TIDMSGE
RNS Number : 6985M
Sage Group PLC
13 May 2020
The Sage Group plc unaudited results for the six months ended 31
March 2020
Wednesday 13 May 2020
Strong first half performance driven by strategic progress
- Continued strong growth in high quality organic recurring revenue of 10.3%
- Organic operating margin of 22.8%, reflecting ongoing
investment to accelerate strategic execution
- Strong underlying cash conversion of 127%
- Resilient balance sheet, with c. GBP1.3bn of cash and
available liquidity; net debt to EBITDA ratio of 0.5x
- We remain focused on the longer-term opportunity as we
transition customers to subscription and Sage Business Cloud, with
the FY20 outlook reflecting the current global economic
uncertainties
Alternative Performance Measures H1 20 H1 19 [2] Change
(APMs) [1]
Organic Financial APMs
Organic Total Revenue GBP935m GBP885m +5.7%
Organic Recurring Revenue GBP826m GBP749m +10.3%
Organic Operating Profit GBP213m GBP207m +3.0%
% Organic Operating Profit Margin 22.8% 23.4% -0.6% pts
Underlying Financial APMs
Underlying Operating Profit GBP218m GBP216m +0.9%
% Underlying Profit Margin 22.4% 22.9% -0.5% pts
Underlying Basic EPS 13.75p 13.78p -0.2%
Underlying Cash Conversion 127% 151% -24% pts
KPIs
Annualised Recurring Revenue (ARR) GBP1,693m GBP1,541m +9.8%
Renewal Rate by Value 101% 100% +1% pt
% Subscription Penetration 62% 52% +10% pts
% Sage Business Cloud Penetration 56% 44% +12% pts
Statutory Measures H1 20 H1 19 % Change
---------- ---------- ----------
Revenue GBP975m GBP957m +1.9%
Operating Profit GBP289m GBP210m +37.9%
% Operating Profit Margin 29.7% 21.9% 7.8% pts
Basic EPS (p) 20.56p 14.19p +44.9%
Dividend Per Share (p) 5.93p 5.79p 2.5%
---------- ---------- ----------
As a result of rounding throughout this document, it is possible
that tables may not cast, and change percentages may not calculate
precisely.
[1] Please see Appendix 1 for guidance of the usage and
definitions of the Alternative Performance Measures.
[2] Organic revenue and operating profit for H1 19 is restated
to aid comparability with H1 20. The definition of organic measures
can be found in Appendix 1 with a full reconciliation of organic,
underlying and statutory measures on page 9. Unless otherwise
specified, all references to revenue, profit and margins are on an
organic basis.
H1 20 Financial Performance
- Organic total revenue increased by 5.7% to GBP935m, reflecting
growth in recurring revenue of 10.3% to GBP826m, underpinned by
software subscription revenue growth of 25.6% to GBP582m. This was
offset by a 19.6% decrease in other revenue (SSRS and processing)
to GBP109m.
- Growth in recurring revenue of 10.3% reflects the continued
focus on attracting new customers and migrating existing customers
to subscription and Sage Business Cloud, with particular strength
in Northern Europe and North America.
- Decrease in other revenue (SSRS and processing) of 19.6%
reflects the managed decline in licence sales and de-prioritisation
of professional services revenue as the business continues to focus
on subscription, together with the additional impact of COVID-19
towards the end of March.
- Organic operating profit of GBP213m, representing a margin of
22.8% (H1 19: 23.4%), reflects continued investment to accelerate
strategic execution, and includes a GBP13m increased bad debt
provision in connection with COVID-19.
- Non-recurring gain of GBP92m (H1 19: GBP13m) includes a
GBP141m net gain on business disposals (Sage Pay and the Brazilian
business), offset by office relocation and property restructuring
charges of GBP30m (H1 19: GBP14m) and a GBP19m charge for the
impairment of goodwill in respect of the Asian business.
- Strong underlying cash conversion of 127% (H1 19: 151%)
reflects sustained improvements in working capital and the
continued transition to recurring revenue, with free cash flow of
GBP227m (H1 19: GBP257m).
- Resilient balance sheet, with c. GBP1.3bn of cash and
available liquidity (comprising GBP912m of cash and cash
equivalents, and GBP413m of undrawn facilities), and a net debt to
EBITDA ratio of 0.5x as at 31 March 2020.
- Interim dividend up 2.5% to 5.93p, reflecting strong business
performance and cash generation in the first half, and in line with
policy of maintaining the dividend in real terms.
Progress in strategic execution
Sage's vision is to become a great SaaS company for customers
and colleagues alike. Highlights of our strategic progress in the
first half include:
- To drive customer success, we've invested in the end-to-end
customer experience, through new ways of working, more efficient
processes and improved technology. This has enabled us to respond
more effectively to the impact of COVID-19 by providing tailored
support and advice to our customers.
- To drive colleague success, we've continued to build a
customer-centric culture, embedding our values and further
investing in colleague development. Strong colleague engagement has
been central to Sage's COVID-19 response, both in the transition to
homeworking and in continuing to support customers.
- In innovation, Sage Accounting for Professional Users, our
small business solution for cloud-native accounts, has been
launched in the UK, while the programme to internationalise Intacct
is progressing according to plan. We continue to invest in Sage
Business Cloud, creating a single digital environment for all our
cloud native and cloud connected products.
- Sage announced the acquisition of CakeHR, a cloud native
solution that simplifies and automates HR tasks for small
businesses, boosting our cloud offering in the small business
segment.
- Sage completed the disposals of Sage Pay and the Brazilian
business in March 2020, helping to reshape the Group's product
portfolio and increase focus on Sage Business Cloud.
Continued focus on strategic execution has resulted in:
- Strong annualised recurring revenue [3] (ARR) growth of 9.8%
to GBP1,693m, reflecting momentum from FY19 and further sequential
growth in the first half.
- Recurring revenue now represents 88% of total revenue (H1 19:
85%) with 62% software subscription penetration (H1 19: 52%).
- Future Sage Business Cloud Opportunity (Sage Business Cloud
and products with potential to migrate) recurring revenue growth of
12%. Sage Business Cloud penetration [4] of 56% (H1 19: 44%),
reflecting continuing progress in the shift towards cloud connected
and cloud native solutions.
- Renewal by value [5] increased to 101% (H1 19: 100%),
demonstrating the strength of the existing customer base.
[3] Defined as the normalised organic recurring revenue in the
last month of the reporting period, adjusted consistently period to
period, multiplied by twelve.
[4] Defined as organic recurring revenue from the Sage Business
Cloud as a proportion of the organic recurring revenue of the
Future Sage Business Cloud Opportunity.
[5] Defined as the closing ARR from customers active at the
start of the year, divided by the opening ARR for the year.
COVID-19 update
- With Sage's focus on high quality recurring and
subscription-based revenues, and strong liquidity position, the
Group has entered the COVID-19 pandemic in a strong operational and
financial position.
- Our response to the pandemic has been to ensure the health and
wellbeing of our colleagues, to continue serving and supporting our
customers and partners, and to remain focused on our SaaS
transition strategy.
- We have put in place a range of measures to support our
customers and partners, through local online advice hubs and expert
customer service, and by working with governments to help our
customers directly access the financial support available,
facilitating the application process through our software.
- We saw the early impacts of COVID-19 on Other Revenue (SSRS
and processing) towards the end of March, as software licence and
professional services implementations were affected.
- We have now started to see the broader effects of the sharp
economic downturn caused by the pandemic, with some customers
deferring purchase decisions, leading to a slowdown in new customer
acquisition.
- In April trading, reflecting the above, new customer
acquisition was roughly half the level previously expected. We have
also seen a slight increase in customer churn.
- In the context of a more challenging growth environment, we
are implementing a range of mitigating actions to manage costs and
cash in the near-term.
- At this point, Sage does not intend to make any redundancies
in response to the economic environment. We also do not intend to
furlough any colleagues or make use of government support
programmes.
- We will continue to invest for the long term, repositioning
the Group strategically and reshaping the portfolio, supported by
our resilient balance sheet.
- Despite the near-term uncertainty, we remain confident that we
have the right strategy to support our longer-term vision to become
a great SaaS company.
Outlook
While the Group has performed well in the first half, it is too
early to quantify with confidence the impact of the pandemic on
Sage's financial performance for the full year. We continue to
expect, as we indicated in our trading update on 6 April, that
organic recurring revenue growth will be below the previously
guided range of 8% to 9%, and that the decline in other revenue
(SSRS and processing) will accelerate significantly in the second
half, with an associated impact on margin.
Steve Hare, CEO, said:
"Sage has had a strong first half, sustaining last year's growth
momentum as we continue to focus on recurring revenue growth, and
making good progress in strategic execution. Our key priority has
been the health and wellbeing of our colleagues and our service to
customers. I am proud of how colleagues have reacted, and how they
have supported each other and our customers. Despite the near-term
uncertainties, I believe our continuing investment into Sage
Business Cloud, together with our focus on customers, colleagues
and innovation, form a strong base for the future performance of
Sage."
About Sage
Sage is the global market leader for technology that provides
small and medium businesses with the visibility, flexibility and
efficiency to manage finances, operations and people. With our
partners, Sage is trusted by millions of customers worldwide to
deliver the best cloud technology and support. Our years of
experience mean that our colleagues and partners understand how to
support our customers and communities through the good, and more
challenging times. We are here to help, with practical advice,
solutions, expertise and insight.
Enquiries: The Sage Group plc FTI Consulting
+44 (0) 191 294 3457 +44 (0) 20 3727 1000
James Sandford, Investor Charles Palmer
Relations
Amy Lawson, Corporate PR Dwight Burden
A presentation for investors and analysts will made via webcast
and conference call at 8.30am UK time. The webcast can be accessed
via www.sage.com/investors . Conference call participants may dial
in by calling +44 (0) 20 7192 8000 and using pin code 1479749 . A
replay of the call will also be available for one week after the
event, by calling +44 (0) 333 300 9785 and using pin code
1479749.
CEO Review
Sage achieved a strong performance in the first half, delivering
high quality recurring revenue growth while continuing to migrate
existing customers and attract new customers to subscription and
the cloud. COVID-19, which started to impact the Group towards the
end of March, is a human crisis that is having a profound effect on
people and communities around the world. It presents an
unprecedented challenge for our customers - small and medium
businesses - and for Sage. We are focused on supporting our
colleagues and customers through the pandemic, leveraging our
strong service culture and capabilities, and building on our
reputation as a trusted advisor. We are also continuing to invest
for the long term, ensuring that our short-term actions preserve
and enhance our capability and capacity to grow in the future. Our
strategy to position the Group for longer-term success remains
unchanged, and we continue to focus on our three strategic lenses
of customer success, colleague success and innovation, in order to
drive further progress towards our vision of becoming a great SaaS
company for customers and colleagues alike.
H1 20 Results
In H1 20 the Group delivered recurring revenue growth of 10% to
GBP826m with organic total revenue increasing by 6% to GBP935m.
Strong recurring revenue growth is underpinned by software
subscription growth of 26% as the business continues to focus on
migrating existing customers and attracting new customers to
subscription and the cloud.
Recurring revenue growth was driven principally by North America
and Northern Europe (UK & Ireland), with strong momentum from
FY19 carried forward into the first half. In North America,
recurring revenue grew by 12% to GBP311m, driven by cloud connected
solutions and a good performance from Sage Intacct. Northern Europe
continued to grow strongly with recurring revenue growth of 13% to
GBP187m benefitting from strong growth in the second half of FY19
as well as new cloud connected contracts added in H1 20. France
achieved recurring revenue growth of 4%, driven by growth in cloud
connected solutions.
Other revenue (SSRS and processing) decreased by 20% to GBP109m,
reflecting the managed decline in licence sales and
de-prioritisation of professional services revenue as the business
continues to focus on subscription, together with the additional
impact of COVID-19 towards the end of March.
Portfolio View of Revenue
Revenue by Portfolio [6] Recurring Total
H1 20 H1 19 Growth H1 20 H1 19 Growth
-------- -------- ------- -------- -------- -------
GBPm GBPm % GBPm GBPm %
-------- -------- ------- -------- -------- -------
Cloud native GBP105m GBP80m +31% GBP111m GBP86m +29%
Cloud connected [7] GBP307m GBP210m +46% GBP315m GBP219m +44%
-------- -------- ------- -------- -------- -------
Sage Business Cloud GBP412m GBP290m +42% GBP426m GBP305m +40%
Products with potential to
migrate GBP319m GBP362m -12% GBP389m GBP455m -14%
-------- -------- ------- -------- -------- -------
Future Sage Business Cloud
Opportunity [8] GBP731m GBP652m +12% GBP815m GBP760m +7%
Non-Sage Business Cloud [9] GBP95m GBP97m -2% GBP120m GBP125m -4%
-------- -------- ------- -------- -------- -------
Organic Total Revenue GBP826m GBP749m +10% GBP935m GBP885m +6%
-------- -------- ------- -------- -------- -------
Sage Business Cloud Penetration 56% 44%
-------- --------
[6] The revenue portfolio breakdown is provided as supplementary
information to illustrate the differences in the evolution and
composition of key parts of our product portfolio. These portfolios
do not represent Operating Segments as defined under IFRS 8.
[7] Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that
product is based on an originally on-premise offering for which a
substantial part of the customer value proposition is now linked to
functionality delivered in, or through the cloud.
[8] Revenue from customers using products that are currently
part of, or that management currently believe have a clear pathway
to, Sage Business Cloud.
[9] Revenue from customers using products for which management
does not currently envisage a path to Sage Business Cloud, either
because the product addresses a segment outside Sage's core focus,
or due to the complexity and expense involved in a migration.
Within the portfolio view of revenue, the Future Sage Business
Cloud Opportunity represents products in, or with a clear pathway
to, Sage Business Cloud. Management's primary operational focus is
to migrate desktop customers and attract new customers to Sage
Business Cloud, and, by delivering increased value to these
customers, grow their lifetime value.
The Future Sage Business Cloud Opportunity continues to show
strong performance, with recurring revenue growth of 12% and total
revenue growth of 7%. Cloud native solutions have delivered
recurring revenue growth of 31%, with Sage Intacct delivering
recurring revenue growth of 31%.
The growth in cloud connected revenue of 46% to GBP307m reflects
momentum from the migration of existing customers predominantly in
North America, Northern Europe and France, as well as further
growth from existing and new customers. The focus on driving
revenue to cloud solutions has resulted in Sage Business Cloud
penetration of 56%, up from 44% in the prior year.
The revenue in the Non-Sage Business Cloud portfolio comprises
products for which management does not envisage a path to Sage
Business Cloud, predominantly because the products address segments
outside Sage's core focus. The 2% recurring revenue decline and 4%
total revenue decline in the Non-Sage Business Cloud portfolio is
in line with expectations and reflects the strategy to focus on
solutions with a direct pathway to Sage Business Cloud.
In line with this strategy, the Group completed the disposals of
Sage Pay and the Brazilian business in H1 20, whose products were
largely within the Non-Sage Business Cloud portfolio.
Strategy - implementing our vision to become a great SaaS
company
The Group remains confident in its strategy to transition to
subscription and the cloud, as we continue to work towards our
vision to become a great SaaS company for customers and colleagues
alike.
In order to achieve Sage's vision, the business continues to
focus on the strategic lenses of customer success, colleague
success and innovation.
Customer Success
Customer success is driven by a customer-centric approach to
everything the organisation does, to create enduring subscription
relationships and deliver better business outcomes for customers.
By proactively solving customer pain points, we are able to forge
deeper relationships with our customers, maximise retention and, by
building reputation and advocacy, attract new customers to
Sage.
During the first half, we continued to invest in the end-to-end
customer experience, embedding new ways of working and improving
processes to address more effectively the needs of small and medium
businesses. This supports our customer success model which has been
deployed across our largest geographies, with significant
improvements in productivity and customer service levels.
We've rolled out our single CRM system to North America, having
completed the rollout to Northern Europe last year, improving the
level of customer insight and service efficiency. We have also
continued to digitise the customer service function, through web
chat, online forums and communities, reducing call waiting times
and accelerating the resolution of customer problems.
These investments have enabled Sage to focus on providing
support and advice tailored to the specific needs of small and
medium businesses in the light of COVID-19, and to do this with all
of our colleagues working from home. In each of our major markets,
we've established online coronavirus hubs as a source of practical
information. We also run webinars and other interactive sessions to
give advice to all small and medium businesses, whether customers
or not, on how to access government funds.
We're working directly with governments to find new and better
ways to support small and medium businesses. In the UK, we've
developed a special software module which supports customers when
they apply for government funds, automating key parts of the
process, and improving customers' productivity and efficiency. To
further support our customers, we have undertaken external research
and are listening to customer feedback to understand how we can
provide bespoke help for those who need it most.
Colleague success
Management is committed to building a culture that fosters
collaboration, and open and honest dialogue, where colleagues feel
connected to Sage's vision and put customers at the heart of
everything they do.
We have continued to focus on our leadership and emerging talent
development programmes in the first half, in order to ensure our
current and future leaders are well-equipped to succeed, and we've
embedded our values and behaviours through our performance review
approach and through culture workshops. We've also created an
employee value proposition, to be communicated both internally and
externally, which clearly sets out the attractions of working for
Sage, supporting both recruitment and retention.
Sage Foundation is a core part of our values and also serves to
attract and retain talent. All colleagues are encouraged to take up
to five days, on a fully paid basis, to support charitable
initiatives under Sage Foundation. As a result, colleagues have
contributed more than 12,000 volunteering days so far this year,
including during a recent "virtual volunteering" initiative aimed
at continuing the work of Sage Foundation during lockdown.
We've been agile in our response to COVID-19, with all
colleagues smoothly transitioning to homeworking while maintaining
a high level of support for our customers. This transition has been
effectively managed through a range of focused initiatives
including daily and weekly leadership communications, networking
groups, e-learning and support for mental wellbeing.
The result of investing in colleague engagement is more
invigorated, engaged colleagues, who are better able and more
motivated to support the success of Sage's customers. We carry out
regular pulse surveys to monitor colleague sentiment, with recent
surveys indicating that 93% of Sage colleagues are satisfied with
Sage's response to the global pandemic.
The business will continue to focus on colleagues and leaders
throughout FY20, supported by a review of our colleague experience,
capability and alignment of compensation structures to drive our
transition to a SaaS business.
Innovation
Innovation at Sage means developing solutions that deliver real
customer value and solve customer problems by doing things
differently, using incremental, emerging and experimental
innovation.
In order to achieve this, management continues to invest in Sage
Business Cloud. The vision for Sage Business Cloud is a digital
environment of cloud platforms, applications and services across
Accounting and Financials, People & Payroll and Payments &
Banking for Sage's existing and new, small and medium-sized
customers, supported by a thriving partner marketplace. This also
includes providing cloud connected customers with increased value,
allowing them to access the Sage Business Cloud network and consume
cloud services as they require. Through a combination of common
tools, services, design principles, and service commitments, Sage
Business Cloud delivers the core brand values of trusted
experience, innovative technology, and customer success.
Our innovation programme continued at pace during the first half
of FY20 :
- The internationalisation of Sage Intacct continued, with
promising early progress in the UK and Australia following its
launch in those countries last year. South Africa is expected to
launch in the second half of this year.
- Sage Intacct Construction, a cloud financial management
solution designed to meet the unique needs of construction
companies, and an important further part of our migration strategy,
was launched in the US.
- Sage Business Cloud Accounting for Professional Users has been
developed and soft launched in the UK. This solution will be used
to attract new customers, both direct and through accountant
referrals, and over time, will be used to offer a migration path
for Sage 50 customers that choose to move to a cloud native
solution.
- AutoEntry, our data entry automation solution which we
acquired at the end of September, has been integrated with key
products including Sage 50 and Sage Accounting, leading to rapid
growth.
- We launched Sage Business Cloud marketplace in the UK, a
platform on which all of our independent software vendors (ISVs)
can showcase and promote their Sage Business Cloud-integrated
solutions to our customers.
- We acquired CakeHR, a cloud native solution that simplifies
and automates HR tasks for small businesses, boosting Sage's cloud
offering for small businesses.
- We created Sage AI Labs, a focused team driving the
development of Artificial Intelligence and Machine Learning to
enhance the capability of our products, including AI-powered
outlier detection capabilities enabling customers to spot
accounting mistakes and irregularities, and time tracking that uses
AI to learn from project-based employees.
In the second half, Sage will continue to invest in the
development and availability of Sage Business Cloud solutions, as
well as continuing to drive adoption of cloud services amongst
customers.
Strategic KPIs
Our strategic KPIs reflect the strategic progress we've made
through our focus on customer success, colleague success and
innovation, with H1 20 progress as follows:
- Strong ARR growth of 10% to GBP1,693m, reflecting momentum
from FY19 and further sequential growth in the first half.
- Software subscription penetration of 62% (H1 19: 52%) as the
business continues to transition existing customers and attract new
customers to subscription and the cloud.
- Sage Business Cloud penetration of 56% (H1 19: 44%) as the
business continues to focus on core solutions which have a direct
pathway to Sage Business Cloud.
- Renewal by value increased to 101% (H1 19: 100%) demonstrating
the strength of the existing customer base.
Financial Review
This financial review provides a brief summary of Sage's
financial results on an organic basis, before moving to the
underlying and statutory performance of the business. Organic
measures allow management and investors to understand the
like-for-like revenue and margin performance of the continuing
business.
Organic Financial Results
In H1 20 Sage delivered organic recurring revenue growth of 10%
to GBP826m and organic total revenue growth of 6% to GBP935m.
Recurring revenue growth, underpinned by a 26% increase in software
subscription revenue to GBP582m, was driven principally by North
America and Northern Europe, with strong momentum from FY19 carried
forward into the first half of FY20.
Other revenue (SSRS and processing) declined by 20% to GBP109m,
reflecting the managed decline in licence sales and
de-prioritisation of professional services revenue as the business
continues to focus on subscription. The decline in other revenue
accelerated towards the end of March as a result of COVID-19
impacting licence sales and professional services
implementations.
The Group increased organic operating profit by 3% to GBP213m,
and achieved an organic operating margin of 22.8% (H1 19: 23.4%).
This margin reflects continued investment to accelerate strategic
execution, and includes a GBP13m charge to provide for expected
credit losses in connection with COVID-19.
The Group also achieved underlying basic EPS of 13.75p,
underlying cash conversion of 127% and free cash flow of
GBP227m.
Statutory and Underlying Financial Results
Financial Results Statutory Underlying [10]
--------------------- --------------------------- ---------------------------
H1 20 H1 19 Change H1 20 H1 19 Change
--------------------- -------- -------- ------- -------- -------- -------
North America GBP343m GBP327m +5% GBP343m GBP330m +4%
Northern Europe GBP215m GBP197m +9% GBP215m GBP197m +9%
Central & Southern
Europe GBP297m GBP304m -2% GBP297m GBP298m 0%
International GBP120m GBP129m -7% GBP120m GBP121m -1%
-------- -------- ------- -------- -------- -------
Group Total Revenue GBP975m GBP957m +2% GBP975m GBP946m +3%
Operating Profit GBP289m GBP210m +38% GBP218m GBP216m +1%
% Operating Profit +7.8% -0.5%
Margin 29.7% 21.9% pts 22.4% 22.9% pts
Profit Before Tax GBP275m GBP198m +40% GBP205m GBP202m +2%
Net Profit GBP224m GBP154m +46% GBP150m GBP150m 0%
Basic EPS 20.56p 14.19p +45% 13.75p 13.78p 0%
-------- -------- ------- -------- -------- -------
[10] Revenue and profit measures are defined in Appendix 1.
The Group achieved statutory total revenue of GBP975m, a 2%
increase on the prior year, with underlying growth in North America
and Northern Europe partly offset by foreign exchange headwinds in
Central & Southern Europe and International. Underlying total
revenue, which normalises the comparative period for foreign
currency movements, increased by 3%.
Statutory operating profit increased by 38% to GBP289m,
reflecting the non-recurring net gain on the disposal of
subsidiaries (Sage Pay and the Brazilian business), together with
the underlying performance of the business and other recurring and
non-recurring items. Underlying operating profit, which excludes
recurring and non-recurring items, grew by 1% to GBP218m.
Underlying basic EPS of 13.75p was broadly in line with the
prior period.
Underlying & Organic Reconciliations to Statutory
H1 20 H1 19
--------------------------------- -------------------------------
Revenue Operating Operating Revenue Operating Operating
Profit Margin Profit Margin
% %
---------- ---------- --------- --------- --------- ---------
Statutory GBP975m GBP289m 29.7% GBP957m GBP210m 21.9%
Recurring Items [11] - GBP21m - - GBP21m -
Non-recurring items:
- (GBP141m) - - (GBP27m) -
* (Gain)/loss on disposal of subsidiaries
- GBP19m - - - -
* Impairment of goodwill
- GBP6m - - GBP14m -
* Property restructuring costs
- GBP24m - - - -
* Office relocation
Impact of FX [12] - - - (GBP11m) (GBP2m) -
---------- ---------- --------- --------- --------- ---------
Underlying GBP975m GBP218m 22.4% GBP946m GBP216m 22.9%
Acquisitions - - - GBP2m (GBP1m) -
Disposals (GBP40m) (GBP5m) - (GBP63m) (GBP8m) -
---------- ---------- --------- --------- --------- ---------
Organic GBP935m GBP213m 22.8% GBP885m GBP207m 23.4%
---------- ---------- --------- --------- --------- ---------
[11] Recurring and non-recurring items are detailed in the
paragraph below and in note 3 of the financial statements.
[12] Impact of retranslating H1 19 results at H1 20 average
rates.
Revenue
The Group achieved statutory and underlying revenue of GBP975m
in H1 20. Underlying revenue in H1 19 of GBP946m reflects statutory
revenue of GBP957m retranslated at current year exchange rates,
resulting in an FX adjustment of GBP11m.
Organic revenue of GBP935m (H1 19: GBP885m) reflects underlying
revenue adjusted for GBP40m of revenue from assets sold during the
period (H1 19: GBP63m), including GBP17m of revenue from Sage Pay
(H1 19: GBP20m) and GBP23m from the Brazilian business (H1 19:
GBP24m). Both disposals completed in March 2020. H1 19 organic
revenue also includes a GBP16m revenue adjustment for the disposal
of the US payroll processing business in February 2019, and GBP3m
for the disposal of the South African payments business in July
2019. There is a further GBP2m revenue adjustment to the prior year
relating to the acquisition of AutoEntry in September 2019.
Operating profit
The Group achieved a statutory operating profit of GBP289m in H1
20 (H1 19: GBP210m). Underlying operating profit of GBP218m (H1 19:
GBP216m) reflects statutory operating profit adjusted for recurring
and non-recurring items. Recurring items of GBP21m (H1 19: GBP21m)
comprise GBP15m amortisation of acquisition-related intangibles (H1
19: GBP15m) and GBP6m of M&A related charges (H1 19:
GBP6m).
Non-recurring items include a GBP141m net gain on disposal of
subsidiaries (H1 19: GBP27m gain), comprising a GBP193m gain on the
disposal of Sage Pay and a GBP52m loss on disposal of the Brazilian
business (of which GBP44m reflects the non-cash reclassification of
foreign exchange losses from other comprehensive income to the
income statement) [13]. This is offset by a GBP19m non-cash charge
relating to goodwill impairment in respect of our Asia business,
costs relating to our property restructuring programme of GBP6m (H1
19: GBP14m), and non-cash accelerated depreciation related to the
relocation of our North Park office in Newcastle of GBP24m. H1 19
operating profit also includes a GBP2m FX adjustment.
Organic operating profit of GBP213m (H1 19: GBP207m) reflects
underlying operating profit adjusted for operating profit
attributable to businesses sold during the period, including GBP4m
from Sage Pay (H1 19: GBP8m), and GBP1m from the Brazilian
business. The prior year also includes a further GBP1m adjustment
relating to the acquisition of AutoEntry. There were no material
adjustments in respect of the other disposals, which were
approximately breakeven at an operating profit level.
[13] The difference between the actual FX loss reclassification
and the estimate given in our announcement of 2 March 2020 reflects
a revised calculation and the further devaluation of the Brazilian
Real between signing and completion.
Organic Revenue Overview
Organic Revenue Mix H1 20 H1 19 % Change
GBPm % of Total GBPm % of Total
--------- ----------- -------- ----------- ---------
Software Subscription
Revenue GBP582m 62% GBP464m 52% +26%
Other Recurring Revenue GBP244m 26% GBP285m 33% -15%
--------- ----------- -------- ----------- ---------
Organic Recurring Revenue GBP826m 88% GBP749m 85% +10%
Other Revenue GBP109m 12% GBP136m 15% -20%
--------- ----------- -------- ----------- ---------
Organic Total Revenue GBP935m 100% GBP885m 100% +6%
--------- ----------- -------- ----------- ---------
Organic total revenue increased by 6% in H1 20 to GBP935m.
Organic recurring revenue grew by 10% to GBP826m, underpinned by a
26% increase in software subscription revenue to GBP582m,
reflecting the continued focus on attracting new customers and
migrating existing customers to subscription and Sage Business
Cloud. The decline in other recurring revenue of 15% to GBP244m
reflects the substitution effect as customers migrate to
subscription contracts. Other revenue (SSRS and processing)
declined by 20% to GBP109m, reflecting the managed decline in
licence sales and de-prioritisation of professional services as the
business continues to focus on its transition to subscription
revenue, together with the additional impact of COVID-19 towards
the end of March.
In the portfolio view of revenue, the Future Sage Business Cloud
Opportunity delivered recurring revenue growth of 12% to GBP731m
and total revenue growth of 7% to GBP815m, driven by transitioning
existing customers and attracting new customers to Sage Business
Cloud. In the Non-Sage Business Cloud portfolio, recurring revenue
decreased by 2% to GBP95m, and total revenue decreased by 4% to
GBP120m.
North America
Organic Revenue by Category H1 20 H1 19 % Change
Organic Total Revenue GBP343m GBP314m +9%
Organic Recurring Revenue GBP311m GBP278m +12%
% Subscription Penetration 59% 55% +4% pts
% Sage Business Cloud Penetration 70% 64% +6% pts
-------- -------- ---------
Organic Recurring Revenue H1 20 H1 19 % Change
-------- -------- ---------
US (excluding Intacct) GBP196m GBP183m +7%
Canada GBP46m GBP42m +10%
Intacct GBP69m GBP53m +31%
-------- -------- ---------
North America delivered recurring revenue growth of 12% to
GBP311m and total revenue growth of 9% to GBP343m. Subscription
penetration is now 59%, up from 55% in the prior year, and Sage
Business Cloud penetration is now 70%, up from 64% in the prior
year, driven by both cloud connected and cloud native
solutions.
The US (excluding Intacct) delivered recurring revenue growth of
7% to GBP196m, and total revenue growth of 5% to GBP221m. The US
delivered strong growth in the second half of FY19 driven by
migrations, and made further progress in the first half of FY20,
with three quarters of the Sage 200 base on a cloud connected
solution.
Canada has also continued to perform well, growing recurring
revenue by 10% to GBP46m and total revenue by 6% to GBP49m, with
over three-quarters of revenue from the 50 and 200 base now on a
cloud connected solution.
Sage Intacct's recurring revenue growth of 31% to GBP69m
reflects continuing strong momentum in North America, driving
growth through both existing customers and new customer
acquisition.
Northern Europe
Organic Revenue by Category H1 20 H1 19 % Change
Organic Total Revenue GBP198m GBP179m +10%
Organic Recurring Revenue GBP187m GBP165m +13%
% Subscription Penetration 84% 63% +21% pts
% Sage Business Cloud Penetration 80% 59% +21% pts
-------- -------- ---------
Northern Europe (UK & Ireland) delivered recurring revenue
growth of 13% to GBP187m and total revenue growth of 10% to
GBP198m. Subscription penetration is 84%, up from 63% in the prior
year, and Sage Business Cloud penetration is now 80%, up from 59%
in the prior year.
Strength in recurring revenue continues to reflect success in
cloud connected solutions. Revenue on Sage 50 cloud connected has
increased significantly, through migrations, new customer
acquisition and reactivations, particularly in the second half of
FY19. Northern Europe has continued to add Sage 50 cloud connected
contracts during the first half of this year. The region now has
more than three quarters of its 50 and 200 base on a cloud
connected solution.
The early performance of Sage Intacct in the UK since its launch
in November 2019 has been encouraging, with better than expected
momentum in new contract wins in the first half.
The region saw a decline of 23% in other revenue (SSRS and
processing) to GBP11m, as the business continues to focus on
software subscription and the cloud.
Central & Southern Europe
Organic Revenue by Category H1 20 H1 19 % Change
Organic Total Revenue GBP297m GBP298m 0%
Organic Recurring Revenue GBP250m GBP236m +6%
% Subscription Penetration 52% 43% +9% pts
% Sage Business Cloud Penetration 35% 21% +14% pts
-------- -------- ---------
Organic Recurring Revenue H1 20 H1 19 % Change
-------- -------- ---------
France GBP120m GBP116m +4%
Central Europe GBP68m GBP63m +9%
Iberia GBP62m GBP57m +8%
-------- -------- ---------
Central and Southern Europe delivered recurring revenue growth
of 6% to GBP250m and total revenue in line with last year at
GBP297m. Subscription penetration is now 52%, up from 43% in the
prior year and Sage Business Cloud penetration is 35%, up from 21%
in the prior year, largely driven by growth in cloud connected
solutions.
France delivered recurring revenue growth of 4% to GBP120m,
driven principally by Sage 50 and Sage 200 cloud connected
solutions. The region now has well over half of its 50 and 200
revenue base on a cloud connected solution. Total revenue in France
decreased by 1% to GBP135m.
Central Europe delivered recurring revenue growth of 9% to
GBP68m while total revenue decreased by 1% to GBP87m. Growth in the
region is driven by a combination of local products and cloud
connected solutions.
Iberia delivered recurring revenue growth of 8% to GBP62m, and
total revenue growth of 1% to GBP76m. Growth in recurring revenue
has been driven mainly by Sage 50 and Sage 200 cloud connected
solutions.
Other revenue (SSRS and processing) in Central and Southern
Europe decreased by 24% to GBP47m, as the business continues to
focus on software subscription and the cloud.
International
Organic Revenue by Category H1 20 H1 19 % Change
Organic Total Revenue GBP97m GBP94m +3%
Organic Recurring Revenue GBP78m GBP70m +11%
% Subscription Penetration 62% 56% +6% pts
% Sage Business Cloud Penetration 12% 8% +4% pts
------- ------- ---------
Organic Recurring Revenue H1 20 H1 19 % Change
------- ------- ---------
Africa & Middle East GBP53m GBP46m +15%
Australia & Asia GBP25m GBP24m +2%
------- ------- ---------
International delivered recurring revenue growth of 11% to
GBP78m and total revenue growth of 3% to GBP97m. Subscription
penetration is now 62%, up from 56% in the prior year and Sage
Business Cloud penetration in the region is 12%, up from 8% in the
prior year.
Africa & Middle East, representing around two thirds of the
International region's revenue, delivered strong recurring revenue
growth of 15% to GBP53m, driven by local products and cloud native
solutions, particularly Sage Accounting. Total revenue in Africa
& Middle East grew by 5% to GBP66m. Sage Intacct is on track to
launch in South Africa later this year.
Australia & Asia delivered recurring revenue growth of 2% to
GBP25m and total revenue in line with last year at GBP31m.
Australia delivered recurring revenue growth of 4% to GBP20m,
driven by cloud native solutions. Sage Intacct has made a promising
start, having launched in Australia in August 2019.
Operating Profit
The Group achieved organic operating profit of GBP213m (H1 19:
GBP207m), representing a margin of 22.8% (H1 19: 23.4%). This
margin reflects continued investment to accelerate strategic
execution, particularly in sales and marketing, and in technology
and innovation. It also includes a GBP13m charge to provide for
expected credit losses in connection with COVID-19.
Underlying operating profit was GBP218m (H1 19: GBP216m),
representing a margin of 22.4% (H1 19: 22.9%). The difference
between organic and underlying operating profit reflects the
operating profit from assets sold during the first half (Sage Pay
and the Brazilian business).
EBITDA was GBP256m (H1 19: GBP246m) representing an EBITDA
margin of 26.4%. This includes a GBP12m increase in depreciation
due to the adoption of IFRS 16 on 1 October 2019.
H1 20 H1 19 H1 20 Margin
%
Organic Operating Profit GBP213m GBP207m 22.8%
Impact of disposals GBP5m GBP8m
Impact of acquisitions - GBP1m
Underlying Operating Profit GBP218m GBP216m 22.4%
Depreciation & amortisation GBP29m GBP17m
Share based payments GBP9m GBP13m
--------- --------- -------------
EBITDA GBP256m GBP246m 26.4%
--------- --------- -------------
Net Finance Cost
The statutory net finance cost for the period was GBP 14m (H1
19: GBP12m) and the underlying net finance cost was GBP13m (H1 19:
GBP13m), with minor differences between statutory and underlying
net finance costs reflecting FX movements.
Taxation
The underlying tax expense for H1 20 was GBP 55m (H1 19:
GBP53m), resulting in an underlying tax rate of 27% (H1 19: 26%).
The statutory income tax expense for H1 20 was GBP51m (H1 19:
GBP44m), resulting in a statutory tax rate of 19% (H1 19: 22%).
The difference between the underlying and statutory rate in H1
20 primarily reflects a non-taxable accounting net gain on the
disposal of subsidiaries (Sage Pay and the Brazilian business),
offset by a non-tax-deductible charge relating to the impairment of
goodwill in respect of the Asia business and accelerated
depreciation relating to the relocation of our North Park office in
Newcastle.
Earnings per Share
H1 20 H1 19 % Change
Statutory Basic EPS 20.56p 14.19p +44.9%
Recurring Items 1.66p 1.40p
Non-Recurring Items (8.47p) (1.66p)
Impact of Foreign Exchange - (0.15p)
-----------------
Underlying Basic EPS 13.75p 13.78p -0.2%
-----------------
Underlying basic earnings per share of 13.75p was broadly in
line with the prior period (H1 19: 13.78p), reflecting the increase
in underlying operating profit, offset by a higher effective tax
rate.
Statutory basic earnings per share increased by 45%, primarily
due to the change in non-recurring items which principally reflects
the GBP141m net gain on disposal of subsidiaries.
Cash Flow
The Group remains highly cash generative with underlying cash
flow from operating activities of GBP276m (H1 19: GBP330m),
representing an underlying cash conversion of 127% (H1: 151%).
Cash Flow APMs H1 20 H1 19 (as reported)
Underlying Operating Profit GBP218m GBP218m
Depreciation, amortisation and non-cash GBP29m GBP16m
items in profit
Share based payments GBP9m GBP13m
Net changes in working capital GBP36m GBP106m
Net capital expenditure (GBP16m) (GBP23m)
--------- --------------------
Underlying Cash Flow from Operating GBP276m GBP330m
Activities
--------- --------------------
Underlying cash conversion % 127% 151%
Non-recurring cash items (GBP2m) (GBP20m)
Net interest paid (GBP12m) (GBP12m)
Income tax paid (GBP39m) (GBP41m)
Profit and loss foreign exchange movements GBP4m -
--------- --------------------
Free Cash Flow GBP227m GBP257m
--------- --------------------
Statutory Reconciliation of Cash Flow H1 20 H1 19 (as reported)
from Operating Activities
Statutory Cash Flow from Operating GBP292m GBP333m
Activities
Recurring and non-recurring items GBP6m GBP21m
Net capital expenditure (GBP16m) (GBP23m)
Other adjustment including foreign (GBP6m) (GBP1m)
exchange translations
Underlying Cash Flow from Operating GBP276m GBP330m
Activities
The continued strong cash conversion reflects sustained
improvements in working capital and the continued transition
towards recurring revenue. Underlying cash conversion decreased
compared to the prior period due to higher levels of bonus pay-out
in H1 20 compared to H1 19, in respect of the strong business
performance achieved during the previous financial year. Underlying
cash conversion is expected to trend downwards in the second
half.
Free cash flow was GBP227m (H1 19: GBP257m), largely reflecting
continued strong underlying cash conversion, together with a
reduction in non-recurring cash items.
Group net debt was GBP238m at 31 March 2020 (30 September 2019:
GBP393m), comprising cash and cash equivalents of GBP912m (30
September 2019: GBP372m) and total debt of GBP1,150m (30 September
2019: GBP765m). The decrease in net debt in the period is mostly
attributable to strong free cash flow of GBP227m and proceeds from
the disposal of Sage Pay of GBP229m, offset by GBP121m paid in
respect of the FY19 final dividend, and a GBP136m increase in net
debt as a result of adopting IFRS 16.
Debt facilities
The Group's debt is sourced from a syndicated multi-currency
Revolving Credit Facility ("RCF"), a syndicated Term Loan and US
private placements ("USPP"). The Term Loan of GBP200m was put in
place in September 2019 and expires in September 2021. The Group's
RCF expires in February 2025 (having been extended by one year in
February 2020) with facility levels of GBP715m (split between
US$719m and GBP135m tranches). At 31 March 2020, GBP302m (H1 19:
GBP274m) of the multi-currency revolving debt facility was drawn
and the Term Loan was fully drawn.
The Group's total USPP loan notes at 31 March 2020 were GBP519m
(US$550m and EUR85m) (H1 19: GBP497m, US$550m and EUR85m). The USPP
loan notes have a range of maturities between May 2020 and May
2025.
Maturities within the next 18 months comprise $150 million
(GBP121 million) of the Group's US private placement loan notes
later this month, and the Group's GBP200 million syndicated Term
Loan in September 2021.
Capital allocation
Sage's disciplined approach to capital allocation remains
unchanged as a result of COVID-19.
The Group's primary focus remains on organic investment in order
to accelerate the execution of the strategy as outlined above.
Sage continues to consider bolt-on acquisitions of complementary
technology and partnerships that will further accelerate the
strategy and enhance Sage Business Cloud, and has made several
small but strategically significant acquisitions in the recent
past. In line with focusing on core competences within the
business, management continues to evaluate the disposal of certain
non-core assets, having completed the disposal of Sage Pay and the
Brazilian business in the first half.
Our policy is to maintain the dividend in real terms. In line
with our policy, and reflecting the Group's strong business
performance and cash generation in the first half, we have
increased the interim dividend by 2.5% to 5.93p.
The Group will also consider making additional capital returns
to shareholders if appropriate. To support the Group's financial
strength in light of the COVID-19 pandemic, Sage announced on 6
April 2020 the cancellation of the previously announced GBP250m
share buy-back programme, after GBP7m of shares had been
purchased.
H1 20 H1 19 (as reported)
Net Debt GBP238m GBP448m
EBITDA (Last Twelve Months) GBP518m GBP549m
-------- --------------------
Net Debt/EBITDA Ratio 0.5x 0.8x
-------- --------------------
Group net debt as at 31 March 2020 was GBP238m and reported
EBITDA over the last 12 months was GBP518m, resulting in a net debt
to EBITDA ratio of 0.5x. Group return on capital employed (ROCE)
for H1 20 was 20.5% (H1 19 as reported: 20.7%).
The Group adopted IFRS 16 with effect from 1 October 2019,
resulting in the recognition on the balance sheet of additional
financial liabilities of GBP136m, which has increased net debt to
EBITDA in H1 20 by 0.2x, partially offsetting the year-on-year
decrease. The financial results from the prior year have not been
restated. The adoption of IFRS 16 has had no material impact on our
overall financial result.
Sage plans to operate in a broad range of 1-2x net debt to
EBITDA over the medium term, with flexibility to move outside this
range as the business needs require. Accordingly, given the current
environment, we are comfortable with our current net debt to EBITDA
ratio of 0.5x.
Going concern
The Directors have robustly tested the going concern assumption
in preparing the financial statements, taking into account the
Group's strong liquidity position at 31 March 2020 and a number of
downside sensitivities, and remain satisfied that the going concern
basis of preparation is appropriate. Further information is
provided in note 1 of the financial statements on page 23.
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 H1 20 H1 19 Change
GBP)
Euro (EUR) 1.16 1.14 +2%
US Dollar ($) 1.28 1.29 -1%
South African Rand (ZAR) 19.27 18.32 +5%
Australian Dollar (A$) 1.91 1.81 +6%
Brazilian Real (R$) 5.49 4.90 +12 %
------ ------ -------
Appendix 1 - Alternative Performance Measures
Alternative Performance measures are used by the company to
understand and manage performance. These are not defined under IFRS
and are not intended to be a substitute for any IFRS measures of
performance but have been included as management considers them to
be important measures, alongside the comparable GAAP financial
measures, in assessing the underlying performance. Wherever
appropriate and practical, we provide reconciliations to relevant
GAAP measures. The table below sets out the basis of calculation of
the Alternative Performance Measures and the rationale for their
use.
MEASURE DESCRIPTION RATIONALE
Underlying Underlying measures are Underlying measures allow
(revenue adjusted to exclude items management and investors
and profit) which would distort the to compare performance without
measures understanding of the performance the potentially distorting
for the year or comparability effects of foreign exchange
between periods: movements, one-off or
* Recurring items include purchase price adjustments non-operational
including amortisation of acquired intangible assets items.
and adjustments made to reduce deferred income
arising on acquisitions, acquisition-related items, By including part-period
FX on intercompany balances and fair value contributions from acquisitions,
adjustments; and discontinued operations,
disposals and assets held
for sale of standalone businesses
* Non-recurring items that management judge to be in the current and/or prior
one-off or non-operational such as gains and losses periods, the impact of M&A
on the disposal of assets, impairment charges and decisions on earnings per
reversals, and restructuring related costs. share growth can be evaluated.
All prior period underlying
measures (revenue and profit)
are retranslated at the
current year exchange rates
to neutralise the effect
of currency fluctuations.
------------------------------------------------------------- ------------------------------------
Organic (revenue In addition to the adjustments Organic measures allow management
and profit) made for Underlying measures, and investors to understand
measures Organic measures: the like-for-like revenue
* Exclude the contribution from discontinued operations, and current period margin
disposals and assets held for sale of standalone performance of the continuing
businesses in the current and prior period; and business.
* Exclude the contribution from acquired businesses
until the year following the year of acquisition; and
* Adjust the comparative period to present prior period
acquired businesses as if they had been part of the
Group throughout the prior period.
Acquisitions and disposals
where the revenue and contribution
impact would be immaterial
are not adjusted.
------------------------------------------------------------- ------------------------------------
Underlying Underlying Cash Flow from To show the cashflow generated
Cash Flow Operating Activities is by the operating activities
from Operating Underlying Operating Profit and calculate underlying
Activities adjusted for non-cash items, cash conversion.
net capex (excluding business
combinations and similar
items) and changes in working
capital.
------------------------------------------------------------- ------------------------------------
Underlying Underlying Cash Flow from Cash conversion informs management
Cash Conversion Operating Activities divided and investors about the cash
by Underlying (as reported) operating cycle of the business
Operating Profit. and how efficiently operating
profit is converted into
cash.
------------------------------------------------------------- ------------------------------------
EBITDA EBITDA is Underlying Operating To calculate the Net Debt
Profit excluding depreciation, to EBITDA leverage ratio
amortisation and share based and to show profitability
payments. before the impact of major
non-cash charges.
------------------------------------------------------------- ------------------------------------
Annualised Annualised recurring revenue ARR represents the annualised
recurring ("ARR") is the normalised value of the recurring revenue
revenue organic recurring revenue base that is expected to
in the last month of the be carried into future periods,
reporting period, adjusted and its growth is a forward-looking
consistently period to period, indicator of reporting recurring
multiplied by twelve. Adjustments revenue growth.
to normalise reported recurring
revenue include those components
that management has assessed
should be excluded in order
to ensure the measure reflects
that part of the contracted
revenue base which (subject
to ongoing use and renewal)
can reasonably be expected
to repeat in future periods
(such as non-refundable
contract sign-up fees).
Renewal Rate The ARR from renewals, migrations, As an indicator of our ability
by Value upsell and cross-sell of to retain and generate additional
active customers at the revenue from our existing
start of the year, divided customer base through up
by the opening ARR for the and cross sell.
year.
----------------------------------------------------------- ------------------------------------
Free Cash Free Cash Flow is Cash Flow To measure the cash generated
Flow from Operating Activities by the operating activities
minus non-recurring cash during the period that is
items, interest paid, tax available to repay debt,
paid and adjusted for profit undertake acquisitions or
and loss foreign exchange distribute to shareholders.
movements.
----------------------------------------------------------- ------------------------------------
% Subscription Organic software subscription To measure the progress of
Penetration revenue as a percentage migrating our customer base
of organic total revenue. from licence and maintenance
to a subscription relationship.
----------------------------------------------------------- ------------------------------------
% Sage Business Organic recurring revenue To measure the progress in
Cloud Penetration from the Sage Business Cloud the migration of our revenue
(native and connected cloud) base to the Sage Business
as a percentage of the organic Cloud by connecting our solutions
recurring revenue of the to the cloud and/or migrating
Future Sage Business Cloud our customers to cloud connected
Opportunity. and cloud native solutions.
----------------------------------------------------------- ------------------------------------
Return on ROCE is calculated as: As an indicator of the current
Capital Employed * Underlying Operating Profit; minus period financial
(ROCE) return on the capital invested
in the company.
* Amortisation of acquired intangibles; the result ROCE is used as an underpin
being divided by in the FY19 and FY20 PSP
awards.
* The average (of the opening and closing balance for
the period) total net assets excluding net debt,
provisions for non-recurring costs and tax assets or
liabilities (i.e. capital employed).
----------------------------------------------------------- ------------------------------------
Consolidated income statement
For the six months ended 31 March 2020
Six months Six months Six months Six months Six months Six months Year ended
ended ended ended ended ended ended 30
31 March 31 March 31 March 31 March 31 March 31 March September
2020 2020 2020 2019 2019 2019 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
Underlying Adjustments* Statutory Underlying Adjustments* Statutory Statutory
as reported
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ==== =========== ============ =========== =========== ============ =========== ===========
Revenue 2 975 - 975 957 - 957 1,936
Cost of sales (64) - (64) (70) - (70) (138)
=============== ==== =========== ============ =========== =========== ============ =========== ===========
Gross profit 911 - 911 887 - 887 1,798
Selling and
administrative
expenses (693) 71 (622) (669) (8) (677) (1,416)
Operating
profit 2 218 71 289 218 (8) 210 382
Finance income 2 - 2 3 1 4 8
Finance costs (15) (1) (16) (16) - (16) (29)
=============== ==== =========== ============ =========== =========== ============ =========== ===========
Profit before
income
tax 205 70 275 205 (7) 198 361
Income tax
expense 4 (55) 4 (51) (53) 9 (44) (95)
=============== ==== =========== ============ =========== =========== ============ =========== ===========
Profit for the
period 150 74 224 152 2 154 266
* Adjustments are detailed in note 3.
Earnings per
share
attributable to
the
owners of the
parent
(pence)
Basic 6 13.75p 20.56p 13.93p 14.19p 24.49p
Diluted 6 13.66p 20.42p 13.85p 14.12p 24.29p
=============== ==== =========== ============ =========== =========== ============ =========== ===========
Consolidated statement of comprehensive income
For the six months ended 31 March 2020
Six months ended Six months ended Year ended
31 March 2020 31 March 2019 30 September 2019
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
============================================================= ================ ================ ===================
Profit for the period 224 154 266
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Actuarial loss on post-employment benefit obligations - - (1)
- - (1)
============================================================= ================ ================ ===================
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations (22) (10) 42
Exchange differences recycled through income statement on
sale of foreign operations 43 (6) (4)
21 (16) 38
============================================================= ================ ================ ===================
Other comprehensive income/(expense) for the period, net of
tax 21 (16) 37
============================================================= ================ ================ ===================
Total comprehensive income for the period 245 138 303
============================================================= ================ ================ ===================
The notes on pages 23 to 43 form an integral part of this
condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2020
31 March 31 March
2020 2019 30 September 2019
(Unaudited) (Unaudited) (Audited)
Note GBPm GBPm GBPm
======================================================= ===== ============== ============== ==================
Non-current assets
Goodwill 7 2,059 2,002 2,098
Other intangible assets 7 216 238 228
Property, plant and equipment 7 198 131 117
Other financial assets 3 3 4
Trade and other receivables 83 40 73
Deferred income tax assets 26 57 31
2,585 2,471 2,551
======================================================= ===== ============== ============== ==================
Current assets
Trade and other receivables 329 402 364
Current income tax asset 15 4 3
Cash and cash equivalents (excluding bank overdrafts) 10 912 351 371
Assets classified as held for sale 11 - - 63
======================================================= ===== ============== ============== ==================
1,256 757 801
======================================================= ===== ============== ============== ==================
Total assets 3,841 3,228 3,352
======================================================= ===== ============== ============== ==================
Current liabilities
Trade and other payables (242) (276) (291)
Current income tax liabilities (46) (47) (32)
Borrowings (149) (5) (122)
Provisions (9) (15) (11)
Deferred income (691) (660) (637)
Liabilities classified as held for sale 11 - - (33)
======================================================= ===== ============== ============== ==================
(1,137) (1,003) (1,126)
======================================================= ===== ============== ============== ==================
Non-current liabilities
Borrowings (1,001) (768) (643)
Post-employment benefits (26) (22) (25)
Deferred income tax liabilities (27) (26) (24)
Provisions (13) (12) (15)
Trade and other payables (6) (7) (7)
Deferred income (7) (7) (8)
======================================================= ===== ============== ============== ==================
(1,080) (842) (722)
======================================================= ===== ============== ============== ==================
Total liabilities (2,217) (1,845) (1,848)
======================================================= ===== ============== ============== ==================
Net assets 1,624 1,383 1,504
======================================================= ===== ============== ============== ==================
Equity attributable to owners of the parent
Ordinary shares 9 12 12 12
Share premium 9 548 548 548
Other reserves 205 130 184
Retained earnings 859 693 760
======================================================= ===== ============== ============== ==================
Total equity 1,624 1,383 1,504
======================================================= ===== ============== ============== ==================
Consolidated statement of changes in equity
For the six months ended 31 March 2020
Attributable to owners of
the parent
====================================== ======== ====================================================
Ordinary Share Translation Merger Retained Total
shares premium reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ======== ======== =========== ========= ========= =======
At 1 October 2019 as originally
presented (Audited) 12 548 123 61 760 1,504
Adjustment on initial application
of IFRS 16 net of tax (see note
12) - - - - (7) (7)
At 1 October 2019 (adjusted) 12 548 123 61 753 1,497
Profit for the period - - - - 224 224
Other comprehensive expenses
Exchange differences on translating
foreign operations - - (22) - - (22)
Exchange differences recycled through
income statement on sale of foreign
operations (see note 11) - - 43 - - 43
Total comprehensive income
for the period ended 31 March
2020 (Unaudited) - - 21 - 224 245
====================================== ======== ======== =========== ========= ========= =======
Transactions with owners
Employee share option scheme -
Value of employee services, net
of deferred tax - - - - 10 10
Share buyback programme - - - - (7) (7)
Dividends paid to owners of the
parent - - - - (121) (121)
Total transactions with owners
for the period ended 31 March
2020 (Unaudited) - - - - (118) (118)
====================================== ======== ======== =========== ========= ========= =======
At 31 March 2020 (Unaudited) 12 548 144 61 859 1,624
====================================== ======== ======== =========== ========= ========= =======
Attributable to owners of the
parent
====================================== ======== ===================================================
Ordinary Share Translation Merger Retained Total
shares premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
====================================== ======== ======== =========== ======== ========= =======
At 1 October 2018 as originally
presented 12 548 85 61 621 1,327
Adjustment on initial application
of IFRS 15 and 9 net of tax - - - - 19 19
At 1 October 2018 as adjusted 12 548 85 61 640 1,346
Profit for the period - - - - 154 154
Other comprehensive expenses
Exchange differences on translating
foreign operations - - (10) - - (10)
Exchange differences recycled through
income statement on sale of foreign
operations - - (6) - - (6)
Total comprehensive income
for the period ended 31 March
2019 (Unaudited) - - (16) - 154 138
====================================== ======== ======== =========== ======== ========= =======
Transactions with owners
Employee share option scheme -
Value of employee services, net
of deferred tax - - - - 17 17
Dividends paid to owners of the
parent - - - - (118) (118)
====================================== ======== ======== =========== ======== ========= =======
Total transactions with owners
for the period ended 31 March
2019 (Unaudited) - - - - (101) (101)
====================================== ======== ======== =========== ======== ========= =======
At 31 March 2019 (Unaudited) 12 548 69 61 693 1,383
====================================== ======== ======== =========== ======== ========= =======
Consolidated statement of cash flows
For the six months ended 31 March 2020
Six months
ended
Six months
ended 31 March
Year ended
31 March 30 September
2020 2019 2019
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
============================================= ===== ============= ============= =============
Cash flows from operating activities
Cash generated from continuing operations 292 333 586
Interest paid (14) (15) (26)
Income tax paid (39) (41) (88)
Net cash generated from operating activities 239 277 472
============================================= ===== ============= ============= =============
Cash flows from investing activities
Acquisitions of subsidiaries, net of
cash acquired - - (41)
Investment in non-current asset - - (3)
Disposal of subsidiaries, net of cash
disposed 11 222 67 70
Proceeds on settlement of equity investment - 17 17
Purchases of intangible assets 7 (10) (6) (15)
Purchases of property, plant and equipment 7 (11) (17) (27)
Interest received 2 3 6
Net cash generated from investing activities 203 64 7
============================================= ===== ============= ============= =============
Cash flows from financing activities
Proceeds from issuance of treasury shares 9 - - 3
Proceeds from borrowings 302 118 414
Repayments of borrowings (45) (261) (594)
Capital element of lease payments (14) - -
Movements in cash held on behalf of
customers - (51) (78)
Borrowing costs (1) (1) (1)
Share buyback programme 9 (7) - -
Dividends paid to owners of the parent 5 (121) (118) (181)
Net cash generated from/(used in) financing
activities 114 (313) (437)
============================================= ===== ============= ============= =============
Net increase in cash, cash equivalents
and bank overdrafts
(before exchange rate movement) 556 28 42
Effects of exchange rate movement 10 (16) (4) 8
Net increase in cash, cash equivalents
and bank overdrafts 540 24 50
Cash, cash equivalents and bank overdrafts
at 1 October 10 372 322 322
============================================= ===== ============= ============= =============
Cash, cash equivalents and bank overdrafts
at period end 10 912 346 372
============================================= ===== ============= ============= =============
Notes to the financial information
For the six months ended 31 March 2020
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 13 May 2020.
The financial information set out above does not constitute the
Company's Statutory Accounts. Statutory Accounts for the year ended
30 September 2019 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") and IFRSs as issued by the International Accounting
Standards Board ("IASB"), 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 2019 with the exception
of the adoption of IFRS 16 "Leases", Amendments to IFRS 3 "Business
Combinations: Definition of a Business" and additional critical
accounting estimates and judgements relating to the impact of
COVID-19, the impact of which has been detailed below.
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 2020
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") and as issued by the International Accounting Standards
Board ("IASB"). The condensed consolidated half-yearly financial
report should be read in conjunction with the annual financial
statements for the year ended 30 September 2019, which have been
prepared in accordance with IFRSs as adopted by the EU and IFRSs as
issued by the IASB.
The potential impact of COVID-19 on the Group has been
considered in the preparation of the interim financial statements
including within our evaluation of critical accounting estimates
and judgements which are detailed further below. The Directors have
reviewed liquidity and covenant forecasts for the Group, which have
been updated for the expected impact of COVID-19 on trading. The
Directors have also considered sensitivities in respect of
potential downside scenarios and the mitigating actions available
in concluding that the Group is able to continue in operation for a
period of at least twelve months from the date of approving the
interim financial statements. Those sensitivities include a severe
but plausible downside scenario for COVID-19 alongside several
progressively challenging scenarios considered to be severe but
remote, whereby the Group experiences:
-- a significant reduction in revenue over the next 6 months of
up to 23% versus the same period in the prior year, the result of a
material increase in churn combined with a significant fall in new
customer acquisition, licence related cross sell and upsell
revenue; and
-- a further period of depressed activity into the next
financial year (FY 21) which reduces revenue by up to 22% versus
prior year (FY 19).
In considering the suitability of these scenarios, the Directors
have taken into account, among other things, performance in the
last recession and the recent trading experience outlined on page
3.
Furthermore, all downside scenarios assume:
-- investment reprioritisation only to the extent strategic initiatives are not compromised;
-- implementation of mitigating actions to manage costs and cash
in the near term which exclude staff reductions or government
subsidies; and
-- allocation of capital in line with our priorities outlined above.
Throughout all the downside scenarios, the Group continues to
have liquidity headroom on existing facilities and against the RCF
and USPP note financial covenants during the period under
assessment. 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 2019 as
described in those annual financial statements with the exception
of the adoption of IFRS 16 "Leases" and Amendments to IFRS 3
"Business Combinations: Definition of a Business". The impact of
these is explained below.
IFRS 16
As disclosed in our Annual Report 2019, the Group has adopted
IFRS 16 using the modified retrospective approach to transition
permitted by the standard. Under this approach, the cumulative
impact of the change in accounting policy is recognised in equity
on 1 October 2019 and the financial statements for the prior year
are not restated. IFRS 16 replaces the previous standard on lease
accounting, IAS 17.
Accounting policy under IFRS 16
The adoption of IFRS 16 has changed the accounting policy
applied to most of the Group's significant arrangements in which it
is a lessee. These relate mainly to property leases for office
buildings. The Group also has some leases for vehicles and other
equipment. Prior to 1 October 2019, the Group accounted for all
such leases as operating leases under IAS 17, with rentals payable
charged to the income statement on a straight-line basis as an
operating expense presented within selling and administrative
expenses. Where rent payments were prepaid or accrued, their
balances were reported under prepayments and accruals
respectively.
Under IFRS 16, the Group recognises lease assets and lease
liabilities on the balance sheet for most of its leases to account
for the right to use leased items and the obligation to make future
lease payments. Lease liabilities are measured at the present value
of future lease payments over the lease term. The lease term is
determined as the non-cancellable term of the lease, together with
any periods covered by an option to extend the lease if the option
is reasonably certain to be exercised, or any periods covered by an
option to terminate the lease, if the option is reasonably certain
not to be exercised. Lease payments normally include fixed payments
(including in substance fixed payments), a deduction for any lease
incentives receivable and variable lease payments that depend on an
index or a rate. In the event that a lease includes an exercise
price for a purchase option that is reasonably certain to be
exercised, or a termination penalty that is reasonably certain to
be incurred, these too are included in lease payments as are any
amounts expected to be paid under any residual value guarantees.
Variable lease payments that do not depend on an index or a rate
are not included in the lease liability, but are recognised as an
expense when incurred.
Lease payments are discounted using the incremental borrowing
rate applicable to the lease at the lease commencement date, as the
rate implicit in the lease cannot normally be readily determined.
Lease assets are recognised at the amount of the lease liability,
adjusted where applicable for any lease payments made or lease
incentives received before commencement of the lease, direct costs
incurred at the commencement of the lease and estimated restoration
costs to be incurred at the end of the lease. When IFRS 16 is
applied for the first time, the standard permits certain departures
from these policies as practical expedients. The practical
expedients used by the Group on transition to IFRS 16 are explained
below.
Right of use assets are presented within property, plant and
equipment and depreciated on a straight-line basis over the shorter
of their useful life and the lease term. Their carrying amounts are
measured at cost less accumulated depreciation and impairment
losses. Lease liabilities are presented within current and
non-current borrowings. Over the lease term, the carrying amounts
of lease liabilities are increased to reflect interest on the
liability and reduced by the amount of lease payments made. A lease
liability is remeasured if there is a modification, a change in the
lease term or a change in lease payments. The costs of these leases
are recognised in the income statement split between the
depreciation of the lease asset and the interest charge on the
lease liability. Depreciation is presented within selling and
administrative expenses and interest charges within finance
costs.
This policy applies mainly to the Group's leases for properties
and vehicles. For short-term leases with a lease term of 12 months
or less and leases of low value items, the Group has elected to
apply the exemptions available under the standard. The leases to
which these exemptions apply are accounted for in the same way as
operating leases under IAS 17, as explained above, with no lease
assets or liabilities recognised. The low value exemption has been
applied to most of the Group's leases of IT and other office
equipment.
Accounting for the transition to IFRS 16
On transition to IFRS 16, the Group has measured its lease
liabilities at the present value of the remaining lease payments,
discounted using the incremental borrowing rate (IBR) applicable to
each lease at 1 October 2019. The standard permits a choice on
initial adoption of measuring lease assets either as if IFRS 16 had
been applied since lease commencement but discounted using the IBR
at 1 October 2019, or at an amount equal to the lease liability
adjusted for accrued or prepaid lease payments. The assets for the
Group's property leases have been measured as if IFRS 16 had always
been in place. Assets for other leases, mainly vehicles, have been
measured at an amount equal to the lease liability.
The Group has made use of the following practical expedients
available when the modified retrospective approach is applied to
accounting for the transition to IFRS 16:
-- For vehicle leases, the Group has applied a single discount
rate to a portfolio of those leases with
reasonably similar characteristics;
-- For all leases, the Group has excluded from the measurement
of the right of use asset initial direct costs incurred when
obtaining the lease; and
-- The Group has relied on its existing onerous lease
assessments under IAS 37 to impair right of use assets instead of
performing a new impairment assessment for those assets.
The Group reassessed its lease portfolio against the new IFRS 16
definition of a lease. This resulted in a small number of contracts
for property-related arrangements such as car parking not
qualifying as leases because the landlord has substantive
substitution rights.
Key judgements made in calculating the transition impact include
determining the lease term for property leases with extension or
termination options. An extension period or a period beyond a
termination option are included in the lease term only if the lease
is reasonably certain to be extended or not terminated. This is
assessed taking account mainly of the time remaining before the
option is exercisable; any economic disadvantages or benefits to
exercise such as penalties or low rent payments; and operational
plans for the location. In most cases, this results in lease terms
being assumed to end at the next break date until an operational
decision to extend or terminate, unless termination would incur
penalties.
The main estimate made on transition is in determining the
incremental borrowing rates used as discount rates for property
leases. The incremental borrowing rate is the rate of interest that
the local Sage business holding the lease would have to pay in
order to borrow funds to obtain an asset of a similar value to the
right-of-use asset in a similar economic environment, over a
similar term and with a similar security. The incremental borrowing
rate applied to each lease was determined based on the risk-free
rate for the country in which the local business is located
adjusted to reflect the credit risk associated with that business
and the lease term remaining at 1 October 2019.
Quantification of the impact of transition
Quantification of the impact of transition to IFRS 16 and
explanations of the adjustments are set out in note 12.
Amendments to IFRS 3
The Group has early adopted these amendments for business
combinations and asset acquisitions occurring on or after 1 October
2019, as permitted by the transitional provisions for the
amendments. The amendments would otherwise have become mandatory
for the Group's business combinations and asset acquisitions
occurring on or after 1 October 2020. The amendments clarify the
definition of a business under IFRS 3 to help companies to
determine whether an acquisition is of a business or a group of
assets. The acquisition of a business is accounted for as a
business combination whereas the acquisition of a group of assets
is accounted for by allocating the cost of the transaction to the
individual identifiable assets and liabilities on the basis of
their relative fair values at the date of purchase. Goodwill is
recognised only when acquiring a business.
The amendments also introduce an optional "concentration test"
that permits a simplified assessment of whether an acquired set of
activities and assets is not a business. If substantially all of
the fair value of the gross assets acquired is concentrated in a
single identifiable asset or group of similar identifiable assets,
the concentration test is met, and the acquisition is not of a
business.
The Group has applied the concentration test to the acquisition
of Cake HR Limited on 28 November 2019. The transaction met the
test and as a result has been accounted for as an acquisition of a
group of assets and primarily of an intangible technology asset.
This treatment has not resulted in any material difference to the
Group's financial statements compared to accounting for the
transaction as a business combination.
Adoption of new and revised IFRSs
There are no new accounting standards which are currently issued
but not yet effective which the management expects would have a
material impact on the Group.
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 35% of the Company's revenue is generated from
sales to partners rather than end users. The key judgement is
determining whether the business partner is a customer of the
Group. The key criteria in this determination is whether the
business partner has taken control of the product. Considering the
nature of Sage's subscription products and support services, this
is usually assessed based on whether the business partner has
responsibility for payment, has discretion to set prices, and takes
on the risks and rewards of the product from Sage.
Where the business partner is a customer of Sage, discounts are
recognised as a deduction from revenue.
Where the business partner is not a customer of Sage and their
part in the sale has simply been in the form of a referral, they
are remunerated in the form of a commission payment. These payments
are treated as contract acquisition costs.
An additional area of judgement is the recognition and deferral
of revenue on on-premise subscription offerings, for example the
sale of a term licence with an annual maintenance and support
contract as part of a subscription contract. In such instances, the
transaction price is allocated between the constituent performance
obligations on the basis of standalone selling prices (SSPs).
Judgement is required when estimating SSPs. The Group has
established a hierarchy to identify the SSPs that are used to
allocate the transaction price of a customer contract to the
performance obligations in the contract. Where SSPs for on-premise
offerings are observable and consistent across the customer base,
SSP estimates are derived from pricing history. Where there are no
directly observable estimates available, comparable products are
utilised as a basis of assessment or the residual approach is used.
Under the residual approach, the SSP for the offering is estimated
to be the total transaction price less the sum of the observable
SSPs of other goods or services in the contract. The Group uses
this technique in particular for estimating the term licence SSP
sold as part of its on-premise subscription offerings as Sage has
previously not sold term licences on a stand-alone basis (i.e., the
selling price is uncertain).
Goodwill impairment
A key judgement is the ongoing appropriateness of the
cash-generating units ("CGUs") for the purpose of impairment
testing.
The assumptions applied in calculating the value in use of the
CGUs being tested for impairment is a source of estimation
uncertainty. The key assumptions applied in the calculation relate
to the future performance expectations of the business - average
medium-term revenue growth and long-term growth rate - as well as
the discount rate to be applied in the calculation.
Following challenging current trading and economic conditions in
Asia, management has reassessed the expected future business
performance relating to the Asia group of CGUs. The revised
projected cash flows are lower and this has led to an impairment
charge of GBP19m, which is the total value of goodwill in Asia.
Due to the ongoing COVID-19 pandemic as noted on page 3 we have
compared our sensitivity analysis used in the annual impairment
review as disclosed in the 30 September 2019 financial statements
against our current and forecasted trading performance. With the
exception of Asia, as discussed above, there is no significant CGU
or group of CGUs, including the Intacct CGU, where management have
concluded that the carrying value of the CGU or group of CGUs
exceeds its recoverable amount. The carrying value of goodwill and
the key assumptions used in performing the annual impairment
assessment are disclosed in the 30 September 2019 financial
statements.
Trade receivables
Due to COVID-19 the timing and level of impact of business
failures is uncertain. Therefore, the expected credit loss
allowance against trade receivables is a source of estimation
uncertainty. Current and expected collection of trade receivables
since the start of the COVID-19 pandemic has been modelled on a
region-specific basis, taking into account macroeconomic factors,
such as revised GDP outlooks and government support available and
other regional specific microeconomic factors. Compared to
historical collection rates management have provided an additional
GBP13m expected credit loss provision representing an additional
10% loss rate above historical rates.
Website
This condensed consolidated half-yearly financial report for the
six months ended 31 March 2020 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 President and Chief Financial Officer. The Executive
Committee uses 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.
The Group is organised into nine key operating segments: North
America (excluding Intacct) (US and Canada), North America Intacct,
Northern Europe (UK and Ireland), Central Europe (Germany, Austria
and Switzerland), France, Iberia (Spain and Portugal), Africa and
the Middle East, Asia (including Australia) and Latin America. For
reporting under IFRS 8, the Group is divided into three reportable
segments. These segments are as follows:
-- North America (North America (excluding Intacct) and North America Intacct)
-- Northern Europe
-- Central and Southern Europe (Central Europe, France and Iberia)
The remaining operating segments of Africa and the Middle East,
Asia (including Australia) and Latin America do not meet the
quantitative thresholds for presentation as separate reportable
segments under IFRS 8, and so are presented together and described
as International. They include the Group's operations in South
Africa, UAE, Australia, Singapore, Malaysia and Brazil.
The reportable segments reflect the aggregation of the operating
segments for Central Europe, France and Iberia, and also of those
for North America (excluding Intacct) and North America Intacct. In
each case, the aggregated operating segments are considered to
share similar economic characteristics because they have similar
long-term gross margins and operate in similar markets. Central
Europe, France and Iberia operate principally within the EU and the
majority of their businesses are in countries within the Euro area.
North America (excluding Intacct) and North America Intacct share
the same North American geographical market and therefore share the
same economic characteristics. The UK is the home country of the
parent.
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. With effect from 1 October 2019, the Group reports revenue
under two revenue categories as noted below:
Category Examples
Recurring revenue Subscription contracts
Maintenance and support contracts
===================================
Other revenue Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationery
Payment processing services
Payroll processing services
-----------------------------------
Prior to this the Group reported three revenue categories:
Recurring revenue, Software and software-related services and
Processing revenue. The aggregation of Software and
software-related services and Processing revenue into the Other
revenue category reflects the focus on recurring revenue and the
divestment of certain processing businesses. There is no change to
the revenue recognition policy in the period as disclosed in the
annual financial statements for the year ended 30 September
2019.
Revenue by segment (Unaudited)
Six months ended 31 March 2020
Statutory Organic Change Change Change
and Underlying adjustments* Organic Statutory Underlying Organic
GBPm GBPm GBPm % % %
===================== ===================== ============= =========== ========== =========== ========
Recurring revenue by segment
North America 311 - 311 11.8% 10.9% 11.9%
Northern Europe 187 - 187 14.4% 14.5% 13.3%
Central and Southern
Europe 250 - 250 4.1% 6.1% 6.1%
International 100 (22) 78 1.2% 7.8% 10.9%
======================= ===================== ============= =========== ========== =========== ========
Recurring revenue 848 (22) 826 8.6% 9.9% 10.3%
======================= ===================== ============= =========== ========== =========== ========
Other revenue by segment
North America 32 - 32 (35.7%) (36.2%) (11.1%)
Northern Europe 28 (17) 11 (17.0%) (16.8%) (23.1%)
Central and Southern
Europe 47 - 47 (25.4%) (24.0%) (24.0%)
International 20 (1) 19 (33.7%) (30.6%) (18.7%)
======================= ===================== ============= =========== ========== =========== ========
Other revenue 127 (18) 109 (28.0%) (27.1%) (19.6%)
======================= ===================== ============= =========== ========== =========== ========
Total revenue by segment
North America 343 - 343 4.6% 3.9% 9.3%
Northern Europe 215 (17) 198 8.9% 9.1% 10.3%
Central and Southern
Europe 297 - 297 (2.0%) (0.1%) (0.1%)
International 120 (23) 97 (6.8%) (1.1%) 3.4%
======================= ===================== ============= =========== ========== =========== ========
Total revenue 975 (40) 935 1.9% 3.1% 5.7%
======================= ===================== ============= =========== ========== =========== ========
* Adjustments relate to the disposal of Sage Pay and Brazil
(note 11).
Revenue by segment (Unaudited)
Six months ended 31 March 2019
Statutory Impact
and Underlying of foreign Organic
as reported exchange Underlying adjustments* Organic
GBPm GBPm GBPm GBPm GBPm
===================== ================== =========== ============ ============= =======
Recurring revenue by segment
North America 278 2 280 (2) 278
Northern Europe 163 - 163 2 165
Central and Southern
Europe 241 (5) 236 - 236
International 99 (6) 93 (23) 70
======================= ================== =========== ============ ============= =======
Recurring revenue 781 (9) 772 (23) 749
======================= ================== =========== ============ ============= =======
Other revenue by segment**
North America 49 1 50 (14) 36
Northern Europe 34 - 34 (20) 14
Central and Southern
Europe 63 (1) 62 - 62
International 30 (2) 28 (4) 24
======================= ================== =========== ============ ============= =======
Other revenue 176 (2) 174 (38) 136
======================= ================== =========== ============ ============= =======
Total revenue by segment
North America 327 3 330 (16) 314
Northern Europe 197 - 197 (18) 179
Central and Southern
Europe 304 (6) 298 - 298
International 129 (8) 121 (27) 94
======================= ================== =========== ============ ============= =======
Total revenue 957 (11) 946 (61) 885
======================= ================== =========== ============ ============= =======
* Adjustments relate to the disposal of Sage Pay and Brazil in
the current period (note 11) and acquisition of Ocrex Limited and
disposal of Sage Payroll Solutions in the prior year.
** Previously reported as Software and software-related services
and Processing revenue categories.
Operating profit by segment (Unaudited)
Six months ended 31 March
2020
===================== =========== ============ ================================= ========== ===========
Underlying Organic Change Change
Statutory adjustments Underlying adjustments Organic Statutory Underlying
GBPm GBPm GBPm GBPm GBPm % %
===================== =========== ============ ========== ============ ======= ========== ===========
Operating profit
by segment
North America 56 13 69 - 69 (31.3%) (5.8%)
Northern Europe 236 (162) 74 (4) 70 275.7% 12.0%
Central and Southern
Europe 54 6 60 - 60 (12.3%) (9.5%)
International (57) 72 15 (1) 14 (1,612.5%) 46.1%
======================= =========== ============ ========== ============ ======= ========== ===========
Total operating
profit 289 (71) 218 (5) 213 37.9% 0.9%
======================= =========== ============ ========== ============ ======= ========== ===========
Six months ended 31 March
2019
===================== =========== ============ =================================== ============ =======
Impact of
Statutory Underlying Underlying foreign Organic
GBPm adjustments as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm GBPm
===================== =========== ============ ============ ========= ========== ============ =======
Operating profit
by segment
North America 81 (9) 72 1 73 - 73
Northern Europe 63 4 67 - 67 (9) 58
Central and Southern
Europe 62 6 68 (1) 67 - 67
International 4 7 11 (2) 9 - 9
======================= =========== ============ ============ ========= ========== ============ =======
Total operating
profit 210 8 218 (2) 216 (9) 207
======================= =========== ============ ============ ========= ========== ============ =======
Reconciliation of underlying operating profit to statutory
operating profit
Six months ended Six months ended
31 March 2020 31 March 2019
(Unaudited) (Unaudited)
GBPm GBPm
==================================================== ==== ==== ================= =================
North America 69 73
Northern Europe 74 67
Central and Southern Europe 60 67
Total reportable segments 203 207
International 15 9
================================================================ ================= =================
Underlying operating profit 218 216
Impact of movement in foreign currency exchange rates - 2
========================================================== ==== ================= =================
Underlying operating profit (as reported) 218 218
Amortisation of acquired intangible assets (15) (15)
Other M&A activity-related items (6) (6)
Non-recurring items 92 13
================================================================ ================= =================
Statutory operating profit 289 210
================================================================ ================= =================
3 Adjustments between underlying profit and statutory profit
(Unaudited)
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
31 March 31 March 31 March 31 March 31 March 31 March
2020 2020 2020 2019 2019 2019
Non- Non-
Recurring recurring Total Recurring recurring Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ========== ========== ========== ========== ==========
M&A activity-related
items
Amortisation of acquired
intangibles (15) - (15) (15) - (15)
Gain on disposal of subsidiaries - 141 141 - 27 27
Other M&A activity-related
items (6) - (6) (6) - (6)
Other items
Impairment of goodwill - (19) (19) - - -
Property restructuring
costs - (6) (6) - (14) (14)
Office relocation - (24) (24) - - -
Total adjustments made
to operating profit (21) 92 71 (21) 13 (8)
Fair value adjustment (1) - (1) - - -
Foreign currency movements
on intercompany balances - - - 1 - 1
Total adjustments made
to profit before income
tax (22) 92 70 (20) 13 (7)
================================= ========== ========== ========== ========== ========== ==========
Recurring items
Acquired intangibles are assets which have previously been
recognised as part of business combinations or similar
transactions. These assets are predominantly brands, customer
relationships and technology rights.
Other M&A activity-related items comprise the cost of
carrying out M&A activities including business combinations as
well as acquisition-related remuneration and directly attributable
integration costs arising on business combinations.
The fair value adjustment comprises a charge of GBP1m (H1 FY19:
charge of GBPnil) in relation to an embedded derivative asset which
relates to contractual terms agreed as part of the US private
placement debt.
Foreign currency movements on intercompany balances of GBPnil
(H1 FY19: GBP1m) occurs due to retranslation of intercompany
balances other than those where settlement is not planned or likely
in the foreseeable future.
Non-recurring items
Details of the gain/(loss) on disposal of subsidiaries can be
found in note 11.
Following challenging current trading and economic conditions in
Asia, an impairment of the goodwill relating to the Asia group of
CGUs has been recognised. See note 7 for further details.
Property restructuring costs relate to the reorganisation of the
Group's properties and consist of net lease exit costs following
consolidation of office space and impairment of leasehold and other
related assets that are no longer in use. This is one programme
that has bridged two financial years therefore the Group has
continued to present these costs as non-recurring. The Group is
anticipating incurring additional costs in connection with the
reorganisation programme of the Group's property portfolio.
Office relocation costs relate to the incremental depreciation
charge resulting from accelerated depreciation following the
announced UK office move.
Cash paid in relation to recurring and non-recurring items in
the year of GBP6m relates to M&A activity-related items and
property restructuring costs.
4 Income tax expense
The effective tax rate on statutory profit before tax was 19%
(six months ended 31 March 2019: 22%) whilst the effective tax rate
on underlying profit before tax for continuing operations was 27%
(six months ended 31 March 2019: 26%). 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 2020.
The difference between the underlying and statutory rate in H1
20 primarily reflects non-taxable disposals of subsidiaries (Sage
Pay and the Brazilian business), offset by a non-tax-deductible
charge relating to the impairment of goodwill in respect of the
Asia business and the accelerated depreciation relating to North
Park.
EU State Aid
The Group continues to monitor developments following the EU
Commission's decision published on 25 April 2019 in respect of its
State Aid investigation into the UK's Controlled Foreign Company
regime. In the FY19 Annual Report the Group disclosed that we had
calculated our maximum potential liability, excluding interest, to
be approximately GBP35m. Based on current advice, we consider that
no provision is required at this time. The assessment of uncertain
tax positions is subjective and significant management judgement is
required. This judgement is based on current interpretation of
legislation, management experience and professional advice.
5 Dividends
Six months Six months
ended ended Year
31 March 31 March ended
2020 2019 30 September
2019
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
========================================== ============= ============= ==============
Final dividend paid for the year ended 30
September 2018 of 10.85p per share - 118 118
Interim dividend paid for the year ended
30 September 2019 of 5.79p per share - - 63
Final dividend paid for the year ended 30
September 2019 of 11.12p per share 121 - -
========================================== ============= ============= ==============
121 118 181
========================================== ============= ============= ==============
The interim dividend of 5.93p per share will be paid on 12 June
2020 to shareholders on the register at the close of business on 22
May 2020.
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
Underlying as reported Six Underlying Statutory Statutory
Six months ended months ended Six months ended Six months ended Six months ended
31 March 31 March 31 March 31 March 31 March
2020 2019 2019 2020 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
================== ================== ================== ================== ================== ==================
Earnings
attributable to
owners of the
parent
Profit for the
period 150 152 150 224 154
================== ================== ================== ================== ================== ==================
Number of shares
(millions)
Weighted average
number of shares 1,090 1,086 1,086 1,090 1,086
Dilutive effects
of shares 8 5 5 8 5
================== ================== ================== ================== ================== ==================
1,098 1,091 1,091 1,098 1,091
================== ================== ================== ================== ================== ==================
Earnings per
share
attributable to
owners of the
parent (pence)
Basic earnings
per share 13.75 13.93 13.78 20.56 14.19
================== ================== ================== ================== ================== ==================
Diluted earnings
per share 13.66 13.85 13.71 20.42 14.12
================== ================== ================== ================== ================== ==================
Six months ended Six months ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
Reconciliation of earnings GBPm GBPm
================================================================================== ================ ================
Underlying earnings attributable to owners of the parent 150 150
Impact of movement in foreign currency exchange rates - 2
================================================================================== ================ ================
Underlying earnings attributable to owners of the parent (as reported) 150 152
---------------- ----------------
Office relocation (24) -
Property restructuring costs (6) (14)
Impairment of goodwill (19) -
Amortisation of acquired intangible assets and adjustment to acquired deferred
income (15) (15)
Fair value adjustments to debt-related financial instruments (1) -
Foreign currency movements on intercompany balances - 1
Other M&A related items (6) (6)
Gain on disposal of subsidiaries 141 27
Taxation on adjustments 4 9
Net adjustments 74 2
================================================================================== ================ ================
Earnings statutory profit for period 224 154
================================================================================== ================ ================
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 2019 2,098 228 117 2,443
Impact of adoption of IFRS 16 - - 113 113
Additions - 11 26 37
Impairment (19) - - (19)
Depreciation, amortisation and other movements - (21) (53) (74)
Exchange movement (20) (2) (5) (27)
Closing net book amount at 31 March 2020 2,059 216 198 2,473
================================================ ============= ============= ================ =============
Other
intangible Property, plant
Goodwill assets and equipment Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm
================================================ ============= ============= ================ =============
Opening net book amount at 1 October 2018 2,008 260 129 2,397
Additions - 6 17 23
Disposal of subsidiary 4 (5) - (1)
Depreciation, amortisation and other movements - (22) (14) (36)
Exchange movement (10) (1) (1) (12)
Closing net book amount at 31 March 2019 2,002 238 131 2,371
================================================ ============= ============= ================ =============
Goodwill is not subject to amortisation, but is tested for
impairment annually and whenever there is any indication of
impairment. At 31 March 2020, with the exception of the Asia CGU,
there were no indicators of impairment to goodwill. Details of the
2019 goodwill impairment review are provided in the 2019
consolidated financial statements.
Asia CGU Impairment
As presented in the 2019 consolidated financial statements, a
reasonable possible change was identified that would reduce the
recoverable value of the Asia CGU down to its carrying value.
Following challenging current trading and economic conditions,
management has reassessed the expected future business performance.
The revised projected cash flows are lower and this has led to an
impairment charge of GBP19m, which is the total value of goodwill
in Asia.
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. 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 2020 At 31 March 2019
======================== ========================
Book Value Fair Value Book Value Fair Value
GBPm GBPm GBPm GBPm
====================== =========== =========== =========== ===========
Long term-borrowing 898 904 768 771
Short term-borrowing 121 121 5 5
====================== =========== =========== =========== ===========
9 Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares (Unaudited) (Unaudited) (Unaudited)
(Unaudited) GBPm GBPm GBPm
======================== ============== ==================== ===================== ==================
At 1 October 2019 1,120,789,295 12 548 560
Shares issued/proceeds - - - -
======================== ============== ==================== ===================== ==================
At 31 March 2020 1,120,789,295 12 548 560
======================== ============== ==================== ===================== ==================
Number of Ordinary Share
Shares Shares (Unaudited) Premium (Unaudited) Total (Unaudited)
(Unaudited) GBPm GBPm GBPm
======================== ============== ==================== ===================== ==================
At 1 October 2018 1,120,789,295 12 548 560
Shares issued/proceeds - - - -
======================== ============== ==================== ===================== ==================
At 31 March 2019 1,120,789,295 12 548 560
======================== ============== ==================== ===================== ==================
In the current period, the Group transferred 2,567,873 (H1 FY19:
1,061,802) treasury shares to employees in order to satisfy vested
awards and acquired 1,101,918 (H1 FY19: nil) treasury shares as
part of the share buyback programme as announced on the 11 and 18
March 2020.
10 Cash flow and net debt
Six months ended Six months ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
GBPm GBPm
================================================================================ ================= =================
Statutory operating profit 289 210
Recurring and non-recurring items (71) 8
================================================================================ ================= =================
Underlying operating profit (as reported) 218 218
Depreciation/amortisation/impairment/profit on disposal of non-current
assets/non-cash items 29 16
Share-based payments 9 13
Net changes in working capital 36 106
Net capital expenditure (16) (23)
================================================================================ ================= =================
Underlying cash flow from operating activities 276 330
Net interest paid (12) (12)
Income tax paid (39) (41)
Non-recurring items (2) (20)
Exchange movement 4 -
================================================================================ ================= =================
Free cash flow 227 257
Net debt at 1 October* (529) (668)
Acquisitions and disposals of subsidiaries or similar transactions, net of cash
disposed 217 67
Acquisitions and disposals related items (4) -
Proceeds on settlement of equity investment - 17
Dividends paid to owners of the parent (121) (118)
New leases (16) -
Share buyback programme (7) -
Exchange movement (7) (3)
Other 2 -
Net debt at 31 March (238) (448)
================================================================================ ================= =================
*adjusted as at 1 October 2019 on adoption of IFRS16.
Six months ended Six months ended
31 March 31 March
2020 2019
GBPm GBPm
=========================================================== ================= =================
Underlying cash flow from operating activities 276 330
Net capital expenditure 16 23
Recurring and non-recurring cash items (6) (21)
Other adjustments including foreign exchange translations 6 1
Statutory cash flow from operating activities 292 333
At
At 31 March 2020
1 October as originally presented 2019 Impact of adoption of IFRS16 Cash flow Disposal of subsidiary Non-cash movement Exchange movement (Unaudited)
Analysis of change in net debt (inclusive of leases) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================================================== ======================================== ============================ ========= ====================== ================= ================= ===============
Cash and cash equivalents 371 - 569 (12) - (16) 912
Cash amounts included in held for sale 1 - - (1) - - -
====================================================== ======================================== ============================ ========= ====================== ================= ================= ===============
Cash, cash equivalents and bank overdrafts 372 - 569 (13) - (16) 912
Liabilities arising from financing activities
Loans due within than one year (122) - - - - 1 ( 121 )
Loans due after more than one year (643) - (257) - - 2 ( 898 )
Lease liabilities due within one year - (29) 4 - (3) - ( 28 )
Lease liabilities after more than one year - (106) 10 - (13) 6 (103)
Lease liabilities included in held for sale - (1) - 1 - - -
(765) (136) (243) 1 (16) 9 (1,150)
====================================================== ======================================== ============================ ========= ====================== ================= ================= ===============
Total (393) (136) 326 (12) (16) (7) (238)
====================================================== ======================================== ============================ ========= ====================== ================= ================= ===============
The Group continues to borrow from multiple lending sources and
currently deems this to be the most effective means of raising
finance at competitive rates and terms. The Group's debt is sourced
from a syndicated multi-currency Revolving Credit Facility ("RCF"),
a syndicated Term Loan and US private placements ("USPP"). The Term
Loan of GBP200m was put in place in September 2019 and expires in
September 2021. The Group's RCF expires in February 2025 with
facility levels of GBP715m (US$719m and GBP135m tranches). At 31
March 2020, GBP302m (H1 2019: GBP274m) of the multi-currency
revolving debt facility was drawn and the Term Loan was fully
drawn.
Total USPP loan notes at 31 March 2020 were GBP519m (US$550m and
EUREUR85m) (H1 2019: GBP497m, US$550m and EUREUR85m).
11 Acquisitions and disposals
Discontinued operations and assets and liabilities held for
sale
The Group had no discontinued operations during the six-month
period ended 31 March 2020 or 31 March 2019 and had no assets or
liabilities held for sale at 31 March 2020 or 31 March 2019. Assets
and liabilities held for sale at 30 September 2019 relate to the
subsidiaries forming the Group's Sage Pay and Brazilian businesses
which were sold during the six-month period ended 31 March 2020 as
explained below.
Disposals made during the period
On 11 March 2020, the Group completed the sale of Sage Pay, the
Group's European payments processing business, for total
consideration of GBP241m. On 31 March 2020, the Group completed the
sale of its Brazilian business for total consideration of GBP1m.
The gains and losses on disposal are calculated as follows:
Sage Pay Brazil Total
2020 2020 2020
(Unaudited) (Unaudited) (Unaudited)
Gain/(loss) on disposal GBPm GBPm GBPm
========================================================================= ============= ============= =============
Cash consideration 241 1 242
Gross consideration 241 1 242
Transaction costs (9) (2) (11)
========================================================================= ============= ============= =============
Net consideration 232 (1) 231
Net assets disposed (40) (7) (47)
Cumulative foreign exchange differences reclassified from other
comprehensive income to the
income statement 1 (44) (43)
Gain/(loss) on disposal 193 (52) 141
========================================================================= ============= ============= =============
Net assets disposed comprise:
Sage Pay Brazil Total
2020 2020 2020
(Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm
================================ ============= ============= =============
Goodwill 25 - 25
Other intangible assets 1 - 1
Property, plant and equipment 2 - 2
Deferred income tax asset - 6 6
Inventory 1 - 1
Trade and other receivables 6 11 17
Cash and cash equivalents 9 4 13
================================ ============= ============= =============
Total assets 44 21 65
Trade and other payables (3) (4) (7)
Borrowings - (1) (1)
Current income tax liabilities - (1) (1)
Provisions - (1) (1)
Deferred income (1) (7) (8)
Total liabilities (4) (14) (18)
================================ ============= ============= =============
Net assets 40 7 47
================================ ============= ============= =============
The net gain is reported within continuing operations, as an
adjustment between underlying and statutory results.
Prior to the disposals, Sage Pay formed part of the Group's
Northern Europe reporting segment and the Brazilian business was
part of the International segment.
The net inflow of cash and cash equivalents on the disposals is
calculated as follows:
Sage Pay Brazil Total
2020 2020 2020
(Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm
=========================================================== ============= ============= =============
Cash consideration 241 1 242
Transaction costs (9) (4) (13)
=========================================================== ============= ============= =============
Net consideration received 232 (3) 229
Cash disposed (9) (4) (13)
Working capital payable 6 - 6
Inflow/(outflow) of cash and cash equivalents on disposal 229 (7) 222
=========================================================== ============= ============= =============
During the six-month period ended 31 March 2019, the Group
completed the sale of its Sage Payroll Solutions business. Net
assets divested were GBP51m, and the transaction resulted in a gain
on disposal of GBP27m.
12 IFRS 16
The Group recognised the following adjustments to amounts
reported in the balance sheet at 1 October 2019.
IFRS 16
right-of-use
assets Derecognise
and lease IAS 17 rent Right-of-use
liabilities accruals asset Total
(Unaudited and prepayments impairment* Tax impact** Impact
) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm GBPm
============================ ============= ================ ============ ============ ============
Non-current Assets
Property, plant and
equipment 118 - (5) - 113
Deferred income tax
assets - - - 2 2
Current assets
Trade and other receivables - (2) - - (2)
Assets classified as
held for sale 1 - - - 1
================================ ============= ================ ============ ============ ============
Current Liabilities
Borrowing (30) - - - (30)
Trade and other payables - 10 - - 10
Provisions - - 1 - 1
Liabilities classified
as held for sale (1) - - - (1)
================================ ============= ================ ============ ============ ============
Non-current Liabilities
Borrowing (105) - - - (105)
Provisions - - 4 - 4
================================ ============= ================ ============ ============ ============
Net assets (17) 8 - 2 (7)
================================ ============= ================ ============ ============ ============
Total equity (17) 8 - 2 (7)
================================ ============= ================ ============ ============ ============
* As a practical expedient on transition, the Group has relied
on its existing onerous lease assessments under IAS 37 to impair
right of-use assets instead of performing a new impairment
assessment for those assets. As a result, onerous provisions
relating to lease payments were reclassified to the right-of-use
asset.
** Tax impact represents deferred tax on the net transition
adjustment.
The standard does not impact net cash flow, but cash flows from
the principal portion of lease payments for property and vehicle
leases are now presented within cash flows from financing
activities as the payments represent the repayment of lease
liabilities. The interest element of these lease payments is
included in interest paid within cash flows from operating
activities. Previously lease payments were reclassified as cash
flows from operating activities.
The table below reconciles the operating lease obligations
reported under the previous accounting standard, IAS 17 "Leases",
at 30 September 2019 to the lease liability recorded under IFRS 16
at the date of transition.
(Unaudited)
GBPm
========================================= =============
Operating lease commitments reported
at 30 September 2019 162
Commitment on a lease not commenced
at 1 October 2019* (7)
IAS 17 operating leases not qualifying
as leases under IFRS 16** (1)
Effect of discounting of future cash
flows under IFRS 16*** (18)
Lease liability recognised at 1 October
2019 136
============================================= =============
Of which:
- Current lease liabilities 30
- Non-current lease liabilities 105
- Liabilities classified as held
for sale 1
--------------------------------------------- -------------
* At 30 September 2019, the Group had signed an agreement to
lease a property but had not yet been granted access to it.
Therefore, at that date the lease qualified for disclosure as a
commitment under IAS 17, but not for recognition as a liability
under IFRS 16.
** A small number of property arrangements treated as leases
under IAS 17 did not meet the IFRS 16 definition of a lease. In
most cases this was because the landlord has substantive
substitution rights.
*** Lease commitments disclosed under IAS 17 are not discounted
to their present value. Under IFRS 16, lease liabilities have been
discounted using the incremental borrowing rate for each lease.
The weighted average incremental borrowing rate applied to
discount the lease liabilities to their present value at 1 October
2019 was 3.7%. Rates applied to individual leases ranged from 0.25%
to 11.6%. Differences in discount rates reflect principally the
geographic location of leases and the length of the remaining lease
term.
The estimated impact of the application of IFRS 16 on the income
statement for the period ending 31 March 2020 was to increase
operating profit by approximately GBP3m and increase profit for the
period by approximately GBP1m.
13 Related party transactions
The Group's related parties are its subsidiary undertakings and
its key management personnel, which comprises the Group's Executive
Committee and Non-executive Directors. Transactions and outstanding
balances between the parent and its subsidiaries within the Group
and between those subsidiaries and have been eliminated on
consolidation and are not disclosed in this note.
Six months ended Six months ended
31 March 31 March
2020 2019
(Unaudited) (Unaudited)
Key management compensation GBPm GBPm
=========================================== ================= =================
Salaries and short-term employee benefits 5 5
Post-employment benefits - -
Share-based payments 4 2
=========================================== ================= =================
9 7
=========================================== ================= =================
Key management personnel are deemed to be members of the
Executive Committee, as defined in the Group's Annual Report &
Accounts 2019 and the Non-executive Directors. Since the signing of
the Group's Annual Report & Accounts 2019, there have been the
following changes to the composition of the Executive Committee:
with effect from 1 April 2020 Keith Robinson was appointed as Chief
Strategy Officer, Marcus Banks was appointed as Interim Chief
Marketing Officer, and Lee Perkins (previously Chief Product
Officer) was appointed as Chief Commercial and Product Officer, and
with effect from 31 March 2020 Blair Crump retired from his role as
President and Ron McMurtrie left the Group on the same date.
Changes in the Non-executive Directors are explained in the
Statement of Directors' Responsibilities.
Managing Risk
The effective management of financial, compliance and
operational risks is critical to the success of Sage's strategy. By
empowering and supporting our leaders to manage risks locally
within their business and functional areas, we accelerate our
progress against our organisational goals. Our "always-on,
on-demand" risk reporting continues to provide real-time risk
information to leaders across the organisation, further enhancing
leaders' ability to make risk informed decisions in a timely
manner.
The Board continues to monitor the risk environment and reviews
the appropriateness of the principal risks to the business.
Sage continually assesses its Principal Risks to ensure
continued and enhanced alignment to our strategy and in light of
where Sage is currently on its journey to becoming a great SaaS
business. Sage currently reports against 11 refreshed principal
risks. At the same time, Sage has conducted a thorough assessment
of the potential impacts of COVID-19 on the principal risks from a
Strategic, Commercial and Operational perspective. This has ensured
that the business can provide the appropriate response to impacts
being felt in the short term, to both the business, our colleagues
and customers, and to position ourselves regarding long term
sustainability and viability.
As above, the principal risks continue to evolve, reflecting the
organisation's strategic focus on becoming a cloud-led SaaS
business. By monitoring risk and performance indicators related to
this strategy, principal risk owners focus on those metrics that
signal current performance, as well as any emerging risks and
issues. The principal risks reflect our three strategic lenses of
customer success, colleague success and innovation. The management
and mitigation actions described below reflect the refreshed
principal risks and build on those actions previously reported in
our FY19 Annual Report.
Principal Risk Context Management and Mitigation
Risk
=============== ================================= ===================================================================
Understanding Sage is the leader
Customer Needs in key global markets, * Brand health surveys are used to provide us with an
If we fail and this assists us understanding of customer perception of the Sage
to anticipate, in gathering valuable brand and its products, which we use to inform and
understand insights into what enhance our market offerings
and deliver our current and future
against the customers want and
capabilities need. It also helps * Detailed customer segment analysis is used to develop
and us to better understand segment-specific playbooks that support
experiences the strengths and weaknesses customer-focused development
our current of our products and
and future services, and better
customers develop and position * A Market and Competitive Intelligence team provides
need at those products and insights that Sage uses to win in the market.
appropriate services to meet the
pace, they needs of our current
will find and future customers. * A product re-naming exercise was completed to
alternative By understanding the simplify the purpose of each product, and assist with
solution specific needs of these customer understanding
providers. customer groups in
each country and region,
Strategic we will be better positioned * Ongoing refinement and improvement of market data
alignment: to efficiently manage through feedback from the business, partners and
our products, marketing customers, including specific focus upon COVID-19 and
Customer efforts and support the impact on SMB's
Success services. This in turn
will allow us to maximise
our return on investment * Customer Advisory Boards, Customer Design Sessions
and retain a loyal and NPS detractor call-back channels are used to
customer and partner constantly gather information on customer needs
base over the long
term.
In progress:
* By providing ISVs with access to the Sage Developer
Platform, which is focussed on the development of
bespoke solutions, we gain additional insights into
customer needs
================================= ===================================================================
Execution A key component of
of Product Sage's transition to * Following a product rationalisation and
Strategy a Software as a Service prioritisation exercise Sage's product strategy was
If we fail (SaaS) company is the updated to ensure that cloud native products are
to deliver, delivery of cloud-native delivered in line with customer expectations
to timescale, products and solutions.
the To achieve this, we
capabilities need to execute, at * A licensing model transition strategy is in place,
and pace, a prioritised anchored on the Sage Business Cloud
experiences product strategy that
outlined in moves our product portfolio
our product to cloud-native solutions. * Sage Business Cloud is available in United Kingdom
strategy, This may include a and Ireland, North America, France and Spain
we will not transitional period
meet the needs of cloud-connected
of our products, with a clear * Recent cloud-native products (Sage Intacct and Sage
customers path to the cloud-native People) are available in Sage Business Cloud in North
or commercial products for our current America, with international delivery ongoing
goals. and future customers
Strategic requirements.
alignment: * A Product Marketing team oversees competitive
positioning and product development to align products
Customer with the needs of our customers
Success
Innovation
In progress:
* Prioritisation of core product and service delivery
in key territories is continuing, including
responding to the impact of COVID-19, with plans
being developed to address non-core products and
services in these markets
================================= ===================================================================
Innovation As Sage transitions
If we fail into a SaaS business * Creation of Sage AI Labs team to focus and drive
to identify powered by a subscription AI/ML development including to enhance the capability
and leverage license model, we must of our products, starting with Sage Intacct
disruptive be able to rapidly
technologies deploy new innovations
and invest to our customers and * Focussed colleague engagement to accelerate
in modern partners. This innovation innovation across the organization through Continuous
development could relate to new Innovation Community
practices technologies, services,
and tools or new ways of working.
at an Innovation requires * Enhanced, consistent digital experience for all Sage
appropriate us to address how we Business Cloud users through the Sage Design System
pace, we will encourage innovation
not meet the across our people,
needs of our process and technology, * Acquisition of Autoentry provides automation of data
customers and how we make this entry through AI and Optical Character Recognition
or our innovation sustainable. Technology for our accounting products
commercial By building innovation
goals. into our collective
DNA, we can empower * Objectives integrated into the planning of each
Strategic our colleagues to improve segment and region to drive AI Transformation, Sage
alignment: the customer experience, Business Cloud adoption and innovation of product
and drive efficiencies features based on identified needs of customers
Customer in how we deliver our
Success products and services.
Innovation By strategically investing * Integration of the Pegg chat bot with Sage Accounting,
in platforms and relationships, to enhance the product experience using artificial
we can also harness intelligence
the innovation of our
partners. By providing
opportunities for our
partners to interact In progress:
with our products we * Simple, smart and open technology strategy to provide
can drive scalable API and microservices through a Sage Developer
growth and improve Platform
the customer experience.
* Strategic acquisition and collaboration with partners
to complement and enable accelerated innovation
* Platform Services delivered to Sage Business Cloud to
enhance value proposition for Cloud adoption
* Leveraging Sage ID and the Sage Business Cloud
network, Sage will be able to deliver a unified and
highly personalised experience for each customer
across the entirety of Sage Business Cloud
* Development of an incubation framework to guide how
Sage interacts with its innovation partners
* Enhancement of the Pegg AI capability, and increased
use of machine learning to support new areas and
operations
* Development of Sage's service fabric to support the
development of cloud solutions
================================= ===================================================================
Route to By offering our current
Market and potential customers * Market data and intelligence is disseminated
If we fail the right information internally to support decision makers in the best
to deliver on the right products routes to market
a bespoke and services at the
blend of route right time, we can
to market maximise the value * Dedicated colleagues are in place to support partners,
channels in we can obtain from and to help manage the growth of targeted channels
each country, our marketing and customer
based upon engagement activities.
common This can shorten our * The Sage Partner Programme has been moved into the
components, sales cycle and ensure marketing organisation to drive increased alignment
we will not that customer retention of the indirect channel to market
be able to is improved. It can
efficiently also use new products
deliver the and services, such * New routes to market are being opened through our
right as payments and banking partnerships with Payment and Banking technology
capabilities, technologies, to draw providers
and new customers into
experiences the Sage family.
to our current
and future In progress:
customers. * Internationalisation of existing cloud-native
Strategic products (Sage Intacct, Sage People) through a
alignment: partner-driven sales model
Customer
Success
================================= ===================================================================
Customer In becoming a true
Success SaaS business, we must * A Product Delivery team develops and delivers those
If we fail maintain a sharp focus products needed by our customers to support their
to effectively on the relationship success
identify and we have with our customers,
deliver constantly focus on
ongoing delivering the products, * Battlecards are in place for key products in all
value to our services and experiences countries, setting out the strengths and weaknesses
customers our customers need of competitors and their products
by focusing to be successful. If
on their needs we do not do this,
over the they will likely find * Defined 'customer for life' roadmaps are in place,
lifetime another provider who detailing how products fit together, any
of their does give them these interdependencies, and migration pathways for current
customer things. Conversely, and potential customers
journey, we if we do these things
will not be well these customers
able to will stay with Sage, * A data-driven Customer Success Framework was designed
achieve increasing their lifetime and piloted in UKI to enhance the customer experience
sustainable value, becoming our and ensure that Sage is better positioned to meet the
growth through greatest marketing current and future needs of the customer.
renewal. advocates.
Strategic While Sage is renowned
alignment: for its quality customer * Continuous Net Promoter Score (NPS) surveying allows
support, a focus on Sage to identify customer challenges rapidly, and
Customer customer success requires respond in a timely manner to emerging trends
Success more proactive engagement
Colleague as well. By proactively
Success helping customers to * The Customer Success Framework is being rolled out in
recognise and fully phases to other major markets to improve the customer
realize the value of experience
Sage's products we
can help increase the
value of these relationships * Placing customers (and colleagues) at the heart of
over time and reduce our response to the COVID-19 pandemic
the likelihood of customer
loss. By aligning our
people, processes and
technology with this In progress:
focus in mind, all * Consolidation of CRM systems continues to provide an
Sage colleagues can efficient single view of the customer across all
help support our customers markets.
to be successful and
in turn drive increased
financial performance. * Delivery of the Customer Core Program.
================================= ===================================================================
Third Party Sage places reliance
Reliance on third-party providers * Dedicated colleagues are in place to support partners,
If we do not to support the delivery and to help manage the growth of targeted channels
embed our of our products to
partners as our customers. Any
an integral interruption in these * Standardised implementation plans for Sage products
and aligned services or relationships that facilitate efficient partner implementation
part of Sage's could have a profound
go to market impact on Sage's reputation
strategy at in the market and could * A specialised Procurement function supports the
an appropriate result in significant business with the selection of strategic third-party
pace, we will financial liabilities suppliers and negotiation of contracts
fail to and losses.
deliver Sage has an extensive
the right network of sales partners * Clear roles and responsibilities for colleagues are
capabilities critical to our success outlined in the Procurement Lifecycle Policy and
and in the market, and Procedures, which includes delegated levels of
experiences suppliers upon whom authority for investment approval
to our it places reliance.
customers. Carefully selecting,
managing and supporting * The Sage Partner Programme has been moved into the
Strategic these partners and marketing organisation to drive increased alignment
alignment: suppliers is critical of the indirect channel to market
to how we grow our
Customer business, as well as
Success ensuring that we only In progress:
engage with those people * Rationalisation of targeted channels is continuing to
and organisations that focus on value-add activities
share Sage's values
and aspirations.
* Managed growth of the API estate, including enhanced
product development that enables access by third
party API developers
* Enhancement of our third-party management framework,
to support closer alignment and oversight of
third-party activities.
================================= ===================================================================
People and As Sage transitions
Performance into a SaaS business, * Continue to embed our operating model which is
If we fail the capacity, knowledge designed to provide 'freedom within a framework'
to ensure and leadership skills ensuring that decision making is made as close to the
we have we need will change. customer as possible with the appropriate governance
engaged Sage will not only and strategic direction in place
colleagues need to attract the
with the talent and experience
critical we will need to help * Extensive focus on our hiring channels ensuring we
skills, navigate this change, are attractive in the market through our enhanced
capabilities we will also need to employee value proposition, enhanced presence through
and capacity provide an environment social media such as Glassdoor, comparably, Twitter,
we need to where colleagues can Linkedin and Facebook
deliver on develop to meet these
our strategy, new expectations, an
we will not environment where everyone * Identifying new hiring channels for example our
be successful. can perform at their pathways programme which enables talented returners
very best. who are struggling to find a route back into work
Strategic By empowering colleagues
alignment: and leaders to make
decisions, be innovative, * Focusing on entry level hiring through apprentice and
Customer and be bold in delivering graduate programmes
Success on our commitments,
Colleague Sage will be able to
Success create an attractive * Ensuring our reward mechanisms incentivise and drive
working environment. the right behaviour with a focus on ensuring fair and
By addressing drivers equitable pay in all markets
of colleague voluntary
attrition, and embracing
the values of successful * Using a range of mechanisms - including digital
SaaS businesses, Sage platforms to recognise great performance and
can increase colleague outstanding achievements
engagement and create
an aligned high performing
team. * Focusing on the development of our leaders to ensure
they create the environment which enables colleagues
to thrive and perform at their very best
* Through our Sage Belong programme ensuring we are
supporting all colleagues to be successful at Sage
regardless of age, gender, ethnic origin or social
background
* Encouraging collaboration across the organisation
through internal media channels, hackathon,
collaboration jams and Sage Foundation.
* Placing colleagues (and customers) at the heart of
our response to the COVID-19 pandemic
In progress:
* Sage wide reward and capability review ensuring we
have in place the SaaS skills and reward mechanisms
we need for the next 3- 5 years.
* Design for emerging talent programme (including VP
development programmes)
--------------------------------- -------------------------------------------------------------------
Culture The development of
If we do not a shared behavioural * Integration of values and behaviours into all of our
fully empower competency that encourages core colleague priorities including, performance
our colleagues colleagues to always management, talent attraction, selection and
and enable do the right thing, development, leadership development and onboarding
them to take put customers at the
accountability heart of business,
in line with drive innovation will * Code of Conduct communicated to all colleagues, and
our shared be critical in Sage's subject to annual certification
values and successful transition
behaviours, to a SaaS business.
we will be Devolution of decision * Alignment of personal objectives across Sage, with
challenged making, and the acceptance direct cascade from the CEO
to create of accountability for
a SaaS these decisions, will
culture, need to go hand in * Formal assessment against personal objectives for
that meets hand as the organization each colleague as part of established performance
Sage's develops and sustains management process, which also considers personal
business its shared values and application of Sage's Values and Behaviours
ambitions. behaviours, and develops
a true SaaS culture.
Strategic Sage will also need * Core eLearning modules rolled out across Sage, with
alignment: to create a culture annual refresher training
of empowered leaders
Customer that support the development
Success of ideas, and that * Whistleblowing and Incident Reporting mechanisms in
Colleague provides colleagues place to allow issues to be formally reported, and
Success with a safe environment investigated
that allows for honest
disclosures and discussions.
Such a trusting and * All colleagues are actively encouraged to take up to
empowered environment five paid Sage Foundation days each year, to support
can help sustain innovation, charities and provide philanthropic support to the
enhance customer success community. Support for Sage Foundation included in
and drive the engagement bonus goals for our most senior leaders Placing
that results in increased colleagues (and customers) at the heart of our
market share. response to the COVID-19 pandemic
* Sage Compliance has been transformed into Sage
Business Integrity, with a mandate to guide, support
and challenge the business to own and enhance its
values and behaviours
* In-person anti-bribery and corruption training has
been delivered to multiple regions, with the
remaining regions to be completed based on assessed
risk
In progress:
* Work continues to be rolled out in the form of the
culture, values and behaviours plan across the
organisation.
* Sales Capability Framework has been built with values
& behaviours embedded to act as a pilot for global
Capability Framework approach, plan on launch and
embedment is being progressed.
================================= ===================================================================
Cyber Security Information is the
and Data life blood of a SaaS * Accountability is established within both IT and
Privacy business - Protecting Product for all internal and external data being
If we fail the confidentiality, processed by Sage. Sage Chief Information Security
to responsibly integrity and accessibility Officer oversees information security, with a network
collect, of this data is table of Information Security Officers that directly
process stakes for a data-driven support the business
and store business, and failure
data, together to do so can have significant
with ensuring financial and regulatory * The Chief Data Protection Officer supported by a Data
an appropriate consequences in the Governance forum oversees information protection and
standard of General Data Protection development for Sage.
cyber security Regulation (GDPR) era.
across the In addition, we also
business, need to use our data * A network of country-level data champions support the
we will not efficiently and effectively business in embedding Sage practices across the
meet our to drive improved business organisation, with a particular focus on the
regulatory performance. requirements of the GDPR.
obligations,
and will lose
the trust * Formal certification schemes are maintained, across
of our appropriate parts of the business, and include
stakeholders. internal and external validation of compliance
Strategic
alignment:
* An incident management framework is in place, which
Customer includes rating of incidents and requirements for
Success notification and escalation, and online incident
Innovation reporting to Sage Risk
* All colleagues are required to undertake awareness
training for information management and data
protection, with a focus on the GDPR requirements.
Colleagues who frequently handle personal data also
undertake role-based training The Information
Security Risk Management Methodology continues to be
deployed to provide objective risk information on our
assets and systems
In progress:
* Data governance forum is leading a review of how Sage
can provide maximum value to its current and future
customers, including through the use of enhanced
AI/ML capabilities
================================= ===================================================================
Data Strategy Information is the
If we fail life blood of a SaaS * IT and Product have been consolidated under a single
to identify, business - it tells leader to drive alignment of data management practice
utilise and us how we create revenue, across the business
maximise the how we can improve
value of our the customer experience,
data and and how we can meet * Formation of a Data strategy around 7 initiatives to
customer our obligations and support the delivery of real customer value and solve
data, at an commitments. Analysed real customer problems
appropriate using manual and machine
pace and in learning, it provides
accordance us with the intelligence In progress:
with our data we need to run and * Creation and formation of a global data stack.
principles, build our business.
we will not
be able to * Data governance forum is leading a review of how Sage
realise the can provide maximum value to its current and future
full potential customers, including through the use of enhanced
of our assets. Artificial Intelligence /Machine Learning
Strategic capabilities
alignment:
Customer
Success
Innovation
================================= ===================================================================
Live Services As Sage continues to
Management transition into a great * Formal onboarding process established and executing
If we fail SaaS business, there including ongoing management in Portfolio Management
to maintain is a greater focus processes.
a secure, on ensuring that we
reliable and are able to continue
scalable live to scale our services * Incident and management change processes adhered to
services environment in a robust, for all products and services.
environment, agile, and speedy manner
we will be to ensure the delivery
unable to of a consistent and * Report hosting and tool costs per product.
deliver the robust cloud experience.
consistent This delivery could
cloud relate to new technologies, * Published established tool standards.
experience operating practices,
expected by services
our customers. * Attained service level objectives including uptime,
Strategic Live Services Management responsiveness, and mean time to repair objectives.
alignment: must provide the right
Infrastructure and
Customer Operations for all * An established forum for continuous assessment and
Success of our customer products, refinement.
Innovation a platform to host
customer products,
the governance to insure * Real Time Demand Management processes and controls.
they are adhering to
best practices, and
the oversight that * Disaster Recovery Capability and operational
insures optimal service resilience models
availability, performance,
security protection
and restoration (if
required).
In progress:
* Continued enhancement and development of our robust
security programs
* Continue to reinforce accountability and ownership
across Product Owners, underpinned by ongoing risk
assessments at Segment and category levels
================================= ===================================================================
Statement of Directors' Responsibilities
The condensed consolidated half-yearly financial report for the
six months ended 31 March 2020 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 IAS 34, "Interim Financial
Reporting" as adopted by the EU and as issued by the IASB, 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).
The Directors of The Sage Group plc are consistent with those
listed in the Group's 2019 Annual Report and Accounts except for
the following changes: with effect from 25 February 2020, Blair
Crump stepped down as executive director, Soni Jiandani stepped
down as a non-executive director at the same date and with effect
from 1 May 2020 Sangeeta Anand and Irana Wasti have been appointed
to its Board as independent Non-executive Directors. A list of
current directors is maintained on the Group's website:
www.sage.com .
On behalf of the Board
J Howell
Chief Financial Officer
13 May 2020
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 2020 which comprises Consolidated income
statement, Consolidated statement of comprehensive income,
Consolidated balance sheet, Consolidated statement of changes in
equity, Consolidated statement of cash flows and the related
explanatory notes 1 to 13. 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 Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, 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 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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
13 May 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR ATMMTMTBBTLM
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