TIDMSGE
RNS Number : 3554L
Sage Group PLC
13 May 2022
The Sage Group plc
Results for the six months to 31 March 2022 (unaudited)
13 May 2022
Strong first half performance with accelerating growth
-- Strong organic recurring revenue growth of 8%, driven by Sage Business Cloud growth of 21%
-- Increasing momentum with ARR growth of 10%, underpinned by cloud native ARR growth of 43%
-- Strategic investment continues to drive growth and new customer acquisition
-- Organic operating margin of 19.9%, in line with expectations
-- Sustained strong cash generation, with underlying cash conversion of 120%
-- Full year outlook unchanged
Alternative Performance Measures H1 22 H1 21 [2] Change
(APMs) [1]
Organic Financial APMs
Organic Total Revenue GBP924m GBP877m +5%
Organic Recurring Revenue GBP866m GBP800m +8%
Organic Operating Profit GBP184m GBP177m +4%
% Organic Operating Profit Margin 19.9% 20.2% -0.3 ppts
Underlying Financial APMs
EBITDA GBP226m GBP229m -1%
% EBITDA Margin 24.1% 24.8% -0.7 ppts
Underlying Operating Profit GBP183m GBP188m -3%
% Underlying Operating Profit
Margin 19.6% 20.4% -0.8 ppts
Underlying Basic EPS 12.62p 11.91p +6%
Underlying Cash Conversion 120% 133% -13 ppts
KPIs
Annualised Recurring Revenue
(ARR) GBP1,784m GBP1,625m +10%
Renewal Rate by Value 100% 97% +3 ppts
% Subscription Penetration 74% 68% +6 ppts
% Sage Business Cloud Penetration 72% 65% +7 ppts
---------- ---------- ----------
Statutory Measures H1 22 H1 21 Change
---------- ---------- ----------
Revenue GBP934m GBP937m -
Operating Profit GBP204m GBP203m -
% Operating Profit Margin 21.8% 21.7% +0.1 ppts
Basic EPS (p) 14.84p 13.29p +12%
Dividend Per Share (p) 6.30p 6.05p +4%
---------- ---------- ----------
Please note that tables may not cast and change percentages may
not calculate precisely due to rounding.
Commenting on the results, CEO Steve Hare said:
"We achieved a strong first half performance , in line with
expectations , demonstrating sustainable growth and building
further momentum. Our strategic investment in sales, marketing and
innovation has continued to accelerate revenues across Sage
Business Cloud, underpinned by increasing levels of new customer
acquisition. Cloud native solutions, which now account for around a
quarter of Group ARR, have performed particularly well.
" While we are mindful of increased macroeconomic and
geopolitical uncertainties, our customers remain confident and
resilient. Our aim is to knock down barriers to their success,
delivering solutions that make their lives easier, and we continue
to make good progress against our strategic objectives. I am
confident that our ambition to become the trusted network for small
and mid-sized businesses will drive the success of Sage, as we
focus on growing both revenue and earnings in absolute terms."
Financial highlights
-- Organic recurring revenue increased by 8% to GBP866m,
underpinned by Sage Business Cloud growth of 21% to GBP572m.
Organic total revenue grew by 5% to GBP924m.
-- Organic operating profit increased by 4% to GBP184m,
representing a margin of 19.9% (H1 21: 20.2%). Following a period
of additional strategic investment to accelerate growth, organic
operating margin has trended upwards from 18.4% in H2 21, in line
with expectations.
-- Statutory operating profit remained stable at GBP204m (H1 21:
GBP203m), including non-recurring net gains of GBP55m (H1 21:
GBP37m) driven by disposals.
-- Strong underlying cash conversion of 120% (H1 21: 133%)
reflects growth in subscription revenue and continued good working
capital management.
-- Robust balance sheet, with c. GBP1.2bn of cash and available
liquidity, and net debt to EBITDA of 1.5x.
-- Interim dividend up 4% to 6.3p, with a progressive policy
going forwards of growing the dividend over time.
Strategic and operational highlights
-- Annualised recurring revenue (ARR) up 10% to GBP1,784m (H1
21: GBP1,625m), reflecting a strong performance across all regions,
with growth balanced between new and existing customers.
-- Sage added GBP150m of ARR through new customer acquisition
since H1 21, up from GBP110m a year earlier .
-- Cloud native ARR up 43% to GBP424m (H1 21: GBP296m), driven
by new customers and supported by migrations from cloud connected
and desktop products.
-- Renewal rate by value of 100 %, ahead of last year (H1 21:
97%), reflecting improved renewal rates and strong sales to
existing customers.
-- Sage Business Cloud penetration of 72% (H1 21: 65%), enabling
more customers to connect to Sage's cloud services and ecosystem
via the digital network.
-- Strong performance in key cloud native solutions (Sage
Intacct, Sage Accounting and Sage People), together with continued
growth in the Sage 50 and Sage 200 franchises.
-- Accelerated our strategy for growth by acquiring Brightpearl
, a cloud native retail operations management system .
-- Disposed of Sage's business in Switzerland and its South
African payroll outsourcing business, increasing focus on core
geographies and completing the Group's disposal programme .
Outlook
Sage's outlook remains unchanged. We continue to expect organic
recurring revenue growth in the region of 8% to 9% in FY22, driven
by strength in Sage Business Cloud, and in cloud native revenues in
particular. We also expect other revenue (SSRS) to continue to
decline, in line with our strategy. Organic operating margin is
expected to trend upwards in FY22 and beyond, as we focus on
scaling the Group.
About Sage
Sage exists to knock down barriers so everyone can thrive,
starting with the millions of Small and Mid--Sized Businesses
served by us, our partners and accountants. Customers trust our
finance, HR and payroll software to make work and money flow. By
digitising business processes and relationships with customers,
suppliers, employees, banks and governments, our digital network
connects SMBs, removing friction and delivering insights. Knocking
down barriers also means we use our time, technology and experience
to tackle digital inequality, economic inequality and the climate
crisis.
Finsbury Glover +44 (0) 20 7251
Enquiries: Sage: +44 (0) 7721 121147 Hering: 3801
James Sandford, Investor Conor McClafferty
Relations
Becky Potgieter/Rachel Sophia Johnston
Bibby, Corporate PR
A presentation for investors and analysts will be held at 8.30am
UK time. The webcast can be accessed live, and subsequently as a
replay, via www.sage.com/investors . Participants may also dial in
by calling +44 (0) 20 7192 8338, using pin code 9998372 .
Business Review
Sage delivered a strong first half, with organic revenue growth
accelerating and operating margin trending upwards, driven by
continued strategic execution.
Sage serves a diverse customer base of small and mid-sized
businesses (SMBs) around the world. Digitisation is driving the
rapid adoption of new cloud solutions, with SMBs investing in
software to automate workflows, gain better business insights and
comply with regulatory obligations. Our unrivalled, trusted
portfolio of accounting, HR and payroll solutions positions us well
to support them.
Our purpose is to knock down barriers so everyone can thrive,
recognising that as we remove friction and make life easier for
SMBs, they in turn have a positive effect on the economies and
communities in which they operate. We are fully committed to
supporting not only our customers but also society more widely,
investing in tackling digital inequality, economic inequality and
the climate crisis to deliver positive change.
Overview of results
The Group achieved organic recurring revenue growth of 8% to
GBP866m, underpinned by a 21% rise in Sage Business Cloud revenue
to GBP572m, and organic total revenue growth of 5% to GBP924m.
Our focus on growing cloud revenues has increased Sage Business
Cloud penetration to 72%, up 7 percentage points compared to H1 21.
We have also continued to grow software subscription revenues,
leading to a rise in subscription penetration of 6 percentage
points to 74%. As a result of the evolving business mix, 94% of the
Group's organic total revenue is now recurring, up from 91% in H1
21.
Portfolio View of Revenue
The portfolio view breaks down Sage's organic revenue by
strategic product portfolio. Our principal focus is to grow Sage
Business Cloud, by attracting new customers and migrating existing
customers and products to cloud native and cloud connected
solutions. Sage Business Cloud customers can connect to a range of
cloud services as part of Sage's digital network, leading to deeper
customer relationships and higher lifetime values.
Organic Revenue by Portfolio Recurring Total
[3]
H1 22 H1 21 Growth H1 22 H1 21 Growth
------- ------- ------ -------- ------- ------
Cloud native [4] GBP187m GBP130m +44% GBP192m GBP137m +40%
Cloud connected [5] GBP385m GBP341m +13% GBP 391m GBP348m +12%
------- ------- ------ -------- ------- ------
Sage Business Cloud GBP572m GBP471m +21% GBP583m GBP485m +20%
Products with potential to migrate GBP225m GBP249m -10% GBP258m GBP294m -12%
------- ------- ------ -------- ------- ------
Future Sage Business Cloud
Opportunity [6] GBP797m GBP720m +11% GBP841m GBP779m +8%
Non-Sage Business Cloud [7] GBP69m GBP80m -14% GBP83m GBP 98m -15%
------- ------- ------ -------- ------- ------
Organic Total Revenue GBP866m GBP800m +8% GBP924m GBP877m +5%
------- ------- ------ -------- ------- ------
Sage Business Cloud Penetration 72% 65%
------- -------
Recurring revenue from cloud native solutions grew by 44% to
GBP187m, driven by Sage Intacct together with other solutions
including Sage Accounting and Sage People, primarily through new
customer acquisition. Cloud native growth has also been driven by
migrations principally to Sage HR and to Sage Partner Cloud.
Recurring revenue from cloud connected solutions increased by
13% to GBP385m, reflecting continuing growth in the Sage 50 and
Sage 200 franchises through existing customers and new customers
acquired in the period. Overall, the Future Sage Business Cloud
Opportunity, which represents products in or with a clear pathway
to Sage Business Cloud, has performed strongly with recurring
revenue growth of 11%.
The revenue decline in the Non-Sage Business Cloud portfolio is
in line with expectations and reflects the ongoing strategy to
focus on solutions with a clear pathway to Sage Business Cloud.
ARR growth
Sage's ARR increased by 10% to GBP1,784m (H1 21: GBP1,625m),
accelerating in the second quarter across all our regions,
reflecting strong growth balanced between new and existing
customers. This was underpinned by cloud native ARR growth of 43%
to GBP424m (H1 21: GBP296m), reflecting a strong performance
particularly from Sage Intacct, Sage People, Sage Accounting and
Sage HR.
Renewal rate by value of 100% (H1 21: 97%) is ahead of last year
reflecting improved renewal rates and strong sales to existing
customers, including a good performance in customer add-ons and
targeted price rises.
In total, Sage has added GBP150m of ARR through new customer
acquisition over the last 12 months, up from GBP110m a year
earlier.
Progress towards our strategic priorities
At our FY21 results we set out our strategic framework for
growth, including five priorities focused on initiatives to drive
the long-term success of Sage. Our progress towards these
priorities is outlined below.
-- Scale Sage Intacct : Growth in Sage Intacct has accelerated
as we have invested in enhancing the core product, developing its
vertical and geographic reach (including through the acquisition of
Brightpearl and the launch of Sage Intacct Manufacturing in
France), and expanding distribution in key markets across the
Group. In the first half Sage Intacct added a record number of new
customers , and achieved higher renewal rates driven by good sales
growth from existing customers. This is reflected in strong ARR
growth, up by a third in the US and by more than 200% outside the
US, on a year-on-year basis.
-- Expand medium beyond financials : We are developing solutions
for mid-sized businesses that deliver benefits to customers beyond
core accounting , expanding into adjacent areas in line with the
enlarged remit of today's CFO. In February we launched a service to
automate manual accounts payable processes, saving SMBs significant
invoice processing costs and reducing data entry error. Sage
Intacct Planning continues to grow rapidly and has now been
launched in Canada, with other markets to follow.
-- Build the small business engine : By investing in digital
marketing and the customer experience, Sage has increased its cloud
native ARR from UK small business solutions (including Sage
Accounting and Sage HR) by more than 50% over the last year. Sage
for Accountants, launched in November and complemented by the
recent acquisitions of GoProposal and Futrli , has performed ahead
of plan, attracting more than 1,000 accountancy practices to date
and serving as a key advocacy tool. We are now internationalising
the UK approach in other markets, initially South Africa and
Canada.
-- Scale the network: Scaling Sage's digital network creates a
virtuous circle, with more data enabling better services to deliver
richer experiences. We are expanding the network by increasing Sage
Business Cloud penetration, and have launched new cloud native
solutions in International, including Sage Accounting in Spain,
Sage HR in Germany, and Sage Intacct Manufacturing in France,
further driving network participation.
-- Learn and disrupt : Sage continues to invest in innovation,
accelerating momentum in AI and machine learning, and driving
disruptive new technologies. In February we released the first and
only mid-market cloud accounting solution to use AI to increase
confidence in the accuracy of general ledger transactions, through
our outlier detection engine. We also continue to work with
partners, including Tide and Experian, to deliver innovative
services to small businesses and consumers .
Refreshed brand
In order to better represent our evolved purpose, strategy and
values, Sage has refreshed its brand proposition, in keeping with
the changing needs of SMBs globally. The refreshed brand, launched
externally at the end of April, focuses on the simplicity and
confidence that Sage delivers to customers, highlighting how our
easy-to-use solutions, backed by expert human advice and insights,
help them make better and faster decisions. Sage has also launched
a new marketing campaign alongside the brand, putting Sage
customers and their real-life stories at its heart.
Simplifying the business
In November, we completed the disposal of Sage's business in
Switzerland, as previously announced, and in April we disposed of
Sage's South African payroll outsourcing business. This completes
the Group's disposal programme, resulting in a simplified
structure, with management and capital resources now focused on
fewer, larger geographies.
Colleagues
For colleagues, knocking down barriers means improving their
experience at Sage, creating opportunities, and enabling every
colleague to do their very best work. Key to this is our focus on
development and training, and on inclusion and wellbeing through
our thriving colleague support networks and our flexible working
model.
In December, we published our three-year global diversity,
equity, and inclusion (DEI) strategy, to embed DEI through our
everyday business processes through awareness, training and
transparency. We are committed to building an inclusive workforce
that fully represents the many different cultures, backgrounds, and
viewpoints of our customers, partners, and communities.
Sage continues to be recognised as a great place to work based
on colleague feedback, receiving awards in the first half from
organisations including Comparably for Best Global Culture, and
Glassdoor as one of the UK's Best Places to Work.
Society
Sage plays a key role in supporting SMBs which form the backbone
of economies around the world, helping bring prosperity to their
owners, employees and communities. Through our 'sustainability and
society' strategy, Sage aims to support sustainable and inclusive
economic growth so everyone can thrive.
Our partnership with the Institute of Engineering and Technology
to develop STEM skills in young people in deprived communities is
on target to support over 5,000 pupils across the north east of
England this year. In the US, our grant partnership with The BOSS
Network attracted over 12,500 applications, with grants made to
support 35 black women entrepreneurs in their first five years of
business. Our global partnership with Kiva has now supported over
4,000 loans to help individuals in underserved communities start
and maintain businesses.
Sage has pledged to help the planet by achieving net zero
emissions by 2040, and halving its emissions by 2030, across Scopes
1, 2 and 3. We expect to submit our Science Based Targets for
approval later this year, underpinning our commitment on climate
action and ensuring our plans are aligned with the Paris
Agreement.
Sage Foundation provides a way for colleagues and partners to
give back to their communities, co--ordinating the contribution of
over 64,000 volunteering hours towards charitable projects in the
first half. Sage Foundation has also led Sage's response to the
humanitarian crisis in Ukraine and surrounding countries, which has
included significant donations from Sage, our colleagues, partners
and communities, to support local relief programmes.
Financial Review
The financial review provides a summary of Sage's results on a
statutory and underlying basis, as well as considering the organic
performance of the business. Underlying measures allow management
and investors to understand the financial performance of the Group
adjusted for the impact of foreign exchange movements and recurring
and non-recurring items, while organic measures also adjust for the
impact of acquisitions and disposals [8] .
Organic Financial Results
In H1 22 Sage achieved organic recurring revenue growth of 8% to
GBP866m and organic total revenue growth of 5% to GBP924m. The
increase in recurring revenue was underpinned by a 21% rise in Sage
Business Cloud revenue to GBP572m, reflecting strength from new
customer acquisition , increased sales to existing customers and
continued progress in migrating customers to cloud solutions.
Other revenue (SSRS) declined by 24% to GBP58m, in line with our
strategy to transition away from licence sales and professional
services implementations.
The Group's organic operating profit increased by 4% to GBP184m,
representing an organic operating margin of 19.9 %. Following a
period of additional strategic investment during FY21 to accelerate
growth, organic operating margin has trended upwards from 18.4% in
H2 21, driven by operating efficiencies.
The Group also achieved underlying basic EPS of 12.62p, strong
underlying cash conversion of 120% and free cash flow of
GBP167m.
Statutory and Underlying Financial Results
Financial Results Statutory Underlying
H1 22 H1 21 Change H1 22 H1 21 Change
-------- -------- ------- -------- -------- -------
North America GBP376m GBP340m +11% GBP377m GBP342m +10%
Northern Europe GBP212m GBP200m +6% GBP212m GBP200m +7%
International GBP346m GBP397m -13% GBP346m GBP380m -9%
-------- -------- ------- -------- -------- -------
Group Total Revenue GBP934m GBP937m 0% GBP935m GBP922m +1%
Operating Profit GBP204m GBP203m 0% GBP183m GBP188m -3%
% Operating Profit +0.1 -0.8
Margin 21.8% 21.7% ppts 19.6% 20.4% ppts
Profit Before Tax GBP189m GBP190m -1% GBP169m GBP175m -3%
Net Profit GBP152m GBP146m +4% GBP129m GBP130m -1%
Basic EPS 14.84p 13.29p +12% 12.62p 11.91p +6%
-------- -------- ------- -------- -------- -------
The Group achieved statutory total revenue of GBP934m,
marginally below last year, reflecting good levels of organic
growth in all regions, offset by disposals and foreign exchange
headwinds (principally in relation to the Euro) in the
International region. Underlying total revenue, which normalises
the comparative period for foreign exchange movements, increased by
1%.
Statutory operating profit increased slightly to GBP204m, with
recurring and non-recurring items higher than the prior year,
driven by profit on disposals. Underlying operating profit, which
excludes recurring and non--recurring items, decreased by 3% to
GBP183m.
Statutory basic EPS increased by 12% to 14.84p, reflecting the
post- tax impact of recurring and non--recurring items , and a
reduction in the number of shares outstanding following the
execution of the Group's share buyback programme. Underlying basic
EPS increased by 6% to 12.62p.
Underlying & Organic Reconciliations to Statutory
H1 22 H1 21
Revenue Operating Operating Revenue Operating Operating
Profit Margin Profit Margin
--------- ---------- --------- -------- --------- ---------
Statutory GBP934m GBP204m 21.8% GBP937m GBP203m 21.7%
Recurring items GBP1m GBP34m - - GBP25m -
[9]
Non - recurring
items:
- (GBP49m) - - (GBP41m) -
* Net gain on disposal of subsidiaries
- (GBP6m) - - (GBP 5m -
* Employee restructuring costs )
- - - - GBP9m -
* Office relocation
Impact of FX [10] - - - (GBP15m) (GBP3m) -
--------- ---------- --------- -------- --------- ---------
Underlying GBP935m GBP183m 19.6% GBP922m GBP188m 20.4%
--------- ---------- --------- -------- --------- ---------
Disposals (GBP5m) - - (GBP43m) (GBP10m) -
Held for sale (GBP2m) (GBP1m) - (GBP2m) (GBP1m) -
Acquisitions (GBP4m) GBP2m - - - -
--------- ---------- --------- -------- --------- ---------
Organic GBP924m GBP184m 19.9% GBP877m GBP177m 20.2%
--------- ---------- --------- -------- --------- ---------
Revenue
The Group achieved statutory revenue of GBP934m and underlying
revenue of GBP935m in H1 22. The GBP1m difference reflects a fair
value adjustment to deferred income relating to the acquisition of
Brightpearl. Underlying revenue in H1 21 of GBP922m reflects
statutory revenue of GBP937m retranslated at current year exchange
rates, resulting in an FX adjustment of GBP15m.
Organic revenue of GBP924m (H1 21: GBP877m) reflects underlying
revenue adjusted for GBP5m of revenue from Sage's business in
Switzerland, which was sold during the period, and GBP2m (H1 21:
GBP2m) from the South African payroll outsourcing business, which
was held for sale at the end of the period and subsequently sold in
April 2022. A further adjustment of GBP4m reflects revenue from the
acquisition of Brightpearl. In H1 21, revenue from disposals
included GBP43m of revenue from Sage's businesses in Poland,
Australia and Asia, and Switzerland.
Operating profit
The Group achieved a statutory operating profit in H1 22 of
GBP204m (H1 21: GBP203m). Underlying operating profit of GBP183m
(H1 21: GBP188m) reflects statutory operating profit adjusted for
recurring and non-recurring items. Recurring items of GBP34m (H1
21: GBP25m) comprise GBP18m of amortisation of acquisition-related
intangibles (H1 21: GBP16m) and GBP15m of M&A related charges
(H1 21: GBP9m), in addition to a GBP1m of deferred income
adjustment relating to the acquisition of Brightpearl.
Non-recurring items include a GBP49m net gain on disposal from
the sale of Sage's business in Switzerland (H1 21: GBP41m net gain
from the disposal of the Polish business), together with a GBP6m
reversal of employee restructuring costs, primarily relating to the
business transformation announced in September 2021, as some
colleagues were redeployed into other roles across the
business.
Organic operating profit of GBP184m (H1 21: GBP177m) reflects
underlying operating profit adjusted for GBP1m of operating profit
from the South African payroll outsourcing business (H1 21: GBP1m)
and GBP2m of operating losses from Brightpearl. In H1 21, operating
profit from disposals included GBP3m from Sage's business in
Switzerland and a further GBP7m from Sage's businesses in Poland,
Australia and Asia.
Organic Revenue Overview
Organic Revenue Mix H1 22 H1 21 Change
GBPm % of Total GBPm % of Total
-------- ---------- ------- ---------- ------
Software Subscription
Revenue GBP682m 74% GBP600m 68% +14%
Other Recurring Revenue GBP184m 20% GBP200m 23% -8%
-------- ---------- ------- ---------- ------
Organic Recurring Revenue GBP866m 94% GBP800m 91% +8%
Other Revenue (SSRS) GBP58m 6% GBP77m 9% -24%
-------- ---------- ------- ---------- ------
Organic Total Revenue GBP924m 100% GBP877m 100% +5%
-------- ---------- ------- ---------- ------
Organic total revenue increased by 5% in H1 22 to GBP924m.
Organic recurring revenue grew by 8% to GBP866m, supported by a 14%
increase in software subscription revenue to GBP682m, reflecting
the continued focus on attracting new customers and migrating
existing customers to subscription and Sage Business Cloud. The
decline in other recurring revenue of 8% to GBP184m reflects
customers migrating from maintenance and support to subscription
contracts. Other revenue (SSRS) declined by 24% to GBP58m, in line
with our strategy to transition away from licence sales and
professional services implementations.
North America
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue GBP375m GBP342m +9%
Organic Recurring Revenue GBP355m GBP318m +12%
% Sage Business Cloud Penetration 75% 73% +2 ppts
% Subscription Penetration 70% 65% +5 ppts
Organic Recurring Revenue H1 22 H1 21 Change
US GBP303m GBP269m +13%
Of which Sage Intacct GBP102m GBP78m +31%
Canada GBP52m GBP49m +7%
-------- -------- --------
North America achieved organic recurring revenue growth of 12%
to GBP355m and organic total revenue growth of 9% to GBP375m. Sage
Business Cloud penetration is now 75%, up from 73% in the prior
year, driven by growth in cloud native and cloud connected
solutions, while subscription penetration is 70%, up from 65% in
the prior year.
Cloud native growth was driven mainly through Sage Intacct,
which delivered strong recurring revenue growth of 31% to GBP102m
reflecting continued strong progress through accelerating new
customer acquisition and improved renewal rates driven by strong
sales growth from existing customers.
Recurring revenue in the US increased by 13% to GBP303m, driven
by Sage Intacct together with continued growth in medium cloud
connected products across the Sage 200 franchise. Total revenue for
the US increased by 11% to GBP321m.
In Canada, recurring revenue increased by 7% to GBP52m and total
revenue by 4% to GBP54m, driven mainly by Sage 50 cloud and Sage
200 cloud solutions, together with growth in Sage Intacct and Sage
Accounting.
Northern Europe
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue GBP210m GBP200m +5%
Organic Recurring Revenue GBP206m GBP192m +7%
% Sage Business Cloud Penetration 89% 85% +4 ppts
% Subscription Penetration 91% 88% +3 ppts
-------- -------- --------
Northern Europe (UK & Ireland) achieved organic recurring
revenue growth of 7% to GBP206m and organic total revenue growth of
5% to GBP210m. Sage Business Cloud penetration is now 89%, up from
85% in the prior year, while subscription penetration is 91%, up
from 88% in the prior year.
Recurring revenue growth reflects accelerating growth in cloud
native solutions, supported by further growth in Sage 50 cloud
connected.
Cloud native revenue growth in Northern Europe was driven by new
customer acquisition in Sage Accounting, Sage Intacct and Sage
People, together with migrations to Sage HR. Sage Intacct continues
to grow rapidly in the UK, as we accelerate investment across our
sales channels.
International
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue GBP339m GBP335m +1%
Organic Recurring Revenue GBP305m GBP290m +5%
% Sage Business Cloud Penetration 56% 43% +13 ppts
% Subscription Penetration 67% 60% +7 ppts
-------- -------- ---------
Organic Recurring Revenue H1 22 H1 21 Change
-------- -------- ---------
Central and Southern Europe GBP240m GBP230m +4%
France GBP128m GBP124m +3%
Central Europe GBP52m GBP48m +8%
Iberia GBP60m GBP58m +3%
Africa & APAC GBP65m GBP60m +7%
-------- -------- ---------
The International region achieved organic recurring revenue
growth of 5% to GBP305m and organic total revenue growth of 1% to
GBP339m. Sage Business Cloud penetration increased significantly to
56%, up from 43% in the prior year, while subscription penetration
is 67%, up from 60% in the prior year.
In France, recurring revenue increased by 3% to GBP128m, with a
strong performance in cloud connected, supported by growth in cloud
native solutions, partly offset by a reduction in maintenance and
support revenues. Total revenue in France decreased by 1% to
GBP136m.
Central Europe achieved recurring revenue growth of 8% to GBP52m
while total revenue increased by 4% to GBP66m. Growth in the region
is driven by a combination of cloud connected and local
products.
In Iberia, recurring revenue increased by 3% to GBP60m, with
success in migrating customers to subscription and cloud connected
solutions. Total revenue was flat at GBP67m.
Africa & APAC delivered strong recurring revenue growth of
7% to GBP65m, driven mainly by a good performance in cloud native
solutions, particularly Sage Accounting in Africa, and supported by
growth in local products. Total revenue in Africa & APAC
increased by 6% to GBP70m compared with the prior year.
Operating Profit
The Group increased organic operating profit by 4% to GBP184m
(H1 21: GBP177m ), representing a margin of 19.9% (H1 21: 20.2%).
Following a period of additional strategic investment during FY21
to accelerate growth, organic operating margin has trended upwards
from 18.4% in H2 21, driven by operating efficiencies. In addition,
during the first half, the Group reassessed its bad debt provision
in connection with Covid-19, releasing the balance of the provision
which resulted in a GBP7m credit to operating profit.
Underlying operating profit was GBP183m (H1 21: GBP188m),
representing a margin of 19.6% (H1 21: 20.4%). The difference
between organic and underlying operating profit reflects the
operating profit or loss from acquisitions and disposals (as
described on page 7).
EBITDA was GBP226m (H1 21: GBP229m) representing a margin of
24.1%. The slight reduction in EBITDA principally reflects the
impact of disposals on underlying operating profit, partly offset
by a GBP2m increase in underlying depreciation and amortisation to
GBP27m (H1 21: GBP25m).
H1 22 H1 21 H1 22 Margin
Organic Operating Profit GBP184m GBP177m 19.9%
Impact of disposals - GBP10m
Impact of held for sale GBP1m GBP1m
Impact of acquisitions (GBP2m) -
Underlying Operating Profit GBP183m GBP188m 19.6%
Depreciation & amortisation GBP27m GBP25m
Share based payments GBP16m GBP16m
--------- --------- -------------
EBITDA GBP226m GBP229m 24.1%
--------- --------- -------------
Net Finance Cost
The statutory net finance cost for the period increased to
GBP15m (H1 21: GBP13m), primarily reflecting the impact of interest
on new debt issuances and is broadly in line with the underlying
net finance cost of GBP14m (H1 21: GBP13m).
Taxation
The underlying tax expense for H1 22 was GBP40m (H1 21: GBP45m),
resulting in an underlying tax rate of 24% (H1 21: 25%). The
statutory income tax expense for H1 22 was GBP37m (H1 21: GBP44m),
resulting in a statutory tax rate of 20% (H1 21: 23%).
The difference between the underlying and statutory rate in H1
22 primarily reflects a non-taxable accounting net gain on
disposals. The H1 22 underlying tax rate has decreased due to a
reduction in the French corporation tax rate together with certain
non-recurring adjustments.
Earnings per Share
H1 22 H1 21 Change
Statutory Basic EPS 14.84p 13.29p +12%
Recurring items 2.97p 2.05p
Non-recurring items (5.19)p (3.20)p
Impact of foreign exchange - (0.23p)
-----------------
Underlying Basic EPS 12.62p 11.91p +6%
-----------------
Underlying basic earnings per share of 12.62p was 6% higher than
the prior period , primarily reflecting a reduction in the number
of outstanding shares due to the share buyback programme.
Statutory basic earnings per share increased by 12%, reflecting
the increase in underlying basic earnings per share and the
post-tax impact of recurring and non-recurring items.
Cash Flow
The Group remains highly cash generative with underlying cash
flow from operations of GBP 220m (H1 21: GBP255m), representing an
underlying cash conversion of 120% (H1 21: 133%). Importantly, the
Group has delivered cash conversion in excess of 100% for more than
three years. This strong cash conversion reflects growth in
subscription revenue and continued good working capital management.
Free cash flow was GBP167m (H1 21: GBP190m), largely reflecting
strong underlying cash conversion and a reduction in income tax
paid.
Cash Flow APMs H1 22 H1 21 (as reported)
Underlying operating profit GBP183m GBP191m
Depreciation, amortisation and non-cash GBP26m GBP22m
items in profit
Share based payments GBP16m GBP16m
Net changes in working capital GBP3m GBP58m
Net capital expenditure (GBP8m) (GBP32m)
--------- --------------------
Underlying Cash Flow from Operations GBP 220m GBP255m
--------- --------------------
Underlying cash conversion % 120% 133%
Non-recurring cash items (GBP12m) (GBP6m)
Net interest paid (GBP14m) (GBP11m)
Income tax paid (GBP27m) (GBP46m)
Profit and loss foreign exchange movements - (GBP2m)
--------- --------------------
Free Cash Flow GBP 167m GBP190m
--------- --------------------
Statutory Reconciliation of Cash Flow H1 22 H1 21 (as reported)
from Operations
Statutory Cash Flow from Operations GBP 193m GBP266m
Recurring and non-recurring items GBP36m GBP22m
Net capital expenditure (GBP8m) (GBP32m)
Other adjustment including foreign exchange (GBP1m) (GBP1m)
translations
Underlying Cash Flow from Operations GBP 220m GBP255m
Net debt and liquidity
Group net debt was GBP 650m at 31 March 2022 (30 September 2021:
GBP247m), comprising cash and cash equivalents of GBP515m (30
September 2021: GBP567m) and total debt of GBP1,165m (30 September
2021: GBP814m). The Group had GBP1,197m of cash and available
liquidity at 31 March 2022 (30 September 2021: GBP1,236m).
The increase in net debt in the period is summarised in the
table below.
H1 22 H1 21 (as reported)
Net debt at 1 October (GBP247m) (GBP151m)
Free cash flow GBP 167m GBP190m
New leases (GBP4m) (GBP4m)
Net proceeds from disposal of subsidiaries GBP38m GBP61m
Net cash for acquisition of subsidiaries (GBP223m) -
M&A and equity investments (GBP14m) (GBP32m)
Dividends paid (GBP119m) (GBP124m)
Share buyback (GBP249m) (GBP47m)
FX movement and other GBP1m GBP11m
Net debt at 31 March (GBP 650m (GBP96m)
)
The Group's debt is sourced from a syndicated multi-currency
Revolving Credit Facility (RCF), US private placement (USPP) loan
notes, and sterling denominated bond notes. The Group's RCF expires
in February 2025 with facility levels of GBP682m (split between
US$719m and GBP135m tranches). At 31 March 2022, the RCF was
undrawn (H1 21: undrawn).
The Group's USPP loan notes at 31 March 2022 totalled GBP330m
(US$400m and EUR 30m) (H1 21: GBP362m - US$400m and EUR 85m). The
USPP loan notes have a range of maturities between January 2023 and
May 2025.
The Group's sterling denominated bond notes comprise a GBP400m
12-year bond, issued in February 2022, with a coupon of 2.875%, and
a GBP350m 10-year bond, with a coupon of 1.625%, issued in February
2021.
Sage has an investment grade issuer credit rating assigned by
Standard and Poor's of BBB+ (stable outlook). Maturities within the
next 18 months comprise EUR 30m (GBP25m) and US$150m (GBP114m) of
the Group's USPP loan notes in January 2023 and May 2023,
respectively.
Capital allocation
Sage maintains a disciplined approach to capital allocation. The
Group's focus is to accelerate strategic execution through organic
and inorganic investment, including through acquisitions of
complementary technology and partnerships to enhance Sage Business
Cloud and further develop Sage's digital network. During the
period, Sage acquired Brightpearl, helping to accelerate the
Group's strategy for growth , and completed the disposal of its
Swiss business. The South African payroll outsourcing business was
sold in April, following the period end.
Reflecting the Group's continuing strong business performance
and cash generation during the first half, we have increased the
interim dividend by 4% to 6.3p. Going forwards, Sage will adopt a
progressive dividend policy, intending to grow the dividend over
time while considering the future capital requirements of the
Group.
The Group also considers returning surplus capital to
shareholders. On 24 January 2022, Sage completed a GBP300m share
buyback programme that commenced on 6 September 2021. A total of
39.8m shares were purchased under this programme and are held as
treasury shares. Including a previous GBP300m share buyback
programme undertaken during FY21, this brings the total capital
returned to shareholders since March 2021 to GBP600m . As a result,
the weighted average number of shares in issue during the first
half declined by 7% compared to the same period last year.
H1 22 H1 21 (as reported)
Net debt GBP 650m GBP96m
EBITDA (Last Twelve Months) GBP439m GBP474m
--------- --------------------
Net debt/EBITDA Ratio 1.5x 0.2x
--------- --------------------
The Group's EBITDA over the last 12 months was GBP439m,
resulting in a net debt to EBITDA leverage ratio of 1.5x, up from
0.2x in the prior year principally due to the impact of the share
buyback and acquisitions on net debt. Group return on capital
employed (ROCE) for H1 22 was 18.6% (H1 21 as reported: 20.3%).
Sage intends to operate in a broad range of 1-2x net debt to
EBITDA over the medium term, with flexibility to move outside this
range as business needs require.
Going concern
The Directors have robustly tested the going concern assumption
in preparing these financial statements, taking into account the
Group's strong liquidity position at 31 March 2022 and a number of
downside sensitivities, and remain satisfied that the going concern
basis of preparation is appropriate. Further information is
provided in note 1 of the financial statements on pages 20 and
21.
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 normalise prior
year underlying and organic figures are as follows:
AVERAGE EXCHANGE RATES (EQUAL TO H1 22 H1 21 Change
GBP)
Euro (EUR) 1.19 1.13 5%
US Dollar ($) 1.34 1.35 0%
Canadian Dollar (C$) 1.70 1.73 -2%
South African Rand (ZAR) 20.62 20.62 0%
Australian Dollar (A$) 1.85 1.80 3%
------ ------ -------
Appendix 1 - Alternative Performance Measures
Alternative Performance Measures are used by the Group 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 underlying performance. Wherever appropriate
and practical, we provide reconciliations to relevant GAAP
measures. The table below sets out the basis of calculation of the
Alternative Performance Measures and the rationale for their
use.
MEASURE DESCRIPTION RATIONALE
Underlying Underlying measures are adjusted Underlying measures allow
(revenue to exclude items which would management and investors
and profit) distort the understanding of to compare performance
measures the performance for the year without the potentially
or comparability between periods: distorting effects of
* Recurring items include purchase price adjustments foreign exchange movements,
including amortisation of acquired intangible assets one--off or non-operational
and adjustments made to reduce deferred income items.
arising on acquisitions, acquisition-related items, By including part-period
unhedged FX on intercompany balances and fair value contributions from acquisitions,
adjustments; and discontinued operations,
disposals and assets held
for sale of standalone
* Non-recurring items that management judge to be businesses in the current
one-off or non-operational such as gains and losses and/or prior periods,
on the disposal of assets, impairment charges and the impact of M&A decisions
reversals, and restructuring related costs. on earnings per share
growth can be evaluated.
Recurring items are adjusted
each period irrespective of materiality
to ensure consistent treatment.
All prior period underlying measures
(revenue and profit) are retranslated
at the current year exchange
rates to neutralise the effect
of currency fluctuations.
------------------------------------------------------------- ----------------------------------
Organic (revenue In addition to the adjustments Organic measures allow
and profit) made for Underlying measures, management and investors
measures Organic measures: to understand the like--for--like
* Exclude the contribution from discontinued operations, revenue and current period
disposals and assets held for sale of standalone margin performance of
businesses in the current and prior period; and the continuing business.
* Exclude the contribution from acquired businesses
until the year following the year of acquisition; and
* Adjust the comparative period to present prior period
acquired businesses as if they had been part of the
Group throughout the prior period.
Acquisitions and disposals where
the revenue and contribution
impact would be immaterial are
not adjusted.
------------------------------------------------------------- ----------------------------------
Underlying Underlying Cash Flow from Operations To show the cash flow
Cash Flow is Underlying Operating Profit generated by the operations
from Operations adjusted for non-cash items, and calculate underlying
net capex (excluding business cash conversion.
combinations and similar items)
and changes in working capital.
------------------------------------------------------------- ----------------------------------
Underlying Underlying Cash Flow from Operations Cash conversion informs
Cash Conversion divided by Underlying (as reported) management and investors
Operating Profit. about the cash 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 organic value of the recurring
revenue recurring revenue in the last revenue base that is expected
month of the reporting period, to be carried into future
adjusted consistently period periods, and its growth
to period, multiplied by twelve. is a forward--looking
Adjustments to normalise reported indicator of reporting
recurring revenue include those recurring revenue growth.
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
by Value upsell and cross-sell of active ability to retain and
customers at the start of the generate additional revenue
year, divided by the opening from our existing customer
ARR for the year. base through up and cross
sell.
------------------------------------------------------------- ----------------------------------
Free Cash Free Cash Flow is Underlying To measure the cash generated
Flow Cash Flow from Operations minus by the operating activities
net interest paid and income during the period that
tax paid and adjusted for non-recurring is available to repay
cash items (which excludes net debt, undertake acquisitions
proceeds on disposals of subsidiaries) or distribute to shareholders.
and profit and loss foreign exchange
movements.
------------------------------------------------------------- ----------------------------------
% Subscription Organic software subscription To measure the progress
Penetration revenue as a percentage of organic of migrating our customer
total revenue. base from licence and
maintenance to a subscription
relationship.
------------------------------------------------------------- ----------------------------------
% Sage Business Organic recurring revenue from To measure the progress
Cloud Penetration the Sage Business Cloud (native in the migration of our
and connected cloud) as a percentage revenue base to the Sage
of the organic recurring revenue Business Cloud by connecting
of the Future Sage Business Cloud our solutions to the cloud
Opportunity. and/or migrating our customers
to cloud connected and
cloud native solutions.
------------------------------------------------------------- ----------------------------------
Return on ROCE is calculated as: As an indicator of the
Capital Employed * Underlying Operating Profit; minus current 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 FY20, FY21 and
FY22 PSP awards.
The average (of the opening and
closing balance for the period)
total net assets excluding net
debt, provisions for non-recurring
costs, financial liability for
purchase of own shares and tax
assets or liabilities (i.e. capital
employed).
------------------------------------------------------------- ----------------------------------
Consolidated income statement
For the six months ended 31 March 2022
Six months Year
Six months Six months Six months ended Six months Six months ended
ended ended ended 31 March ended ended 30
31 March 31 March 31 March 2021 31 March 31 March September
2022 2022 2022 (Unaudited) 2021 2021 2021
(Unaudited) (Unaudited) (Unaudited) Underlying (Unaudited) (Unaudited) (Audited)
Underlying Adjustments* Statutory as reported Adjustments* Statutory Statutory
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Revenue 2 935 (1) 934 937 - 937 1,846
Cost of
sales (68) - (68) (72) - (72) (131)
----------- ------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Gross
profit 867 (1) 866 865 - 865 1,715
Selling and
administrative
expenses (684) 22 (662) (674) 12 (662) (1,342)
-------------------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Operating
profit 2 183 21 204 191 12 203 373
Finance
income - - - 1 - 1 1
Finance
costs (14) (1) (15) (14) - (14) (27)
----------- ------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Profit before income
tax 169 20 189 178 12 190 347
Income tax
expense 4 (40) 3 (37) (45) 1 (44) (62)
----------- ------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Profit for
the
period 129 23 152 133 13 146 285
----------- ------- ------ ------------ ----------- ----------- ------------ ----------- ---------
* Adjustments are detailed in note 3.
Earnings per share
attributable to
the owners of the
parent (pence)
-------------------- ------ ------------------------- ----------- ------------ ----------------------
Basic 6 12.62p 14.84p 12.14p 13.29p 26.33p
Diluted 6 12.49p 14.68p 12.05p 13.19p 26.08p
----------- ------- ------ ------------ ----------- ----------- ------------ ----------- ---------
Consolidated statement of comprehensive income
For the six months ended 31 March 2022
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
------------------------------------------------------------------------ ------------- ------------- --------------
Profit for the period 152 146 285
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
Fair value gain on reassessment of equity investment (see note 11) 30 - -
Actuarial gain on post-employment benefit obligations - - 2
------------------------------------------------------------------------ ------------- ------------- --------------
30 - 2
------------------------------------------------------------------------ ------------- ------------- --------------
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations 24 (86) (60)
Exchange differences recycled through income statement on sale of
foreign operations (13) (1) (21)
------------------------------------------------------------------------ ------------- ------------- --------------
11 (87) (81)
------------------------------------------------------------------------ ------------- ------------- --------------
Other comprehensive income/(expense) for the period, net of tax 41 (87) (79)
------------------------------------------------------------------------ ------------- ------------- --------------
Total comprehensive income for the period 193 59 206
------------------------------------------------------------------------ ------------- ------------- --------------
The notes on pages 20 to 38 form an integral part of this
condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2022
31 March 31 March 30 September
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
Note GBPm GBPm GBPm
------------------------------------------------------- ----- -------------- -------------- -------------
Non-current assets
Goodwill 7 2,082 1,843 1,877
Other intangible assets 7 281 188 190
Property, plant and equipment 7 155 165 164
Equity investments 4 19 21
Other financial assets - 1 -
Trade and other receivables 116 101 113
Deferred income tax assets 34 36 40
------------------------------------------------------- ----- -------------- -------------- -------------
2,672 2,353 2,405
------------------------------------------------------- ----- -------------- -------------- -------------
Current assets
Trade and other receivables 329 290 295
Current income tax asset 28 13 37
Cash and cash equivalents (excluding bank overdrafts) 10 515 693 553
Assets classified as held for sale 11 2 95 39
------------------------------------------------------- ----- -------------- -------------- -------------
874 1,091 924
------------------------------------------------------- ----- -------------- -------------- -------------
Total assets 3,546 3,444 3,329
------------------------------------------------------- ----- -------------- -------------- -------------
Current liabilities
Trade and other payables* (311) (529) (592)
Current income tax liabilities (23) (24) (31)
Borrowings 10 (42) (65) (65)
Provisions (44) (14) (68)
Deferred income (705) (638) (611)
Liabilities classified as held for sale 11 - (52) (13)
------------------------------------------------------- ----- -------------- -------------- -------------
(1,125) (1,322) (1,380)
------------------------------------------------------- ----- -------------- -------------- -------------
Non-current liabilities
Borrowings 10 (1,123) (742) (749)
Post-employment benefits (23) (23) (22)
Deferred income tax liabilities (24) (10) (5)
Provisions (36) (29) (49)
Trade and other payables (2) (3) (3)
Deferred income (9) (11) (10)
------------------------------------------------------- ----- -------------- -------------- -------------
(1,217) (818) (838)
------------------------------------------------------- ----- -------------- -------------- -------------
Total liabilities (2,342) (2,140) (2,218)
------------------------------------------------------- ----- -------------- -------------- -------------
Net assets 1,204 1,304 1,111
------------------------------------------------------- ----- -------------- -------------- -------------
Equity attributable to owners of the parent
Ordinary shares 9 12 12 12
Share premium 9 548 548 548
Translation reserve 53 36 42
Merger reserves 61 61 61
Retained earnings 530 647 448
------------------------------------------------------- ----- -------------- -------------- -------------
Total equity 1,204 1,304 1,111
------------------------------------------------------- ----- -------------- -------------- -------------
*Includes GBPnil at 31 March 2022 (GBP253m at 31 March 2021 and
GBP249m at 30 September 2021) in relation to the Group's commitment
for the purchase of its own shares. See note 9.
Consolidated statement of changes in equity
For the six months ended 31 March 2022
Attributable to owners
of the parent
------------------------------------- ------------------ ------------------------------------------
Ordinary Share Translation Merger Retained Total
shares premium reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------- -------- -------- ----------- --------- --------- -------
At 1 October 2021 12 548 42 61 448 1,111
------------------------------------- -------- -------- ----------- --------- --------- -------
Profit for the period - - - - 152 152
Other comprehensive income/(expense)
Exchange differences on translating
foreign operations - - 24 - - 24
Exchange differences recycled
through income statement on sale
of foreign operations (see note
11) - - (13) - - (13)
Fair value gain on reassessment
of equity investment (see note
11) - - - - 30 30
------------------------------------- -------- -------- ----------- --------- --------- -------
Total comprehensive income
for the period ended 31 March
2022 (Unaudited) - - 11 - 182 193
------------------------------------- -------- -------- ----------- --------- --------- -------
Transactions with owners
Employee share option scheme -
Value of employee services, net
of deferred tax - - - - 16 16
Proceeds from issuance of treasury - - - - 3 3
shares
Dividends paid to owners of the
parent - - - - (119) (119)
------------------------------------- -------- -------- ----------- --------- --------- -------
Total transactions with owners
for the period ended 31 March
2022 (Unaudited) - - - - (100) (100)
------------------------------------- -------- -------- ----------- --------- --------- -------
At 31 March 2022 (Unaudited) 12 548 53 61 530 1,204
------------------------------------- -------- -------- ----------- --------- --------- -------
Attributable to owners of the
parent
==================================== ======== ===================================================
Ordinary Share Translation Merger Retained Total
shares premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======== ======== =========== ======== ========= =======
At 1 October 2020 12 548 123 61 908 1,652
Profit for the period - - - - 146 146
Other comprehensive expenses
Exchange differences on translating
foreign operations - - (86) - - (86)
Exchange differences recycled
through income statement on sale
of foreign operations - - (1) - - (1)
Total comprehensive income
for the period ended 31 March
2021 (Unaudited) - - (87) - 146 59
==================================== ======== ======== =========== ======== ========= =======
Transactions with owners
Employee share option scheme
- Value of employee services,
net of deferred tax - - - - 15 15
Proceeds from issuance of treasury
shares - - - - 2 2
Share buyback programme* - - - - (300) (300)
Dividends paid to owners of the
parent - - - - (124) (124)
==================================== ======== ======== =========== ======== ========= =======
Total transactions with owners
for the period ended 31 March
2021 (Unaudited) - - - - (407) (407)
==================================== ======== ======== =========== ======== ========= =======
At 31 March 2021 (Unaudited) 12 548 36 61 647 1,304
==================================== ======== ======== =========== ======== ========= =======
*The repurchase of shares recognised through retained earnings
is the maximum consideration that The Sage Group plc is
contractually bound under the share buyback programme including
costs of purchase. See note 9.
Consolidated statement of cash flows
For the six months ended 31 March 2022
Six months Six months Year
ended ended ended 30
31 March 31 March September
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
Notes GBPm GBPm GBPm
============================================= ===== ============= ============= ===========
Cash flows from operating activities
Cash generated from continuing operations 193 266 476
Interest paid (14) (11) (19)
Income tax paid (27) (46) (81)
Net cash generated from operating activities 152 209 376
============================================= ===== ============= ============= ===========
Cash flows from investing activities
Proceeds on settlement of non-current
asset - 3 3
Disposal of subsidiaries, net of cash
disposed 11 37 60 135
Acquisition of subsidiaries, net of
cash acquired 11 (210) - -
Purchases of equity investments - (19) (21)
Purchases of intangible assets 7 (17) (8) (17)
Purchases of property, plant and equipment 7 (4) (24) (39)
Proceeds from disposals of property,
plant and equipment 11 10 - -
Interest received - - 1
Net cash (used in)/generated from investing
activities (184) 12 62
============================================= ===== ============= ============= ===========
Cash flows from financing activities
Proceeds from issuance of treasury
shares 9 3 2 8
Proceeds from borrowings 10 516 344 344
Repayments of borrowings 10 (166) (481) (481)
Capital element of lease payments (9) (13) (22)
Borrowing costs - - (1)
Share buyback programme 9 (249) (47) (353)
Dividends paid to owners of the parent 5 (119) (124) (189)
Net cash used in financing activities (24) (319) (694)
============================================= ===== ============= ============= ===========
Net decrease in cash, cash equivalents
and bank overdrafts
(before exchange rate movement) (56) (98) (256)
Effects of exchange rate movement 10 4 (32) (25)
Net decrease in cash, cash equivalents
and bank overdrafts (52) (130) (281)
Cash, cash equivalents and bank overdrafts
at 1 October 10 567 848 848
============================================= ===== ============= ============= ===========
Cash, cash equivalents and bank overdrafts
at period end 10 515 718 567
============================================= ===== ============= ============= ===========
Notes to the financial information
For the six months ended 31 March 2022
1. Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries
(together "the Group") is a leading global supplier of finance, HR
and payroll software to small and mid-sized businesses .
This condensed consolidated half-yearly financial report was
approved for issue by the board of directors on 12 May 2022.
The financial information set out above does not constitute the
Company's Statutory Accounts. Statutory Accounts for the year ended
30 September 2021 have been delivered to the Registrar of
Companies. The auditor's report was unqualified and did not contain
statements under section 498 (2), (3) or (4) of the Companies Act
2006.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the UK 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 and
Accounts for 2021.
This condensed consolidated half-yearly financial report has
been reviewed, not audited.
The Company is a limited liability company incorporated and
domiciled in the UK. The address of its registered office is C23 -
5 & 6 Cobalt Park Way, Cobalt Park, Newcastle upon Tyne, NE28
9EJ. The Company is listed on the London Stock Exchange.
Basis of preparation
The financial information for the six months ended 31 March 2022
has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34, "Interim Financial Reporting" as issued by the International
Accounting Standards Board ("IASB") and as adopted for use in the
UK.
The condensed consolidated half-yearly financial report should
be read in conjunction with the annual financial statements for the
year ended 30 September 2021, which have been prepared in
accordance with IFRS as adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union and IFRS as issued by
the IASB.
On 31 December 2020, as a result of the UK's withdrawal from the
European Union, IFRS as adopted by the European Union at that date
was brought into UK law and became UK-adopted International
Accounting Standards, with future changes being subject to
endorsement by the UK Endorsement board. With effect from 1 October
2021 the Group's statutory consolidated financial statements were
transitioned to UK-adopted International Accounting Standards
("UK-adopted IFRS"). There were no impact or changes in accounting
policies from the transition. This change constitutes a change in
accounting framework. UK-adopted IFRS differ in certain respects
from IFRS as issued by the IASB. The differences have no impact on
the Group's condensed consolidated financial statements for the
periods presented.
As at 31 March 2022, the Group had a strong liquidity position
with cash and available liquidity of GBP1.2bn, supported by strong
underlying cash conversion of 120% reflecting the strength of the
subscription-based business model. The Group's position is further
supported by a well-diversified customer base amongst small and
medium sized businesses with high quality recurring revenue and
strong retention rate.
In reaching its assessment on going concern, the Directors have
reviewed liquidity and covenant forecasts for the Group for the
period to 30 September 2023. Stress testing has been performed with
the impact of increases in churn and reduced levels of new customer
acquisitions and sales to existing customers being considered. In
these stress scenarios, the Group continues to have sufficient
resources to continue in operational existence. In the event that
more severe impacts occur, further mitigating actions are available
to the Group should they be required.
The Directors also reviewed the results of reverse stress
testing to provide an illustration of the level of churn which
would be required to trigger a breach in the Group's covenants or
exhaust cash down to minimum working capital requirements. The
probability of these factors occurring is deemed to be remote given
the resilient nature of the subscription-based business model,
robust balance sheet and continued strong cash conversion.
After making enquiries, the Directors have a reasonable
expectation that Sage has adequate resources to continue in
operational existence for at least 12 months from the date of
signing this condensed consolidated half-yearly financial report.
Accordingly, the consolidated financial information has been
prepared on a going concern basis.
Accounting policies
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2021 as
described in those annual financial statements.
Adoption of new and revised IFRSs
There are no new accounting standards which are currently issued
but not yet effective which the management expects would have a
material impact on the Group.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates and assumptions by management. It also
requires management to exercise its judgement in the process of
applying the accounting policies. We continually evaluate our
estimates, assumptions and judgements based on available
information. The areas involving a higher degree of judgement or
complexity are described below.
Revenue recognition
Over a third of the Company's revenue is generated from sales to
partners rather than end users. The key judgement is determining
whether the business partner is a customer of the Group. The key
criteria in this determination is whether the business partner has
taken control of the product. Considering the nature of Sage's'
subscription products and support services, this is usually
assessed based on whether the business partner has responsibility
for payment, has discretion to set prices, and takes on the risks
and rewards of the product from Sage.
Where the business partner is a customer of Sage, discounts are
recognised as a deduction from revenue.
Where the business partner is not a customer of Sage and their
part in the sale has simply been in the form of a referral, they
are remunerated in the form of a commission payment. These payments
are treated as contract acquisition costs.
An additional area of judgement is the recognition and deferral
of revenue on on--premise subscription offerings, for example the
sale of a term licence with an annual maintenance and support
contract as part of a subscription contract. In such instances, the
transaction price is allocated between the constituent performance
obligations on the basis of standalone selling prices (SSPs).
Judgement is required when estimating SSPs. The Group has
established a hierarchy to identify the SSPs that are used to
allocate the transaction price of a customer contract to the
performance obligations in the contract. Where SSPs for on--premise
offerings are observable and consistent across the customer base,
SSP estimates are derived from pricing history. Where there are no
directly observable estimates available, comparable products are
utilised as a basis of assessment or the residual approach is used.
Under the residual approach, the SSP for the offering is estimated
to be the total transaction price less the sum of the observable
SSPs of other goods or services in the contract. The Group uses
this technique in particular for estimating the term licence SSP
sold as part of its on--premise subscription offerings as Sage has
previously not sold term licences on a stand-alone basis (i.e. the
selling price is uncertain).
Goodwill impairment
A key judgement is the ongoing appropriateness of the
cash-generating units ("CGUs") for the purpose of impairment
testing. CGUs are assessed in the context of the Group's evolving
business model, the Sage strategy and the shift to global product
development. Management continues to assess performance and
allocate resources at a regional level, and so it is appropriate to
monitor goodwill at a regional level and CGUs to be based on
geographical area of operation.
Management has performed a review for indicators of impairment
of goodwill as at 31 March 2022. As a result of this review, no
indicators of impairment have been identified.
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in the 30
September 2021 financial statements.
Business combinations
When the Group completes a business combination, the
consideration transferred for the acquisition and the identifiable
assets and liabilities are recognised at their fair values. The
amounts by which the consideration exceeds the net assets acquired
is recognised as goodwill. The application of accounting policies
to business combinations involves judgement and the use of
estimates.
During the period, the Group acquired the remaining 83% of
shares in Brightpearl which constituted a significant business
combination. The key areas of judgment include the identification
and subsequent measurement of acquired intangible assets. The total
fair value of intangible assets (excluding goodwill) acquired was
GBP110m.
The Group engaged an external expert to support the
identification and measurement exercise. The intangible assets
acquired that qualified for recognition separately from goodwill
were technology and customer relationships. The fair value of the
acquired technology was determined using the relief from royalty
method and the customer relationship was determined using a
discounted cashflow approach. These valuation techniques
incorporate several key assumptions including revenue forecasts and
the application of an appropriate discount rate to state future
cash flows at their present value. The relief from royalty method
also requires the use of an appropriate royalty rate which was
determined with reference to licensing arrangements for similar
technologies. Full analysis of the consideration transferred,
assets and liabilities acquired, and goodwill recognised in
business combinations are set out in note 11.
Judgement was also required in allocating the acquired goodwill
to CGUs. Based on the strategic intent and rationale for the
acquisition, and the way in which Management intend to monitor the
performance of the business going forwards, goodwill has been
allocated to the Group's UK & Ireland and North America
CGUs.
Amounts recognised for Brightpearl at 31 March 2022 are
provisional due to the proximity of the acquisition date to the
date of the approval of the condensed consolidated half-yearly
financial report, and will be finalised during the coming year.
Website
This condensed consolidated half-yearly financial report for the
six months ended 31 March 2022 can also be found on our website:
www.sage.com/investors/financial-information/results
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 Leadership Team (previously known as the Executive
Committee) has been identified as the chief operating decision
maker, in accordance with their designated responsibility for the
allocation of resources to operating segments and assessing their
performance through the Management Performance Reviews. The
Executive Leadership Team 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 seven key operating segments: North
America, Northern Europe (UK and Ireland), Central Europe (Germany,
Austria and Switzerland), France, Iberia (Spain and Portugal),
Africa and the Middle East, and Asia (including Australia). For
reporting under IFRS 8, the Group is divided into three reportable
segments. These segments are as follows:
-- North America
-- Northern Europe
-- International - Central and Southern Europe (Central Europe, France and Iberia)
The remaining operating segments of Africa and the Middle East,
and Asia (including Australia) do not meet the quantitative
thresholds for presentation as separate reportable segments under
IFRS 8, and so are presented together and described as
International - Africa & APAC. They include the Group's
operations in South Africa, the Middle East, Australia, Singapore
and Malaysia.
The reportable segments reflect the aggregation of the operating
segments for Central Europe, France and Iberia. 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.
The revenue analysis in the table below is based on the location
of the customer, which is not materially different from the
location where the order is received and where the assets are
located.
Revenue by segment (Unaudited)
Six months ended 31 March 2022
Underlying Organic Change Change Change
Statutory adjustments* Underlying adjustments** Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm GBPm % % %
=========================== ============== =========== ============== ========= ========== =========== ========
Recurring revenue by segment
North America 356 1 357 (2) 355 13% 13% 12%
Northern Europe 208 - 208 (2) 206 8% 8% 7%
International
- Central and
Southern Europe 244 - 244 (4) 240 (7%) (2%) 4%
International
- Africa & APAC 65 - 65 - 65 (19%) (18%) 7%
================ ========= ============== =========== ============== ========= ========== =========== ========
Recurring
revenue 873 1 874 (8) 866 3% 4% 8%
================ ========= ============== =========== ============== ========= ========== =========== ========
Other revenue by segment
North America 20 - 20 - 20 (22%) (22%) (22%)
Northern Europe 4 - 4 - 4 (42%) (42%) (42%)
International
- Central and
Southern Europe 30 - 30 (1) 29 (31%) (27%) (25%)
International
- Africa & APAC 7 - 7 (2) 5 (39%) (38%) (11%)
================ ========= ============== =========== ============== ========= ========== =========== ========
Other revenue 61 - 61 (3) 58 (30%) (29%) (24%)
================ ========= ============== =========== ============== ========= ========== =========== ========
Total revenue by segment
North America 376 1 377 (2) 375 11% 10% 9%
Northern Europe 212 - 212 (2) 210 6% 7% 5%
International
- Central and
Southern Europe 274 - 274 (5) 269 (10%) (5%) 0%
International
- Africa & APAC 72 - 72 (2) 70 (22%) (21%) 6%
================ ========= ============== =========== ============== ========= ========== =========== ========
Total revenue 934 1 935 (11) 924 0% 1% 5%
================ ========= ============== =========== ============== ========= ========== =========== ========
* Adjustments are detailed in note 3.
** Adjustments relate to the disposal of the Group's Swiss
business and assets held for sale in the current period, as well as
the acquisition of Brightpearl (note 11).
Revenue by segment (Unaudited)
Six months ended 31 March 2021
-----------------------------------------------------------------------------------------
Statutory
and Impact
Underlying of
as foreign Organic
reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------ --------- ---------- ------------ -------
Recurring revenue by segment
North America 316 2 318 - 318
Northern Europe 192 - 192 - 192
International - Central and
Southern Europe 262 (13) 249 (19) 230
International - Africa &
APAC 80 (1) 79 (19) 60
----------------------------- ------------ --------- ---------- ------------ -------
Recurring revenue 850 (12) 838 (38) 800
----------------------------- ------------ --------- ---------- ------------ -------
Other revenue by segment
North America 24 - 24 - 24
Northern Europe 8 - 8 - 8
International - Central and
Southern Europe 43 (3) 40 (1) 39
International - Africa &
APAC 12 - 12 (6) 6
----------------------------- ------------ --------- ---------- ------------ -------
Other revenue 87 (3) 84 (7) 77
----------------------------- ------------ --------- ---------- ------------ -------
Total revenue by segment
North America 340 2 342 - 342
Northern Europe 200 - 200 - 200
International - Central and
Southern Europe 305 (16) 289 (20) 269
International - Africa &
APAC 92 (1) 91 (25) 66
----------------------------- ------------ --------- ---------- ------------ -------
Total revenue 937 (15) 922 (45) 877
----------------------------- ------------ --------- ---------- ------------ -------
* Adjustments relate to the disposal of the Group's Swiss
business in the current period and the payroll outsourcing business
in South Africa classified as held for sale at 31 March 2022 (note
11), as well as the disposal of the Group's Polish business and
Australia and Asia Pacific business (excluding global products)
("Asia Pacific") in the prior financial year.
Operating profit by segment (Unaudited)
Six months ended 31 March 2022
-------------------------------------------------------------------------------------------------------------------
Underlying Organic Change Change Change
Statutory adjustments Underlying adjustments Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm GBPm % % %
----------------- ---------- ------------ ---------- ------------ ------- ---------- ----------- ----------
Operating profit
by segment
North America 59 14 73 - 73 7% 10% 10%
Northern Europe 34 17 51 2 53 (21%) (15%) (12%)
International
- Central and
Southern Europe 97 (51) 46 - 46 8% 4% 21%
International
- Africa & APAC 14 (1) 13 (1) 12 (9%) (25%) (5%)
----------------- ---------- ------------ ---------- ------------ ------- ---------- ----------- --------
Total operating
profit 204 (21) 183 1 184 0% (3%) 4%
----------------- ---------- ------------ ---------- ------------ ------- ---------- ----------- --------
Six months ended 31 March 2021
--------------------------------------------------------------------------------------------------------------
Impact of
Statutory Underlying Underlying foreign Organic
GBPm adjustments as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm GBPm
Operating profit
by segment
------------------------ ---------- ------------ ------------ --------- ---------- ------------ -------
North America 55 11 66 - 66 - 66
Northern Europe 42 19 61 (1) 60 - 60
International - Central
and Southern Europe 90 (43) 47 (2) 45 (7) 38
------------------------ ---------- ------------ ------------ --------- ---------- ------------ -------
International - Africa
& APAC 16 1 17 - 17 (4) 13
Total operating profit 203 (12) 191 (3) 188 (11) 177
------------------------ ---------- ------------ ------------ --------- ---------- ------------ -------
Reconciliation of underlying operating profit to statutory
operating profit
Six months ended Six months ended
31 March 2022 31 March 2021
(Unaudited) (Unaudited)
GBPm GBPm
======================================================= ================= =================
North America 73 66
Northern Europe 51 60
International - Central and Southern Europe 46 45
Total reportable segments 170 171
International - Africa & APAC 13 17
======================================================== ================= =================
Underlying operating profit 183 188
Impact of movement in foreign currency exchange rates - 3
======================================================== ================= =================
Underlying operating profit (as reported) 183 191
Amortisation of acquired intangible assets (18) (16)
Adjustment to acquired deferred income (1) -
Other M&A activity-related items (15) (9)
Non-recurring items 55 37
======================================================== ================= =================
Statutory operating profit 204 203
======================================================== ================= =================
3. Adjustments between underlying profit and statutory profit (Unaudited)
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
31 March 31 March 31 March 31 March 31 March 31 March
2022 2022 2022 2021 2021 2021
Non- Non-
Recurring recurring Total Recurring recurring Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ========== ========== ========== ========== ==========
M&A activity-related
items
Amortisation of acquired
intangibles 18 - 18 16 - 16
Gain on disposal of subsidiaries - (49) (49) - (41) (41)
Adjustment to acquired 1 - 1 - - -
deferred income
Other M&A activity-related
items 15 - 15 9 - 9
Other items
Reversal of restructuring
costs - (6) (6) - (5) (5)
Office relocation - - - - 9 9
Total adjustments made
to operating profit 34 (55) (21) 25 (37) (12)
================================= ========== ========== ========== ========== ========== ==========
Foreign currency movements 1 - 1 - - -
on intercompany balances
================================= ========== ========== ========== ========== ========== ==========
Total adjustments made
to profit before income
tax 35 (55) (20) 25 (37) (12)
================================= ========== ========== ========== ========== ========== ==========
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.
The adjustment to acquired deferred income represents the
additional revenue that would have been recorded in the period had
deferred income not been reduced as part of the purchase price
allocation adjustment made for business combinations.
Other M&A activity-related items relate to advisory, legal,
accounting, valuation and other professional or consulting services
which are related to M&A activity as well as
acquisition-related remuneration, directly attributable integration
costs and any required provision for future selling costs for
assets held for sale.
Foreign currency movements on intercompany balances of GBP1m
(six months ended 31 March 2021: GBPnil) occur due to retranslation
of unhedged intercompany balances other than those where settlement
is not planned or likely in the foreseeable future.
Non-recurring items
Net credit in respect of non-recurring items amounted to GBP55m
(six months ended 31 March 2021: credit of GBP37m).
The gain on disposal of subsidiaries of GBP49m relates to the
disposal of the Group's Swiss business. Further details can be
found in note 11. In the prior period, the GBP41m net gain on
disposal of subsidiaries related to the disposal of the Group's
Polish business.
Reversal of restructuring costs of GBP6m primarily relates to
unutilised provisions recognised in the prior financial year
following the implementation of a business transformation plan to
rebalance investment towards the Group's strategic priorities and
simplify the business. The reversal is a result of fewer colleagues
leaving the business as they were redeployed into other roles. In
the prior period, the GBP5m reversal of restructuring costs related
to unutilised Professional Service provisions created in the
financial year FY20.
In the prior period, office relocation costs of GBP9m relate to
the incremental depreciation charge resulting from accelerated
depreciation on the UK North Park office in advance of the
relocation to Cobalt Business Park.
4. Income tax expense
The effective tax rate on statutory profit before tax was 20%
(six months ended 31 March 2021: 23%) whilst the effective tax rate
on underlying profit before tax for continuing operations was 24%
(six months ended 31 March 2021: 25%). The effective income tax
rate represents the best estimate of the Group's average effective
income tax rate expected for the full year, applied to the profit
before income tax for the six months ended 31 March 2022.
The difference between the underlying and statutory rate for the
six months ended 31 March 2022 primarily reflects a non-taxable
accounting net gain on disposals. See note 3.
5. Dividends
Year
Six months
ended ended
Six months
ended 31 March 30 September
31 March
2022 2021 2021
(Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
========================================= ============= ============= ==============
Final dividend paid for the year ended
30 September 2020 of 11.32p per share - 124 124
Interim dividend paid for the year ended
30 September 2021 of 6.05p per share - - 65
Final dividend paid for the year ended
30 September 2021 of 11.63p per share 119 - -
========================================= ============= ============= ==============
119 124 189
========================================= ============= ============= ==============
The interim dividend of 6.3p per share will be paid on 17 June
2022 to shareholders on the register at the close of business on 27
May 2022. The Company's distributable reserves are sufficient to
support the payment of this dividend.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the period attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the period,
excluding those held as treasury shares, which are treated as
cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. 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
period.
Underlying
Underlying as reported Six Underlying Statutory Statutory
Six months ended months ended Six months ended Six months ended Six months ended
31 March 31 March 31 March 31 March 31 March
2022 2021 2021 2022 2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
================== ================== ================== ================== ================== ==================
Earnings
attributable to
owners of the
parent
Profit for the
period 129 133 130 152 146
================== ================== ================== ================== ================== ==================
Number of shares
(millions)
Weighted average
number of shares 1,023 1,094 1,094 1,023 1,094
Dilutive effects
of shares 10 8 8 10 8
================== ================== ================== ================== ================== ==================
1,033 1,102 1,102 1,033 1,102
================== ================== ================== ================== ================== ==================
Earnings per
share
attributable to
owners of the
parent (pence)
Basic earnings
per share 12.62 12.14 11.91 14.84 13.29
================== ================== ================== ================== ================== ==================
Diluted earnings
per share 12.49 12.05 11.82 14.68 13.19
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Six months ended Six months ended
31 March 31 March
2022 2021
(Unaudited) (Unaudited)
Reconciliation of earnings GBPm GBPm
============================================================================ ================ ================
Underlying earnings attributable to owners of the parent 129 130
Impact of movement in foreign currency exchange rates - 3
============================================================================ ================ ================
Underlying earnings attributable to owners of the parent (as reported) 129 133
================ ================
Office relocation - (9)
Reversal of restructuring costs 6 5
Amortisation of acquired intangible assets (18) (16)
Adjustment to acquired deferred income (1) -
Foreign currency movements on intercompany balances (1) -
Other M&A related items (15) (9)
Gain on disposal of subsidiaries 49 41
Taxation on adjustments 3 1
Net adjustments 23 13
============================================================================ ================ ================
Earnings - statutory profit for period attributable to owners of the parent 152 146
============================================================================ ================ ================
7. Non-current assets
Other
intangible Property,
Goodwill assets plant and equipment Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm
================================================ ============= ============= ===================== =============
Opening net book amount at 1 October 2021 1,877 190 164 2,231
Additions - 4 8 12
Acquisition of subsidiary* 176 110 2 288
Depreciation, amortisation and other movements - (24) (21) (45)
Exchange movement 29 1 2 32
Closing net book amount at 31 March 2022 2,082 281 155 2,518
================================================ ============= ============= ===================== =============
*Assets acquired as part of the acquisition of Brightpearl. See
note 11.
Other Property,
intangible plant and
Goodwill assets equipment Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm
================================================ ============= ============= ============= =============
Opening net book amount at 1 October 2020 1,962 212 173 2,347
Additions - 8 25 33
Disposal of subsidiary* (9) - - (9)
Transfer to held for sale** (4) - - (4)
Depreciation, amortisation and other movements - (22) (27) (49)
Exchange movement (106) (10) (6) (122)
Closing net book amount at 31 March 2021 1,843 188 165 2,196
================================================ ============= ============= ============= =============
*Finalisation of the sale of the Group's Polish business during
the six months ended 31 March 2021.
**Reassessment of goodwill allocated to held for sale during the
six months ended 31 March 2021.
Goodwill is not subject to amortisation but is tested for
impairment annually and whenever there is any indication of
impairment. At 31 March 2022, there were no indicators of
impairment to goodwill.
Details of the 2021 goodwill impairment review are provided in
the 2021 consolidated financial statements.
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, sterling denominated bond notes and bank
loans.
The fair value of the sterling denominated bond notes is
determined by reference to quoted market prices and therefore can
be considered as a level 1 fair value as defined within IFRS
13.
The fair value of US senior loan notes 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.
The fair value of bank loans is determined using a discounted
cash flow valuation technique calculated at prevailing interest
rates, and therefore can be considered as a level 3 fair value as
defined within IFRS 13.
The respective book and fair values of bank loans, bond notes
and loan notes are included in the table below.
At 31 March 2022 At 30 September 2021 At 31 March 2021
============================ ======================== ============================
Book Value Fair Value Book Value Fair Value Book Value Fair Value
(Unaudited) (Unaudited) (Audited) (Audited) (Unaudited) (Unaudited)
GBPm GBPm GBPm GBPm GBPm GBPm
================================ ============= ============= =========== =========== ============= =============
Long term-borrowings (excluding
lease liabilities) (1,045) (1,006) (667) (682) (659) (674)
=========== ===========
Short term-borrowings
(excluding lease liabilities) (25) (26) (47) (48) (47) (48)
================================ ============= ============= =========== =========== ============= =============
9. Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares (Unaudited) (Unaudited) (Unaudited)
(Unaudited) GBPm GBPm GBPm
===================================================== ============== ============= ============== =============
At 31 March 2022 1,100,789,295 12 548 560
===================================================== ============== ============= ============== =============
At 1 October 2020, 31 March 2021 and 1 October 2021 1,120,789,295 12 548 560
===================================================== ============== ============= ============== =============
In the current period, the Group transferred 4,897,923 (six
months ended 31 March 2021: 3,776,601 ) of treasury shares to
employees in order to satisfy vested awards.
During the period, the Group bought back a total of 27,979,129
Ordinary shares, held as treasury shares, as part of the
non-discretionary share buyback programme entered into on 6
September 2021. In September 2021, 11,868,392 Ordinary shares were
purchased under this share buyback programme. Total consideration
for this share buyback programme was GBP300m, of which GBP249m was
paid in the six months ended 31 March 2022.
In the six months ended 31 March 2021, the Group repurchased
8,750,986 Ordinary shares, held as treasury shares as part of the
non-discretionary share buyback programme entered into on 4 March
2021. The total consideration for those shares purchased in the
prior period amounted to GBP52m, of which GBP47m had been paid as
at 31 March 2021.
At 31 March 2022 the Group held 82,667,429 (31 March 2021:
32,818,496) treasury shares. In the current period, the Group
cancelled 20,000,000 treasury shares which reduced the number of
Ordinary shares to 1,100,789,295 at 31 March 2022.
10. Cash flow and net debt
Six months ended Six months ended
31 March 31 March
2022 2021
(Unaudited) (Unaudited)
GBPm GBPm
================================================================================ ================= =================
Statutory operating profit 204 203
Recurring and non-recurring items (21) (12)
================================================================================ ================= =================
Underlying operating profit (as reported) 183 191
Depreciation/amortisation/impairment/profit on disposal of non-current
assets/non-cash items 26 22
Share-based payments 16 16
Net changes in working capital 3 58
Net capital expenditure (8) (32)
================================================================================ ================= =================
Underlying cash flow from operations 220 255
Net interest paid (14) (11)
Income tax paid (27) (46)
Non-recurring items (12) (6)
Exchange movement - (2)
================================================================================ ================= =================
Free cash flow 167 190
Net debt at 1 October (247) (151)
Disposal of subsidiaries or similar transactions, net of cash and lease
liabilities disposed 38 61
Acquisition of subsidiaries or similar transactions, net of cash acquired. and
lease liabilities
recognised* (223) -
Acquisitions and disposals related items (14) (16)
Purchases of equity investments - (19)
Proceeds on settlement of non-current asset - 3
Dividends paid to owners of the parent (119) (124)
Proceeds from issuance of treasury shares 3 2
New leases (4) (4)
Share buyback programme (249) (47)
Exchange movement (3) 10
Other 1 (1)
Net debt at 31 March (650) (96)
================================================================================ ================= =================
*Includes GBP13m scheduled cash payment in relation to the prior
year acquisition of GoProposal Ltd, for which the consideration was
recorded as a liability as at 30 September 2021.
Six months ended Six months ended
31 March 31 March
2022 2021
(Unaudited) (Unaudited)
GBPm GBPm
=========================================================== ================= =================
Underlying cash flow from operations 220 255
Net capital expenditure 8 32
Recurring and non-recurring cash items (36) (22)
Other adjustments including foreign exchange translations 1 1
=========================================================== ================= =================
Statutory cash flow from operations 193 266
----------------------------------------------------------- ----------------- -----------------
At
At 31 March 2022
1 October 2021 Cash flow Acquisition of subsidiary Disposal of subsidiary Non-cash movement Exchange movement (Unaudited)
Analysis of change in net debt (inclusive of leases) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================================================= ================ ========== ========================== ======================= ================== ================== ===============
Cash and cash equivalents 553 (53) 11 - - 4 515
Cash amounts included in held for sale 14 - - (14) - - -
======================================================= ================ ========== ========================== ======================= ================== ================== ===============
Cash, cash equivalents and bank overdrafts including
cash as held for sale 567 (53) 11 (14) - 4 515
Liabilities arising from financing activities
Loans due within one year (47) 46 - - (25) 1 (25)
Loans due after more than one year (667) (396) - - 25 (7) (1,045)
Lease liabilities due within one year (18) 9 - - (8) - (17)
Lease liabilities after more than one year (82) - - - 4 - (78)
Lease liabilities included in held for sale - - - 1 - (1) -
(814) (341) - 1 (4) (7) (1,165)
======================================================= ================ ========== ========================== ======================= ================== ================== ===============
Total (247) (394) 11 (13) (4) (3) (650)
======================================================= ================ ========== ========================== ======================= ================== ================== ===============
The Group's debt is sourced from a syndicated multi-currency
Revolving Credit Facility ("RCF"), US private placements ("USPP"),
and sterling denominated bond notes ("bond notes").
The Group's RCF expires in February 2025 with facility levels of
GBP682m (US$719m and GBP135m tranches). At 31 March 2022, GBPnil
(31 March 2021: GBPnil) of the multi-currency revolving debt
facility was drawn. During the period, GBP120m was drawn down from
the GBP tranche of the RCF, and subsequently repaid.
Total USPP loan notes at 31 March 2022 were GBP330m (US$400m and
EUREUR30m) (31 March 2021: GBP362m, US$400m and EUREUR85m).
In February 2022, the Group issued bond notes for a nominal
amount of GBP400m with an expiry date of February 2034. Net cash
proceeds from the issuance were GBP396m.
During the prior period, the Group issued bond notes for a
nominal amount of GBP350m with an expiry date of February 2031. Net
cash proceeds from the issuance were GBP344m.
11. Acquisitions and disposals
Acquisitions made during the period
On 17 January 2022, the Group obtained control of Brightpearl
Limited ("Brightpearl") by acquiring the remaining share capital
for cash consideration of GBP221m, bringing the Group's ownership
interest to 100%. In January 2021, the Group had acquired a 17%
minority interest in Brightpearl for GBP17m.
Brightpearl was acquired to deliver retail operations management
capabilities and provides a cloud native multichannel retail
management system for the retail and ecommerce vertical, helping to
accelerate the Group's strategy for growth.
Total
(Unaudited)
Summary of acquisition GBPm
=================================================== =================================
Cash consideration 221
Fair value of previously held minority interest 47
=================================================== =================================
Acquisition-date fair value of consideration 268
Provisional fair value of identifiable net assets (92)
Goodwill 176
=================================================== =================================
The fair value of the previously held minority interest has been
included in the determination of goodwill, with the gain on
revaluation of GBP30m recognised in other comprehensive income in
line with Sage's accounting policy.
Total
(Unaudited)
Provisional fair value of identifiable net assets acquired GBPm
============================================================ ==============================
Intangible assets 110
Deferred income (4)
Deferred tax liability (20)
Other net assets 6
============================================================ ==============================
Provisional fair value of identifiable net assets acquired 92
Goodwill 176
============================================================ ==============================
Total consideration 268
============================================================ ==============================
In line with IFRS 3, the initial accounting for the acquisition
of Brightpearl is provisional. Adjustments to provisional amounts
(notably fair value adjustments) will be made within the permitted
measurement period where they reflect new information obtained
about facts and circumstances that were in existence at the
acquisition date. It is expected that the acquisition accounting
will be finalised by 30 September 2022.
A summary of acquired intangible assets is set out below:
Valuation Useful economic life
(Unaudited) (years)
Acquired intangible assets GBPm
============================ ============= =====================
Customer relationships 35 9 to 15
Technology 75 8
============================ ============= =====================
Acquired intangible assets 110
============================ ============= =====================
Acquired goodwill of GBP176m comprises the fair value of the
acquired control premium, workforce in place and the expected
synergies. The goodwill has been allocated to the Group's
geographic CGUs where the underlying benefit arising from the
acquisition is expected to be realised. This is predominantly
within the UK & Ireland and North America regions. No goodwill
is expected to be deductible for tax purposes.
The outflow of cash and cash equivalents on the acquisition is
as follows:
Total
(Unaudited)
GBPm
=================================== =============
Cash consideration (221)
Cash and cash equivalent acquired 11
=================================== =============
Net cash outflow (210)
=================================== =============
Costs of GBP5m relating to the acquisition have been included in
selling and administrative expenses classified as other M&A
activity-related items within recurring adjustments between
underlying and statutory results. These costs relate to advisory,
legal and other professional services. See note 3.
Arrangements have been put in place for retention payments to
remunerate employees of Brightpearl for future services. The costs
of these arrangements will be recognised in future periods over the
retention period. The amount recognised to date of GBP3m is
included in selling and administrative expenses in the consolidated
income statement as other M&A activity-related items.
The consolidated income statement includes revenue of GBP4m and
loss after tax of GBP5m reported by Brightpearl for the period
since the acquisition date. The loss after tax includes GBP3m of
acquisition related costs.
The revenue of the Group would have increased by GBP8m and
profit after tax would have decreased by GBP16m if Brightpearl had
been acquired at the start of the financial year and included in
the Group for the six months ended 31 March 2022. The loss after
tax includes GBP10m of acquisition related costs.
Disposals and discontinued operations
Disposals made during the period
On 30 November 2021, the Group completed the sale of its Swiss
business for gross consideration of GBP54m. The business was held
for sale at 31 March 2021 and 30 September 2021. The gain on
disposal is calculated as follows:
Total
(Unaudited)
GBPm
============================================================================================= =============
Cash consideration 54
Gross consideration 54
Transaction costs (3)
============================================================================================= =============
Net consideration 51
Net assets disposed (15)
Cumulative foreign exchange differences reclassified from other comprehensive income to the
income statement 13
============================================================================================= =============
Gain on disposal 49
============================================================================================= =============
Net assets disposed comprise:
Total
(Unaudited)
GBPm
================================ =============
Goodwill 10
Property, plant and equipment 2
Customer acquisition costs 1
Trade and other receivables 1
Cash and cash equivalents 14
================================ =============
Total assets 28
Trade and other payables (3)
Current income tax liabilities (1)
Borrowings (1)
Post-employment benefits (2)
Deferred income (6)
Total liabilities (13)
================================ =============
Net assets 15
================================ =============
The gain on disposal of GBP49m is reported within continuing
operations, as a non-recurring adjustment between underlying and
statutory results.
Prior to the disposal, the Swiss business formed part of the
Group's International - Central and Southern Europe reporting
segment.
The net inflow of cash and cash equivalents on the disposal is
calculated as follows:
Total
(Unaudited)
GBPm
================================================= ===================================
Cash consideration 54
Transaction costs (3)
================================================= ===================================
Net consideration received 51
Cash disposed (14)
Inflow of cash and cash equivalents on disposal 37
================================================= ===================================
During the six-month period ended 31 March 2021, the Group
completed the sale of its Polish business. Net assets divested were
GBP19m, and the transactions resulted in a net gain on disposal of
GBP41m.
Discontinued operations and assets and liabilities held for
sale
The Group had no discontinued operations during the six-month
periods ended 31 March 2022 or 31 March 2021.
Assets held for sale at 31 March 2022 of GBP2m include one
disposal group comprising the Group's payroll outsourcing business
in South Africa, with a net book value of GBP2m. This business was
subsequently sold on 4 April 2022.
Assets and liabilities held for sale at 30 September 2021
included the disposal group identified above, as well as the
disposal group comprising the Group's businesses in Switzerland and
the Group's North Park property in the UK. The Swiss business
disposal group has been sold during the current period as discussed
above. The sale of the Group's North park property completed in
October 2021. No gain was recognised on disposal as the assets were
sold for their residual value.
Assets and liabilities held for sale at 31 March 2021 included
the two disposal groups identified above, as well as the Group's
Australia and Asia Pacific business (excluding global products)
("Asia Pacific") which was subsequently sold in the previous
year.
12. Related party transactions
The Group's related parties are its subsidiary undertakings and
its key management personnel, which comprises the Group's Executive
Leadership Team members and the Non-executive Directors.
Transactions and outstanding balances between the parent and its
subsidiaries within the Group, and between those subsidiaries, have
been eliminated on consolidation and are not disclosed in this
note.
Six months ended Six months ended
31 March 31 March
2022 2021
(Unaudited) (Unaudited)
Key management compensation GBPm GBPm
=========================================== ================= =================
Salaries and short-term employee benefits 5 4
Post-employment benefits - -
Share-based payments 2 1
=========================================== ================= =================
7 5
=========================================== ================= =================
Key management personnel are deemed to be members of the
Executive Leadership Team (previously known as the Executive
Committee), as defined in the Group's Annual Report and Accounts
2021 and the Non-executive Directors. Since the signing of the
Group's Annual Report and Accounts 2021, the following changes to
the Executive Leadership Team have taken place:
-- Walid Abu-Hadba, in his role as Chief Product Officer, has
been appointed to the Executive Leadership Team, with effect from 1
January 2022;
-- Aziz Benmalek, in his role as Interim President - North
America, has been appointed to the Executive Leadership Team with
effect from 1 March 2022;
-- Amy Lawson, in her role as Chief Corporate Affairs Officer,
has been appointed to the Executive Leadership Team, with effect
from 1 March 2022;
-- Derk Bleeker remains on the Executive Leadership Team, in a
new role as President - Europe Middle East Africa (EMEA), with
effect from 1 March 2022;
-- Lee Perkins has left his role as Chief Operating Officer,
with effect from 31 March 2022; and
-- Sue Goble has retired from her role as Chief Customer Success
officer, with effect from 31 March 2022.
There have been no other changes to the composition of the
Executive Leadership Team.
13. Events after the balance sheet date
On 12 May 2022, the Group acquired a 100% controlling interest
in Futrli Limited ("Futrli"). Total cash consideration for the
acquisition is GBP20m, comprising both upfront and deferred
consideration. Because the acquisition occurred subsequent to 31
March 2022, the results of Futrli are not included in our financial
statements for the six months ended 31 March 2022. Due to the
timing of the acquisition, the acquisition accounting has not yet
been completed.
Managing Risk
Through our risk process, Sage is able to effectively manage our
strategic, operational, commercial, compliance, change and emerging
risks. This helps us to deliver our strategic objectives and goals
through risk informed decisions. The Board's role is to maintain
oversight of the key principal and business risks, together with
ensuring that the appropriate committees are managing the risks
effectively. Additionally, the Board reviews the effectiveness of
our risk management approach and challenges our leaders to
articulate their risk management strategies.
Sage continually assesses its principal risks to ensure
alignment to our strategy and consideration of where Sage is
currently on its journey to transforming into a digital
business.
By monitoring risk and performance indicators related to this
strategy, principal risk owners focus on those metrics that signal
current performance, as well as any emerging risks and issues. The
principal risks reflect our five strategic priorities. The
management and mitigation actions described below reflect the
principal risks and build on those actions previously reported in
our FY21 Annual Report.
PRINCIPAL RISK RISK CONTEXT MANAGEMENT AND MITIGATION
Understanding Improving Risk Environment
Customer Needs
--------------------------------------------------------------------------------------------------------------------
If we fail to As Sage continues to
anticipate, transform its business * Brand health surveys to provide an understanding of
understand and brand, understanding customer perception of the Sage brand and its
and deliver of how to attract customers products, used to inform and enhance our market
against whilst retaining its offerings.
the existing customers and
capabilities migrating those who
and are ready to move to * A Market and Competitive Intelligence team to provide
experiences the cloud is essential. insights that Sage uses to win in the market.
our current This requires a deep
and and continuous flow
future of insights supported * Utilisation of customer activity and churn data, to
customers by processes and systems. understand their appetite for products and features.
need in a By understanding the
timely needs of our customers,
manner, they Sage will differentiate * Master repository of customer MI by region and by
will itself from competitors, product which supports the identification of trends
find build compelling value such as time in product, seasonal trends and usage.
alternative propositions and offers,
solution leverage key drivers
providers. to identify opportunities, * Customer Advisory Boards, Customer Design Sessions
Strategic influence product and and NPS detractor call-back channels are used to
alignment process roadmaps, decrease constantly gather information on customer needs.
: churn and drive more
Expand medium effective revenue generation.
beyond
financials.
Build the
small
business
engine.
Learn and
disrupt.
----------------------------------------------------- -------------------------------------------------------------
Execution of Improving Risk Environment
Product
Strategy
--------------------------------------------------------------------------------------------------------------------
If we fail to We need to execute,
deliver the in a sound and methodical * Refined product strategy in line with our FY22
capabilities manner at pace, a prioritised strategic objectives and ambitions, based on our
and product strategy that market understanding and customer expectations.
experiences continues to simplify
outlined in our product portfolio,
our focuses on strategic * New product organisation and governance model to
product cloud--native offerings, improve the way we build and launch products.
strategy and builds innovative
in a timely and differentiated capabilities
manner, and solutions. * A migration framework in key countries to support our
we will not customers in their journey to the cloud.
meet
the needs of
our * Sage Intacct is now available in the UK, Australia
customers or and South Africa as part of our internationalisation
our programme.
commercial
goals.
Strategic * Improved proposition for Accountants, including the
alignment acquisition of GoProposal.
:
Scaling Sage
Intacct. * Improved proposition for the retail and wholesale
Build the sector, through the acquisition of Brightpearl.
small
business
engine. * Enhanced governance and planning framework aligned to
Scale the market objectives.
network.
Learn and
disrupt. * Strengthened product design governance to ensure
Expand medium product development is always driven by our
beyond understanding of our ability to penetrate key
financials. markets.
----------------------------------------------------- -------------------------------------------------------------
Innovation Stable Risk Environment
--------------------------------------------------------------------------------------------------------------------
If we fail to We must be able to rapidly
identify and deploy new innovations * Continued focus on Artificial Intelligence (AI)/
leverage to our customers and Machine Learning development, coupled with a drive to
disruptive partners by introducing improve how to exploit data to provide better
technologies technologies, services, management insight to our customers.
and invest in or new ways of working.
modern Innovation requires
development us to address how we * Leveraging Sage ID and the Sage Business Cloud to
practices and drive change and transformation deliver a unified and highly personalised experience
tools in a across our people, processes for each customer across the entirety of the customer
timely and technology, and experience and Sage Digital Network.
manner, we how we differentiate
will our products and drive
not meet the customer efficiencies. * Enhanced, consistent digital experience for all Sage
needs Business Cloud users through the Sage Design System.
of our
customers
or our * Objectives integrated into the planning of each
commercial segment and region to drive AI Transformation, Sage
goals. Business Cloud adoption and innovation of product
Strategic features based on identified needs of customers.
alignment
:
Learn and * Strategic acquisition and collaboration with partners
disrupt. to complement and enable accelerated innovation.
* Focused colleague engagement to accelerate innovation
across the organisation through a Continuous
Innovation Community.
----------------------------------------------------- -------------------------------------------------------------
Route to Stable Risk Environment
Market
--------------------------------------------------------------------------------------------------------------------
If we fail to We have a blend of channels
deliver a to communicate with * Market data and intelligence is used to support
bespoke our current and potential decision regarding the best routes to market.
blend of route customers and ensure
to market our customers receive
channels the right information * Dedicated colleagues are in place to support partners,
in each on the right products and to help manage the growth of targeted channels.
country, and services at the
based upon right time. Our sales
common channels include selling * Sale processes are targeted and configured by region
components, we directly to customers for key customer segments and verticals.
will not be through digital and
able telephony channels,
to efficiently via our accountant network * Sage.com has been enhanced to provide clearer user
deliver the and through partners, journeys to enable customer conversion.
right valued added resellers
capabilities (VARs) and Independent
and Software Vendors (ISVs). * Onboarding of new partners to support acceleration in
experiences to We use these channels Cloud Native product utilisation.
our current to maximise our marketing
and and customer engagement
future activities. This can * New routes to market are being opened through
customers. shorten our sales cycle partnerships with payment and banking technology
Strategic and ensure that customer providers.
alignment retention is improved.
:
Scale Sage * Centre of Excellence created to support our Indirect
Intacct. Sales and Third--Party approach.
Build the
small
business
network.
Scale the
network.
----------------------------------------------------- -------------------------------------------------------------
Customer Stable Risk Environment
Success
--------------------------------------------------------------------------------------------------------------------
If we fail to We must maintain a sharp
effectively focus on the relationships * Battlecards for key products in all countries,
identify we have with our customers, setting out the strengths and weaknesses of
and deliver constantly focusing competitors and their products.
ongoing on delivering the products,
value to our services and experiences
customers our customers need to * A data-driven Customer Success Framework to enhance
by focusing on be successful. If we the customer experience and ensure that Sage is
their needs do not do this, they better positioned to meet the current and future
over will likely find another needs of the customer.
the lifetime provider who does give
of them these things. Conversely,
their customer if we do these things * Customer Journey mapping and mapping of the five core
journey, we well these customers customer processes to ensure appropriate strategy
will will stay with Sage, alignment and alignment to target operating model.
not be able to increasing their lifetime
achieve value, becoming our
sustainable greatest marketing advocates. * 'Customer for life' roadmaps, detailing how products
growth through Whilst Sage is known fit together, any interdependencies, and migration
renewal. for its quality customer pathways for current and potential customers.
Strategic support, this area requires
alignment constant, proactive
: focus. By helping customers * Continuous Net Promoter Score (NPS) surveying allows
Scale Sage to recognise and fully Sage to identify customer challenges rapidly and
Intacct. realise the value of respond in a timely manner to emerging trends.
Expand medium Sage's products we can
beyond help increase the value
financials. of these relationships * A specialised Procurement function supports the
Build the over time and reduce business with the selection of strategic third-party
small the likelihood of customer suppliers and negotiation of contracts.
business loss. By aligning our
engine. people, processes and
Learn and technology with this
disrupt. focus in mind, all Sage
colleagues can help
support our customers
to be successful and
in turn drive increased
financial performance.
----------------------------------------------------- -------------------------------------------------------------
Third Party Stable Risk Environment
Reliance
--------------------------------------------------------------------------------------------------------------------
If we do not Sage places reliance
embed on third-party providers * Centre of Excellence for our Indirect Sales and
our partners to support the delivery Third-Party Partners.
as of our products to our
an integral customers through the
and provision of cloud native * Dedicated colleagues in place to support partners,
aligned part products. and to help manage the growth of targeted channels.
of Sage also has an extensive
Sage's network of sales partners
go-to-market critical to our success * Standardised implementation plans for Sage products
strategy in a in the market, and suppliers that facilitate efficient partner implementation.
timely manner, upon whom it places
we will fail reliance.
to Any interruption in * Managed growth of the API estate, including enhanced
deliver the these services or relationships product development that enables access by
right could have a profound third-party API developers.
capabilities impact on Sage's reputation
and in the market and could
experiences to result in significant * Enhanced third-party management framework, to support
our customers. financial liabilities closer alignment and oversight of third-party
Strategic and losses. activities.
alignment
:
Scale Sage
Intacct.
Build the
small
business
engine.
Scale the
network.
----------------------------------------------------- -------------------------------------------------------------
People and Stable Risk Environment
Performance
--------------------------------------------------------------------------------------------------------------------
If we fail to As we evolve our priorities,
ensure we have the capacity, knowledge * Extensive focus on hiring channels to ensure we are
engaged and leadership skills attractive in the market through our enhanced
colleagues we need will continue employee value proposition, enhanced presence through
with the to change. Sage will social media such as Glassdoor, Comparably, Twitter,
critical not only need to attract LinkedIn, and Facebook.
skills, the talent and experience
capabilities we will need to help
and capacity navigate this change, * Hiring practices focused on the skills we need in
we we will also need to balance with organisational costs, supported by a
need to provide an environment methodology for upskilling and building capability in
deliver where colleagues can the long term from within the organisation.
on our develop to meet these
strategy, new expectations, an
we will not be environment where everyone * Reward mechanisms designed to incentivise and drive
successful. can perform at their the right behaviour with a focus on ensuring fair and
Strategic very best. equitable pay in all markets.
alignment By empowering colleagues
: and leaders to make
Scale Sage decisions, be innovative, * Focused development of our leaders to ensure they
Intacct. and be bold in delivering create the environment which enables colleagues to
Expand medium on our commitments, thrive and perform at their very best.
beyond Sage will be able to
financials. create an attractive
Build the working environment. * Placing colleagues (and customers) at the heart of
small By addressing drivers our response to the Covid-19 pandemic, including the
business of colleague voluntary availability of 'Headspace', our 'Always Listening'
engine. attrition, and embracing portal and 'Your Voice' Hub.
Scale the the values of successful
network. technology companies,
Learn and Sage can increase colleague
disrupt. engagement and create
an aligned high performing
team.
----------------------------------------------------- -------------------------------------------------------------
Culture Improving Risk Environment
--------------------------------------------------------------------------------------------------------------------
If we do not The development of a
fully shared behavioural competency * Integration of Values and Behaviours into all
empower our that encourages colleagues colleague priorities including talent attraction,
colleagues to always do the right selection, onboarding as well as performance
and enable thing, put customers management.
them at the heart of business
to take and drive innovation
accountability is critical in Sage's * All colleagues are actively encouraged to take up to
in line with success. five paid Sage Foundation days each year, to support
our Devolution of decision charities and provide philanthropic support to the
shared Values making, and the acceptance community.
and of accountability for
Behaviours, these decisions, will
we will be need to go hand in hand * Six commitments to diversity, equity and inclusion
challenged as the organisation (DEI) including zero tolerance to discrimination,
to maintain a develops and sustains equal chance to everyone, inclusive culture, removing
culture that its shared Values and barriers, DEI education, and a DEI strategy to ensure
meets Behaviours, and fosters we deliver on our commitments.
Sage's a culture that provides
business customers a rich digital
ambitions. environment. * A three-year DEI strategy focuses on building diverse
Strategic Sage will also need teams, an equitable culture, and fostering inclusive
alignment to create a culture leadership. This strategy is supported by measurable
: of empowered leaders plans and metrics to track progress.
Scale Sage that supports the development
Intacct. of ideas, and that provides
Expand medium colleagues with a safe * Code of Conduct communicated to all colleagues, and
beyond environment that allows subject to certification every two years.
financials. for honest disclosures
Build the and discussions. Such
small a trusting and empowered * Core eLearning modules rolled out across Sage, with
business environment can help annual refresher training.
engine. sustain innovation,
Scale the enhance customer success
network. and drive the engagement * Whistleblowing and Incident Reporting mechanisms in
Learn and that results in increased place to allow issues to be formally reported and
disrupt. market share. investigated
----------------------------------------------------- -------------------------------------------------------------
Cyber Security Improving Risk Environment
and Data
Privacy
--------------------------------------------------------------------------------------------------------------------
If we fail to Information is the life
responsibly blood of a digital business * Multi-year cyber security programmes in IT and
collect, - protecting the confidentiality, products to ensure Sage is driving continuous
process and integrity and accessibility improvement and cyber risk reduction across
store of this data is table technology, business processes and culture.
data, together stakes for a data---riven
with ensuring business, and failure
an appropriate to do so can have significant * Accountability within both IT and Product for all
standard of financial and regulatory internal and external data being processed by Sage.
cyber consequences in the The Chief Information Security Officer oversees
security General Data Protection information security, with a network of Information
across Regulation (GDPR) era. Security Officers that directly support the business.
the business, In addition, we also
we will not need to use our data
meet efficiently and effectively * The Chief Data Protection Officer oversees
our regulatory to drive improved business information protection.
obligations, performance.
and
will lose the * Formal certification schemes maintained, across the
trust of our business, and include internal and external
stakeholders. validation of compliance.
Strategic
alignment
: * All colleagues are required to undertake awareness
Scale Sage training for information management and data
Intacct. protection, with a focus on the GDPR requirements.
Build the
small
business * An Information Security Risk Management Methodology
engine. is deployed to provide objective risk information on
Scale the our assets and systems.
network.
----------------------------------------------------- -------------------------------------------------------------
Data Strategy Stable Risk Environment
--------------------------------------------------------------------------------------------------------------------
If we fail to Data is central to the
identify, Sage strategy to deliver * Data strategy across customer, product, and
maximise our ambition of a digital enterprise data to support the delivery of customer
and utilise network. The strategy value and solve customer problems, including the use
the is underpinned by our of enhanced Artificial Intelligence / Machine
value of our ability to innovate Learning capabilities.
data and develop solutions
and customer to enhance customer
data propositions, improve * Global data function created to drive focus and
in a timely insight and decision alignment across the organisation.
manner making and create new
in accordance business models and
with our data ecosystems. Successful * Focus on developing Sage ID and Service Fabric to
principles, we ability to use data enable better data accuracy and insight.
will not be will accelerate our
able growth and will be a
to realise the key driver in helping * Plan to increase digital network participation, which
full potential customers transform will contribute to more data to support the delivery
of our assets. how they run and build of real customer value and solve real customer
their businesses. problems.
Strategic
alignment
: * Customer consent service deployed to manage compliant
Scale Sage usage of data assets.
Intacct.
Build the
small * Governance policies, processes and tooling to enhance
business and manage the quality and consistency of our data.
engine.
Scale the
network.
Learn and
disrupt.
----------------------------------------------------- -------------------------------------------------------------
Live Services Stable Risk Environment
Management
--------------------------------------------------------------------------------------------------------------------
If we fail to As Sage transitions
maintain a to a digital company, * Accountability across product owners, underpinned by
reliable, we continue to focus ongoing risk assessments and continuous improvement
scalable and on scaling our current projects.
secure and future platform
live services services environment
environments, in a robust, agile, * Formal onboarding process including ongoing
we will be and speedy manner to management in Portfolio Management processes.
unable ensure the delivery
to deliver the of a consistent and
consistent robust cloud platform * Incident and problem management change processes
cloud and associated digital adhered to for all products and services.
experience network.
expected Sage must provide the
by our right infrastructure * Service level objectives including uptime,
customers. and operations for all responsiveness, and mean time to repair objectives.
Strategic of our customer products,
alignment a hosting platform together
: with the governance * An established forum for continuous assessment and
Scale Sage to ensure optimal service refinement.
Intacct. availability, performance,
Build the security protection
small and restoration (if * Defined Real Time Demand Management processes and
business required). controls and a Disaster Recovery Capability and
engine. operational resilience models.
Scale the
network.
* A governance framework to optimise operational cost
base in line with key metrics.
----------------------------------------------------- -------------------------------------------------------------
Environmental, Stable Risk Environment
Social and
Governance
--------------------------------------------------------------------------------------------------------------------
If we fail to We are committed to
fully and investing in education, * Sage's Sustainability and Society Strategy was
continually technology, and the launched in 2021, focusing on three pillars: Tech for
respond to the environment to give Good, Fuel for Business, Protect the Planet.
range of individuals, small and
environmental, medium businesses (SMBs),
social and and our planet the opportunity * Underpinning the strategy is a robust
governance to thrive. Our goal cross-functional governance framework.
related is to use our technology,
opportunities time and experience
and risks we to back a generation * Tracking tools in place to enable horizon scanning
may of diverse, sustainable and to track the Sustainability and Society
fail to businesses. Strategy's impact.
deliver The potential benefits
positive of investing in our
change ESG strategy include: * The Sage Foundation, established in 2015, remains
to social and * Increased customer engagement. focused on the areas of education, employment, and
environmental entrepreneurship via the contribution of time,
issues and investment, and capability.
damage * Better use of resources, for example lower ene
the confidence rgy and
of our water consumption and associated costs. * Multiple projects designed to respond to specific ESG
stakeholders. risks, for example, a project focused on TCFD
Strategic readiness including risk and opportunities mapping
alignment * Enhanced stakeholder trust. and climate scenario analysis.
:
Build the
small * Improved ability to attract and retain talent, * Further detail on the mitigation of this risk is
business enabling colleagues to perform at their best. described in our separate Sustainability and Society
engine. Report, available at:
Learn and www.sage.com/en-gb/company/sustainability-and-society
disrupt. * Stronger community relations. .
----------------------------------------------------- -------------------------------------------------------------
Statement of Directors' Responsibilities
The condensed consolidated half-yearly financial report for the
six months ended 31 March 2022 includes the following
responsibility statement.
Each of the Directors confirms that, to the best of their
knowledge:
-- the Group consolidated condensed financial statements, which
have been prepared in accordance with IAS34, "Interim Financial
Reporting" as adopted by the UK and as issued by the IASB, give a
true and fair view of the assets, liabilities, financial position
and profit of the Group; and
-- the Directors' report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
The Directors also confirm that the Interim Management Report
herein includes a fair review of information required by 4.2.8R of
the DTR (Disclosure and Transparency Rules).
The Directors of The Sage Group plc are consistent with those
listed in the Group's 2021 Annual Report and Accounts. A list of
current directors is maintained on the Group's website:
www.sage.com .
On behalf of the Board
J Howell
Chief Financial Officer
12 May 2022
Independent review report to The Sage Group plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2022 which comprises Consolidated income
statement, Consolidated statement of comprehensive income,
Consolidated balance sheet, Consolidated statement of changes in
equity, Consolidated statement of cash flows and the related
explanatory notes 1 to 13. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2022 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion is based on procedures that are less extensive than
audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
12 May 2022
Notes: [1] The maintenance and integrity of the Sage Group plc
web site is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial information since
it was initially presented on the web site. [2] Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
[1] Please see Appendix 1 for guidance on the usage and
definitions of the Alternative Performance Measures.
[2] Organic revenue and operating profit for H1 21 have been
restated to aid comparability with H1 22. The definition of organic
measures can be found in Appendix 1 with a full reconciliation of
organic, underlying and statutory measures on page 7. Unless
otherwise specified, all references to revenue, profit and margins
are on an organic basis.
[3] The revenue portfolio breakdown is provided as supplementary
information to illustrate the differences in the evolution and
composition of key parts of our product portfolio. These portfolios
do not represent Operating Segments as defined under IFRS 8.
[4] Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that
product runs in a cloud-based environment enabling customers to
access full, updated functionality at any time, from any location,
over the Internet.
[5] Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that
product is normally deployed on-premise, and for which a
substantial part of the value proposition is linked to
functionality delivered in or through the cloud.
[6] Revenue from customers using products that are part of, or
that management believe have a clear pathway to, Sage Business
Cloud.
[7] 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.
[8] Underlying and organic revenue and profit measures are
defined in Appendix 1.
[9] Recurring and non-recurring items are detailed in the
paragraph below and in note 3 of the financial statements.
[10] Impact of retranslating H1 21 results at H1 22 average
rates.
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END
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