354.6) (474.5)
Movements in cash collected from
customers 43.9 47.6 12.5
Borrowing costs - - (1.3)
Dividends paid to owners of the
parent 5 (93.0) (85.7) (133.5)
======================================= ===== ============= ============= =============
Net cash generated from/(used
in) financing activities (58.5) 48.8 (129.3)
======================================= ===== ============= ============= =============
Net increase in cash, cash equivalents
and bank overdrafts
(before exchange rate movement) 10 76.8 116.1 120.1
Effects of exchange rate movement 10 16.0 8.2 (0.4)
======================================= ===== ============= ============= =============
Net increase in cash, cash equivalents
and bank overdrafts 92.8 124.3 119.7
Cash, cash equivalents and bank
overdrafts at 1 October 10 263.4 143.7 143.7
======================================= ===== ============= ============= =============
Cash, cash equivalents and bank
overdrafts at period end 10 356.2 268.0 263.4
======================================= ===== ============= ============= =============
Notes to the financial information
For the six months ended 31 March 2016
1 Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries
(together "the Group") is a leading global supplier of business
management software to Small & Medium Businesses.
This condensed consolidated half-yearly financial report was
approved for issue by the board of directors on 4 May 2016.
The financial information set out above does not constitute the
Company's Statutory Accounts. Statutory Accounts for the year ended
30 September 2015 have been delivered to the Registrar of
Companies. The auditor's report was unqualified and did not contain
statements under section 498 (2), (3) or (4) of the Companies Act
2006.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards ("IFRSs") as adopted by the European Union
("EU"), this announcement does not in itself contain sufficient
information to comply with IFRSs. The financial information has
been prepared on the basis of the accounting policies and critical
accounting estimates and judgements as set out in the Annual Report
& Accounts for 2015.
This condensed consolidated half-yearly financial report has
been reviewed, not audited.
The Company is a limited liability company incorporated and
domiciled in the UK. The address of its registered office is North
Park, Newcastle upon Tyne, NE13 9AA. The Company is listed on the
London Stock Exchange.
Basis of preparation
The financial information for the six months ended 31 March 2016
has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34, "Interim Financial Reporting" as adopted by the European Union,
("EU"). The condensed consolidated half-yearly financial report
should be read in conjunction with the annual financial statements
for the year ended 30 September 2015, which have been prepared in
accordance with IFRSs as adopted by the EU.
The directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, the consolidated financial information has been
prepared on a going concern basis.
Accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2015 as
described in those annual financial statements. During the
financial year 30 September 2015 the Group simplified the
definition of revenue categories to enable stakeholders to clearly
and transparently track performance. This led to a change in
revenue recognition policy to certain products.
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The most significant change is to separately disclose the
revenue from our payments and payroll processing businesses, which
is driven by the volume of transactions. In addition a small amount
of revenue from software and software related services ("SSRS") and
associated discounts, was reclassified to recurring revenue,
relating to products which are time-limited and require an on-going
active maintenance contract to function as designed. This has had
an impact on the phasing of revenue. Consequently the prior period
comparative revenue split shown in the segmental note has been
revised, along with the associated impact on deferred revenue to
align with the revenue recognition policy adopted in the year ended
30 September 2015.
The impact of reclassifying and rephasing of those products
moved from SSRS to recurring revenue was to reduce revenue and
operating profit by GBP4.2m in the six months to 31 March 2015. The
balance sheet impact of this change has been to increase deferred
revenue at 31 March 2015 by GBP26.6m representing the SSRS revenue
being deferred with an associated deferred tax asset of GBP8.8m.
The foreign exchange retranslation impact of this deferral as at 31
March 2015 of GBP2.4m is taken to other reserves.
During the year ended 30 September 2015, management also
considered the accounting for its arrangements with Business
Partners who refer customers to the Group, such as Independent
Sales Organisations ("ISOs") in the US Payments business, and
concluded that payments made to those business partners are better
reflected as costs and not as deductions to revenue. This has had
the impact of increasing revenue and costs by GBP22.3m for the six
month period ended 31 March 2015.
In addition to this change in the application of the revenue
recognition policy, two other changes were made to the presentation
of items on the balance sheet at 30 September 2015. Firstly, the
presentation of provisions was revised to show them as a separate
line item on the face of the balance sheet having previously been
included within trade and other payables. The impact of this change
within current liabilities in the comparative period at 31 March
2015 is GBP11.0m and between current and non-current liabilities is
GBP10.9m. Secondly, the presentation of deferred consideration was
changed to include the balance within trade and other payables
having previously been a separate line item on the balance sheet.
The impact of this change in the comparative period is GBP2.3m.
The impact of the change in the application of the revenue
recognition policy in the March 2015 presentation has been
disclosed below, along with the impact of the change in the
presentation of provisions and deferred consideration.
As previously Restatement
reported adjustment As restated
GBPm GBPm GBPm
=========================== ============= =========== ===========
Revenue 699.2 18.1 717.3
Cost of sales (44.1) - (44.1)
================================ ============= =========== ===========
Gross profit 655.1 18.1 673.2
Selling and administrative
expenses (472.2) (22.3) (494.5)
Operating profit 182.9 (4.2) 178.7
Finance income 2.0 - 2.0
Finance costs (12.3) - (12.3)
================================ ============= =========== ===========
Finance costs
- net (10.3) - (10.3)
================================ ============= =========== ===========
Profit before
income tax 172.6 (4.2) 168.4
Income tax expense (44.9) 1.3 (43.6)
================================ ============= =========== ===========
Profit for the
period 127.7 (2.9) 124.8
================================ ============= =========== ===========
As previously reported Restatement adjustment As restated
GBPm GBPm GBPm
============================================= ======================= ======================== =============
Deferred income tax assets 25.9 8.8 34.7
Total non-current assets 1,814.2 8.8 1,823.0
============================================== ======================= ======================== =============
Trade and other receivables 344.5 0.6 345.1
============================================== ======================= ======================== =============
Total current assets 614.7 0.6 615.3
Total assets 2,428.9 9.4 2,438.3
============================================== ======================= ======================== =============
Trade and other payables (332.0) 19.0 (313.0)
Provisions - (11.0) (11.0)
Deferred consideration (2.3) 2.3 -
Deferred income (461.8) (26.6) (488.4)
============================================== ======================= ======================== =============
Total current liabilities (842.3) (16.3) (858.6)
============================================== ======================= ======================== =============
Provisions - (10.9) (10.9)
Total non-current liabilities (703.1) (10.9) (714.0)
============================================== ======================= ======================== =============
Total liabilities (1,545.4) (27.2) (1,572.6)
============================================== ======================= ======================== =============
Net assets 883.5 (17.8) 865.7
============================================== ======================= ======================== =============
Equity attributable to owners of the parent
Ordinary shares 11.7 - 11.7
Share premium 538.0 - 538.0
Other reserves 92.4 2.4 94.8
Retained earnings 241.4 (20.2) 221.2
============================================== ======================= ======================== =============
Total equity 883.5 (17.8) 865.7
============================================== ======================= ======================== =============
Adoption of new and revised IFRSs
The following new accounting standards may have a material
impact on the Group. They are currently issued but not yet endorsed
by the EU and not effective for the Group for the six-month period
ended 31 March 2016:
-- IFRS 15 "Revenue from Contracts with Customers" - effective
financial year commencing 1 October 2018
-- IFRS 16 "Leases" - effective financial year commencing 1 October 2019
The Group in in the process of assessing the impact that the
application of these standards will have on the Group's financial
statements.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates and assumptions by management. It also
requires management to exercise its judgement in the process of
applying the accounting policies. We continually evaluate our
estimates, assumptions and judgements based on available
information. The areas involving a higher degree of judgement or
complexity are described below.
Revenue recognition
Approximately 30% of the company's revenue is generated from
sales to partners rather than to end users. The key judgement in
accounting for the three principal ways in which our business
partners are remunerated is determining whether the business
partner is a customer of the Group in respect of the initial
product sale. The key criteria in this determination is whether the
business partner has paid for and taken on the risks and rewards of
ownership of the software product from Sage. An additional area of
judgement is the recognition and deferral of revenue on bundled
products, for example the sale of a perpetual licence with an
annual maintenance and support contract.
The full revenue recognition policy is disclosed in the 30
September 2015 financial statements.
Goodwill impairment
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The judgements in relation to goodwill impairment testing relate
to two key areas. The first is the ongoing appropriateness of the
cash-generating units ("CGUs") for the purpose of impairment
testing. The second relates to the assumptions applied in
calculating the value in use of the CGUs being tested for
impairment.
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in the 30
September 2015 financial statements.
Tax provisions
The Group recognises certain provisions and accruals in respect
of tax which involve a degree of estimation and uncertainty where
the tax treatment cannot be finally determined until a resolution
has been reached by the relevant tax authority. When making this
assessment, we utilise our specialist in-house tax knowledge and
experience of similar situations elsewhere to confirm these
provisions. These judgements also take into consideration
specialist tax advice provided by third party advisors on specific
items.
Website
This condensed consolidated half-yearly financial report for the
six month ended 31 March 2016 can also be found on our website:
www.sage.com/investors/investor-downloads
2 Segment information
In accordance with IFRS 8, "Operating Segments", information for
the Group's operating segments has been derived using the
information used by the chief operating decision maker. The Group's
Executive Committee has been identified as the chief operating
decision maker in accordance with their designated responsibility
for the allocation of resources to operating segments and assessing
their performance, through the Quarterly Business Reviews chaired
by the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO). The Executive Committee use organic and underlying data to
monitor business performance. Operating segments are reported in a
manner which is consistent with the operating segments produced for
internal management reporting.
In May 2015, following the departure of the CEO of Sage Americas
there was a change in the reporting segments with the Brazilian
business being moved out of the Americas segment. For reporting
purposes Brazil was combined with AAMEA, to form the new
International segment and the Americas segment was renamed to North
America. The 2015 comparatives have been updated to align with the
new segmental reporting.
The Group is organised into four operating segments, with Brazil
being aggregated with AAMEA with which there are similar economic
characteristics to form the International reporting segment. The UK
is the home country of the parent. The reporting segments and their
main operating territories are as follows:
-- Europe (France, UK & Ireland including Sagepay, Spain,
Germany, Switzerland, Poland and Portugal)
-- North America (US and Canada)
-- International (Brazil, Africa, Australia, Middle East and Asia)
The Africa operations are principally based in South Africa; the
Middle East and Asia operations are principally based in Singapore,
Malaysia and UAE.
The revenue analysis in the table below is based on the location
of the customer, which is not materially different from the
location where the order is received and where the assets are
located.
Revenue by segment (Unaudited)
Six Six Six months
months months ended
ended ended 31 March
31 March 31 March 2016
2016 2016 Change Change Change
==================== ================== ============ ============ ========= ========== =======
Statutory Organic
and underlying adjustments Organic Statutory Underlying Organic
GBPm GBPm GBPm % % %
==================== ================== ============ ============ ========= ========== =======
Recurring revenue
by segment
Europe 300.5 - 300.5 7.7% 8.8% 8.8%
North America 146.2 - 146.2 12.1% 9.4% 9.4%
International 65.8 - 65.8 -3.2% 17.1% 17.1%
====================== ================== ============ ============ ========= ========== =======
Recurring revenue 512.5 - 512.5 7.4% 10.0% 10.0%
====================== ================== ============ ============ ========= ========== =======
Software and
software related
services ("SSRS")
revenue by segment
Europe 80.2 - 80.2 -2.2% -0.9% -0.9%
North America 33.5 - 33.5 -6.2% -8.5% -8.5%
International 23.3 - 23.3 -30.2% -18.5% -18.5%
====================== ================== ============ ============ ========= ========== =======
SSRS revenue 137.0 - 137.0 -9.3% -6.3% -6.3%
====================== ================== ============ ============ ========= ========== =======
Processing revenue
by segment
-------------------- ------------------ ------------ ------------ --------- ---------- -------
Europe 17.4 - 17.4 8.1% 8.5% 8.5%
---------------------- ------------------ ------------ ------------ --------- ---------- -------
North America 75.9 - 75.9 10.8% 6.0% 6.0%
---------------------- ------------------ ------------ ------------ --------- ---------- -------
International 3.8 - 3.8 -9.5% 12.2% 12.2%
====================== ================== ============ ============ ========= ========== =======
Processing revenue 97.1 - 97.1 9.3% 6.6% 6.6%
====================== ================== ============ ============ ========= ========== =======
Total revenue
by segment
Europe 398.1 - 398.1 5.6% 6.7% 6.7%
North America 255.6 - 255.6 9.0% 5.7% 5.7%
International 92.9 - 92.9 -12.0% 5.4% 5.4%
====================== ================== ============ ============ ========= ========== =======
Total revenue 746.6 - 746.6 4.1% 6.2% 6.2%
====================== ================== ============ ============ ========= ========== =======
Six Six months Six months Six months Six months
months ended ended ended ended
ended 31 March 31 March 31 March 31 March
31 March 2015 2015 2015 2015
2015 (Restated) (Restated) (Restated) (Restated)
(Restated)
==================== ============ =========== ============ ============ ===========
Statutory
and Impact
underlying of foreign Organic
as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm
==================== ============ =========== ============ ============ ===========
Recurring revenue
by segment
Europe 279.0 (2.8) 276.2 - 276.2
North America 130.4 3.2 133.6 - 133.6
International 68.0 (11.8) 56.2 - 56.2
======================= ============ =========== ============ ============ ===========
Recurring revenue 477.4 (11.4) 466.0 - 466.0
======================= ============ =========== ============ ============ ===========
Software and
software related
services ("SSRS")
revenue by segment
Europe 82.0 (1.1) 80.9 - 80.9
North America 35.7 0.9 36.6 - 36.6
International 33.4 (4.7) 28.7 - 28.7
======================= ============ =========== ============ ============ ===========
SSRS revenue 151.1 (4.9) 146.2 - 146.2
======================= ============ =========== ============ ============ ===========
Processing revenue
by segment
-------------------- ------------ ----------- ------------ ------------ -----------
Europe 16.1 (0.1) 16.0 - 16.0
----------------------- ------------ ----------- ------------ ------------ -----------
North America 68.5 3.2 71.7 - 71.7
----------------------- ------------ ----------- ------------ ------------ -----------
International 4.2 (0.8) 3.4 - 3.4
======================= ============ =========== ============ ============ ===========
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Processing revenue 88.8 2.3 91.1 - 91.1
======================= ============ =========== ============ ============ ===========
Total revenue
by segment
Europe 377.1 (4.0) 373.1 - 373.1
North America 234.6 7.3 241.9 - 241.9
International 105.6 (17.3) 88.3 - 88.3
======================= ============ =========== ============ ============ ===========
Total revenue 717.3 (14.0) 703.3 - 703.3
======================= ============ =========== ============ ============ ===========
The 2015 comparatives have been restated in line with the
changes in accounting policy (see note 1).
Operating profit by segment
Six months ended
31 March 2016 Change
================ ========= ====================================== ======= ========= ========== =======
Underlying Organic
Statutory adjustments Underlying adjustments Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm GBPm % % %
================ ========= ============ ========== ============ ======= ========= ========== =======
Operating profit by segment
Europe 88.5 22.6 111.1 - 111.1 -13% 7% 7%
North America 50.2 12.2 62.4 - 62.4 -7% 4% 4%
International 13.1 2.7 15.8 - 15.8 -44% -28% -28%
================== ========= ============ ========== ============ ======= ========= ========== =======
Total operating
profit 151.8 37.5 189.3 - 189.3 -15% 2% 2%
================== ========= ============ ========== ============ ======= ========= ========== =======
Six months ended 31 March
2015 (restated)
================= ========= ============ ============================================================
Impact
Underlying Underlying of foreign Organic
Statutory adjustments as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ========= ============ ============ =========== ========== ============ =======
Operating profit
by segment
Europe 101.7 3.1 104.8 (0.9) 103.9 - 103.9
North America 53.7 4.3 58.0 2.2 60.2 - 60.2
International 23.3 2.8 26.1 (4.3) 21.8 - 21.8
================== ========= ============ ============ =========== ========== ============ =======
Total operating
profit 178.7 10.2 188.9 (3.0) 185.9 - 185.9
================== ========= ============ ============ =========== ========== ============ =======
Reconciliation of underlying operating profit to statutory
operating profit
Six months ended
31 March 2016 Six months ended
(Unaudited) 31 March 2015
(Unaudited)
(Restated)
GBPm GBPm
======================================================= ================= =================
Underlying operating profit 189.3 185.9
Impact of movement in foreign currency exchange rates - 3.0
========================================================= ================= =================
Underlying operating profit (as reported) 189.3 188.9
Amortisation of acquired intangible assets (8.4) (9.5)
Other acquisition-related items (0.1) (0.7)
Non-recurring items (29.0) -
======================================================= ================= =================
Statutory operating profit 151.8 178.7
========================================================= ================= =================
3 Adjustments between underlying profit and statutory profit
Six
months
ended Six months Six months Six months Six months Six months
31 ended ended ended ended ended
March 31 March 31 March 31 March 31 March 31 March
2016 2016 2016 2015 2015 2015
Non- Non-
Recurring recurring Total Recurring recurring Total
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ========== ========== ========== ========== ========== ==========
Acquisition related
items
Amortisation of acquired
intangibles (8.4) - (8.4) (9.5) - (9.5)
Other acquisition related
items (0.1) - (0.1) (0.7) - (0.7)
Other items
Business transformation - (31.2) (31.2) - - -
Recovery of litigation
costs - 2.2 2.2 - - -
Total adjustments made
to operating profit (8.5) (29.0) (37.5) (10.2) - (10.2)
Fair value adjustments
to debt related financial
instruments - 1.4 1.4 - 1.0 1.0
=========================== ========== ========== ========== ========== ========== ==========
Total adjustments made
to profit before income
tax (8.5) (27.6) (36.1) (10.2) 1.0 (9.2)
=========================== ========== ========== ========== ========== ========== ==========
Recurring items
Acquired intangibles are assets which have previously been
recognised as part of business combinations. These assets are
predominantly brands, customer relationships and technology
rights.
The adjustment relating to acquisition related items comprises
the cost of carrying out business combinations in the period,
partly offset by the net release of earn-out liabilities on
previous acquisitions.
Non-recurring items
Charges of GBP31.2m have been incurred in the current year as a
result of the implementation of the business transformation
strategy. This is comprised of people exit charges of GBP16.3m, net
property exit costs of GBP10.7m and other directly attributable
costs of GBP4.2m. These charges are one-off in nature and directly
linked to the business transformation that is under way.
In addition, there has been income in the year arising from
recovery of costs relating to the Archer Capital litigation case
following its conclusion in 2015.
The fair value adjustment relates to an embedded derivative
asset which relates to contractual terms agreed as part of the US
private placement debt. This has been recognised on the face of the
balance sheet as a non-current other financial asset.
4 Income tax expense
The effective tax rate on statutory profit before tax was 25%
(six months ended 31 March 2015 (restated): 26%) whilst the
effective tax rate on underlying profit before tax was 27% (six
months ended 31 March 2015 (restated): 25%). The effective income
tax rate represents the best estimate of the average annual
effective income tax rate expected for the full year, applied to
the profit before income tax for the six months ended 31 March
2016.
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5 Dividends
Six months Six months
ended ended
Year
31 March 31 March ended
2016 2015 30 September
2015
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
=================================== ============= ============= =============
Final dividend paid for the year
ended 30 September 2014 of 8.00p
per share - 85.7 85.7
Interim dividend paid for the year
ended 30 September 2015 of 4.45p
per share - - 47.8
Final dividend paid for the year
ended 30 September 2015 of 8.65p
per share 93.0 - -
=================================== ============= ============= =============
93.0 85.7 133.5
=================================== ============= ============= =============
The interim dividend of 4.80p per share will be paid on 3 June
2016 to shareholders on the register at the close of business on 13
May 2016.
6 Earnings per share
Basic earnings per share is calculated by dividing the profit
for the period attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the period,
excluding those held as treasury shares, which are treated as
cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The Group has dilutive
potential ordinary shares consisting of share options granted to
employees, where the exercise price is less than the average market
price of the Company's ordinary shares during the period.
Underlying as
reported Underlying Statutory
Underlying Six months ended Six months ended Statutory Six months ended
Six months ended 31 March 31 March Six months ended 31 March
31 March 2015 2015 31 March 2015
2016 (Unaudited) (Unaudited) 2016 (Unaudited)
(Unaudited) (Restated) (Restated) (Unaudited) (Restated)
================== ================== ================== ================== ================== ==================
Earnings
attributable to
owners of the
parent (GBPm)
Profit for the
period 130.0 133.4 131.6 106.3 124.8
================== ================== ================== ================== ================== ==================
Number of shares
(millions)
Weighted average
number of shares 1,075.5 1,071.7 1,071.7 1,075.5 1,071.7
Dilutive effects
of shares 6.6 2.1 2.1 6.6 2.1
================== ================== ================== ================== ================== ==================
1,082.1 1,073.8 1,073.8 1,082.1 1,073.8
================== ================== ================== ================== ================== ==================
Earnings per
share
attributable to
owners of the
parent (pence)
Basic earnings
per share 12.09 12.45 12.28 9.88 11.65
================== ================== ================== ================== ================== ==================
Diluted earnings
per share 12.01 12.42 12.26 9.82 11.62
================== ================== ================== ================== ================== ==================
The prior period weighted average share base has been restated
to include shares held by the Employee Benefit Trust as treasury
shares.
Six months ended Six months ended
31 March 31 March
2016 2015
(Unaudited) (Unaudited)
(Restated)
Reconciliation of earnings GBPm GBPm
================================================================================== ================ ================
Underlying earnings attributable to owners of the parent 130.0 131.6
Impact of movement in foreign currency exchange rates - 1.8
================================================================================== ================ ================
Underlying earnings attributable to owners of the parent (after exchange movement) 130.0 133.4
Non-recurring items (29.0) -
Amortisation of acquired intangible assets (8.4) (9.5)
Goodwill impairment and fair value adjustments 1.4 1.0
Other acquisition-related items (0.1) (0.7)
Taxation on adjustments 12.4 0.6
================================================================================== ================ ================
Net adjustments (23.7) (8.6)
================================================================================== ================ ================
Earnings statutory profit for period 106.3 124.8
================================================================================== ================ ================
7 Non-current assets
Other
intangible Property, plant
Goodwill assets and equipment Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm
================================================ ============= ============= ================ =============
Opening net book amount at 1 October 2015 1,446.0 105.5 122.7 1,674.2
Additions - 2.6 12.9 15.5
Acquisition - 6.5 - 6.5
Disposals - - (1.0) (1.0)
Depreciation, amortisation and other movements - (14.0) (10.3) (24.3)
Impairment - - - -
Exchange movement 74.1 7.5 3.1 84.7
Closing net book amount at 31 March 2016 1,520.1 108.1 127.4 1,755.6
================================================ ============= ============= ================ =============
Other
intangible Property, plant
Goodwill assets and equipment Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm
================================================ ============= ============= ================ =============
Opening net book amount at 1 October 2014 1,433.0 98.1 126.7 1,657.8
Additions - 3.1 8.9 12.0
Acquisition 77.0 33.5 1.0 111.5
Disposals - (0.1) (0.8) (0.9)
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Depreciation, amortisation and other movements - (14.9) (9.0) (23.9)
Impairment - - (0.6) (0.6)
Exchange movement 30.7 0.9 (0.2) 31.4
Closing net book amount at 31 March 2015 1,540.7 120.6 126.0 1,787.3
================================================ ============= ============= ================ =============
Goodwill is not subject to amortisation, but is tested for
impairment annually at 30 June or whenever there is any indication
of impairment. At 31 March 2016, there were no indicators of
impairment to goodwill. Full details of the outcome of the 2015
goodwill impairment review are provided in the 2015 financial
statements.
Detail of the current period acquisition has been provided in
note 11.
8 Financial instruments
For financial assets and liabilities, the carrying amount
approximates the fair value of the instruments, with the exception
of US senior loan notes due to these bearing interest at fixed
rates which are currently higher than floating rates. The fair
value of borrowings is determined by reference to interest rate
movements on the US $ private placement market and therefore can be
considered as a level 2 fair value as defined within IFRS 13 with
the respective book and fair values included in the table
below.
At 31 March 2016 At 31 March 2015
======================== ========================
Book Value Fair Value Book Value Fair Value
GBPm GBPm GBPm GBPm
====================== =========== =========== =========== ===========
Long term-borrowing 484.0 494.5 499.3 509.0
Short term-borrowing 34.7 35.8 33.7 34.8
====================== =========== =========== =========== ===========
9 Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares (Unaudited) (Unaudited) (Unaudited)
(Unaudited) GBPm GBPm GBPm
======================== ============== ============= ============== =============
At 1 October 2015 1,118,298,748 11.8 541.2 553.0
Shares issued/proceeds 551,880 - 1.4 1.4
======================== ============== ============= ============== =============
At 31 March 2016 1,118,850,628 11.8 542.6 554.4
======================== ============== ============= ============== =============
Number of Ordinary Share
shares shares premium Total
GBPm GBPm GBPm
======================== ============== ============= ============== =============
At 1 October 2014 1,115,892,047 11.7 535.9 547.6
Shares issued/proceeds 962,612 - 2.1 2.1
======================== ============== ============= ============== =============
At 31 March 2015 1,116,854,659 11.7 538.0 549.7
======================== ============== ============= ============== =============
In the current period, the group purchased 385,000 shares at a
cost of GBP2.4m through the Employee Benefit Trust.
During the prior period, the Group purchased 3,457,020 shares at
a cost of GBP12.4m and a cash outflow of GBP15.5m. Shares purchased
under the Group's buyback programme are initially retained in issue
as treasury shares and represent a deduction from equity. Treasury
shares are subsequently cancelled on a periodic basis.
10 Cash flow and net debt
Six months ended
31 March Six months ended
2016 31 March
(Unaudited) 2015
(Unaudited)
(Restated)
GBPm GBPm
=============================================================================== ================= =================
Statutory operating profit 151.8 178.7
Depreciation/amortisation/impairment/profit on disposal of non-current assets 24.3 24.2
Share-based payments 6.0 4.8
Changes in working capital (30.1) (42.9)
Increase in deferred income 60.9 61.4
Exchange movement 0.9 20.1
=============================================================================== ================= =================
Cash generated from continuing operations 213.8 246.3
Net interest paid (9.2) (10.2)
Income tax paid (48.5) (60.1)
Net capital expenditure (14.5) (11.2)
=============================================================================== ================= =================
Free cash flow 141.6 164.8
Net debt at 1 October (425.4) (437.2)
Acquisitions and disposals of subsidiaries, net of cash (6.3) (97.5)
Dividends paid to owners of the parent (93.0) (85.7)
Purchase of treasury shares (2.4) (15.5)
Exchange movement (18.9) (38.9)
Other 0.9 0.1
=============================================================================== ================= =================
Net debt at 31 March (403.5) (509.9)
=============================================================================== ================= =================
At
At 31
1 October March
2015 2016
Cash Non-cash Exchange
(Audited) flow Acquisitions movements movement (Unaudited)
Analysis of change
in net debt (inclusive
of finance leases) GBPm GBPm GBPm GBPm GBPm GBPm
========================= =========== ====== ============ ========== ========= =============
Cash and cash
equivalents 263.4 83.1 (6.3) - 16.0 356.2
Bank overdrafts - - - - - -
========================= =========== ====== ============ ========== ========= =============
Cash, cash equivalents
and bank overdrafts 263.4 83.1 (6.3) - 16.0 356.2
Finance leases
due within one
year (0.6) 0.6 - (0.4) - (0.4)
Loans due within
one year (33.0) 34.7 - (34.7) (1.7) (34.7)
Loans due after
more than one
year (571.0) (26.6) - 34.2 (28.3) (591.7)
Finance leases
due after more
than one year (0.4) (0.3) - 0.4 - (0.3)
Cash held on behalf
of customers (83.8) (43.9) - - (4.9) (132.6)
========================= =========== ====== ============ ========== ========= =============
Total (425.4) 47.6 (6.3) (0.5) (18.9) (403.5)
========================= =========== ====== ============ ========== ========= =============
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Included in cash above is GBP132.6m (31 March 2015: GBP91.5m, 30
September 2015: GBP83.8m) relating to cash held on behalf of
customers. This arises as a consequence of providing payment
transaction processing and electronic fund transfer services. The
balance represents cash in transit from third parties to Sage
customers. Accordingly, a liability for the same amount is included
in trade and other payables on the balance sheet and is classified
within net debt.
The Group continues to be able to borrow at competitive rates
and currently deems this to be the most effective means of raising
finance. The Group's current syndicated bank multi-currency
revolving credit facility expires in June 2019 with facility levels
of GBP555m (US$551m and EUR218m tranches). At 31 March 2016,
GBP110m (H1 2015: GBP156m) of the multi-currency revolving debt
facility was drawn, with the decrease due to ongoing repayments
funded from free cash flows.
Total US private placement ("USPP") loan notes at 31 March 2016
were GBP519m (US$650m and EUREUR85m) (H1 2015: GBP533m, US$700m and
EUREUR85m). Approximately GBP35m (US$50m) of USPP borrowings were
repaid in March 2016.
11 Acquisitions and disposals
Acquisitions made during the period
On 2 November 2015 the Group acquired trade and business from
People's United Bank, a provider of payroll services for small and
medium sized business in North America, for a total consideration
of GBP6.5m. The transaction price included deferred consideration
of GBP2.0m. As at March 2016, deferred consideration payable
amounted to GBP0.2m. The acquisition strengthens Sage's position in
the large and growing US payroll market.
The acquisition resulted in the recognition of intangible assets
of GBP6.5m, consisting of customer lists. No goodwill was
recognised.
Disposals made during the period
There were no disposals made in the period.
12 Related party transactions
The Group's related parties are its subsidiary undertakings and
Executive Committee members. The Group has taken advantage of the
exemption available under IAS 24, "Related Party Disclosures", not
to disclose details of transactions with its subsidiary
undertakings.
Six months ended Six months ended
31 March 31 March
2016 2015
(Unaudited) (Unaudited)
Key management compensation GBPm GBPm
=========================================== ================= =================
Salaries and short-term employee benefits 3.6 3.4
Post-employment benefits 0.3 0.3
Share-based payments 2.4 1.8
=========================================== ================= =================
6.3 5.5
=========================================== ================= =================
The key management figures given above include directors. Key
management personnel are deemed to be members of the Executive
Committee and are defined in the Group's Annual Report &
Accounts 2015.
Supplier transactions occurred during the period between Sage
South Africa (Pty) Ltd, one of the Group's subsidiary companies and
Ivan Epstein, Chief Executive Officer, International. These
transactions relate to the lease of four properties in which Ivan
Epstein has a minority and indirect shareholding. During the period
GBP1.9m (2015: GBP2.2m) relating to these transactions was charged
through selling and administrative expenses. There were no
outstanding amounts payable for the period ended 31 March 2016 (31
March 2015: GBPnil).
Supplier transactions occurred during the period between Sage
SP, S.L., one of the Group's subsidiary companies and Álvaro
Ramírez, former Chief Executive Officer, Europe, who is still a
Director in some of the Group's subsidiaries. These transactions
relate to the lease of a property in which Álvaro Ramírez has a
minority shareholding. During the period GBP0.5m (31 March 2015:
GBP0.5m) relating to these transactions was charged through selling
and administrative expenses. There were no outstanding amounts
payable for the period ended 31 March 2016 (31 March 2015: GBPnil).
These arrangements are subject to independent review using external
advisers to ensure all transactions are at arm's length.
Balancing risks and rewards
Risk is inherent within our business activities, and we continue
to prioritise and develop our risk management strategy and
capability in recognition of this. Timely identification of risks,
combined with their appropriate management and escalation, enables
us to successfully run our business and deliver strategic change,
while ensuring that the likelihood and / or impact associated with
such risks is understood and managed within our defined risk
appetite.
We have continued to review our Principal Risks, and in line
with our multi-year strategy, these remain broadly consistent with
those identified during FY15, and are detailed below. In the course
of this review, we have enhanced the measure of capability within
each Principal Risk, reflecting the importance of Sage colleagues
in delivering our objectives. All revisions have been approved
through the Audit and Risk Committee.
Other risks are analysed and mitigated via the normal embedded
risk management process.
Risk Risk Background Management and Mitigation
======================= ========================= ==================================================================
#1 Business
Model Transition Sage has operated * Functional reporting established to a global level to
Sage does as a federated allow consistency of direction, and removal of any
not successfully set of Operating global / local conflicts
manage its Companies.
transition The move to
to a global a global model * An approved global Business Model Transition Strategy
operating provides enhanced in place, supported by an overarching plan which
model against governance, details the goal, overall time plan, and scheduled
defined timeframes. process adoption by countries
harmonisation,
Strategic efficiencies
Alignment: and scalability. * Clear governance around strategy and overarching plan
Capacity for through Executive Committee and programme steering
Growth committee
* Programme lead with delegated authority managing the
transition
In progress:
* Country / function transitions are in progress in
line with overarching plan
* On-going monitoring of implementation through the
programme management office, and application of
lessons learnt in each successive transition
======================= ========================= ==================================================================
#2 Licensing
Model Transition Sage is moving * An approved licensing model transition strategy is in
Sage does from a perpetual place, with defined targets and timescales
not successfully to a subscription
manage its based licencing
transition model. This * New products are being offered on a subscription only
to subscription transition basis
licencing assists with
against defined cash flow;
timelines offers a platform * A series of approved targets are defined, which span
and targets for cross selling; multiple years and support successful delivery of our
or appropriately and lowers strategy
adapt its attrition rates,
customer approach. which in turn
aids revenue * Ongoing monitoring and review of the approved targets
Strategic forecasting. is taking place at country, regional and global
Alignment: It also provides levels in order to proactively manage the licence
Customers regular customer transition, and revenue figures
for Life engagement
and enhanced
opportunities * Customer Business Centres (CBCs) established in North
to develop America and Europe to integrate digital marketing,
these sales and service operations for customers using
relationships. global products
The speed of
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transition
needs to be In progress:
balanced against * Creation of additional CBCs, with staged adoption of
any reduction global products, to better manage ongoing customer
in short term relationships and the sales cycle
revenues.
======================= ========================= ==================================================================
#3 Market
Intelligence Sage has operated * A Market and Competitive Intelligence team
Sage fails as a federated established, which has overall responsibility for
to understand set of Operating Market Intelligence
and anticipate Companies,
changes in each using
the external local definitions * Global market intelligence surveys, to identify
environment, and methodologies market opportunities
including to capture
customer needs, market data.
emerging market The alignment * Brand health surveys to understand customer
trends, competitor of federated perception of the Sage brand and its products
strategies activities
and regulatory allows
/ legal requirements. consolidation * Maintenance of a Market Data portal through which
of data across global market data is provided
Strategic geographies
Alignment: and product
Customers to provide In progress:
for Life a single Sage * Definition and delivery of an approved internal
Winning in wide view, communications plan, to share Market Intelligence
the Market and enable
trends and
white space * Alignment of win / loss data with Market Intelligence
opportunities collected and shared
to be identified.
======================= ========================= ==================================================================
#4 Competitive The competitive
Positioning environment * A global Product Marketing team established to
and Product in which Sage oversee competitive positioning and product
Development operates has development
Sage is unable seen significant
to clearly developments.
identify the New players * A global Product Delivery team established to develop
approach to include venture and deliver products
market, or capital funded
deploy competitive organisations
advantage, whose primary * Governance is established around the creation of
including goal is to global products, to ensure effective prioritisation
product development attain market of resources
share irrespective
Strategic of profit,
Alignment: while cloud * Accountability for the maintenance of documented
Winning in products and strengths and weaknesses is defined, and for global
the Market digital sales products this resides with global Product Marketing
Capacity for and marketing
Growth strategies
are reducing In progress:
barriers to * Assessment of all competitors and documentation of
entry. their strengths and weaknesses
Sage must translate
market intelligence
into effective * Defined 'Customer for Life' roadmaps to detail how
strategies all products fit together
targeting attractive
market segments
with appropriate * Prioritised development based on 'Customer for Life'
products and roadmaps
continually
work to reinforce
competitive
superiority.
During the
transition
to global Sage
products, we
continue to
manage the
local product
base and plan
and evolve
these in line
with longer-term
aspirations.
======================= ========================= ==================================================================
#5 Sage Brand Following several
Sage does years of acquisitions, * A global Brand team is in place which has overall
not deliver work continues responsibility for developing the global Brand
clear and to develop
consistent the Sage brand.
branding to Whilst it is * All countries must comply with Sage's Brand
the market well recognised Governance and Brand Guidelines, which is designed to
and trusted execute the Sage Masterbrand Strategy. Timeframes for
Strategic by customers compliance of all products are defined, and any
Alignment: in many core exceptions must be approved through global Brand
One Sage markets, at
global level
brand awareness * Ongoing review of customer experience is performed
remains inconsistent. (Net Promoter Scores), and output reviewed across
A clear and countries and products to identify variance, and
consistent develop improvement plans
brand enables
customers to
understand * Where no specific brand guidance is provided by
Sage values. global Brand, a defined approval route is in place
through the team, and approval must be obtained in
advance of publication
In progress:
* All branded assets must be uploaded to the Brand
Library, and any exceptions from brand guidelines
reported to the Chief Marketing Officer
* Implementation of a Digital Asset Management (DAM)
tool to workflow requests, and act as a single
information repository
* Creation of the Sage Foundation, with launches by
country across FY16, demonstrating our commitment to
philanthropic leadership
======================= ========================= ==================================================================
#6 Strategic There are increasing
Partnerships instances where * A Partner Management team is established to oversee
Sage fails developing the selection and management of Strategic Partners,
to identify, strategic partnerships including individual accountability for active
build and will benefit management of each relationship
maintain strategic Sage. The governance
partnerships and control
around engagement * Definitions are in place to ensure clarity over what
Strategic and use must constitutes a Strategic Partner
Alignment: be defined,
Revolutionise as well as
Business management * All contracts must comply with the Material Contracts
of the eco-system. policy, and be approved through legal
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* Inclusion of defined legal provisions is required.
Any variance from such provisions must be recorded as
part of the formal contract approval process
In progress:
* On-going review and development of Strategic Partner
network
======================= ========================= ==================================================================
#7 3(rd) Party Several Sage
Reliance customer service * A global procurement function is in place to ensure
Sage does offerings are key controls are applied in the selection and
not understand delivered or on-boarding of third parties
and manage supported using
its 3(rd) 3(rd) parties,
party ecosystem whilst Sage * The business is responsible for defining its needs
remains accountable and requirements
Strategic for any (non)
Alignment: performance.
Revolutionise The 3rd party * The global procurement function supports the business
Business ecosystem must with the selection of third parties and negotiation
be understood of contracts
and effectively
managed, in
order to limit * Legal resources are used in contract negotiation
Sage's exposure.
* Management review and control is applied through the
Investment Approval Process, and appropriate approval
is required before any expenditure can be authorised
In progress:
* As part of the transition to the global operating
model, and an Excellence in Governance initiative to
support this transition, a global Third Party
Lifecycle Governance Framework is in final stages of
development, and will be implemented during the
financial year
======================= ========================= ==================================================================
#8 Supporting Sage's global
Control Environment footprint has * Global and Regional Risk Committees are established,
Sage's control developed through and membership drives the tone-from-the-top
environment, acquisition.
business processes Aligning and
and technology rationalising * CBCs are built around core systems to underpin
infrastructure these systems operation and expansion, including Salesforce CRM and
does not support and processes, Sage's own X3 for General Ledger activity
the efficient is required
and effective to support
operation the 'One Sage' * All new customers for CBC supported products are
of the business operating model. being entered directly into these systems
In progress:
* The implementation of Sage's X3 General Ledger, and
associated migration of systems, is progressing in
line with plans
* New global finance organisational model is being
implemented in line with plans
* Excellence in Governance initiative will deliver a
Sage policy suite and management committee structure
during the financial year
======================= ========================= ==================================================================
#9 Information Sage's global
Management footprint has * Accountability defined within 'OneIT' and 'Product'
and Protection developed through for all internal and external data being processed by
(including a process of Sage. OneIT and Product report to the Chief
cyber) acquisition, Information Officer and Chief Product Delivery
Sage fails each arriving Officer respectively
to adequately with its own
understand, processes and
manage and activities * A network of Information Security Officers oversees
protect information appropriate compliance with the IT Controls Framework, which
to a smaller defines the key controls which are required
business, but
which did not
develop in * Maintenance of formal certification schemes, such as
line with Sage's PCI, across specific parts of the business, with
growth. internal and external validation of compliance
Harmonising
and rationalising
these, as necessary, * Ongoing assurance activities are performed across the
is required estate by Internal Audit against the IT Controls
to support Framework. Results are tracked and reported to the
the 'One Sage' Audit and Risk Committee
operating model
and to allow
a global view * Global Incident Management framework is defined,
on all internal including rating of incidents and required escalation
and external
data being
held and processed,
including how In progress:
this is managed * Excellence in Governance initiative being undertaken
and protected. across revised ways of working and policies to
enhance effectiveness, and initial policies under
review
* Information Management and protection awareness
training being rolled out
======================= ========================= ==================================================================
#10 Regulatory
and Legal Sage's services * All legal resources across Sage report directly to
Framework operate within the global Legal Director
Sage does a complex
not understand regulatory
and operate and legal * The legal function uses internal and external
within the environment. resources to monitor planned and realised changes in
applicable Monitoring legislation
regulatory this evolving
and legal regulatory
framework and legal * All product contracts are reviewed and approved
environment through the global legal function
enables timely
and appropriate
steps to ensure * A suite of policies are in place to support key
on-going legislation, including Data Protection and
compliance. anti-Bribery
The approach
initiated during
FY15 is being * A Code of Ethics policy is in place across the
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continued and business which provides clarity over how colleagues
enhanced. are expected to behave. Completion of training and
associated understanding is recorded and monitored
* A Whistleblowing facility is in operation, to allow
colleagues to raise issues without fear of
recrimination, and to provide early oversight of
issues
In progress:
* Creation of a Compliance function to re-enforce the
drive towards a 100% compliance culture
* Review of all legal and regulatory policies underway
as part of the defined Excellence in Governance
initiative
* Update of the Whistleblowing policy to reflect the
revisions made to the Incident Management Policy, and
ensure alignment
======================= ========================= ==================================================================
Statement of Directors' Responsibilities
Responsibility statement of the directors on the Annual Report
& Accounts
The condensed consolidated half-yearly financial report for the
six months ended 31 March 2016 includes the following
responsibility statement.
Each of the directors confirms that, to the best of their
knowledge:
- the Group consolidated condensed financial statements, which
have been prepared in accordance with IAS34, "Interim Financial
Reporting" as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit of the Group;
and
- the Directors' report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
The Directors also confirm that the Interim Management Report
herein includes a fair review of information required by 4.2.8R of
the DTR (Disclosure and Transparency Rules).
On behalf of the Board
S Hare
Chief Financial Officer
4 May 2016
Independent review report to The Sage Group plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2016 which comprises consolidated income
statement, consolidated statement of comprehensive income,
consolidated balance sheet, consolidated statement of cash flows,
consolidated statement of changes in equity and the related
explanatory notes 1 to 12. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in the group accounting policies, the annual
financial statements of the group are prepared in accordance with
IFRSs as adopted by the European Union. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting", as adopted by the
European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2016 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
4 May 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR AIMBTMBAMTLF
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