TIDMSGE
RNS Number : 9750T
Sage Group PLC
20 November 2019
The Sage Group plc audited results for the year ended 30
September 2019
Strong recurring revenue growth and significant progress in
strategic execution
Overview
- Strong growth in high quality recurring revenue, underpinned
by over GBP1bn of software subscription revenue;
- Strong underlying cash conversion;
- Organic operating margin in line with expectations;
- Capital return of GBP250m today announced, following announcement of disposal of Sage Pay;
- Significant progress in strategic execution in FY19 with further momentum into FY20;
- FY20 guidance reflects continuing focus on recurring revenue and Sage Business Cloud.
Alternative Performance Measures FY19 FY18[2] Change
(APMs)[1]
Organic Financial APMs (excluding
assets held for sale)
Organic Total Revenue GBP1,822m GBP1,725m 5.6%
Organic Recurring Revenue GBP1,559m GBP1,406m 10.8%
Organic Operating Profit GBP432m GBP496m (13.0%)
% Organic Operating Profit
Margin 23.7% 28.8% (5.1% pts)
Underlying Financial APMs
Underlying Total Revenue GBP1,936m GBP1,878m 3.1%
Underlying Recurring Revenue GBP1,612m GBP1,465m 10.0%
Underlying Operating Profit GBP448m GBP509m (12.1%)
% Underlying Operating Profit
Margin 23.1% 27.1% (4.0% pts)
Underlying Basic EPS 28.40p 32.85p (13.5%)
KPIs
Annualised recurring revenue GBP1,685m GBP1,496m 12.6%
Renewal Rate by Value 101% 101% -
% Subscription Penetration 55% 45% 10% pts
% Sage Business Cloud Penetration 48% 29% 19% pts
Underlying Cash Conversion 129% 96% 33% pts
Statutory Measures FY19 FY18 % Change
Revenue GBP1,936m GBP1,846m 4.9%
Operating Profit GBP382m GBP427m (10.5%)
% Operating Profit Margin 19.7% 23.2% (3.4% pts)
Basic EPS (p) 24.49p 27.21p (10.0%)
Dividend Per Share (p) 16.91p 16.50p 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.
FY19 Financial Performance
- Organic total revenue (excluding Sage Pay and Brazil, now held
for sale) delivered growth of 5.6% to GBP1,822m, reflecting growth
in recurring revenue of 10.8% to GBP1,559m, underpinned by software
subscription revenue growth of 29.4% to GBP1,004m, offset by a
17.9% decline in SSRS revenue to GBP255m and a 3.0% decline in
processing revenue to GBP8m;
- Including the impact of Sage Pay and Brazil, the business
delivered total revenue growth of 5.2% to GBP1,915m[3], recurring
revenue growth of 10.7% to GBP1,611m, software subscription revenue
growth of 28.1% to GBP1,041m, offset by an 18.8% decline in SSRS
revenue to GBP260m and slight decline in processing revenue of 0.5%
to GBP45m;
- Strong growth in recurring revenue of 10.8% and ARR growth of
12.6% reflects the continued focus on attracting new customers and
migrating existing customers to subscription and the cloud.
Particular strength in recurring revenue growth in Northern Europe
and North America at 16% and 12% respectively, and in the Future
Sage Business Cloud Opportunity at 13%;
- Decline in SSRS reflects the on-going transition to
subscription revenue and a strong SSRS comparator in the prior
year;
- Organic operating profit of GBP432m, a margin of 23.7%
(GBP448m, margin of 23.4% including Sage Pay and Brazil), down from
28.8% in FY18, reflects the increased investment to accelerate
strategic execution, combined with increased colleague variable
compensation in line with strong business performance and the
commitment to colleague success;
- Non-recurring gain of GBP28m, largely reflecting the disposal
of US Payroll Processing, offset by non-recurring charges for
property restructuring costs of GBP28m and GBP14m for the
impairment of the Brazilian asset held for sale;
- Underlying cash conversion of 129%, reflecting an improvement
in trade receivables and lower levels of FY18 bonus payout in FY19.
Free cash flow of GBP443m and net debt to EBITDA ratio of
0.8x[4];
- An increase in full year dividend of 2.5% to 16.91p, in line
with the policy of maintaining the dividend in real terms;
- Capital return of GBP250m today announced, reflecting the
expected proceeds from Sage Pay and strong cash generation. Further
details to be announced on completion of disposal of Sage Pay.
Progress in strategic execution
Sage's vision is to become a great SaaS company for customers
and colleagues alike. Investment in FY19 has resulted in
significant progress in strategic execution to optimise the cloud
portfolio and to improve engagement and customer-centric mindset
amongst colleagues, as follows:
- Sage Intacct, the leading solution for cloud native in the
medium segment, has been launched in Australia and the UK in 2019
with further plans to launch in South Africa in 2020;
- Sage has invested in Sage Accounting in FY19 and will launch a
more functionally rich tier of this solution for Professional Users
in 2020, starting in the UK. Together, they provide the small
business solution for cloud native accounts, to acquire new
customers and, over time, offer a migration path for existing Sage
50 customers;
- Sage has also announced the acquisitions of AutoEntry, a
provider of data entry automation, and Allocate.AI, technology that
enables automation of time tracking, project planning and resource
allocation, to enhance Sage Business Cloud;
- Disposal of US Payroll Processing completed February 2019, and
disposal of Sage Pay announced November 2019 with agreed proceeds
of GBP232m. Brazilian business classified as held for sale at year
end FY19. Both Sage Pay and the Brazilian business were largely
held within the 'Other' portfolio, outside of Sage's core strategic
focus. Further portfolio optimisation expected in FY20;
- Sage's organisational design has been re-shaped to provide the
business with a more customer-centric view to better serve the
small and medium segments of the market, with Executive Committee
internal promotions to support this design.
Continuing progress in strategic execution has resulted in:
- Strong annualised recurring revenue[5] (ARR) growth of 12.6%
to GBP1,685m reflecting growing momentum in the recurring revenue
of the business;
- Recurring revenue now represents 86% of total revenue (FY18:
82%) with 55% software subscription penetration (FY18: 45%);
- Future Sage Business Cloud opportunity (Sage Business Cloud
and products with potential to migrate) recurring revenue growth of
13%. Sage Business Cloud penetration of 48%[6] (FY18: 29%),
reflecting continuing progress in the shift towards cloud connected
and cloud native solutions;
- Renewal by value[7] remains strong at 101% (FY18: 101%),
demonstrating the strength of the existing customer base.
Steve Hare, CEO, said:
"We're very encouraged by the acceleration in recurring revenue
in FY19. We entered the year with momentum and added sequential ARR
every month in the year, putting us further ahead in our transition
to Sage Business Cloud than anticipated. We've also made
significant progress in our strategic execution, particularly in
the development and roll out of our cloud offerings and the
reshaping of our portfolio. We will continue to prioritise high
quality recurring revenue growth over SSRS, and whilst we do not
expect a linear progression in financial performance during this
multi-year transition, our recent strong performance and continued
progress towards becoming a great SaaS company means that we look
forward with confidence."
Outlook
Building on the significant ARR created in FY19, we expect
recurring revenue growth of 8-9%, driven by strong on-going
performance in the Future Sage Business Cloud Opportunity, as we
continue to focus on attracting and migrating customers to Sage
Business Cloud. Other revenue (SSRS and processing) is expected to
decline by high single digits in line with this focus, and organic
operating margin is expected to be around 23%, as Sage continues to
invest in the transition to SaaS.
About Sage
Sage (FTSE: SGE) is a global market leader for technology that
helps small and medium businesses perform at their best. Sage is
trusted by millions of customers worldwide to deliver the best
cloud technology and support, with our partners, to manage
finances, operations, and people. We believe in doing everything we
can to help people be the best they can be, so the combined efforts
of 13,000 Sage colleagues working with businesses and communities
make a real difference to the world. Sage. Perform at your
Best.
For more information, visit www.sage.com
Enquiries:
The Sage Group plc FTI Consulting
+44 (0) 191 294 3457 +44 (0) 20 3727 1000
Lauren Wholley, Investor Relations Charles Palmer
Amy Lawson, Corporate PR Dwight Burden
An analyst presentation will be held at 8.30am today at London
Stock Exchange plc, 10 Paternoster Square, London, EC4M 7LS. A live
webcast of the presentation will be hosted on
www.sage.com/investors, dial-in number +44 (0) 207 1928 338, pin
code: 6092757#. A replay of the call will also be available for one
week after the event: Tel: +44 (0) 333 300 9785, pin code:
6092757#
CEO Review
Sage's vision is to become a great SaaS company for customers
and colleagues alike. In order to do this, the business continues
to focus on driving high quality recurring revenue growth,
migrating existing customers, and attracting new customers, to
subscription and the cloud. In FY19, Sage has shown strong
performance in driving recurring revenue growth and significant
progress in strategic execution.
FY19 Results
In FY19 the Group delivered recurring revenue growth of 11% to
GBP1,559m with organic total revenue increasing by 6% to GBP1,822m.
Strong recurring revenue growth is underpinned by software
subscription revenue growth of 29% as the business continues to
focus on migrating existing customers and attracting new customers
to subscription and the cloud.
Regionally in FY19, North America delivered recurring revenue
growth of 12% to GBP573m, reflecting strong performance across the
US, Canada and Sage Intacct, driven by cloud connected and cloud
native solutions. Northern Europe delivered recurring revenue
growth of 16% to GBP340m. Performance in this region reflects
strength in cloud connected solutions from the on-going migration
of existing customers, supplemented by significant reactivation and
new customer acquisition, as new regulations on tax submissions
attract customers to the latest version of software. France
delivered recurring revenue growth of 5% to GBP239m, driven by
growth in cloud connected migrations.
The SSRS decline of 18% to GBP255m reflects the on-going
transition to subscription revenue and a strong SSRS comparator in
the prior year. Looking at sequential quarterly performance in the
year, Q4 19 SSRS revenue was just 4% lower than Q1 19.
Portfolio View of Revenue
Revenue by Portfolio[8] Recurring Total
------------------------------- -------------------------------
FY19 FY18 Growth FY19 FY18 Growth
---------- ---------- ------- ---------- ---------- -------
GBPm GBPm % GBPm GBPm %
---------- ---------- ------- ---------- ---------- -------
Cloud native GBP170m GBP133m 27% GBP182m GBP145m 26%
Cloud connected[9] GBP482m GBP222m 117% GBP499m GBP235m 113%
Sage Business Cloud GBP652m GBP355m 83% GBP682m GBP380m 79%
Products with potential
to migrate GBP713m GBP857m (17%) GBP889m GBP1,085m (18%)
Future Sage Business Cloud
Opportunity[10] GBP1,365m GBP1,212m 13% GBP1,571m GBP1,465m 7%
Other[11] GBP193m GBP194m 0% GBP251m GBP260m (4%)
Organic Total Revenue GBP1,559m GBP1,406m 11% GBP1,822m GBP1,725m 6%
Sage Business Cloud Penetration 48% 29%
---------- ---------- ------- ---------- ---------- -------
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 to grow the lifetime value of these
customers.
The Future Sage Business Cloud Opportunity continues to show
strong performance, with recurring revenue growth of 13% and total
revenue growth of 7%. Cloud native solutions have delivered
recurring revenue growth of 27%, with Sage Intacct delivering
recurring revenue growth of 29%.
The growth in cloud connected revenue of 117% to GBP482m
reflects the migration of existing customers, predominantly from
North America, Northern Europe and France, as well as new customer
acquisition and reactivation of customers in Northern Europe.
Growth also reflects an additional GBP94m into this portfolio from
the migration of products new to Sage Business Cloud[12]. The focus
on driving revenue to cloud solutions has resulted in Sage Business
Cloud penetration of 48%, up from 29% in the prior year.
The revenue in the 'Other' portfolio comprises products for
which management does not envisage a path to Sage Business Cloud,
predominantly because the product addresses a segment outside
Sage's core focus. The flat recurring revenue and decline of 4% of
total revenue in the 'other' portfolio is in line with expectations
and reflects the strategy to focus on solutions with a direct
pathway to Sage Business Cloud.
Further to the disposal of the US Payroll Processing business in
February 2019, Sage has announced the agreement to dispose of Sage
Pay and that the Brazilian business is now held for sale, with both
assets' products largely formerly within the 'Other' portfolio.
Whilst payments and banking continues to be an important part of
Sage's value proposition, Sage will instead continue to partner
with best in class providers in this industry. Management decided
to exit Brazil after a strategic review, as the region largely
sells solutions which have no path to Sage Business Cloud.
Strategy - working towards the vision to become a great SaaS
company
Sage's vision is to become a great SaaS company, for customers
and colleagues alike.
During this transition, Sage will migrate the vast majority of
its revenue, and attract new customers, to subscription and the
cloud. This on-going transition will enable Sage to continue to
embrace a closer relationship with customers, better understanding
their needs and how best to serve them, which improves the ability
to sustainably increase cross-sell and up-sell levels. By
delighting customers, retention rates will also continue to rise
and reputation and advocacy are enhanced, increasing the ability to
acquire new customers. This also reduces the cost to acquire and
the cost to serve our customers over time. Put together, lifetime
value of customers is significantly enhanced.
In order to achieve Sage's vision, the business continues to
focus on the strategic lenses of customer success, colleague
success and innovation, with investments in the year yielding
significant progress against each lens and with further progress
outlined for FY20.
Customer Success
Customer success is driven by a customer-centric approach to
everything the organisation does to create enduring subscription
relationships.
During FY19, the business has re-shaped the organisational
design to allow a more customer-centric view of the market. This
includes organising the business and reporting lines into 'small'
and 'medium' segments and giving more decision-making autonomy on
customers to the regions to understand and serve our customers more
closely.
Investments in the business in FY19 have also continued into
systems, tools and processes:
- The business has continued the roll out of the single CRM
system, which is now complete in Northern Europe with the US
expected to complete in H1 20. This process will improve the
quality of data, allowing Sage more customer insight; over time,
this is expected to improve renewal rates, lead generation and
conversion which results in a sustainable increase in ARR at a more
efficient level.
- The continued digitisation of the customer services function
is also on-going, supplementing phone conversations with web chat,
AI and online forums and communities and providing 24/7 customer
support, leveraging Sage's global presence. Over time, this
investment will increase levels of customer interaction, reducing
wait times and resolving issues faster, leading to improvements in
NPS and renewal by value.
In FY20, the focus will be to continue the roll out of systems,
tools and processes, as well as embedding the more customer-centric
view of the market through the new organisational design.
Colleague success
Management is committed to building a culture that fosters
collaboration, open honest dialogue and where colleagues feel
connected to Sage's vision, putting customers at the heart of
everything they do. Supporting motivated colleagues in turn further
supports the success of Sage's customers.
Focus in FY19 has been on both leadership and colleagues:
Leadership
Sage has invested in the 40 most senior leaders, who have been
enrolled in an executive development programme, which included nine
days face-to-face, one-to-one coaching and peer support through the
entire year, with specific focus on the purpose, vision, strategy
and leadership behaviours. This has resulted in a closer-knit
leadership team, fully aligned behind the transition to a SaaS
model.
In order to reinforce the focus on a customer-centric mindset
and innovation, Sage has made several appointments to the executive
committee throughout 2019:
- To boost the innovation agenda, Lee Perkins was promoted to
Chief Product Officer, Aaron Harris (former Intacct CTO) has been
promoted to Sage CTO and Marc Linden (former Intacct CFO) has been
promoted to EVP and General Manager of Medium Segment Native Cloud
Solutions, joining their Intacct peer Rob Reid on the executive
committee;
- To continue to drive a more customer-centric mindset in the
business, Sue Goble (formerly EVP Business Operations) has been
promoted to Chief Customer Success Officer;
- And in line with the focus on driving the accelerated
transformation of Sage's product portfolio to create a more focused
and high-growth SaaS company, Derk Bleeker (former EVP Commercial
Finance) has been promoted to Chief Corporate Development Officer,
responsible for portfolio simplification, M&A and business
planning.
Colleagues
Sage has also invested in improving colleague engagement and
experience:
- The business continues to carry out regular pulse surveys with
an 84% response rate on the latest survey, up from 52% in Q4 18 and
with 14,000 comments left;
- During FY19 Sage held the 'Big Conversation', a three day
online forum to engage with colleagues and understand their key
priorities. There were over 3,700 participants and 9,000 comments
from colleagues across 23 countries and the feedback has helped
shape decision-making and culture of the company, including setting
the new Sage values which launched at the start of FY20;
- Sage Foundation continues to be a great tool to attract and
retain talent, with 31,250 Foundation days taken by colleagues in
FY19 (FY18: 24,000).
The result of investing in colleague engagement is more
invigorated, engaged colleagues. The most recent colleague NPS
scores show a 22 point improvement on the prior year. And the
business will continue to focus on colleagues and leaders
throughout FY20, as well as embedding the new values as disclosed
above.
Innovation
Innovation at Sage means developing solutions that deliver real
customer value and solve real 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 real value,
allowing them to access the Sage Business Cloud network and consume
cloud services as they require.
FY19 has been a significant year for investing in the cloud
native portfolio, both in terms of solution development and
geographic availability:
- Sage Intacct, the leading cloud native solution for the medium
segment, has been launched in Australia in August 2019 and the UK
in November 2019, with both regions gaining their first customers,
as well as launching in South Africa in 2020;
- Sage has selected Sage Accounting as the small business
platform for cloud native accounting and has invested in the
development of the solution, both in the underlying architecture
and delivering enhanced functionality to both accountants and our
small business customers;
- Sage has also built on this platform to create a further, more
functionally rich tier of the platform for professional users
(those users with a deeper understanding of accounting
functionality and compliance). The Sage Accounting Professional
solution will be launched in the UK first in FY20, followed by
other key geographies. The 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 native cloud solution;
- Sage has also completed the acquisitions of small but strategically significant assets:
o AutoEntry, a leading provider of data entry automation through
artificial intelligence (AI) and optical character recognition
(OCR), for accountants, bookkeepers and businesses; and
o Allocate.AI, technology that enables businesses to automate
time tracking, project planning and resource allocation.
Sage has also continued to invest in cloud services and the
latest technology in its cloud native and cloud connected
solutions:
- Sage Payroll Cloud now has over a million activated users
accessing cloud services including timesheets and payslips;
- Sage Intacct has launched innovative AI and machine learning
capabilities including contract renewal forecasting, AI-powered
timesheets (using Allocate.AI technology) and transaction anomaly
detection;
- Service fabric, the architectural 'glue' of Sage Business
Cloud, allows the business to move fast and leverage its scale by
building functionality once and deploying to many cloud native and
cloud connected solutions. This allowed Sage to be first to market
supporting customer compliance with Making Tax Digital
functionality and accelerated the internationalisation of Sage
Intacct.
In FY20, Sage will continue to invest in the development and the
geographic availability of Sage Business Cloud solutions, as well
as continuing to drive adoption of cloud services amongst
customers.
Strategic KPIs
The strategic KPIs show the impact and progress of strategic
execution and the focus on customer success, colleague success and
innovation. First introduced in April 2019, the KPIs will be
disclosed every six months to demonstrate Sage's progress in the
transition to a SaaS company with FY19 progress as follows:
- Growth in ARR of 13% to GBP1,685m reflecting growing momentum
in high quality recurring revenue at the end of the year with the
business continuing to show sequential progression in recurring
revenue over time;
- Software subscription penetration of 55% (FY18: 45%) as the
business continues to transition existing customers and attract new
customers to subscription and the cloud;
- Sage Business Cloud penetration of 48% (FY18: 29%) as the
business continues to focus on core solutions which have a direct
pathway to Sage Business Cloud;
- Renewal by value remains strong at 101% (FY18: 101%)
demonstrating the strength of the existing customer base.
Financial Review
This financial review provides a brief summary of financial
results on an organic basis, before moving to the underlying and
statutory performance of the business. Organic measures (as used
throughout the earlier part of this release) allow management and
investors to understand the like-for-like revenue and current
period margin performance of the continuing business.
Organic Financial Results
In FY19, Sage delivered recurring revenue growth of 11% to
GBP1,559m and total revenue growth of 6% to GBP1,822m. Recurring
revenue growth is underpinned by the 29% increase in software
subscription revenue as the business continues to migrate existing
customers and attract new customers to subscription and the cloud.
Strength in recurring revenue has also, in part, been assisted by
tailwinds from the weaker comparator in the prior year and as new
regulations on digital tax submissions attract new and existing
customers to the latest version of software.
Group SSRS decline of 18% to GBP255m reflects the on-going
transition to subscription revenue and a strong SSRS comparator in
the prior year. Looking at sequential quarterly performance in the
year, Q4 19 SSRS revenue was just 4% lower than Q1 19.
The Group delivered an organic operating profit of GBP432m and
an organic operating margin of 23.7% in FY19. This margin reflects
the increased investment to accelerate strategic execution,
combined with increased colleague variable compensation in line
with the improved business performance and the commitment to
colleague success.
The Group also delivered underlying basic EPS of 28.40p, free
cash flow of GBP443m and underlying cash conversion of 129%.
Statutory and Underlying Financial Results
Financial Results Statutory Underlying[13]
-------------------- ------------------------------------ -----------------------------------
FY19 FY18 Change FY19 FY18 Change
-------------------- ---------- ---------- ------------ ---------- ---------- -----------
North America GBP657m GBP574m 15% GBP657m GBP611m 7%
Northern Europe GBP406m GBP380m 7% GBP406m GBP381m 7%
Central & Southern
Europe GBP608m GBP625m (3%) GBP608m GBP626m (3%)
International GBP265m GBP267m (1%) GBP265m GBP260m 2%
---------- ---------- ------------ ---------- ---------- -----------
Group Revenue GBP1,936m GBP1,846m 5% GBP1,936m GBP1,878m 3%
Operating Profit GBP382m GBP427m (11%) GBP448m GBP509m (12%)
% Operating Profit
Margin 19.7% 23.2% (3.5% pts) 23.1% 27.1% (4.0% pts)
Profit Before Tax GBP361m GBP398m (9%) GBP425m GBP481m (12%)
Net Profit GBP266m GBP295m (10%) GBP309m GBP356m (13%)
Basic EPS 24.49p 27.21p (10%) 28.40p 32.85p (14%)
---------- ---------- ------------ ---------- ---------- -----------
The Group delivered statutory revenue of GBP1,936m, a 5%
increase on the prior year. Statutory revenue of GBP1,936m in FY19
is in line with underlying revenue, with the prior year difference
largely being in North America, reflecting the deferred income
unwind on the acquisition of Intacct and FX.
The Group delivered underlying revenue of GBP1,936m, an increase
of 3% on the prior period.
Underlying revenue reflects organic performance, excluding the
impact of the adjustments made for assets held for sale and
disposals and, for prior year, the impact of the proforma IFRS 15
adjustments.
The Group delivered a decrease in statutory operating profit of
11% to GBP382m, reflecting underlying performance and recurring and
non-recurring items as per the reconciliation in the table
below.
Underlying basic EPS decline of 14% is in line with the
underlying operating profit of the business, net of taxation.
Underlying & Organic Reconciliations to Statutory
FY19 FY18
-------------------------------------- ----------------------------------
Revenue Operating Operating Revenue Operating Operating
Profit Margin Profit Margin
% %
------------ ----------- ----------- ---------- ---------- ----------
Statutory GBP1,936m GBP382m 19.7% GBP1,846m GBP427m 23.2%
Recurring Items[14] - GBP52m - GBP11m GBP67m -
Non-recurring items:
- (Gain)/loss on - (GBP28m) - - GBP1m -
disposal of subsidiaries
- GBP14m - - - -
* Impairment of assets held for sale
- - - - GBP4m -
* Litigation items
- - - GBP5m -
* Restructuring costs
- GBP16m - - - -
* Property restructuring costs
- GBP12m - - - -
* Office relocation
Impact of FX[15] - - - GBP21m GBP5m -
------------ ----------- ----------- ---------- ---------- ----------
Underlying GBP1,936m GBP448m 23.1% GBP1,878m GBP509m 27.1%
Disposals (GBP21m) - - (GBP48m) GBP3m -
Held for sale (GBP93m) (GBP16m) - (GBP95m) (GBP8m) -
Impact of IFRS - - - (GBP9m) (GBP8m) -
15[16]
------------ ----------- ----------- ---------- ---------- ----------
Organic GBP1,822m GBP432m 23.7% GBP1,725m GBP496m 28.8%
------------ ----------- ----------- ---------- ---------- ----------
Revenue
The Group delivered statutory and underlying revenue of
GBP1,936m in FY19. The difference between statutory and underlying
revenue in FY18 reflects a GBP21m FX adjustment relating to
retranslation of the FY18 results at FY19 average rates and GBP11m
in the prior year from the deferred income unwind on the Sage
Intacct acquisition.
The difference between underlying and organic revenue reflects
the adjustment of GBP21m of disposals, comprising GBP16m revenue
from the disposal of the US Payroll Processing business in February
2019 (FY18: GBP40m) and GBP5m revenue from the disposal of the
South African payments business in July 2019 (FY18: GBP9m). There
is a further adjustment for assets held for sale of GBP93m
comprising GBP40m of revenue from Sage Pay in Northern Europe
(FY18: GBP41m) and GBP53m of revenue from the Brazilian business
(FY18: GBP54m), and a GBP9m adjustment to restate FY18 organic
revenue on a pro-forma IFRS 15 basis.
Margin
The Group delivered a statutory operating profit of GBP382m.
Adjustments between statutory and underlying operating profit in
FY19 reflect GBP52m of recurring items (FY18: GBP67m), comprising
GBP31m amortisation of acquisition related intangibles (FY18:
GBP35m) and GBP21m of M&A related charges (FY18: GBP21m).
Adjustments between statutory and underlying profit in FY19 also
include non-recurring items reflecting a GBP28m gain on disposals,
of which GBP27m relates to the US Payroll Processing business
(FY18: GBP1m charge), offset by the non-cash impairment of the
Brazilian asset held for sale of GBP14m; property restructuring
costs of GBP16m; and non-cash accelerated depreciation on North
Park of GBP12m. Management expects a further non-cash,
non-recurring accelerated depreciation charge on North Park in the
region of GBP50m during FY20 and a further property restructuring
cost of around GBP15m during FY20. The prior year also had a
non-recurring charge of GBP4m relating to litigation items, GBP5m
relating to restructuring costs and a GBP5m FX adjustment.
Adjustments between underlying and organic operating profit in
FY19 relate to assets held for sale reflecting GBP14m operating
profit attributable to Sage Pay (FY18: GBP15m), with a further
GBP2m attributable to the Brazilian business (FY18: loss of GBP7m).
The prior year also had an GBP8m adjustment to restate FY18 organic
operating profit on a pro-forma IFRS 15 basis and GBP3m relating to
net operating losses from disposals reflecting GBP5m in the US
Payroll Processing business, offset by operating profits of GBP2m
attributable to the South African payments business (net neutral
impact in FY19).
Organic Revenue Overview
Organic revenue for FY18 shows all measures of revenue and
growth of revenue on an organic basis, compared on a pro-forma IFRS
15 basis. Revenue definitions are included in Appendix 1 and
further detail on IFRS 15 can be found in note 12 to the
accounts.
Organic Revenue Mix FY19 FY18 Revenue
% Change
------------------------ -----------------------
GBPm % of Total GBPm % of Total
----------- ----------- ---------- ----------- ----------
Software Subscription
Revenue GBP1,004m 55% GBP776m 45% 29%
Other Recurring Revenue GBP554m 31% GBP630m 36% (12%)
----------- ----------- ---------- ----------- ----------
Organic Recurring Revenue GBP1,559m 86% GBP1,406m 81% 11%
SSRS Revenue GBP255m 14% GBP310m 18% (18%)
Processing Revenue GBP8m 0% GBP9m 1% (3%)
----------- ----------- ---------- ----------- ----------
Organic Total Revenue GBP1,822m 100% GBP1,725m 100% 6%
----------- ----------- ---------- ----------- ----------
Total revenue has increased by 6% in FY19 to GBP1,822m.
Recurring revenue has increased by 11% to GBP1,559m, underpinned by
the 29% increase in software subscription revenue to GBP1,004m as
the business continues to transition existing customers and attract
new customers to subscription and the cloud. The decline in other
recurring revenue of 12% to GBP554m reflects the substitution
effect as customers migrate to subscription contracts. SSRS decline
of 18% to GBP255m reflects the on-going transition to subscription
revenue and a strong SSRS comparator in the prior year.
In the portfolio view of revenue, the Future Sage Business Cloud
Opportunity delivered recurring revenue growth of 13% to GBP1,365m
and total revenue growth of 7% to GBP1,571m, driven by
transitioning existing customers and attracting new customers to
Sage Business Cloud. The 'Other' portfolio delivered flat recurring
revenue performance at GBP193m and total revenue decline of 4% to
GBP251m.
North America
Organic Revenue by FY19 FY18 % Change
Category
Organic Total Revenue GBP641m GBP589m 9%
Organic Recurring Revenue GBP573m GBP512m 12%
% Subscription Penetration 56% 46% 10% pts
% Sage Business Cloud
Penetration 66% 54% 12% pts
-------- -------- ---------
Organic Total Revenue FY19 FY18 % Change
-------- -------- ---------
US (excluding Intacct) GBP425m GBP407m 4%
Canada GBP97m GBP89m 8%
Intacct GBP119m GBP93m 28%
-------- -------- ---------
North America delivered recurring revenue growth of 12% to
GBP573m and total revenue growth of 9% to GBP641m. Subscription
penetration is now 56%, up from 46% in the prior year and Sage
Business Cloud penetration is now 66%, up from 54% in the prior
year, driven by both cloud connected and cloud native
solutions.
The US (excluding Intacct) delivered recurring revenue growth of
7% to GBP371m and total revenue growth of 4% to GBP425m. The US has
continued to show strong progress in the migration to cloud
connected solutions with Sage 50 nearly at full penetration on
cloud connected and well over half of Sage 200 customers now on a
cloud connected solution.
Canada has also continued to deliver strong performance, with
recurring revenue growth of 13% to GBP88m and total revenue growth
of 8% to GBP97m, with cloud connected solutions also driving a
significant part of the business's growth and over half of revenue
from the 50 and 200 base now on a cloud connected solution.
Sage Intacct recurring revenue growth of 29% to GBP114m reflects
continuing momentum in the US, driving growth through both existing
customers and new customer acquisition.
Northern Europe
Organic Revenue by FY19 FY18 % Change
Category
Organic Total Revenue GBP366m GBP334m 10%
Organic Recurring Revenue GBP340m GBP292m 16%
% Subscription Penetration 70% 52% 18% pts
% Sage Business Cloud
Penetration 67% 28% 39% pts
-------- -------- ---------
Northern Europe (UK & Ireland) delivered recurring revenue
growth of 16% to GBP340m and total revenue growth of 10% to
GBP366m. Subscription penetration is 70%, up from 52% in the prior
year and Sage Business Cloud penetration is now 67%, up
significantly from 28% in the prior year, as customers continue to
migrate to Sage Business Cloud and as new products enter Sage
Business Cloud that were previously only available on desktop. This
is supplemented by growth in cloud native solutions of Sage People
and Sage Accounting.
Strength in recurring revenue is driven largely by success in
cloud connected solutions with well over half of Sage 50 and Sage
200 contracts now cloud connected in the region. Revenue on Sage 50
cloud connected in Northern Europe increased significantly,
migrating new customers from 50 desktop, but also acquiring
significant numbers of new customers and reactivations, in part due
to new regulations on tax submissions attracting customers to the
latest version of software. The region now has well over half of
its 50 and 200 base on a cloud connected solution. Recurring
revenue has also benefitted from a weak comparator in the prior
year, but performance is strong even allowing for this impact.
The region saw a steep decline of 37% in SSRS revenue in FY19 to
GBP25m, as the business continues to focus on subscription and the
cloud, further impacted by large value licence and services sales
in FY18 which drove an increase in SSRS at the expense of recurring
revenue.
Central & Southern Europe
Organic Revenue by FY19 FY18 % Change
Category
Organic Total Revenue GBP608m GBP604m 1%
Organic Recurring Revenue GBP490m GBP458m 7%
% Subscription Penetration 45% 37% 8% pts
% Sage Business Cloud
Penetration 25% 10% 15% pts
-------- -------- ---------
Organic Total Revenue FY19 FY18 % Change
-------- -------- ---------
France GBP277m GBP271m 2%
Central Europe GBP178m GBP179m (1%)
Iberia GBP153m GBP153m 0%
-------- -------- ---------
Central and Southern Europe delivered recurring revenue growth
of 7% to GBP490m and total revenue growth of 1% to GBP608m.
Subscription penetration is now 45%, up from 37% in the prior year
and there is now 25% Sage Business Cloud penetration in the region,
up from 10% in the prior year. This is largely driven by cloud
connected solutions, supplemented by a small amount of revenue from
cloud native solutions.
France delivered recurring revenue growth of 5% to GBP239m and
total revenue growth of 2% to GBP277m. Recurring revenue growth is
driven by Sage 50 and Sage 200 cloud connected solutions as
customers migrate from desktop, although the recurring revenue
growth of these solutions (cloud connected and desktop) in total
has not been as strong in this region as others. The region now has
around half of its 50 and 200 base on a cloud connected solution.
X3 SSRS declined as the region focused more on solutions which
drive subscription revenue.
Central Europe delivered recurring revenue growth of 8% to
GBP131m whilst total revenue declined by 1% to GBP178m. Growth in
the region is mainly driven by local products.
Iberia delivered recurring revenue growth of 9% to GBP120m with
total revenue flat at GBP153m. Growth in recurring revenue has been
driven by the migration of customers to Sage 50 and Sage 200 cloud
connected solutions, which are at an earlier stage than other
regions, but are showing good traction.
International
Organic Revenue by FY19 FY18 % Change
Category
Organic Total Revenue GBP207m GBP198m 4%
Organic Recurring Revenue GBP156m GBP144m 8%
% Subscription Penetration 57% 54% 3% pts
% Sage Business Cloud
Penetration 9% 7% 2% pts
-------- -------- ---------
Organic Total Revenue FY19 FY18 % Change
-------- -------- ---------
Africa & Middle East GBP137m GBP127m 8%
Australia & Asia GBP70m GBP71m (2%)
-------- -------- ---------
International delivered recurring revenue growth of 8% to
GBP156m and total revenue growth of 4% to GBP207m. Subscription
penetration is now 57%, up from 54% in the prior year and Sage
Business Cloud penetration in the region is 9%, up from 7% in the
prior year. This excludes the revenues of the Brazilian business,
which is held for sale as at the year-end.
Africa & Middle East, which now represents two-thirds of the
International region's revenue, delivered recurring revenue growth
of 12% to GBP102m and total revenue growth of 8% to GBP137m. Growth
in the region is driven by local products and cloud native
solutions, with a strong performance in Sage Accounting. Over the
course of the year, the region has seen a slight decline in SSRS,
driven by professional services.
Australia & Asia delivered recurring revenue growth of 3% to
GBP54m and a total revenue decline of 2% to GBP70m, with Asia
continuing to be a drag on growth. Australia delivered total
revenue growth of 2% to GBP53m, reflecting slight growth from local
products with a small element of revenue from cloud native
solutions. Sage Intacct launched in Australia at the end of August
2019.
Operating Profit
The Group delivered an organic operating profit of GBP432m and
an organic operating margin of 23.7% in FY19. This margin reflects
the increased investment to accelerate strategic execution,
combined with increased colleague variable compensation in line
with the improved business performance and the commitment to
colleague success.
On an underlying basis, the operating profit is GBP448m (a 23.1%
margin). The difference between organic and underlying operating
profit reflects the operating profit from assets held for sale of
Sage Pay and the Brazilian business, combined with adjustments in
FY18 being the pro-forma IFRS 15 adjustment and the net operating
losses from assets disposed of (US Payroll Processing and the South
African payments business).
FY19 EBITDA is GBP509m, yielding an EBITDA margin of 26.3%.
FY19 FY18 FY19 Margin
%
Organic Operating
Profit GBP432m GBP496m 23.7%
Impact of IFRS 15 - GBP8m
Impact of disposals - (GBP3m)
Impact of assets held GBP16m GBP8m
for sale
Underlying Operating
Profit GBP448m GBP509m 23.1%
Depreciation & amortisation GBP35m GBP34m
Share based payments GBP26m GBP5m
--------- --------- ------------
EBITDA GBP509m GBP548m 26.3%
--------- --------- ------------
Net Finance Cost
The statutory net finance cost for the period was GBP21m (FY18:
GBP29m) and the underlying net finance cost was GBP23m (FY18:
GBP29m), with minor differences between statutory and underlying
net finance costs reflecting FX movements. Net underlying financing
costs have reduced due to a reduction in the Group's average debt
balance during the year.
Taxation
The statutory income tax expense for FY19 was GBP95m (FY18:
GBP103m), yielding a statutory tax rate of 26% (FY18: 26%). The
underlying tax expense for FY19 was GBP116m (FY18: GBP123m),
yielding an underlying tax rate of 27% (FY18: 26%).
The difference between the underlying and statutory rate in FY19
primarily reflects non-taxable accounting gains on the disposal of
the US Payroll Processing business and the South African payments
business, offset by the non-tax deductible impairment charge of the
Brazilian business asset held for sale.
Earnings per Share
FY19 FY18 % Change
Statutory Basic EPS 24.49 27.21 (10.0%)
Recurring Items 3.67 4.73
Non-Recurring Items 0.24 0.58
Impact of Foreign Exchange - 0.34
-----------------
Underlying Basic EPS 28.40 32.85 (13.5%)
-----------------
Underlying basic earnings per share decreased by 14% to 28.40p
(FY18: 32.85p), in line with the 12% decline in underlying
operating profit, net of taxation.
Statutory basic earnings per share decreased by 10%. Recurring
and non-recurring items arising from property restructuring and
M&A costs are lower than prior year, contributing to a decrease
in statutory basic EPS.
Cash Flow
The Group remains highly cash generative with underlying cash
flows from operating activities of GBP577m, which represents
underlying cash conversion of 129%, increasing from 96% in
FY18.
Cash Flow APMs FY19 FY18 (as reported)
Underlying Operating Profit GBP448m GBP504m
Depreciation, amortisation and non-cash GBP33m GBP28m
items in profit
Share based payments GBP26m GBP5m
Net changes in working capital GBP108m (GBP10m)
Net capital expenditure (GBP38m) (GBP45m)
--------- -------------------
Underlying Cash Flow from Operating GBP577m GBP482m
Activities
--------- -------------------
Underlying cash conversion % 129% 96%
Non-recurring cash items (GBP24m) (GBP35m)
Net interest paid (GBP21m) (GBP26m)
Income tax paid (GBP88m) (GBP64m)
Profit and loss foreign exchange movements (GBP1m) (GBP1m)
--------- -------------------
Free Cash Flow GBP443m GBP356m
--------- -------------------
Statutory Reconciliation of Cash Flow FY19 FY18 (as reported)
from Operating Activities
--------- -------------------
Statutory Cash Flow from Operating GBP586m GBP487m
Activities
Recurring and non-recurring items GBP29m GBP37m
Net capital expenditure (GBP38m) (GBP45m)
Other adjustment including foreign - GBP3m
exchange translations
Underlying Cash Flow from Operating GBP577m GBP482m
Activities
The improvement in underlying cash conversion to 129% and the
GBP87m improvement in free cash flow to GBP443m largely reflects an
improvement in the collection of trade receivables and lower levels
of FY18 bonus payout in FY19.
Net debt was GBP393m at 30 September 2019 (30 September 2018:
GBP668m). The decrease in the year is attributable to strong free
cash flow of GBP443m and proceeds from the disposal of the US
Payroll Processing Business (GBP68m), offset by the full year
dividend of GBP181m paid in the year.
Debt facilities
The Group's debt is sourced from a syndicated multi-currency
Revolving Credit Facility ("RCF"), a syndicated Term Loan and US
private placement ("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 2024 (with a one-year extension option to
February 2025) with facility levels of GBP720m (split between
US$719m and GBP135m tranches). At 30 September 2019, GBP45m (FY18:
GBP418m) of the multi-currency revolving debt facility was drawn
and the Term Loan was fully drawn (FY18: nil).
The Group's total USPP loan notes at 30 September 2019 were
GBP523m (US$550m and EUREUR85m) (FY18: GBP497m, US$550m and
EUREUR85m). The USPP loan notes have a range of maturities between
May 2020 and May 2025.
Capital allocation
Sage's primary capital allocation focus remains on organic
investment in order to accelerate the execution of the strategy as
outlined above.
The Group will 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 year. In
line with focusing on core competences within the business,
management is also evaluating the disposal of certain non-core
assets, as it has recently done with Sage Pay, which Sage has now
reached an agreement to dispose of, and the Brazilian business,
which is held for sale at the end of FY19. Acquisitions and
disposals are always subject to stringent financial criteria.
Sage will continue to maintain the dividend in real terms going
forward and the FY19 full year dividend has increased by 2.5% to
16.91p.
The Group is committed to maintaining good financial discipline
and delivering strong shareholder returns and will consider
additional capital returns to shareholders if appropriate. Sage
today announced that it will make a capital return of GBP250m,
reflecting expected proceeds on Sage Pay and strong cash
generation. Further details will be announced on the completion of
the Sage Pay disposal.
Group net debt as at 30 September 2019 was GBP393m and reported
EBITDA over the last 12 months was GBP509m, resulting in a net debt
to EBITDA ratio of 0.8x. Sage will adopt IFRS 16 Leases accounting
standard with effect from 1 October 2019, which will result in the
recognition of financial liabilities of GBP135m-145m. As a result,
a 0.3x increase in the net debt to EBITDA ratio in FY20 is
expected. However, IFRS 16 will have no material impact on our
overall financial results.
Group return on capital employed (ROCE) for FY19 is 21% (FY18:
23%).
FY19 FY18 (as reported)
Net Debt GBP393m GBP668m
EBITDA (Last Twelve Months) GBP509m GBP548m
-------- -------------------
Net Debt/EBITDA Ratio 0.8x 1.2x
-------- -------------------
Sage plans to operate in a broad range of 1-2x net debt to
EBITDA over the medium term (on an IFRS 16 basis), with flexibility
to move slightly outside this range as the business needs
require.
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 FY19 FY18 Change
(EQUAL TO GBP)
Euro (EUR) 1.13 1.13 0%
US Dollar ($) 1.28 1.35 (5%)
South African Rand (ZAR) 18.30 17.56 4%
Australian Dollar (A$) 1.81 1.77 3%
Brazilian Real (R$) 4.93 4.72 5%
------ ------ -------
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. For changes to Alternative Performance Measures,
please refer to the RNS regarding the Update and simplification of
financial reporting and disclosure on 2 April 2019. 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
and profit) which would distort the investors to compare performance
measures understanding of the performance without the potentially
for the year or comparability distorting
between periods: effects of foreign exchange
* Recurring items include purchase price adjustments movements, one-off or
including amortisation of acquired intangible assets non-operational
and adjustments made to reduce deferred income items.
arising on acquisitions, acquisition-related items,
FX on intercompany balances and fair value By including part-period
adjustments; and contributions from
acquisitions, discontinued
operations, disposals and
* Non-recurring items that management judge to be assets held for sale of
one-off or non-operational such as gains and losses standalone
on the disposal of assets, impairment charges and businesses in the current
reversals, and restructuring related costs. and/or prior periods, the
impact of M&A decisions on
earnings per share growth
All prior period underlying can be evaluated.
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
measures Organic measures: investors to understand the
* Exclude the contribution from discontinued operations, like-for-like revenue and
disposals and assets held for sale of standalone current period margin performance
businesses in the current and prior period; and of the continuing business.
During FY19, the organic
* Exclude the contribution from acquired businesses measure adjusts the prior
until the year following the year of acquisition, at period (FY18) for IFRS15
which point they are included for the full current to enable like-for-like
and prior period; and comparison
across the periods.
For FY19 this includes the
impact of IFRS15. FY18 is
restated to reflect proforma
adjustments for the areas
of impact of IFRS 15 adoption
assuming the same contractual
basis as FY19.
Acquisitions and disposals
which occurred close to
the start of the opening
comparative period where
the contribution impact
would be immaterial are
not adjusted. Please note
that organic operating profit
margin as reported is not
necessarily comparable from
period to period.
------------------------------------------------------------- ----------------------------------
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
Cash Conversion Operating Activities divided management
by Underlying Operating and investors about the cash
Profit. operating cycle of the business
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 reported organic recurring base that is expected to
revenue in the last month be carried into future periods,
of the reporting period, and its growth is a
adjusted consistently period forward-looking
to period, multiplied by indicator of reporting recurring
twelve. Adjustments to normalise revenue growth.
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
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 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 year ended 30 September 2019
Adjustments Adjustments
Underlying (note 3) (note 3)
Underlying
Statutory as reported* Statutory
2019 2019 2019 2018 2018 2018
Note GBPm GBPm GBPm GBPm GBPm GBPm
================== ==== =========== ============= ========== ============= ============ ===========
Revenue 2 1,936 - 1,936 1,857 (11) 1,846
Cost of sales (138) - (138) (130) - (130)
================== ==== =========== ============= ========== ============= ============ ===========
Gross profit 1,798 - 1,798 1,727 (11) 1,716
Selling and
administrative
expenses (1,350) (66) (1,416) (1,223) (66) (1,289)
Operating profit 2 448 (66) 382 504 (77) 427
Finance income 6 2 8 4 1 5
Finance costs (29) - (29) (33) (1) (34)
================== ==== =========== ============= ========== ============= ============ ===========
Profit before
income
tax 425 (64) 361 475 (77) 398
Income tax expense 4 (116) 21 (95) (123) 20 (103)
================== ==== =========== ============= ========== ============= ============ ===========
Profit for the
year 309 (43) 266 352 (57) 295
------------------ ---- ----------- ------------- ---------- ------------- ------------ -----------
Earnings per share attributable
to the owners of the parent
(pence)
Basic 6 28.40p 24.49p 32.51p 27.21p
Diluted 6 28.17p 24.29p 32.35p 27.07p
================== ==== =========== ============= ========== ============= ============ ===========
All operations in the year relate to continuing operations.
Note:
* Underlying as reported is at 2018 reported exchange rates.
Consolidated statement of comprehensive income
For the year ended 30 September 2019
2019 2018
GBPm GBPm
===================================================================================== ===== =====
Profit for the year 266 295
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss
Actuarial loss on post-employment benefit obligations (1) -
Deferred tax charge on actuarial loss on post-employment benefit obligations - -
(1) -
===================================================================================== ===== =====
Items that may be reclassified to profit or loss
Gain on available-for-sale fixed asset investment* - 1
Exchange differences on translating foreign operations 42 15
Exchange differences recycled through income statement on sale of foreign operations (4) -
38 16
===================================================================================== ===== =====
Other comprehensive income for the year, net of tax 37 16
===================================================================================== ===== =====
Total comprehensive income for the year 303 311
===================================================================================== ===== =====
* See note 1 for detail on transition to IFRS 9 and the disposal
of the available-for-sale fixed asset investment during the year
ended 30 September 2019.
The notes on pages 27 to 51 form an integral part of this
condensed consolidated yearly report.
Consolidated balance sheet
As at 30 September 2019
2019 2018
Note GBPm GBPm
======================================================= ===== ======== ========
Non-current assets
Goodwill 7 2,098 2,008
Other intangible assets 7 228 260
Property, plant and equipment 7 117 129
Fixed asset investment - 17
Other financial assets 4 1
Trade and other receivables 73 2
Deferred income tax assets 31 51
2,551 2,468
======================================================= ===== ======== ========
Current assets
Trade and other receivables 364 460
Current income tax asset 3 4
Cash and cash equivalents (excluding bank overdrafts) 10 371 272
Assets classified as held for sale 11 63 113
======================================================= ===== ======== ========
801 849
======================================================= ===== ======== ========
Total assets 3,352 3,317
======================================================= ===== ======== ========
Current liabilities
Trade and other payables (291) (249)
Current income tax liabilities (32) (39)
Borrowings (122) (8)
Provisions (11) (26)
Deferred income (637) (620)
Liabilities classified as held for sale 11 (33) (63)
======================================================= ===== ======== ========
(1,126) (1,005)
======================================================= ===== ======== ========
Non-current liabilities
Borrowings (643) (913)
Post-employment benefits (25) (22)
Deferred income tax liabilities (24) (25)
Provisions (15) (11)
Trade and other payables (7) (8)
Deferred income (8) (6)
======================================================= ===== ======== ========
(722) (985)
======================================================= ===== ======== ========
Total liabilities (1,848) (1,990)
======================================================= ===== ======== ========
Net assets 1,504 1,327
======================================================= ===== ======== ========
Equity attributable to owners of the parent
Ordinary shares 9 12 12
Share premium 9 548 548
Other reserves 184 146
Retained earnings 760 621
======================================================= ===== ======== ========
Total equity 1,504 1,327
======================================================= ===== ======== ========
Consolidated statement of changes in equity
For the year ended 30 September 2019
Attributable to owners of the parent
============================================================== ======================================================
Ordinary Share Other Retained Total
shares premium reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
============================================================== ======== =========== =========== ========= =======
At 1 October 2018 as originally
presented 12 548 146 621 1,327
============================================================== ======== =========== =========== ========= =======
Adjustment on initial application
of IFRS 15 net of tax - - - 24 24
Adjustment on initial application
of IFRS 9 net of tax - - - (5) (5)
============================================================== ======== =========== =========== ========= =======
At 1 October 2018 as adjusted 12 548 146 640 1,346
============================================================== ======== =========== =========== ========= =======
Profit for the year - - - 266 266
Other comprehensive income/(expense)
Exchange differences on translating
foreign operations - - 42 - 42
Exchange differences recycled through
income statement on sale of foreign
operations - - (4) - (4)
Actuarial loss on post-employment
benefit obligations - - - (1) (1)
Total comprehensive income
for the year ended 30 September
2019 - - 38 (1) 37
============================================================== ======== =========== =========== ========= =======
Transactions with owners
Employee share option scheme:
* Value of employee services including deferred tax - - - 33 33
Proceeds from issuance of treasury
shares - - - 3 3
Dividends paid to owners of the
parent - - - (181) (181)
============================================================== ======== =========== =========== ========= =======
Total transactions with owners
for the year ended 30 September
2019 - - - (145) (145)
============================================================== ======== =========== =========== ========= =======
At 30 September 2019 12 548 184 760 1,504
============================================================== ======== =========== =========== ========= =======
Attributable to owners of the parent
========================================================= ===========================================================
Ordinary Retained Total
shares Share premium Other reserves earnings equity
GBPm GBPm GBPm GBPm GBPm
========================================================= ======== ============= ============== ========= =======
At 1 October 2017 12 548 131 477 1,168
========================================================= ======== ============= ============== ========= =======
Profit for the year - - - 295 295
Other comprehensive income/(expense)
Exchange differences on translating
foreign operations - - 15 - 15
Gain on available-for-sale fixed
asset investment - - - 1 1
Total comprehensive income
for the year ended 30 September
2018 - - 15 296 311
========================================================= ======== ============= ============== ========= =======
Transactions with owners
Employee share option scheme:
* Value of employee services, net of deferred
tax - - - 16 16
* Proceeds from issuance of treasury shares - - - 3 3
* Dividends paid to owners of the parent - - - (171) (171)
--------------------------------------------------------- -------- ------------- -------------- --------- -------
Total transactions with owners
for the year ended 30 September
2018 - - - (152) (152)
--------------------------------------------------------- -------- ------------- -------------- --------- -------
At 30 September 2018 12 548 146 621 1,327
========================================================= ======== ============= ============== ========= =======
Consolidated statement of cash flows
For the year ended 30 September 2019
2019 2018
Note GBPm GBPm
=============================================== ==== ===== =====
Cash flows from operating activities
Cash generated from continuing operations 586 487
Interest paid (26) (30)
Income tax paid (88) (64)
Net cash generated from operating activities 472 393
=============================================== ==== ===== =====
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash
acquired 11 (41) (8)
Investment in non-current asset (3) -
Disposal of subsidiaries, net of cash disposed 11 70 -
Proceeds on settlement of equity investment 17 -
Purchases of intangible assets 7 (15) (36)
Purchases of property, plant and equipment 7 (27) (20)
Proceeds from sale of property, plant and
equipment - 2
Interest received 6 4
Net cash generated from/(used in) investing
activities 7 (58)
=============================================== ==== ===== =====
Cash flows from financing activities
Proceeds from issuance of treasury shares 3 3
Proceeds from borrowings 414 330
Repayments of borrowings (594) (389)
Movements in cash held on behalf of customers (78) 2
Borrowing costs (1) (3)
Dividends paid to owners of the parent 5 (181) (171)
Net cash used in financing activities (437) (228)
=============================================== ==== ===== =====
Net increase in cash, cash equivalents and
bank overdrafts
(before exchange rate movement) 42 107
Effects of exchange rate movement 10 8 2
Net increase in cash, cash equivalents and
bank overdrafts 50 109
Cash, cash equivalents and bank overdrafts
at 1 October 10 322 213
=============================================== ==== ===== =====
Cash, cash equivalents and bank overdrafts
at 30 September 10 372 322
=============================================== ==== ===== =====
Notes to the financial information
For the year ended 30 September 2019
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.
The financial information set out above does not constitute the
Company's Statutory Accounts for the year ended 30 September 2019
or 2018, but is derived from those accounts. Statutory Accounts for
the year ended 30 September 2018 have been delivered to the
Registrar of Companies and those for 2019 will be delivered in
December 2019. The auditors have reported on both sets of accounts;
their reports were 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 IFRS 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.
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 consolidated financial statements of The Sage Group plc have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union ("EU") and IFRS
as issued by the International Accounting Standards Board ("IASB").
IFRS as adopted by the EU differ in certain respects from IFRS as
issued by the IASB. The differences have no impact on the Group's
consolidated financial statements for the years presented. The
consolidated financial statements have been prepared under the
historical cost convention, except where adopted IFRS require an
alternative treatment. The principal variations from the historical
cost convention relate to derivative financial instruments which
are measured at fair value through profit or loss. The financial
statements of the Group comprise the financial statements of the
Company and entities controlled by the Company (its subsidiaries)
prepared at the end of the reporting period. The accounting
policies have been consistently applied across the Group. The
Company controls an entity when it is exposed, or has rights, to
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity,
which is usually from date of acquisition.
All figures presented are rounded to the nearest GBPm, unless
otherwise stated.
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.
New or amended accounting standards
There are no IFRS, IAS amendments or IFRIC interpretations
effective for the first time this financial year that have had a
material impact on the Group with the exception of the adoption of
IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts
with Customers", the impact of which has been detailed below.
IFRS 9
The Group has adopted IFRS 9 "Financial Instruments" from 1
October 2018 and applied the modified retrospective approach.
Comparatives for 2018 have not been restated and the cumulative
impact of adoption has been recognised as a decrease to retained
earnings with a corresponding decrease in net assets as at 1
October 2018 as follows:
1 October
2018
GBPm
============================================ ==========
Retained earnings
Provision for losses against trade debtors (6)
Tax impact 1
Total impact at 1 October 2018 (5)
============================================== ==========
Non-current assets
Deferred income tax asset 1
Current assets -
Trade and other receivables (6)
============================================== ==========
Total impact at 1 October 2018 (5)
============================================== ==========
The adjustment above arises from adoption of IFRS 9's simplified
approach to providing for lifetime expected credit losses at the
date of initial recognition of trade receivables. Previously under
IAS 39 an impairment allowance for credit losses was not recognised
until there was an indicator of impairment. Under IFRS 9, the Group
uses a matrix approach to determine the credit loss provisions,
with default rates assessed for each country in which the Group
operates.
The Group continues to apply the hedge accounting requirements
of IAS 39 instead of those in IFRS 9.
IFRS 9 made changes to the classification and measurement
requirements for financial assets compared to IAS 39. These did not
have any significant impact on the balances reported by the Group.
The changes applicable to the Group are:
Trade receivables and other financial assets were classified as
loans and receivables under IAS 39. Under IFRS 9, they are
classified and measured as financial assets held at amortised cost
because they are held to collect contractual cash flows and give
rise to cash flows representing solely payments of principal and
interest. This did not result in any change in the carrying amount
or presentation of these balances.
On transition to IFRS 9, the Group elected to classify its
unquoted equity investment, which is presented in the balance sheet
as a fixed asset investment, as at fair value through other
comprehensive income. The investment has since been derecognised on
its redemption in the year ended 30 September 2019. The investment
had previously been classified as an available-for-sale financial
asset under IAS 39. The investment is carried at its fair value
under both IAS 39 and IFRS 9 and as a result of the election made
under IFRS 9, changes in the fair value of the investment prior to
its derecognition continued to be recognised in the statement of
other comprehensive income when they arose. However, in a change to
the previous treatment, under IFRS 9 the cumulative gain was not
reclassified to profit for the period when the investment was
derecognised.
The following table summarises these reclassifications:
As at 1 October 2018 IFRS 9 measurement category
============================= =========================== ------------------------------
Fair value
Total balance under IAS 39 Amortised cost through OCI
GBPm GBPm GBPm
============================= =========================== =============== =============
IAS 39 measurement category
Loans and receivables
Trade receivables* 370 364 -
Other financial assets 3 3 -
Available for sale
Fixed asset investment 17 - 17
============================= =========================== =============== =============
390 367 17
============================= =========================== =============== =============
The change in the closing balance of allowances for impairment
losses under IAS 39 to the opening loss allowances on adoption of
IFRS 9 is as follows:
As at 1 October 2018 Allowance for impairment under Expected credit losses under
IAS 39 Remeasurement IFRS 9
GBPm GBPm GBPm
================================= ================================ ============== =================================
Loans and receivables under IAS
39 / financial assets held at
amortised cost under IFRS 9 20 6 26
--------------------------------- -------------------------------- -------------- ---------------------------------
IFRS 15
As disclosed in our Annual Report 2018, the Group has adopted
IFRS 15 retrospectively with the cumulative effect of initially
applying the standard recognised on the date of initial
application, being 1 October 2018 for the Group (the "cumulative
catch up" approach) and the practical expedient to apply the
standard only to contracts in progress but not completed at the
date of initial application. Prior year comparatives are not
restated and retained earnings at 1 October 2018 have been restated
for the full cumulative impact of adopting the standard.
Information on the changes resulting from the adoption of IFRS
15, quantitative information on their impact at 1 October 2018 and
a reconciliation for the year ending 30 September 2019 between the
primary financial statements under IFRS 15 and the financial
position and performance that would have been reported in
accordance with IAS 18 are set out in note 12.
Future Accounting Standards
The Directors also considered the impact on the Group of new and
revised accounting standards, interpretations or amendments which
have been issued but were not effective for the Group for the year
ended 30 September 2019. The most significant of these is IFRS 16,
"Leases", which has been endorsed for use in the EU and has been
adopted by the Group with effect from 1 October 2019. IFRS 16 will
have a significant effect on the Group's financial reporting and
its impact is discussed below. Other new and revised accounting
standards, interpretations or amendments that have been issued but
are not yet effective for the Group are not expected to have a
material impact on the consolidated financial statements when first
applied.
IFRS 16
IFRS 16 is effective for the Group for the financial year
commencing on 1 October 2019, replacing the existing lease
accounting standard IAS 17. The new standard will impact the
accounting for leases in which the Group is the lessee. The Group
currently accounts for these leases as operating leases, with
rentals payable charged to the income statement on a straight-line
basis as an operating expense. Under the new standard, the Group
will recognise additional lease assets and lease liabilities on the
balance sheet to account for the right to use the leased items and
the obligation to make future lease payments. The right of use
asset will be presented within property, plant and equipment and
the lease liabilities within current and non-current borrowings.
The costs of leases will be recognised in the income statement
split between depreciation of the lease asset and a finance charge
on the lease liability. Depreciation will be presented within
selling and administrative expenses and finance charges within
finance costs.
The Group will apply the modified retrospective approach to
transition to IFRS 16 with the cumulative impact recognised in
equity on 1 October 2019 and no restatement of the financial
statements for the prior year. Under this approach, lease
liabilities are measured at the present value of future lease
payments discounted using the Group's incremental borrowing rate
applicable to the currency and remaining term of each lease. Right
of use assets are measured either as if IFRS 16 had been in place
since the commencement of the lease or at an amount equal to the
lease liability at adoption, adjusted for any existing prepaid or
accrued lease payments. Measurement as if IFRS 16 had been in place
since commencement of the lease is applied to the Group's property
leases.
The Group's implementation of the new standard is substantially
complete and data has been collected on all the leases to which the
standard applies. The Group has elected to apply the exemptions
available for short-term leases with a lease term of 12 months or
less and leases of low value items. The leases to which these
exemptions apply will be accounted for in the same way as current
operating leases, with no lease assets or liabilities recognised.
The low value exemption is expected to apply to most of the Group's
leases of IT and other office equipment. On transition, the Group
will make use of the following practical expedients available under
the modified retrospective approach:
-- For leases other than property leases, the Group will measure
the right of use assets at an amount equal to the lease liability
at adoption, adjusted for any existing prepaid or accrued lease
payments, and will also apply a single discount rate to a portfolio
of those leases with reasonably similar characteristics;
-- For all leases, the Group will exclude from the measurement
of the right of use asset initial direct costs incurred when
obtaining the lease; and
-- The Group will rely 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 currently estimates that on transition it will
recognise right of use assets of between approximately GBP120m and
GBP130m and lease liabilities of between approximately GBP135m and
GBP145m. Taking accounting of the elimination of the Group's
existing assets and liabilities for prepaid and accrued lease
payments, net assets will decrease by approximately GBP5m, with a
corresponding adjustment recognised in equity. The Group's total
undiscounted operating lease commitment at 30 September 2019 as
disclosed under existing reporting requirements was GBP162m. The
Group's most significant leases by value are those for office
buildings which comprise over 95% of existing current lease
commitments. For the year ending 30 September 2020 and subsequent
years, there will be a reduction in lease expenses charged to
operating profit and an increase in finance costs in the income
statement compared to the current treatment. The impact will depend
on the future make-up of the Group's lease portfolio but, assuming
the existing portfolio remains unchanged, the previous operating
expense is estimated to reduce by approximately GBP5m and finance
costs to increase by approximately GBP5m. The Group's total rental
expense for the year ended 30 September 2019 under existing
reporting requirements was GBP30m. The standard will not impact net
cash flow, but cash flows from most lease payments will be
reclassified from cash flows from operating activities to cash
flows from financing activities, as the payments will represent the
repayment of lease liabilities.
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, which is usually
assessed based on whether the business partner has responsibility
for payment 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 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 its on-premise subscription
offerings.
Goodwill impairment
A key judgement is the ongoing appropriateness of the
cash-generating units ("CGUs") for the purpose of impairment
testing.
In the current year CGUs were assessed in the context of the
Group's evolving business model, the Sage strategy and the shift to
global product development. Management continues to monitor
goodwill at a regional level, thus it was determined that the use
of CGUs based on geographical area of operation remains
appropriate.
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.
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.
Classification and measurement of businesses held for sale
The Group's Brazilian and Sage Pay businesses have been
classified as businesses held for sale. Classification as held for
sale requires judgements to be made on whether the qualifying
criteria have been met. The Group considers these businesses to
meet the criteria to be classified as held for sale for the
following reasons:
-- Management has approved the plans to sell these businesses;
-- The businesses are available for immediate sale and can be
sold to a buyer in their current condition;
-- The sales are expected to be completed within one year from
the date of initial classification; and
-- Potential buyers have been identified and negotiations are
ongoing as at the reporting date.
The assets of businesses held for sale are measured at the lower
of their carrying amount and their fair value less costs to sell.
Determination of fair value less costs to sell requires estimates
to be made of the selling price that might be obtained for the
business and the costs to be incurred on completing the
transaction. Management has reached its conclusions based on the
bids received from potential buyers to date, the status of
negotiations and its past experience of similar transactions.
Website
This condensed consolidated annual financial report for the year
ended 30 September 2019 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
assessment of their performance, through the Quarterly Business
Reviews chaired by the President of Sage 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.
Revenue by segment
Year ended 30 September 2019
Statutory Organic Change Change Change
and Underlying adjustments* Organic Statutory Underlying Organic
GBPm GBPm GBPm % % %
======================= ================ ============= ========= ========== =========== ========
Recurring revenue by segment
North America 574 (1) 573 23.0% 14.9% 11.8%
Northern Europe 341 (1) 340 14.4% 14.2% 16.4%
Central and Southern
Europe 490 - 490 3.1% 3.1% 6.9%
International 207 (51) 156 4.7% 8.2% 8.5%
========================= ================ ============= ========= ========== =========== ========
Recurring revenue 1,612 (53) 1,559 11.3% 10.0% 10.8%
========================= ================ ============= ========= ========== =========== ========
Software and software related services
("SSRS") revenue by segment
North America 68 - 68 (8.4%) (13.5%) (11.5%)
Northern Europe 27 (2) 25 (37.5%) (37.9%) (37.2%)
Central and Southern
Europe 118 - 118 (21.7%) (21.7%) (19.2%)
International 47 (3) 44 (14.6%) (13.0%) (8.0%)
========================= ================ ============= ========= ========== =========== ========
SSRS revenue 260 (5) 255 (18.5%) (20.5%) (17.9%)
========================= ================ ============= ========= ========== =========== ========
Processing revenue by segment
North America 15 (15) - (52.8%) (55.2%) (8.7%)
Northern Europe 38 (37) 1 (1.4%) (1.4%) (30.3%)
Central and Southern - -
Europe - - - -
International 11 (4) 7 (26.4%) (23.5%) 6.3%
========================= ================ ============= ========= ========== =========== ========
Processing revenue 64 (56) 8 (24.7%) (25.7%) (3.0%)
========================= ================ ============= ========= ========== =========== ========
Total revenue by segment
North America 657 (16) 641 14.8% 7.5% 8.8%
Northern Europe 406 (40) 366 6.8% 6.6% 9.7%
Central and Southern
Europe 608 - 608 (2.8%) (2.9%) 0.6%
International 265 (58) 207 (1.0%) 2.0% 4.4%
========================= ================ ============= ========= ========== =========== ========
Total revenue 1,936 (114) 1,822 4.9% 3.1% 5.6%
========================= ================ ============= ========= ========== =========== ========
Revenue by segment (continued)
Year ended 30 September 2018
Impact
Underlying Underlying on foreign Organic
Statutory adjustments as reported exchange Underlying adjustments* Organic
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ============ ============= ============ ============= ========== ============= =======
Recurring revenue by segment
North America 468 10 478 22 500 12 512
Northern Europe 297 1 298 - 298 (6) 292
Central and Southern
Europe 475 - 475 1 476 (18) 458
International 197 - 197 (6) 191 (47) 144
==================== ============ ============= ============ ============= ========== ============= =======
Recurring revenue 1,437 11 1,448 17 1,465 (59) 1,406
==================== ============ ============= ============ ============= ========== ============= =======
Software and software related services
("SSRS") revenue by segment
North America 75 - 75 3 78 (1) 77
Northern Europe 44 - 44 - 44 (4) 40
Central and Southern
Europe 150 - 150 - 150 (4) 146
International 55 - 55 (1) 54 (6) 48
==================== ============ ============= ============ ============= ========== ============= =======
SSRS revenue 324 - 324 2 326 (15) 311
==================== ============ ============= ============ ============= ========== ============= =======
Processing revenue by segment
North America 31 - 31 2 33 (33) -
Northern Europe 39 - 39 - 39 (37) 2
Central and - - -
Southern
Europe - - - -
International 15 - 15 - 15 (9) 6
==================== ============ ============= ============ ============= ========== ============= =======
Processing revenue 85 - 85 2 87 (79) 8
==================== ============ ============= ============ ============= ========== ============= =======
Total revenue by segment
North America 574 10 584 27 611 (22) 589
Northern Europe 380 1 381 - 381 (47) 334
Central and Southern
Europe 625 - 625 1 626 (22) 604
International 267 - 267 (7) 260 (62) 198
==================== ============ ============= ============ ============= ========== ============= =======
Total revenue 1,846 11 1,857 21 1,878 (153) 1,725
==================== ============ ============= ============ ============= ========== ============= =======
* Adjustments relate to the disposal of Sage Payroll Solutions
and assets held for sale in the current year (note 11). Adjustments
to the prior year comparatives include proforma adjustments for the
areas of impact of IFRS 15 adoption assuming the same contractual
basis as the current year. This is to enable like-for-like
comparison across the periods.
Operating profit by segment
Year ended 30 September 2019
--------------- ---------------------------------------------------------- ---------- ---------------------
Underlying Organic Change Change Change
Statutory adjustments Underlying adjustments Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm GBPm % % %
=============== ========= ============ ========== ============ ======= ========== =========== ========
Operating profit by segment
North America 128 5 133 - 133 36.6% (15.1%) (22.9%)
Northern Europe 134 23 157 (14) 143 3.1% 10.9% 13.7%
Central and
Southern Europe 120 9 129 - 129 (31.4%) (29.5%) (25.5%)
International - 29 29 (2) 27 (98.7%) 1.7% 4.9%
================= ========= ============ ========== ============ ======= ========== =========== ========
Total operating
profit 382 66 448 (16) 432 (10.5%) (12.1%) (13.0%)
================= ========= ============ ========== ============ ======= ========== =========== ========
Year ended 30 September 2018
------------------- ---------------------------------------------------------------------------------------
Impact
Underlying Underlying of foreign Organic
Statutory adjustments as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ========= ============ ============ =========== ========== ============ =======
Operating profit by segment
North America 94 55 149 8 157 15 172
Northern Europe 130 11 141 - 141 (15) 126
Central and Southern
Europe 174 10 184 (1) 183 (11) 172
International 29 1 30 (2) 28 (2) 26
======================= ========= ============ ============ =========== ========== ============ =======
Total operating
Profit 427 77 504 5 509 (13) 496
======================= ========= ============ ============ =========== ========== ============ =======
Reconciliation of underlying operating profit to statutory
operating profit
2019 2018
GBPm GBPm
======================================================= ====== ======
North America 133 157
Northern Europe 157 141
Central and Southern Europe 129 183
Total reportable segments 419 481
International 29 28
========================================================= ====== ======
Underlying operating profit 448 509
Impact of movement in foreign currency exchange rates - (5)
======================================================== ====== ======
Underlying operating profit (as reported) 448 504
Amortisation of acquired intangible assets (31) (35)
Other M&A activity-related items (21) (32)
Non-recurring items (14) (10)
========================================================= ====== ======
Statutory operating profit 382 427
========================================================= ====== ======
3 Adjustments between underlying profit and statutory profit
2019 2019 2019 2018 2018 2018
Non- Non-
Recurring recurring Total Recurring recurring Total
GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ========== ========== ====== ========== ========== =======
M&A activity-related
items
Amortisation of acquired
intangibles 31 - 31 35 - 35
(Gain)/loss on disposal
of subsidiary - (28) (28) - 1 1
Impairment of assets
held for sale - 14 14 - - -
Adjustment to acquired
deferred income - - - 11 - 11
Other M&A activity-related
items 21 - 21 21 - 21
Other items
Litigation items - - - - 4 4
Restructuring costs - - - - 5 5
Property restructuring
costs - 16 16 - - -
Office relocation - 12 12 - - -
Total adjustments made
to operating profit 52 14 66 67 10 77
Fair value adjustments - - - 1 - 1
Foreign currency movements
on intercompany balances (2) - (2) (1) - (1)
Total adjustments made
to profit before income
tax 50 14 64 67 10 77
=========================== ========== ========== ====== ========== ========== =======
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 relate to completed
transaction costs and include advisory, legal, accounting,
valuation and other professional or consulting services as well as
acquisition-related remuneration and directly attributable
integration costs. This includes a provision for future selling
costs for assets held for sale. Further details can be found in
note 11.
Foreign currency movements on intercompany balances of GBP2m
(2018: credit of GBP1m) occur due to retranslation of intercompany
balances other than those where settlement is not planned or likely
in the foreseeable future. The balance arises in the current year
due to fluctuation in exchange rates, predominantly the movement in
Euro and US Dollar compared to sterling.
The adjustment made in the prior year to acquired deferred
income represents the additional revenue that would have been
recorded in the year had deferred income not been reduced as part
of the purchase price allocation adjustment made for business
combinations.
The prior year fair value adjustment was in relation to an
embedded derivative asset which relates to contractual terms agreed
as part of the US private placement debt.
Non-recurring items
Net charges in respect of non-recurring items amounted to GBP14m
(2018: GBP10m).
Property restructuring costs of GBP16m (2018: GBPnil) 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.
The prior year restructuring costs relate to costs arising from
the restructure of parts of the senior leadership team.
Office relocation costs relate to the incremental depreciation
charge resulting from accelerated depreciation following the
announced UK office move.
The adjustment relating to litigation costs of GBP4m in the
prior year related to two specific employment related matters that,
based on the Group's experience, are one-off in nature. Both cases
were settled during the year. All other litigation costs which have
been incurred through the normal course of business are included
within underlying operating profit.
Details of gain on disposal of subsidiary and impairment of
assets held for sale can be found in note 11.
In the prior year, the loss on disposal of subsidiary related to
the sale of Sage XRT Brasil Ltda.
4 Income tax expense
The effective tax rate on statutory profit before tax was 26%
(2018: 26%), whilst the effective tax rate on underlying profit
before tax on continuing operations was 27% (2018: 26%).
5 Dividends
2019 2018
GBPm GBPm
====================================================== ===== =====
Final dividend paid for the year ended 30 September
2018 of 10.85p per share 118 -
(2018: final dividend paid for the year ended
30 September 2017 of 10.20p per share) - 110
Interim dividend paid for the year ended 30 September
2019 of 5.79p per share 63 -
(2018: interim dividend paid for the year ended
30 September 2018 of 5.65p per share) - 61
181 171
====================================================== ===== =====
In addition, the directors are proposing a final dividend in
respect of the financial year ended 30 September 2019 of 11.12p per
share which will absorb an estimated GBP121m of shareholders'
funds. If approved by the AGM, it will be paid on 2 March 2020 to
shareholders who are on the register of members on 7 February 2020.
These financial statements do not reflect this proposed dividend
payable.
6 Earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the year,
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
potentially dilutive ordinary shares, exercisable at the end of the
year. The Group has one class of dilutive potential ordinary
shares. They are share options granted to employees where the
exercise price is less than the average market price of the
Company's ordinary shares during the year.
Underlying
Underlying as reported Underlying Statutory Statutory
2019 2018 2018 2019 2018
============================= =========== ============= =========== ============ ==========
Earnings attributable to owners
of the parent
- Continuing operations (GBPm)
Profit for the year 309 352 356 266 295
============================= =========== ============= =========== ============ ==========
Number of shares (millions)
Weighted average number
of shares 1,086 1,083 1,083 1,086 1,083
Dilutive effects of shares 9 6 6 9 6
============================= =========== ============= =========== ============ ==========
1,095 1,089 1,089 1,095 1,089
============================= =========== ============= =========== ============ ==========
Earnings per share attributable
to owners of the
parent - Continuing operations
(pence)
Basic earnings per share 28.40 32.51 32.85 24.49 27.21
============================= =========== ============= =========== ============ ==========
Diluted earnings per share 28.17 32.35 32.68 24.29 27.07
============================= =========== ============= =========== ============ ==========
2019 2018
Reconciliation of earnings - Continuing operations GBPm GBPm
====================================================================================== ===== =====
Underlying earnings attributable to owners of the parent (after exchange movement) 309 356
Impact of movement in foreign currency exchange rates, net of taxation - (4)
====================================================================================== ===== =====
Underlying earnings attributable to owners of the parent (as reported) 309 352
Amortisation of acquired intangible assets and adjustment to acquired deferred income (31) (46)
Fair value adjustments to debt-related financial instruments - (1)
Gain/(loss) on disposal of subsidiary 28 (1)
Foreign currency movements on intercompany balances 2 1
Other M&A activity-related items (21) (21)
Impairment of assets held for sale (14) -
Restructuring costs and litigation related items (16) (9)
Office relocation (12) -
Taxation on adjustments between underlying and statutory profit before tax 21 20
====================================================================================== ===== =====
Net adjustments (43) (57)
====================================================================================== ===== =====
Earnings: statutory profit for the year 266 295
====================================================================================== ===== =====
7 Non-current assets
Other
intangible Property, plant
Goodwill assets and equipment Total
GBPm GBPm GBPm GBPm
================================================ ========= ============ ================ ======
Opening net book amount at 1 October 2018 2,008 260 129 2,397
Additions 41 15 27 83
Acquisition - - - -
Disposals* 3 (5) - (2)
Transfer to held for sale (26) (6) (3) (35)
Depreciation, amortisation and other movements - (44) (37) (81)
Exchange movement 72 8 1 81
Closing net book amount at 30 September 2019 2,098 228 117 2,443
================================================ ========= ============ ================ ======
*Includes finalisation of the sale of Sage Payroll Solutions.
See note 11.
Other
intangible Property, plant
Goodwill assets and equipment Total
GBPm GBPm GBPm GBPm
================================================ ========= ============ ================ ======
Opening net book amount at 1 October 2017 2,002 274 133 2,409
Additions - 39 20 59
Acquisition - 11 - 11
Disposals of subsidiaries - (1) (3) (4)
Transfer to held for sale (32) (20) - (52)
Depreciation, amortisation and other movements - (48) (20) (68)
Exchange movement 38 5 (1) 42
Closing net book amount at 30 September 2018 2,008 260 129 2,397
================================================ ========= ============ ================ ======
Goodwill is not subject to amortisation, but is tested for
impairment annually at the year-end or upon any indication of
impairment. At 30 September 2019, there were no indicators of
impairment to goodwill. Full details of the outcome of the 2019
goodwill impairment review are provided in the 2019 financial
statements.
Detail of the current period acquisitions and disposals has been
provided in note 11.
8 Financial instruments
For financial assets and liabilities, the carrying amount
approximates the fair value of the instruments, with the exception
of US senior loan notes due to these bearing interest at fixed
rates. 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 30 September 2019 At 30 September 2018
======================== ========================
Book Value Fair Value Book Value Fair Value
GBPm GBPm GBPm GBPm
====================== =========== =========== =========== ===========
Long-term borrowing (643) (660) (913) (906)
Short-term borrowing (122) (122) (8) (8)
====================== =========== =========== =========== ===========
9 Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares GBPm GBPm GBPm
======================== ============== ========= ============== ======
At 1 October 2018 1,120,789,295 12 548 560
Shares issued/proceeds - - - -
======================== ============== ========= ============== ======
At 30 September 2019 1,120,789,295 12 548 560
======================== ============== ========= ============== ======
Number of Ordinary Share
Shares Shares Premium Total
GBPm GBPm GBPm
======================== ============== ========= ============== ======
At 1 October 2017 1,120,638,121 12 548 560
Shares issued/proceeds 151,174 - - -
======================== ============== ========= ============== ======
At 30 September 2018 1,120,789,295 12 548 560
======================== ============== ========= ============== ======
During the year the Group agreed to satisfy the vesting of
certain share awards, utilising a total of 3,781,720 (2018:
3,022,375) treasury shares.
During the year, the Employee Share Trust agreed to satisfy the
vesting of certain share awards, utilising a total of 368,733
(2018: 707,190) shares held in the Trust. The Trust received GBP2m
(2018: GBPnil) additional funds for future purchase of shares in
the market (2018: nil funds received).
10 Cash flow and net debt
2019 2018
GBPm GBPm
============================================================================================== ====== ======
Statutory operating profit - continuing operations 382 427
Recurring and non-recurring items 66 77
============================================================================================== ====== ======
Underlying operating profit - as reported 448 504
Depreciation/amortisation/impairment/profit on disposal of non-current assets/non-cash items 33 28
Share-based payments 26 5
Net changes in working capital 108 (10)
Net capital expenditure (38) (45)
Underlying cash flow from operating activities 577 482
Non-recurring cash items (24) (35)
Net interest paid (21) (26)
Income tax paid (88) (64)
Profit and loss foreign exchange movements (1) (1)
============================================================================================== ====== ======
Free cash flow 443 356
Net debt at 1 October (668) (813)
Acquisitions and disposals of subsidiaries and similar transactions, net of cash and related
items 35 (21)
Dividends paid to owners of the parent (181) (171)
Share issue 3 3
Exchange movement (24) (20)
Other (1) (2)
============================================================================================== ====== ======
Net debt at 30 September (393) (668)
============================================================================================== ====== ======
2019 2018
GBPm GBPm
=========================================================== ====== ======
Underlying cash flow from operating activities 577 482
Recurring and non-recurring cash items (29) (37)
Net capital expenditure 38 45
Other adjustments including foreign exchange translations - (3)
Statutory cash flow from operating activities 586 487
=========================================================== ====== ======
At At
Analysis of 1 1 Reclassifica-tion Disposal At 30
change in October October Cash as held of Non-cash Exchange September
net 2017 2018 flow Acquisi-tions for sale subsidiary movements movement 2019
debt GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
Cash and
cash
equivalents 231 272 120 1 (4) (26) - 8 371
Bank
overdrafts (18) (8) 5 - 3 - - - -
Cash amounts
included in
held for
sale - 58 33 - 1 (91) - - 1
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
Cash, cash
equivalents
and bank
overdrafts
including
cash
as held for
sale 213 322 158 1 - (117) - 8 372
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
Liabilities
arising from
financing
activities
Loans due
within
one year (37) - - - - - (115) (7) (122)
Loans due
after
more than
one
year (914) (913) 181 - - - 113 (24) (643)
Cash held on
behalf of
customers (75) (19) (6) - - 26 - (1) -
Cash held on
behalf of
customers
included in
held for
sale - (58) (33) - - 91 - - -
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
(1,026) (990) 142 - - 117 (2) (32) (765)
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
Total (813) (668) 300 1 - - (2) (24) (393)
============ ======== ======== ===== ============= ================= ========== ========= ========= =========
Included in cash above is GBPnil (2018: GBP77m) relating to cash
held on behalf of customers. The reduction in the year is due to
the disposals made in the current year, see note 11.
11 Acquisitions and disposals
Acquisitions made during the current year
On 27 September 2019, the Group acquired 100% of the equity
capital of Ocrex Limited ("Ocrex") for total consideration of
GBP42m paid in cash. Ocrex is a leading provider of data entry
automation for accountants, bookkeepers and businesses through its
main product, AutoEntry. The acquisition of Ocrex and AutoEntry
allows the Group to accelerate its vision to become a software as a
service (SaaS) company.
Provisional
fair values
Summary of acquisition GBPm
=========================================== ============
Purchase consideration
Cash 42
Provisional fair value of identifiable net
assets 1
============================================= ============
Goodwill 41
============================================= ============
The provisional fair value of identifiable net assets comprises
cash and cash equivalents of GBP1m. Provisional fair values have
been determined as the purchase price allocation exercise is
incomplete because of the short period between the acquisition date
and the approval of the Annual Report. Pending completion of the
fair value exercise, the residual excess of consideration over the
net assets acquired has been provisionally recognised entirely as
goodwill. Goodwill is expected to reflect benefits from the
assembled workforce and growth opportunities. No goodwill is
expected to be deductible for tax purposes.
The outflow of cash and cash equivalents on
the acquisition is as follows: GBPm
============================================ ====
Cash consideration (42)
Cash and cash equivalents acquired 1
Net cash outflow (41)
============================================== ====
Costs of GBP2m directly relating to the completion of the
business combination have been included in selling and
administrative expenses in the consolidated income statement as
other M&A activity-related items and relate to advisory, legal
and other professional services. Arrangements have been put in
place for retention payments to remunerate employees of Ocrex for
future services. The costs of these arrangements will be recognised
in future periods over the retention period. No amounts have been
recognised to date in respect of these arrangements. The
consolidated income statement does not include any revenue or
profit or loss reported by Ocrex for the period due to the
acquisition date being close to the year end date. The revenue and
profit of the Group for the year ended 30 September 2019 would not
have been materially different if Ocrex had been included in the
Group for the whole of the year.
Disposals made during the current year
On 21 February 2019, the Group completed the sale of the Sage
Payroll Solutions, the US-based payroll outsourcing business
("SPR") for total consideration of GBP76m. On 18 July 2019, the
Group completed the sale of its South African payments business for
GBP5m. The gain on disposal is calculated as follows:
South
African
SPR payments Total
Gain on disposal GBPm GBPm GBPm
===================================================== ==== ========= =====
Cash consideration 71 3 74
Deferred consideration - 2 2
Contingent consideration 5 - 5
Gross consideration 76 5 81
Transaction costs (4) - (4)
===================================================== ==== ========= =====
Net consideration 72 5 77
Net assets disposed (51) (2) (53)
Cumulative foreign exchange differences reclassified
from other comprehensive income to the income
statement 6 (2) 4
===================================================== ==== ========= =====
Gain on disposal 27 1 28
===================================================== ==== ========= =====
Net assets disposed comprise:
South
African
SPR payments Total
GBPm GBPm GBPm
================================ ==== ========= =====
Goodwill 28 1 29
Other intangible assets 25 - 25
Trade and other receivables 1 1 2
Cash and cash equivalents 91 26 117
Total assets 145 28 173
Trade and other payables (93) (26) (119)
Deferred income tax liabilities (1) - (1)
Total liabilities (94) (26) (120)
Net assets 51 2 53
================================ ==== ========= =====
The gain is reported within continuing operations, as an
adjustment between underlying and statutory results. The contingent
consideration is measured at its fair value determined using a
discounted cash flow valuation technique. The main inputs to the
calculation for which assumptions have been made are the discount
rate and the period over which the consideration will be received.
This is a level 3 fair value under IFRS 13.
Prior to the disposals, SPR formed part of the Group's North
America reporting segment and South African payments part of the
International segment. The inflow of cash and cash equivalents on
the disposal is calculated as follows:
South
African
SPR payments Total
Inflow of cash and cash equivalents on disposal GBPm GBPm GBPm
================================================ ==== ========= =====
Cash consideration 71 3 74
Transaction costs (4) - (4)
================================================ ==== ========= =====
Net consideration received 67 3 70
================================================ ==== ========= =====
Discontinued operations and assets and liabilities held for
sale
The Group had no discontinued operations during the years ended
30 September 2019 or 30 September 2018. 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
classified as held for sale during the year. The sale of the
Group's Brazilian businesses is expected to be finalised during the
year ending 30 September 2020. An agreement was signed on 18
November 2019, for the sale of the Sage Pay business to Elavon
Inc., a subsidiary of U.S. Bancorp (as disclosed in note 14). The
transaction is subject to regulatory approval with completion and
loss of control expected to occur in Q2 FY20. The Sage Pay business
forms part of the Group's Northern Europe reportable segment, and
the Brazilian business is part of the International segment.
On classification of the Brazilian business as held for sale,
the Group recognised a write down of net assets of GBP19m,
comprising of GBP14m impairment of assets and GBP5m provision for
future selling costs, to reduce the carrying value of the
businesses to their fair value less costs to sell. This is included
within selling and administrative expenses in the income statement
as an adjustment between underlying and statutory operating profit.
Note that the fair value less costs of sale of the disposal groups
held for sale was determined using observable inputs that required
some adjustments using unobservable data, leading to level 3
classification when considering the fair value hierarchy under IFRS
13.
Upon disposal, the income in relation to cumulative foreign
exchange differences that have been recognised in other
comprehensive income relating to the assets and liabilities of
these businesses from the date of their acquisition to the date of
disposal will be recycled to the income statement. Assets and
liabilities held for sale at 30 September 2018 relate to the
Group's subsidiary Sage Payroll Solutions which was sold on 21
February 2019.
Assets and liabilities held for sale comprise:
Brazil Sage Pay Total Total
2019 2019 2019 2018
GBPm GBPm GBPm GBPm
=============================== ====== ======== ===== =====
Goodwill - 26 26 32
Other intangible assets - 1 1 20
Property, plant and equipment - 2 2 -
Deferred income tax asset 7 - 7 -
Inventory - 1 1 -
Trade and other receivables 16 6 22 3
Cash and cash equivalents - 4 4 58
=============================== ====== ======== ===== =====
Total assets 23 40 63 113
=============================== ====== ======== ===== =====
Trade and other payables (8) (4) (12) (62)
Borrowings (3) - (3) -
Current income tax liabilities (1) - (1) -
Provisions (6) - (6) -
Deferred income (10) (1) (11) (1)
=============================== ====== ======== ===== =====
Total liabilities (28) (5) (33) (63)
=============================== ====== ======== ===== =====
Net (liabilities)/assets (5) 35 30 50
=============================== ====== ======== ===== =====
12 IFRS 15
Differences between IFRS 15 and previous accounting policies
There are several differences between the Group's accounting
policies under IFRS 15 and its previous accounting policies under
IAS 18. The most significant of these are as follows.
- Unbundling of subscription software and related maintenance
and support contracts for on-premise Products
IFRS 15 introduces a new concept of performance obligations.
This requires changes to the way the transaction price is allocated
to separately identifiable components of a bundle within a
contract, which can impact the timing of recognising revenue. As a
result, the revenue recognition pattern changes for certain
on-premise subscription contracts, which combine the delivery of
software and support services and the obligation to deliver, in the
future, unspecified software upgrades under a maintenance contract.
Under IAS 18 policies, the Group recognised the entire price as
revenue on a straight-line basis over the subscription term. Under
IFRS 15, a portion of the transaction price is recognised upon
delivery of the initial software at the outset of the arrangement
with the remainder recognised over the term of the contract due to
the fact that these are deemed to be separate performance
obligations.
- Non-refundable contract sign up fees
In some cases, customers pay a non-refundable contract sign-up
fee when they enter into a new initial contract for a software
product, and no equivalent fee is payable on subsequent renewals.
As a result of paying the contract sign-up fee, the customer has an
option to renew the contract and to pay a lower price on renewal
than would have been the case had the contract sign-up fee not been
paid. Under IFRS 15, the fee is considered to provide the customer
with a material right that the customer would not receive without
having entered into the initial contract. Therefore, the upfront
fee is recognised as revenue over the anticipated period of benefit
to the customer, which range from four to seven years and takes
account of the likelihood of the customer renewing the contract.
Under IAS 18 policies, the full amount of the contract sign-up fee
was recognised as revenue on a straight-line basis over the initial
contract term.
- Costs of obtaining customer contracts
Under IFRS 15, all incremental costs of obtaining a contract
with a customer, including commission to internal sales employees,
are recognised as an asset on the balance sheet, within trade and
other receivables, if the Group expects to recover those costs. The
costs are amortised over the period during which the related
revenue is recognised, which may extend beyond the initial contract
term where the Group expects to benefit from future renewals as a
result of incurring the costs. The amortisation periods range from
one year to ten years depending on the type of offering.
Amortisation is reported within selling and administrative
expenses. Under previous policies, costs to obtain a contract were
recognised as assets, within trade and other receivables, and
amortised only if they were payable to a third-party agent and
related to a contract where revenue was recognised over time. As a
result, compared to previous policies the amount recognised as an
asset under IFRS 15 increases and the recognition of costs is
deferred.
- Business Partner Arrangements
Under IFRS 15, the Group is required to assess whether it
controls a good or service before it is transferred to the end
customer to determine whether it is principal or agent in that
transaction. This is in contrast to the previous guidance which was
focused on assessing whether the Group had the risks and rewards of
a principal. For Sage, the application of IFRS 15 results in a
change in principal versus agent assessment for a number of
business partner arrangements. The Group has therefore identified
an increase in the number of business partner arrangements where
Sage is considered to be the principal under IFRS 15 with respect
to the end customer. As a result, there is an increase in the gross
revenue recognised for these arrangements as the amounts payable to
business partners are classified as a cost of sale rather than a
deduction from revenue. On the balance sheet, the unamortised
amounts payable to business partners which were previously netted
within deferred income are now presented as part of customer
acquisition costs.
- Timing of recognizing a receivable
Under IFRS 15, a receivable is recognised when the right to
consideration is unconditional. Typically, for a non-cancellable
contract this happens when the Group starts providing the service.
Under IAS 18 receivables were recognised based on the billing
arrangement agreed under the contract, even where the contract was
not unconditional or the group had not started providing services
under the contract. As a result, compared to previous policies the
amount recognised as a receivable decreased with a corresponding
decrease in deferred income.
Quantitative impact of policy changes on consolidated balance
sheet at 1 October 2018
The financial impact of the policy changes explained above on
the Group's consolidated balance sheet on initial application is as
follows:
As at 1 October 2018
================================================================================================================
Costs Timing
Unbundling Non-refundable of of
of contract obtaining Business recognising
subscription sign-up customer partner a Other Tax Total
software fees contracts arrangements receivable adjustments impact Impact
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============ ============ ============== ========= ============ =========== =========== ====== =======
Non-current
Assets
Trade and
other
receivables - - 34 - - - - 34
Deferred
income
tax assets - - - - - - (4) (4)
Current
assets
Trade and
other
receivables - - 4 16 (43) - - (23)
Current
Liabilities
Deferred
income 21 (21) - (16) 43 (6) - 21
============== ============ ============== ========= ============ =========== =========== ====== =======
Non-current
Liabilities
Deferred
income
tax
liabilities - - - - - - (4) (4)
Net assets 21 (21) 38 - - (6) (8) 24
============== ============ ============== ========= ============ =========== =========== ====== =======
Total equity 21 (21) 38 - - (6) (8) 24
============== ============ ============== ========= ============ =========== =========== ====== =======
Primary statements under IAS 18
The Group's consolidated financial statements for the year ended
30 September 2019 are prepared in accordance with IFRS 15;
comparative periods have not been restated. Where there are
differences between the primary consolidated financial statements
presented in accordance with IFRS 15 and comparable presentation
under the Group's previous revenue accounting policy (in accordance
with IAS 18 "Revenue"), the effects are disclosed below. The
Group's consolidated statement of cash flows is not affected by the
implementation of IFRS 15 and so is not re-presented.
Consolidated income statement (reconciliation to IAS 18)
IFRS 15 IAS 18
Year ended 30 September basis Adjustments basis
2019 GBPm GBPm GBPm
================================= ======= ============= =======
Revenue 1,936 (8) 1,928
Cost of sales (138) (6) (144)
================================= ======= ============= =======
Gross profit 1,798 (14) 1,784
Selling and administrative
expenses (1,416) 7 (1,409)
Operating profit 382 (7) 375
Finance income 8 - 8
Finance costs (29) - (29)
================================= ======= ============= =======
Profit before income
tax 361 (7) 354
Income tax expense (95) 2 (93)
================================= ======= ============= =======
Profit for the year 266 (5) 261
--------------------------------- ------- ------------- -------
Earnings per share attributable
to the owners of the parent
(pence)
Basic 24.49p 24.03p
Diluted 24.29p 23.83p
================================= ======= ============= =======
Under IFRS 15 basis revenue from software licence and support
showed a net increase of GBP8m, with most of the difference
resulting from an increase in the number of business partner
arrangements where the end user is considered to be the customer
for the Group and by upfront recognition of software for certain
on-premise subscription contracts. This is mitigated by a revised
revenue pattern for non-refundable contract sign up fees which are
spread over the anticipated period of benefit to the customer.
Cost of sales showed a net decrease of GBP6m, with most of the
difference resulting from business partner arrangements where there
is a change in principal versus agent assessment for third party
products.
Selling and administrative expenses showed a net increase of
GBP7m, with most of the difference resulting from an increase in
the number of business partner arrangements where the end user is
considered to be the customer under IFRS 15. This is mitigated by
higher capitalisation of sales commissions offset by the related
amortisation charge.
Consolidated balance sheet (reconciliation to IAS 18)
IFRS 15 basis Adjustments IAS 18 basis
30 September 2019 GBPm GBPm GBPm
======================================================= ============== ============ =============
Non-current assets
Goodwill 2,098 - 2,098
Other intangible assets 228 - 228
Property, plant and equipment 117 - 117
Fixed asset investment - - -
Other financial assets 4 - 4
Trade and other receivables 73 (65) 8
Deferred income tax assets 31 1 32
2,551 (64) 2,487
======================================================= ============== ============ =============
Current assets
Trade and other receivables 364 11 375
Current income tax asset 3 - 3
Cash and cash equivalents (excluding bank overdrafts) 371 - 371
Assets classified as held for sale 63 (1) 62
======================================================= ============== ============ =============
801 10 811
======================================================= ============== ============ =============
Total assets 3,352 (54) 3,298
======================================================= ============== ============ =============
Current liabilities
Trade and other payables (291) - (291)
Current income tax liabilities (32) 2 (30)
Borrowings (122) - (122)
Provisions (11) - (11)
Deferred income (637) 16 (621)
Liabilities classified as held for sale (33) - (33)
======================================================= ============== ============ =============
(1,126) 18 (1,108)
======================================================= ============== ============ =============
Non-current liabilities
Borrowings (643) - (643)
Post-employment benefits (25) - (25)
Deferred income tax liabilities (24) 7 (17)
Provisions (15) - (15)
Trade and other payables (7) - (7)
Deferred income (8) - (8)
======================================================= ============== ============ =============
(722) 7 (715)
======================================================= ============== ============ =============
Total liabilities (1,848) 25 (1,823)
======================================================= ============== ============ =============
Net assets 1,504 (29) 1,475
======================================================= ============== ============ =============
Equity attributable to owners of the parent
Ordinary shares 12 - 12
Share premium 548 - 548
Other reserves 184 - 184
Retained earnings 760 (29) 731
======================================================= ============== ============ =============
Total equity 1,504 (29) 1,475
======================================================= ============== ============ =============
Under IFRS 15 basis non-current trade and other receivables are
higher by GBP65m (FY18: higher by GBP34m) due to the higher
capitalisation of sales commissions.
Current trade and other receivables are lower by GBP11m (FY18:
GBP23m), resulting from changes in the timing of and amounts
recognised as receivables and the capitalisation of business
partner commissions where the end user is considered to be the
customer under IFRS 15, with corresponding impact in current
deferred income.
Current deferred income is higher by GBP16m (FY18: GBP21m),
resulting from revised revenue pattern for non-refundable contract
sign up fees which are spread over the anticipated period of
benefit to the customer and the capitalisation of business partner
commissions where the end user is considered to be the customer
under IFRS 15, with corresponding impact in current deferred
income. This is mitigated by changes in the timing of and amounts
recognised as receivables and by upfront recognition of software
for certain on-premise subscription contracts.
Deferred income tax assets are lower by GBP1m (FY18: GBP4m),
current income tax liabilities and deferred income tax liabilities
are higher by GBP2m and GBP7m (FY18: GBPnil and GBP4m respectively)
due to the tax impact of the above adjustments.
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. Prior to 17 March 2018,
related parties also included the Group's investment in its
associated undertaking. 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.
2019 2018
Key management compensation GBPm GBPm
=========================================== ====== ======
Salaries and short-term employee benefits 9 4
=========================================== ====== ======
Post-employment benefits - -
Share-based payments 7 2
=========================================== ====== ======
16 6
=========================================== ====== ======
The key management figures given above include the executive
directors of the Group.
14 Post-balance sheet events
An agreement was signed on 18 November 2019, for the sale of the
Group's Sage Pay business for GBP232m (subject to customary debt
and working capital adjustments) to Elavon Inc., a subsidiary of
U.S. Bancorp. Sales proceeds are payable in cash upon completion.
The business was classified as held for sale at 30 September 2019
(see note 11) and is part of the Group's Northern Europe reportable
segment. Completion of the transaction and loss of control is
expected to occur in Q2 FY20, subject to Elavon Inc. obtaining
regulatory approval by the Board of Governors of the Federal
Reserve System in the United States as well as the Central Bank of
Ireland. The statutory gain on the transaction is expected to be
approximately GBP180m on completion.
The board has approved a capital return of GBP250m, largely
reflecting the expected proceeds from the disposal of Sage Pay.
Leveraging Our Risk Profile
The effective management of strategic and operational risk is
critical to the success of Sage's strategy. This year we have
introduced "on demand, always on" risk reporting that provides
real-time risk information to leaders across the business, further
enhancing their ability to make risk informed decisions in a timely
manner.
We also continued to drive organisational engagement with the
risk process through the use of a company-wide Governance, Risk and
Compliance tool.
The Board conducted an ongoing assessment of the principal risks
facing the Company throughout the year. Through this process, we
evolved and aligned our principal risks to reflect our three
strategic lenses of Customer Success, Innovation and Colleague
Success. Regular monitoring of our position against risk appetite
targets helped drive action-focused risk management decision making
by our Principal Risk Owners.
We focused on monitoring those risk metrics that would signal
current performance, as well as help us to identify emerging
issues. Executive leaders managed our principal risks, with
accountability for other risks managed in accordance with our risk
management framework.
Principal Risk Risk Context Management and Mitigation
Understanding Sage is the leader in
Customer Needs key global markets, * Detailed customer segment and sector analysis was
If we fail to and we can use this used to develop segment-specific playbooks that
understand the position to gather support customer-focused development
products and valuable
services our insights into what our
current and future current and future * An Accountants Advisory Board was established to
customers need customers provide a feedback loop into the small business
to be successful, want and need. It can segment
they will find also help us to better
alternative solution understand the strengths
providers. and weaknesses of our * Customer Advisory Boards, Customer Design Sessions
products and services, and NPS detractor call-back channels are used to
Strategic lens and better position constantly gather information on customer needs
alignment: those products and
Customer Success services
to meet the needs of * A Market and Competitive Intelligence team provides
our current and future insights that Sage uses to win in the market
customers.
By understanding the
specific needs of these * A product re-naming exercise was completed to
customer groups in each simplify the purpose of each product, and assist with
country and region, customer understanding, including the return to the
we will be better X3 name based on customer feedback
positioned
to efficiently manage
our products, marketing * Ongoing refinement and improvement of market data
efforts and support through feedback from the business and partners
services. This in turn
will allow us to
maximise * Commenced the internationalisation of Sage Intacct
our return on with a product launch in Australia to meet the needs
investment, of the medium business segment
and retain a loyal
customer
and partner base over
the long term. In progress:
* Making further investments in technology that can
help us better identify which customers may not be
utilising their software as fully as possible,
allowing us to intervene early and support their
success
* Continue the internationalisation of Sage Intacct to
meet the needs of the medium business segment
------------------------- ----------------------------------------------------------------
Product Strategy A key component of
If we fail to Sage's * Following a product rationalisation and
develop and manage transition to a Software prioritisation exercise Sage's product strategy has
a prioritised as a Service (SaaS) been updated to focus strongly on the small and
strategy for company is the delivery medium business segments, delivering against defined
our products of cloud-connected and sectors within these segments in key territories
that is aligned cloud-native products.
with our goals To achieve this, we
and delivers will need to execute * Acquisition and divestiture activities have been
against customer on a prioritised product completed and are ongoing to align Sage's operating
needs, there strategy that moves model with these segment and sector priorities
is a significant our product portfolio
financial risk to cloud-native
that customers solutions. * A licensing model transition strategy is in place,
will go elsewhere. This may include a anchored on the Sage Business Cloud
transitional
Strategic lens period of
alignment: cloud-connected * Sage Business Cloud is available in United Kingdom
Customer Success products, with a clear and Ireland, North America, France and Spain
Innovation path to the cloud-native
products our current
and future customers * A Product Marketing team oversees competitive
desire. positioning and product development to align products
with the needs of our customers
In progress:
* Embedding of the updated operating model for the
business to reflect and support the segment model
* The internationalisation of key cloud-native products
(Sage Intacct and Sage People) will continue
------------------------- ----------------------------------------------------------------
Innovation As Sage transitions
If we fail to into an SaaS business * Integration of the Pegg chat bot across Sage's
encourage and powered by a products and internal processes to enhance the
sustain the innovation subscription customer and colleague experience using artificial
that is required licence model, we must intelligence
to create disruptive be able to rapidly
technologies, deploy
processes and new innovations to our * Service Fabric is being implemented to support the
services, we customers and partners. rapid development and deployment of shared features
will fail to This innovation could in cloud products
deliver on our relate to new
commercial goals. technologies,
services, or new ways * Prioritised product development based on the updated
Strategic lens of working. Product Strategy, focusing on delivery of key segment
alignment: Innovation will require and sector capabilities
Customer Success us to address how we
Innovation encourage innovation
across our people, * Refinement of data principles to guide how data will
process be used and protected in innovation and product
and technology, and delivery activities
how we make this
innovation
sustainable. By building * Strategic acquisitions such as AutoEntry to
innovation into our complement and enable accelerated innovation
collective DNA, we can
empower our colleagues
to improve the customer * Development of an incubation framework to guide how
experience, and drive Sage interacts with its innovation partners
efficiencies in how
we deliver our products
and services. * Activities to drive colleague engagement such as
By strategically hackathons and idea competitions
investing
in platforms and
relationships, In progress:
we can also harness * Simple, smart and open technology strategy to provide
the innovation of our API and microservices through a Sage Developer
partners. By providing Platform
opportunities for our
partners to interact
with our products we * Platform Services delivered to Sage Business Cloud to
can drive scalable enhance value proposition for cloud adoption
growth
and improve the customer
experience.
------------------------- ----------------------------------------------------------------
Route to Market By offering our current
and potential customers * The Go-To-Market function was re-organised to reflect
Strategic lens the right information the new segment-based operating model, with a strong
alignment: on the right products focus on the UK and North America
Customer Success and services at the
right time, we can
maximise * Market data and intelligence is disseminated
the value we can obtain internally to support decision makers in the best
from our marketing and routes to market
customer engagement
activities.
This can shorten our * Dedicated colleagues are in place to support partners,
sales cycle, and ensure and to help manage the growth of targeted channels
that customer retention
is improved. It can
also use new products * The Sage Partner Programme has been moved into the
and services, such as Marketing organisation to drive increased alignment
payments and banking of the indirect channel to market
technologies, to draw
new customers into the
Sage family. * New routes to market continue to be opened through
our partnerships with payment and banking technology
providers
In progress:
* The internationalisation of key cloud-native products
(Sage Intacct and Sage People) has continued through
a partner-led approach
* Embedding of the updated operating model for the
business to reflect and support the segment model,
including the differentiation between direct and
indirect channels
------------------------- ----------------------------------------------------------------
Customer Success In becoming a true SaaS
If we fail to business, we must * Battlecards are in place for key products in all
align front and maintain countries, setting out the strengths and weaknesses
back office activities a sharp focus on the of competitors and their products
to deliver the relationship we have
best possible with our customers,
customer experience, constantly focusing * Segment and product roadmaps are in place, detailing
including the on delivering the how products fit together, any interdependencies, and
cloud-based products products, migration pathways for current and potential
our customers services and experiences customers
need to be successful, our customers need to
we will not be be successful. If we
able to achieve do not do this, they * A data-driven Customer Success Framework is being
sustainable growth. will likely find another rolled out in the UKI and US to enhance the customer
provider who does give experience and ensure that Sage is better positioned
Strategic lens them these things. to meet the current and future needs of the customer
alignment: Conversely,
Customer Success if we do these things
Colleague Success well these customers * Continuous Net Promoter Score (NPS) surveying on a
will stay with Sage, segment and channel basis allows Sage to identify
increasing their customer challenges rapidly, and respond in a timely
lifetime manner to emerging trends
value, becoming our
greatest marketing
advocates. * 'Large' account managers are in place to provide a
While Sage is renowned single point of contact for X3 customers, and are
for its quality customer empowered to resolve customer issues at first contact
support, a focus on
Customer Success
requires In progress:
more proactive * Consolidation of CRM systems continues to provide an
engagement efficient single view of the customer across all
as well. By proactively markets
helping customers to
recognise and fully
realise the value of * The Customer Success Framework is being rolled out in
Sage's products we can phases to other major markets to improve the customer
help increase the value experience
of these relationships
over time, and reduce
the likelihood of
customer
loss. By aligning our
people, processes and
technology with this
focus in mind, all Sage
colleagues can help
support our customers
to be successful and
in turn drive increased
financial performance.
------------------------- ----------------------------------------------------------------
Third Party Reliance Sage has an increasing
If we fail to reliance on third-party * Dedicated colleagues are in place to support partners,
develop, manage providers that support and to help manage the growth of targeted channels
and maintain the delivery of our
relationships products to our
with third parties customers. * Standardised implementation plans for Sage products
that are critical Any interruption in that facilitate efficient partner implementation
to the delivery these services or
of our products relationships
and services, could have a profound * A specialised Procurement function supports the
we could suffer impact on Sage's business with the selection of strategic third-party
significant reputational reputation suppliers and negotiation of contracts, and to
and financial in the market and could support the ongoing management of key suppliers that
damage. result in significant are critical to product and service delivery
financial liabilities
Strategic lens and losses.
alignment: Equally, Sage has an * Clear roles and responsibilities for colleagues are
Customer Success extensive network of outlined in the Procurement Lifecycle Policy and
sales partners critical Procedures, which includes delegated levels of
to our success in the authority for investment approval
market. Carefully
selecting,
managing and supporting * A Value-Added Reseller (VAR) programme was piloted in
these partners is the UK, Canada, US and South Africa to enhance
critical partner account manager capability
to how we grow our
business,
as well as ensuring * An Independent Software Vendor (ISV) programme was
that we only engage launched in the UK and US to simplify how ISVs engage
with those people and with Sage and provide them with a consistent
organisations that share partnership experience
Sage's values and
aspirations.
As Sage continues its
transition into an SaaS In progress:
business, this will * Rationalisation of targeted channels is continuing to
likely split into two focus on value-add activities
risks. The first of
these will focus on
our key supplier * Managed growth of the API estate, including enhanced
dependencies, product development that enables access by
while the second will third-party API developers
consider the risks
specifically
associated with our
partner relationships.
------------------------- ----------------------------------------------------------------
Sustainable Processes Sage operates in
and Controls multiple * Global and Regional Risk Committees oversee the risk
If we fail to geographies and market and internal control environment, and set the
apply sustainable segments which require tone-from-the-top
and repeatable sustainable processes
end-to-end business to drive operational
processes and efficiencies. By * The Sage Governance, Risk and Compliance technology
controls, we consistently solution automates risk and compliance activity, and
will not be able delivering the right provides a consolidated view of risk, compliance and
to deliver against outcome from its control environment
our goals. business
processes each and every
Strategic lens time, Sage is able to * The Sage Compliance Hub provides a one stop
alignment: efficiently and repository and alert mechanism for the organisation,
Customer Success effectively simplifying how Sage colleagues interact with and
Innovation deliver an improved manage their compliance obligations
Colleague Success customer experience.
By embedding a common
business control * Shared Service Centres in Newcastle, Johannesburg and
framework Atlanta enable the implementation of consistent and
that prioritises the standardised systems and processes
critical people, process
and technology, the
organisation can focus * Policy Approval Committee is in place to supervise
on delivering the right and approve policies within the Sage-wide policy
outcomes at the right suite
time. By simplifying
our control environment,
we can also drive an * Sage's business control framework, focused on 14 key
improved focus on those processes, is starting to drive standardisation of
outcomes that help practice and process across the business
support
Customer Success, in
turn helping to sustain
our subscription growth. In progress:
* The Business Control Framework continues to evolve as
a way of supporting Sage's consistent approach to
control
------------------------- ----------------------------------------------------------------
Colleague Success As Sage transitions
If we fail to into a SaaS business, * The Look, Evaluate, Assist, Deliver (L.E.A.D).
ensure we have the capacity, knowledge performance development programme was embedded across
colleagues with and leadership skills the business to support leaders and colleagues manage
the critical we need will change. their career performance
skills, capabilities Sage will not only need
and capacity to attract the talent
we need to deliver and experience we will * Our Sage Business Cloud People solution is used
on our strategy, need to help navigate across the business to enhance colleague experience
we will not be this change, we will
successful. also need to provide
an environment where * Conducted multiple activities throughout the year to
Strategic lens colleagues can develop give colleagues a voice on what helps their
alignment: to meet these new engagement, including regular colleague pulse surveys,
Customer Success expectations. and the Big Conversation
Colleague Success By empowering colleagues
and leaders to make
decisions, be * Fully embedded Sage Learning and deployed the
innovative, Leading@Sage and Growing@Sage training programmes to
and be bold in support colleague and leader development competencies
delivering
on our commitments,
Sage will be able to * Sage Save and Share scheme opened for a second year,
create an attractive with over 25% of colleagues now invested
working environment.
By addressing drivers
of colleague turn-over, * Career frameworks were embedded within the Product
and embracing the values and Services functions to support colleague growth,
of successful SaaS development and retention
businesses,
Sage can increase
colleague
engagement and create In progress:
an aligned workforce. * Development of an executive development programme
that helps develop our next generation of senior and
executive leaders
* Focused efforts continue to be developed to address
regional and functional retention drivers
------------------------- ----------------------------------------------------------------
Values and Behaviours The development of a
If we do not shared behavioural * Code of Conduct communicated to all colleagues, and
fully empower competency subject to annual certification
our colleagues that encourages
in line with colleagues
our shared values, to think small and act * Refreshed and delivered Sage's values and behaviours,
we will fail big will be critical focusing on how we deliver against our three
to develop the in Sage's successful strategic lenses
behavioural competencies transition to an SaaS
required to be business. Devolution
a successful of decision making, * The L.E.A.D. programme explicitly required colleagues
SaaS business. and the acceptance of to consider how their behaviours helped them meet
accountability for these their goals, alongside the actual performance
Strategic lens decisions, will need delivered
alignment: to go hand in hand as
Customer Success the organisation
Colleague Success develops * Whistleblowing and Incident Reporting mechanisms are
and sustains its shared in place to allow issues to be formally reported, and
values and behaviours, investigated
and develops a true
SaaS culture.
Sage will also need * All colleagues are empowered to take up to five paid
to create a culture Sage Foundation days each year, to support charities
of empowered leaders and provide philanthropic support to the community
that support the
development
of ideas, and that * Core eLearning modules have been rolled out across
provides the enterprise, with annual refresher training
colleagues with a safe
environment that allows
for honest disclosures * Compliance training has been transitioned into
and discussions. Such role-based education as a way of supporting
a trusting and empowered colleagues to apply expected values and behaviours
environment can help
sustain innovation,
enhance customer service * A business integrity dashboard has been developed and
and drive the engagement delivered to all regions to provide leaders with
that results in metric-based data on colleague values and behaviours
increased
market share.
* In-person anti-bribery and corruption training has
been delivered to all assessed higher risk regions
In progress:
* Embedding of the refreshed values and behaviours
across the business
* Ongoing enhancements to the delivery of mandatory
training to help increase colleague engagement and
retention
------------------------- ----------------------------------------------------------------
Information as Information is the life
an Asset blood of a SaaS business * The IT and Product functions have been realigned
If we fail to - it tells us how we under Executive leadership to deliver against Sage's
manage, protect create revenue, how strategy
and maximise we can improve the
the value of customer
our data, we experience, and how * A product data strategy, accompanied by data
will not be able we can meet our principles, is being refined to help guide and
to realise the obligations support the use of data internally, and in the
full potential and commitments. ongoing development of new solutions and services
of our assets. Analysed
using manual and machine
Strategic lens learning, it provides * Accountability is established within both IT and
alignment: us with the intelligence Product for all internal and external data being
Customer Success we need to run and build processed by Sage. Sage Chief Information Security
Innovation our business. Officer oversees information security, with a network
Protecting the of Information Security Officers that directly
confidentiality, support the business
integrity and
accessibility
of this data is critical * The Chief Data Protection Officer oversees
for a data-driven information protection and development for Sage
business.
The hardening
post-General * A network of country-level data champions support the
Data Protection business in embedding Sage practices across the
Regulation organisation, with a particular focus on the
(GDPR) external requirements of the GDPR
environment
has resulted in
increased * Formal certification schemes are maintained, across
risk likelihood and appropriate parts of the business, and include
potential for financial internal and external validation of compliance
and regulatory
consequences.
* An incident management framework is in place, which
includes rating of incidents and requirements for
notification and escalation, and online incident
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
In progress:
* A review of how Sage can provide maximum value to its
current and future customers, including through the
use of enhanced AI/ML capabilities in its products,
aligned with the data principles
------------------------- ----------------------------------------------------------------
Statement of Directors' Responsibilities
Responsibility statement of the Directors on the Annual Report
& Accounts
The Annual Report & Accounts for the year ended 30 September
2019 includes the following responsibility statement.
The Directors as at the date of this report, whose names and
functions are listed in the Board of Directors section of the
Annual Report and Accounts, confirm that:
-- To the best of their knowledge, the Group's financial
statements, which have been prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group;
-- To the best of their knowledge, the Directors' report and the
Strategic report include 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.
On behalf of the Board
Steve Hare
Chief Executive Officer
19 November 2019
[1] Please see Appendix 1 for guidance of the usage and
definitions of the Alternative Performance Measures.
[2] Organic revenue and operating profit for FY18 is restated to
aid comparability with FY19. The definition of organic measures and
the basis for the FY18 proforma IFRS 15 adjustments can be found in
Appendix 1 with a full reconciliation of organic, underlying and
statutory measures on page 11. Unless otherwise specified, all
references to revenue, profit and margins are on an organic
basis.
[3] Underlying revenue of GBP1,936m also reflects disposals of
US Payroll processing revenue (GBP16m) and South African payments
business (GBP5m). Full reconciliation on page 11.
[4] IFRS 16 impact on net debt to EBITDA ratio explained on page
18.
[5] Defined as the normalised reported recurring revenue in the
last month of the reporting period, adjusted consistently period to
period, multiplied by twelve.
[6] 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.
[7] Defined as the annualised recurring revenue from renewals,
migrations, upsell and cross-sell of active customers at the start
of the year, divided by the opening annualised recurring revenue
for the year.
[8] 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 IFRS8.
[9] 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.
[10] Revenue from customers using products that are currently
part of, or that management currently believe have a clear pathway
to, Sage Business Cloud.
[11] 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.
[12] Excluding this impact, cloud connected solutions have
delivered growth of 73%.
[13] Revenue and profit measures are defined in Appendix 1.
[14] Recurring and non-recurring items are detailed in the
paragraph below and in note 3 of the financial statements.
[15] Impact of retranslating FY18 results at FY19 average
rates.
[16] Organic numbers for FY18 are restated on a pro-forma IFRS
15 basis. The definition of organic measures and the basis for the
FY18 pro-forma IFRS 15 adjustments can be found in Appendix 1.
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
FR KMMMMGLDGLZZ
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November 20, 2019 02:00 ET (07:00 GMT)
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