TIDMSGE

RNS Number : 5296G

Sage Group PLC

16 November 2022

The Sage Group plc

Results for the year ended 30 September 2022 (audited)

16 November 2022

Strong execution accelerates growth

   --     Significant strategic progress with accelerating revenue growth and organic margin expansion 
   --     Organic recurring revenue growth of 9%, underpinned by Sage Business Cloud growth of 24% 

-- ARR growth of 12%, with increased momentum in all regions driven by new and existing customers

   --     Organic operating margin increased to 19.9%, as we focus on efficiently scaling the business 
   --     Underlying basic EPS growth of 8% 
   --     Continued strong cash performance, with cash conversion of 107% 
 
 Alternative Performance Measures              FY22    FY21 [2]      Change 
  (APMs) [1] 
 Organic Financial APMs 
 Organic Total Revenue                    GBP1,924m   GBP1,809m         +6% 
 Organic Recurring Revenue                GBP1,824m   GBP1,667m         +9% 
 Organic Operating Profit                   GBP383m     GBP353m         +8% 
     % Organic Operating Profit Margin        19.9%       19.5%   +0.4 ppts 
 Underlying Financial APMs 
 EBITDA                                     GBP468m     GBP454m         +3% 
     % EBITDA Margin                          24.0%       24.2%   -0.2 ppts 
 Underlying Operating Profit                GBP377m     GBP368m         +2% 
     % Underlying Operating Profit 
      Margin                                  19.4%       19.6%   -0.2 ppts 
 Underlying Basic EPS                        25.74p      23.79p         +8% 
 Underlying Cash Conversion                    107%        126%    -19 ppts 
 KPIs 
 Annualised Recurring Revenue 
  (ARR)                                   GBP2,027m   GBP1,816m        +12% 
 Renewal Rate by Value                         101%         99%     +2 ppts 
 % Subscription Penetration                     75%         70%     +5 ppts 
 % Sage Business Cloud Penetration              75%         67%     +8 ppts 
                                         ----------  ----------  ---------- 
 Statutory Measures                            FY22        FY21      Change 
                                         ----------  ----------  ---------- 
 Revenue                                  GBP1,947m   GBP1,846m         +5% 
 Operating Profit                           GBP367m     GBP373m         -2% 
     % Operating Profit Margin                18.9%       20.2%   -1.3 ppts 
 Basic EPS (p)                               25.47p      26.33p         -3% 
 Dividend Per Share (p)                      18.40p      17.68p         +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:

"Sage has had a strong year, making good progress as we deliver on our strategic priorities. We significantly accelerated revenue across all key products and regions, expanded our organic operating margin and delivered strong cash flow. ARR growth of 12%, underpinned by increasing levels of new customer acquisition, is particularly encouraging and positions us well for the year ahead.

"Sage's purpose of knocking down barriers so everyone can thrive is more important now than ever. Sage Business Cloud solutions enable small and mid-sized businesses to streamline their processes and unlock productivity, helping them to achieve more with less. While we are mindful of macroeconomic uncertainties, I am confident that our resilient business model together with our strategy for delivering efficient growth, centred on our expanding digital network, will enable us to create further long-term value for all our stakeholders."

Financial highlights

-- Organic recurring revenue increased by 9% to GBP1,824m, underpinned by Sage Business Cloud growth of 24% to GBP1,261m. Organic total revenue grew by 6% to GBP1,924m.

-- Organic operating profit grew by 8% to GBP383m, with margin increasing to 19.9% (FY21: 19.5%) driven by operating efficiencies as we scale the Group.

-- EBITDA increased by 3% to GBP468m, with margin decreasing slightly to 24.0% (FY21: 24.2%) mainly due to the impact of disposals.

-- Statutory operating profit decreased by 2% to GBP367m due to the change in recurring and non-recurring items(1) , including higher net gains in the prior year from disposals.

-- Underlying basic EPS up by 8% reflecting higher underlying profit and the recent GBP600m share buyback.

-- Continued strong cash performance, with cash conversion of 107% reflecting ongoing growth in subscription revenue.

-- Robust balance sheet, with c. GBP1.3bn of cash and available liquidity, and net debt to EBITDA of 1.6x.

-- Final dividend up 4% to 12.1p, in line with our dividend policy, taking the full year dividend to 18.4p.

Strategic and operational highlights

-- Annualised recurring revenue (ARR) up 12% to GBP2,027m (FY21: GBP1,816m), reflecting a strong performance across all regions, with growth accelerating from both new and existing customers.

   --     GBP180m of ARR added through new customer acquisition , up from GBP140m in FY21 . 

-- Cloud native ARR up 38% to GBP530m (FY21: GBP384m) driven by new customers and supported by migrations, with a particularly strong performance from Sage Intacct.

-- Renewal rate by value of 101 %, ahead of last year (FY21: 99%), reflecting good retention rates and strong sales to existing customers.

-- Sage Business Cloud penetration of 75% (FY21: 67%), enabling more customers to connect to Sage's cloud services and ecosystem via the Sage digital network.

-- Strong progress in strategic execution including several new product launches across the Group; continued focus on innovation driving new AI-based services including Accounts Payable automation.

-- Refreshed brand landing well with stakeholders and helping to build stronger customer connections.

-- Accelerated growth strategy with key acquisitions including Brightpearl , Futrli and Lockstep; disposal programme now complete following the sale of Sage Switzerland and South African payroll outsourcing.

Outlook

Sage enters FY23 with strong momentum, having made good strategic progress to accelerate growth. Looking ahead, we expect organic recurring revenue growth to be ahead of last year driven by strength in Sage Business Cloud, and other revenue (SSRS) to decline in line with our strategy. Operating margins are expected to trend upwards in FY23 and beyond, as we focus on efficiently 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 (SMBs) 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.

 
Enquiries:    Sage:    +44 (0) 7721 599502   FGS Global:   +44 (0) 20 7251 3801 
  James Sandford, Investor                   Conor McClafferty 
   Relations 
  David Ginivan, Corporate                   Sophia Johnston 
   PR 
 

A presentation for investors and analysts will be held at 8.30am UK time. The live webcast can be accessed via sage.com/investors or directly via the following link: https://edge.media-server.com/mmc/p/umpbfg5k . To join the conference call, please register via https://register.vevent.com/register/BI0b234f8d6411450caeaea347d4931188 .

Business Review

Sage made significant progress in FY22, achieving a strong financial performance and increasing momentum throughout the Group. We significantly accelerated our revenue growth while expanding our organic operating margin through efficiencies. Our progress reflects strong execution against our strategic priorities, supported by continuing investment in sales, marketing and innovation.

Sage serves a diverse customer base of small and mid-sized businesses around the world. SMBs are rapidly adopting new cloud solutions in order to automate workflows, gain better business insights and comply with regulatory obligations. Our trusted portfolio of finance, HR and payroll solutions positions us well to support them. Sage's 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.

Overview of results

The Group achieved organic recurring revenue growth of 9% to GBP1,824m, underpinned by a 24% increase in Sage Business Cloud revenue to GBP1,261m, and organic total revenue growth of 6% to GBP1,924m. Regionally, North America increased recurring revenue by 14% to GBP779m, driven by Sage Intacct and cloud connected solutions, while Northern Europe grew recurring revenue by 7% to GBP419m, largely through a strong cloud native performance. In International, recurring revenue increased by 6% to GBP626m, reflecting growth across the Sage Business Cloud portfolio.

Our focus on growing cloud revenues has increased Sage Business Cloud penetration to 75%, up 8 percentage points compared to FY21. We have also continued to grow software subscription revenues, leading to a rise in subscription penetration of 5 percentage points to 75%. As a result of the evolving business mix, 95% of the Group's organic total revenue is now recurring, up from 92% in FY21.

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] 
                                        FY22       FY21  Growth       FY22       FY21  Growth 
                                   ---------  ---------  ------  ---------  ---------  ------ 
 Cloud native [4]                    GBP419m    GBP297m    +41%    GBP430m    GBP311m    +38% 
 Cloud connected [5]                 GBP842m    GBP722m    +17%   GBP 852m    GBP734m    +16% 
                                   ---------  ---------  ------  ---------  ---------  ------ 
 Sage Business Cloud               GBP1,261m  GBP1,019m    +24%  GBP1,282m  GBP1,045m    +23% 
 Products with potential to 
  migrate                            GBP422m    GBP495m    -15%    GBP477m    GBP580m    -18% 
                                   ---------  ---------  ------  ---------  ---------  ------ 
 Future Sage Business Cloud 
  Opportunity [6]                  GBP1,683m  GBP1,514m    +11%  GBP1,759m  GBP1,625m     +8% 
 Non-Sage Business Cloud [7]         GBP141m    GBP153m     -8%    GBP165m   GBP 184m    -10% 
                                   ---------  ---------  ------  ---------  ---------  ------ 
 Organic Total Revenue             GBP1,824m  GBP1,667m     +9%  GBP1,924m  GBP1,809m     +6% 
                                   ---------  ---------  ------  ---------  ---------  ------ 
 Sage Business Cloud Penetration         75%        67% 
                                   ---------  --------- 
 

Recurring revenue from cloud native solutions grew by 41% to GBP419m, 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 17% to GBP842m, reflecting continuing growth in the Sage 50 and Sage 200 franchises driven by existing and new customers, together with faster migration of products to Sage Business Cloud through the integration of cloud functionality. 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 accelerated across all regions, increasing by 12% to GBP2,027m (FY21: GBP1,816m) and reflecting strong growth balanced between new and existing customers. This was underpinned by cloud native ARR growth of 38% to GBP530m (FY21: GBP384m), reflecting a strong performance particularly from Sage Intacct, Sage People, Sage Accounting and Sage HR. In absolute terms cloud native ARR grew by GBP146m, up from GBP107m [8] in the prior year.

Renewal rate by value of 101% (FY21: 99%) is ahead of last year reflecting good retention rates, a strong performance in customer add-ons and targeted price rises.

In total, Sage added GBP180m of ARR through new customer acquisition during the year (FY21: GBP140m(8) ).

Progress towards our strategic priorities

Sage focuses on five strategic priorities that help us create long-term value for our stakeholders, as part of our strategic framework for growth. Our progress towards these priorities is outlined below.

-- Scale Sage Intacct : We have accelerated growth in Sage Intacct by investing in sales and distribution while further enriching the solution with new functionality and services. Sage Intacct's vertical reach was enhanced through the acquisition of Brightpearl in retail, new features in construction and real estate, and the release of Sage Intacct Manufacturing in France, the UK, and now also the US. As a result, Sage Intacct's ARR grew by a third in the US and by 150% outside the US in FY22, driven by a record number of new customer wins, a higher renewal rate and expanded average contract value.

-- Expand medium beyond financials : We are developing solutions for mid-sized businesses that deliver benefits beyond core accounting. During the year we launched an AI-driven service to automate manual accounts payable processes for Sage Intacct customers in the US, significantly reducing invoice processing costs and data entry error. We also launched Sage People Payroll, bringing integrated payroll functionality to Sage People in the US and the UK. Sage Intacct Planning has continued to grow rapidly, surpassing 1,000 customers in the US and Canada.

-- Build the small business engine : Sage continues to achieve strong growth from UK small business solutions (including Sage Accounting and Sage HR), through both direct sales and accountants. Sage for Accountants, complemented by the recent acquisitions of GoProposal (client management) and Futrli (cashflow forecasting), is performing well, attracting over 2,000 accountancy practices since launch last November. In August Sage was recognised on HMRC's official list of software compatible with Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA). Further progress was made in internationalising the UK small business approach, including in 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 Sage Business Cloud availability, particularly in International, with recent product launches including Sage Active in France, Sage Accounting in Spain, and Sage HR in Germany. We will soon launch Sage Intacct in France, bringing the solution to non-English speaking markets for the first time. During the year we created a new Digital Network business unit, led by Aaron Harris, Chief Technology Officer, to implement our network strategy. This strategy has been accelerated by the recent acquisition of Lockstep, bringing accounts receivable automation capabilities and other innovative features to the Sage digital network.

-- Learn and disrupt : We continue to invest in innovation, driving disruptive new technologies and accelerating AI and machine learning. Our outlier detection engine has so far attracted over 1,000 customers, helping to increase the accuracy of general ledger transactions. During the year we entered into an expanded partnership with Microsoft, integrating Teams with Sage Intacct and Sage People to simplify approval and collaboration workflows, and making Sage Intacct and Sage Active available on Microsoft Azure as part of our multi-cloud access strategy. We have also entered into partnerships with Experian and Tide to deliver innovative services to small businesses and consumers.

Refreshed brand

During the year we refreshed our brand proposition to emphasise the simplicity and confidence we deliver to customers, with our easy-to-use solutions backed by expert human advice helping them to make better and faster decisions. To support the roll-out and drive brand awareness we have partnered with major sporting competitions including The Hundred cricket, Major League Baseball and the Six Nations Rugby to deliver data-led insights to viewers and fans. Recognising the success of the brand refresh, Sage was shortlisted for the Marketing Week Awards Brand of the Year 2022.

Colleagues

Sage is committed to creating an innovative, equitable and inclusive culture, knocking down barriers so colleagues feel valued and empowered to thrive. We continue to invest in training, running development programmes for colleagues and providing senior sponsorship and mentoring schemes.

Putting colleague wellbeing first helps us attract talent and drives sustainable high performance. Our comprehensive approach to wellbeing covers four key pillars including healthy mind, healthy body, healthy finances and healthy communities. Resources available include a global wellbeing hub, healthy mind coaches, free access to the Headspace app, colleague support networks and assistance programmes. Our Flexible Human Work initiative, co-designed with colleagues, gives teams a clear framework for flexible working and encourages an experimental, collaborative mindset.

Participation in Sage's diversity, equity, and inclusion (DEI) initiatives increased significantly during the year, as we seek to embed DEI through our everyday business processes. During the year Sage has continued to be recognised as a great place to work based on colleague feedback, receiving awards from organisations including Comparably in the US, Glassdoor in the UK and Kununu in Germany. Our Glassdoor score of 4.2 has improved over the year and is in line with target.

Society

Sage supports SMBs which form the foundation of economic prosperity around the world, and through our Sustainability and Society strategy, Sage aims to support sustainable and inclusive economic growth so everyone can thrive. The Sage Foundation plays an important role in this strategy, mobilising Sage colleagues, their families and partners to donate 150,000 volunteer hours and raise almost GBP1 million in FY22 to support charitable and environmental causes.

To help tackle the climate crisis, Sage is targeting net zero carbon emissions by 2040, with a 50% reduction by 2030. During the year, the Group submitted its science-based target for validation, made progress towards its Scope 1 and 2 emissions reduction, and engaged with suppliers to reduce Scope 3 emissions. We also recently acquired Spherics, an innovative carbon accounting solution, enabling us to support our customers in their net zero journeys.

To help tackle economic inequality, during FY22 we have supported over 13,000 entrepreneurs in underserved communities with loan funds and grants through our partnerships with Kiva and The Boss Network. In addition, to address digital inequality, we have helped develop STEM skills in almost 5,000 young people in deprived communities across northeast England, through our partnership with the Institute of Engineering and Technology.

In May, MSCI upgraded Sage's ESG rating to 'AAA', indicating we are a leader in the software and services industry in managing the most significant ESG risks and opportunities.

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 [9] .

Future reporting changes

In FY23 Sage intends to evolve its reporting by giving greater emphasis to underlying measures. Accordingly, financial metrics and analysis will be provided primarily on an underlying basis, alongside organic growth rates, to enable a clearer understanding of both the organic and inorganic performance of the Group.

Sage also intends to change the presentation of its regional reporting, to reflect recent changes to the way in which the Group manages its operations. From FY23, we will report performance across the following regions: North America, comprising the US, Sage Intacct and Canada; UKIA [10] , comprising Northern Europe and Africa & APAC; and Europe, comprising France, Central Europe and Iberia.

These changes will not impact Sage's primary financial statements or notes to the accounts.

Organic Financial Results

In FY22 Sage achieved organic recurring revenue growth of 9% to GBP1,824m and organic total revenue growth of 6% to GBP1,924m. The increase in recurring revenue was underpinned by a 24% rise in Sage Business Cloud revenue to GBP1,261m, reflecting strength from new customer acquisition, increased sales to existing customers and continued progress in migrating customers and products to cloud solutions.

Other revenue (SSRS) declined by 30% to GBP100m, in line with our strategy to transition away from licence sales and professional services implementations.

The Group's organic operating profit increased by 8% to GBP383m, representing an organic operating margin of 19.9%. Organic operating margin has trended upwards from 19.5% in FY21, driven by operating efficiencies, as we focus on scaling the Group.

Statutory and Underlying Financial Results

 
 Financial Results                Statutory                        Underlying 
                             FY22        FY21   Change        FY22        FY21   Change 
                       ----------  ----------  -------  ----------  ----------  ------- 
 North America            GBP818m     GBP687m     +19%     GBP819m     GBP734m     +12% 
 Northern Europe          GBP433m     GBP402m      +8%     GBP434m     GBP401m      +8% 
 International            GBP696m     GBP757m      -8%     GBP696m     GBP743m      -6% 
                       ----------  ----------  -------  ----------  ----------  ------- 
 Group Total Revenue    GBP1,947m   GBP1,846m      +5%   GBP1,949m   GBP1,878m      +4% 
 Operating Profit         GBP367m     GBP373m      -2%     GBP377m     GBP368m      +2% 
 % Operating Profit                               -1.3                             -0.2 
  Margin                    18.9%       20.2%     ppts       19.4%       19.6%     ppts 
 Profit Before Tax        GBP337m     GBP347m      -3%     GBP346m     GBP343m      +1% 
 Net Profit               GBP260m     GBP285m      -9%     GBP263m     GBP257m      +2% 
 Basic EPS                 25.47p      26.33p      -3%      25.74p      23.79p      +8% 
                       ----------  ----------  -------  ----------  ----------  ------- 
 

The Group achieved statutory total revenue of GBP1,947m, a 5% increase on the prior year, reflecting good levels of organic growth in all regions partly offset by disposals, together with a GBP47m foreign exchange tailwind principally relating to the US Dollar in North America, and a GBP15m foreign exchange headwind principally relating to the Euro in the International region. Underlying total revenue, which normalises the comparative period for foreign exchange movements, increased by 4%.

Statutory operating profit decreased by 2% to GBP367m, driven mainly by the change in recurring and non-recurring items (see page 7). Underlying operating profit, which excludes recurring and non-recurring items, increased by 2% to GBP377m.

Statutory basic EPS decreased by 3% to 25.47p, reflecting a higher statutory income tax expense and the post-tax impact of recurring items, offset by a reduction in the number of shares outstanding following the Group's share buyback programme. Underlying basic EPS increased by 8% to 25.74p.

Underlying & Organic Reconciliations to Statutory

 
                                                             FY22                              FY21 
                                                  Revenue   Operating  Operating    Revenue  Operating  Operating 
                                                               Profit     Margin                Profit     Margin 
                                              -----------  ----------  ---------  ---------  ---------  --------- 
 Statutory                                      GBP1,947m     GBP367m      18.9%  GBP1,846m    GBP373m      20.2% 
 Recurring items                                    GBP2m      GBP83m          -          -     GBP40m          - 
  [11] 
 Non - recurring 
  items: 
                                                        -    (GBP53m)          -          -  (GBP126m)          - 
   *    Gain on disposal of subsidiaries 
                                                        -    (GBP20m)          -          -    GBP62 m          - 
   *    (Reversal of) / restructuring costs 
                                                        -           -          -          -      GBP9m          - 
   *    Office relocation 
 Impact of FX [12]                                      -           -          -     GBP32m     GBP10m          - 
                                              -----------  ----------  ---------  ---------  ---------  --------- 
 Underlying                                     GBP1,949m     GBP377m      19.4%  GBP1,878m    GBP368m      19.6% 
                                              -----------  ----------  ---------  ---------  ---------  --------- 
 Disposals                                        (GBP7m)     (GBP1m)          -   (GBP69m)   (GBP15m)          - 
 Acquisitions                                    (GBP18m)       GBP7m          -          -          -          - 
                                              -----------  ----------  ---------  ---------  ---------  --------- 
 Organic                                        GBP1,924m     GBP383m      19.9%  GBP1,809m    GBP353m      19.5% 
                                              -----------  ----------  ---------  ---------  ---------  --------- 
 

Revenue

Statutory revenue of GBP1,947m in FY22 was slightly below underlying revenue of GBP1,949m, due to a fair value adjustment to deferred income relating to the acquisition of Brightpearl. Underlying revenue in FY21 of GBP1,878m reflects statutory revenue of GBP1,846m retranslated at current year exchange rates, resulting in an FX tailwind of GBP32m.

Organic revenue of GBP1,924m (FY21: GBP1,809m) reflects underlying revenue adjusted for GBP7m of revenue from businesses sold during the period, including Sage Switzerland and the South African payroll outsourcing business, and GBP18m of revenue from businesses acquired during the period, primarily Brightpearl. In FY21, revenue from disposals included GBP69m of revenue from Sage's businesses in Poland, Australia and Asia, Switzerland, and the South African payroll outsourcing business.

Operating profit

The Group achieved a statutory operating profit in FY22 of GBP367m (FY21: GBP373m). Underlying operating profit of GBP377m (FY21: GBP368m) reflects statutory operating profit adjusted for recurring and non-recurring items. Recurring items of GBP83m (FY21: GBP40m) comprise GBP42m of amortisation of acquisition-related intangibles (FY21: GBP31m) and GBP39m of M&A related charges (FY21: GBP9m), in addition to a GBP2m deferred income adjustment relating to the acquisition of Brightpearl.

Non-recurring items include a GBP53m gain on disposal, principally from the sale of Sage's business in Switzerland (FY21: GBP126m gain from the disposal of Sage's businesses in Poland, Australia and Asia), together with a GBP20m reversal of employee restructuring costs, primarily relating to the business transformation announced in September 2021, as some colleagues were redeployed or left the business.

Organic operating profit of GBP383m (FY21: GBP353m) reflects underlying operating profit adjusted for GBP1m of operating profit from Sage's business in Switzerland and the South African payroll outsourcing business, and GBP7m of operating losses from businesses acquired during the year. In FY21, operating profit from disposals included GBP15m from Sage's businesses in Poland, Australia and Asia, Switzerland, and the South African payroll outsourcing business.

Organic Revenue Overview

 
 Organic Revenue Mix                  FY22                   FY21           Change 
                                   GBPm  % of Total       GBPm  % of Total 
                             ----------  ----------  ---------  ----------  ------ 
 Software Subscription 
  Revenue                     GBP1,445m         75%  GBP1,263m         70%    +14% 
 Other Recurring Revenue        GBP379m         20%    GBP404m         22%     -6% 
                             ----------  ----------  ---------  ----------  ------ 
 Organic Recurring Revenue    GBP1,824m         95%  GBP1,667m         92%     +9% 
 Other Revenue (SSRS)           GBP100m          5%    GBP142m          8%    -30% 
                             ----------  ----------  ---------  ----------  ------ 
 Organic Total Revenue        GBP1,924m        100%  GBP1,809m        100%     +6% 
                             ----------  ----------  ---------  ----------  ------ 
 

Organic total revenue increased by 6% in FY22 to GBP1,924m. Organic recurring revenue grew by 9% to GBP1,824m, supported by a 14% increase in software subscription revenue to GBP1,445m, 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 6% to GBP379m reflects customers migrating from maintenance and support to subscription contracts. Other revenue (SSRS) declined by 30% to GBP100m, in line with our strategy to transition away from licence sales and professional services implementations.

North America

 
 Organic Revenue by Category             FY22      FY21    Change 
 Organic Total Revenue                GBP810m   GBP734m      +10% 
 Organic Recurring Revenue            GBP779m   GBP685m      +14% 
 
 % Sage Business Cloud Penetration        79%       73%   +6 ppts 
 % Subscription Penetration               73%       66%   +7 ppts 
 Organic Recurring Revenue               FY22      FY21    Change 
 US                                   GBP666m   GBP581m      +15% 
  Of which Sage Intacct               GBP231m   GBP176m      +31% 
 Canada                               GBP113m   GBP104m       +9% 
                                     --------  --------  -------- 
 

North America achieved organic recurring revenue growth of 14% to GBP779m and organic total revenue growth of 10% to GBP810m. Sage Business Cloud penetration is now 79%, up from 73% in the prior year, driven by growth in cloud native and cloud connected solutions, while subscription penetration is 73%, up from 66% in the prior year.

Cloud native growth was driven primarily through Sage Intacct, which delivered strong recurring revenue growth of 31% to GBP231m reflecting continued good levels of new customer acquisition and supported by strong sales to existing customers through increased cross-sell and up-sell.

Recurring revenue in the US increased by 15% to GBP666m, driven by Sage Intacct alongside cloud connected growth across the Sage 200 and Sage 50 franchises. Total revenue for the US increased by 11% to GBP695m.

In Canada, recurring revenue increased by 9% to GBP113m and total revenue by 6% to GBP115m, 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             FY22      FY21    Change 
 Organic Total Revenue                GBP425m   GBP401m       +6% 
 Organic Recurring Revenue            GBP419m   GBP390m       +7% 
 
 % Sage Business Cloud Penetration        90%       86%   +4 ppts 
 % Subscription Penetration               93%       90%   +3 ppts 
                                     --------  --------  -------- 
 

Northern Europe (UK & Ireland) achieved organic recurring revenue growth of 7% to GBP419m and organic total revenue growth of 6% to GBP425m. Sage Business Cloud penetration is now 90%, up from 86% in the prior year, while subscription penetration is 93%, up from 90% in the prior year.

Recurring revenue growth primarily 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 strong new customer acquisition in Sage Accounting, Sage Intacct and Sage People, together with migrations, principally 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             FY22      FY21     Change 
 Organic Total Revenue                GBP689m   GBP674m        +2% 
 Organic Recurring Revenue            GBP626m   GBP592m        +6% 
 
 % Sage Business Cloud Penetration        59%       47%   +12 ppts 
 % Subscription Penetration               67%       62%    +5 ppts 
                                     --------  --------  --------- 
 Organic Recurring Revenue               FY22      FY21     Change 
                                     --------  --------  --------- 
 Central and Southern Europe          GBP486m   GBP466m        +4% 
    France                            GBP258m   GBP249m        +4% 
    Central Europe                    GBP108m    GBP99m        +9% 
    Iberia                            GBP120m   GBP118m        +3% 
 Africa & APAC                        GBP140m   GBP126m       +10% 
                                     --------  --------  --------- 
 

The International region achieved organic recurring revenue growth of 6% to GBP626m and organic total revenue growth of 2% to GBP689m. Sage Business Cloud penetration increased significantly to 59%, up from 47% in the prior year, while subscription penetration is 67%, up from 62% in the prior year.

In France, recurring revenue increased by 4% to GBP258m, with a strong performance in cloud connected, supported by growth in cloud native solutions. Total revenue in France was flat at GBP273m.

Central Europe achieved recurring revenue growth of 9% to GBP108m while total revenue increased by 3% to GBP132m. Growth in the region is driven by a combination of cloud connected and local products.

In Iberia, recurring revenue increased by 3% to GBP120m, with continued success in migrating customers to subscription and cloud connected solutions. Total revenue was flat at GBP134m.

Africa & APAC delivered strong recurring revenue growth of 10% to GBP140m, driven by growth in both cloud native solutions and local products. Total revenue in Africa & APAC increased by 8% to GBP150m compared with the prior year.

Operating Profit

The Group increased organic operating profit by 8% to GBP383m (FY21: GBP353m ). Organic operating margin was 19.9% (FY21: 19.5%), trending upwards since last year driven by operating efficiencies. During the year, the Group further 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 (FY21: GBP8m credit).

Underlying operating profit was GBP377m (FY21: GBP368m), representing a margin of 19.4% (FY21: 19.6%). 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 GBP468m (FY21: GBP454m) representing a margin of 24.0%. The increase in EBITDA principally reflects the improvement in organic operating profit, partly offset by the impact of acquisitions and disposals on underlying operating profit.

 
                                    FY22       FY21   FY22 Margin 
 Organic Operating Profit        GBP383m    GBP353m         19.9% 
 Impact of disposals               GBP1m     GBP15m 
 Impact of acquisitions          (GBP7m)          - 
 Underlying Operating Profit     GBP377m    GBP368m         19.4% 
 Depreciation & amortisation      GBP55m     GBP50m 
 Share based payments             GBP36m     GBP36m 
                               ---------  ---------  ------------ 
 EBITDA                          GBP468m    GBP454m         24.0% 
                               ---------  ---------  ------------ 
 

Net Finance Cost

The statutory net finance cost for the period increased to GBP30m (FY21: GBP26m), primarily reflecting the impact of interest on new debt issuance and is broadly in line with the underlying net finance cost of GBP31m (FY21: GBP25m).

Taxation

The underlying tax expense for FY22 was GBP83m (FY21: GBP86m), resulting in an underlying tax rate of 24% (FY21: 25%). The statutory income tax expense for FY22 was GBP77m (FY21: GBP62m), resulting in a statutory tax rate of 23% (FY21: 18%).

The difference between the underlying and statutory rate in FY22 primarily reflects a non-taxable accounting net gain on disposals. The FY22 underlying tax rate has decreased due to a reduction in the French corporation tax rate together with certain non-recurring adjustments.

Earnings per Share

 
                                           FY22      FY21   Change 
 Statutory Basic EPS                     25.47p    26.33p      -3% 
 Recurring items                          6.72p     3.01p 
 Non-recurring items                    (6.45)p   (6.25)p 
 Impact of foreign exchange                   -     0.70p 
                              ----------------- 
 Underlying Basic EPS                    25.74p    23.79p      +8% 
                              ----------------- 
 

Underlying basic EPS increased by 8% to 25.74p, reflecting higher underlying operating profit and a reduction in the number of shares outstanding following the Group's share buyback programme.

Statutory basic earnings per share decreased by 3%, with the increase in underlying basic earnings per share offset by the change in post-tax impact of recurring items.

Cash Flow

Sage remains highly cash generative with underlying cash flow from operations of GBP402 m (FY21: GBP451m), representing underlying cash conversion of 107% (FY21: 126%). Importantly, the Group has achieved cash conversion in excess of 100% for four consecutive years. This strong cash performance reflects further growth in subscription revenue and continued strength in receivables collection, offset by a reduction in payables driven by the timing of certain payments to third parties during the year. Free cash flow of GBP295m (FY21: GBP339m) largely reflects good underlying cash conversion.

 
 Cash Flow APMs                                    FY22   FY21 (as reported) 
 Underlying operating profit                    GBP377m              GBP358m 
 Depreciation, amortisation and non-cash         GBP51m               GBP47m 
  items in profit 
 Share based payments                            GBP36m               GBP36m 
 Net changes in working capital                (GBP40m)               GBP65m 
 Net capital expenditure                       (GBP22m)             (GBP55m) 
                                              ---------  ------------------- 
 Underlying Cash Flow from Operations          GBP402 m              GBP451m 
                                              ---------  ------------------- 
     Underlying cash conversion %                  107%                 126% 
 
 Non-recurring cash items                      (GBP23m)              (GBP9m) 
 Net interest paid                             (GBP21m)             (GBP19m) 
 Income tax paid                               (GBP62m)             (GBP81m) 
 Profit and loss foreign exchange movements     (GBP1m)              (GBP3m) 
                                              ---------  ------------------- 
 Free Cash Flow                                GBP295 m              GBP339m 
                                              ---------  ------------------- 
 
 
 Statutory Reconciliation of Cash Flow             FY22   FY21 (as reported) 
  from Operations 
 Statutory Cash Flow from Operations           GBP368 m              GBP476m 
 Recurring and non-recurring items               GBP55m               GBP30m 
 Net capital expenditure                       (GBP22m)             (GBP55m) 
 Other adjustment including foreign exchange      GBP1m                    - 
  translations 
 Underlying Cash Flow from Operations          GBP402 m              GBP451m 
 

Net debt and liquidity

Group net debt was GBP733 m at 30 September 2022 (30 September 2021: GBP247m), comprising cash and cash equivalents of GBP489m (30 September 2021: GBP567m) and total debt of GBP1,222m (30 September 2021: GBP814m). The Group had GBP1,270m of cash and available liquidity at 30 September 2022 (30 September 2021: GBP1,236m).

The increase in net debt in the period is summarised in the table below.

 
                                               FY22   FY21 (as reported) 
 Net debt at 1 October                    (GBP247m)            (GBP151m) 
 Free cash flow                            GBP295 m              GBP339m 
 New leases                                 (GBP6m)              (GBP8m) 
 Disposal of businesses                      GBP43m              GBP142m 
 Acquisition of businesses                (GBP315m)                    - 
 M&A and equity investments                (GBP22m)             (GBP39m) 
 Dividends paid                           (GBP183m)            (GBP189m) 
 Share buyback                            (GBP249m)            (GBP353m) 
 Purchase of shares by Employee Benefit    (GBP32m)                    - 
  Trust 
 FX movement and other                     (GBP17m)               GBP12m 
 Net debt at 30 September                   (GBP733            (GBP247m) 
                                                m ) 
 

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 GBP781m (split between US$719m and GBP135m tranches). At 30 September 2022, the RCF was undrawn (FY21: undrawn).

The Group's USPP loan notes at 30 September 2022 totalled GBP386m (US$400m and EUR 30m) (FY21: GBP370m - 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 (GBP26m) and US$150m (GBP135m) of the Group's USPP loan notes in January 2023 and May 2023, respectively.

Capital allocation

Sage maintains a disciplined approach to capital allocation, with a focus on accelerating strategic execution through organic and inorganic investment, including through acquisitions and partnerships to enhance Sage Business Cloud and further develop Sage's digital network. During the year Sage made acquisitions of complementary technologies including Brightpearl, Futrli and Lockstep, and completed its disposal programme with the sale of the Swiss business and the South African payroll outsourcing business.

Sage has adopted a progressive dividend policy, intending to grow the dividend over time while considering the future capital requirements of the Group. Reflecting the Group's strong business performance and cash generation during the year, we have increased the full year dividend by 4% to 18.40p.

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 year declined by 6% compared to last year.

 
                                    FY22   FY21 (as reported) 
 Net debt                       GBP733 m              GBP247m 
 EBITDA (Last Twelve Months)     GBP468m              GBP443m 
                               ---------  ------------------- 
 Net debt/EBITDA Ratio              1.6x                 0.6x 
                               ---------  ------------------- 
 

The Group's EBITDA over the last 12 months was GBP468m, resulting in a net debt to EBITDA leverage ratio of 1.6x, up from 0.6x 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 FY22 was 18% (FY21 as reported: 19%).

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 30 September 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 page 22.

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     FY22    FY21   Change 
  GBP) 
 Euro (EUR)                           1.18    1.15       3% 
 US Dollar ($)                        1.28    1.37      -7% 
 Canadian Dollar (C$)                 1.63    1.73      -6% 
 South African Rand (ZAR)            20.21   20.28        - 
 Australian Dollar (A$)               1.80    1.82      -1% 
                                    ------  ------  ------- 
 

Appendix 1 - Alternative Performance Measures

Alternative Performance Measures are used by the Group to understand and manage performance. These are not defined under International Financial Reporting Standards (IFRS) or UK-adopted International Accounting Standards (UK-IFRS) and are not intended to be a substitute for any IFRS or UK-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 to                            Underlying measures 
  (revenue             exclude items which in management's                            allow management and 
  and profit)          judgement need to be disclosed separately                      investors to compare 
  measures             by virtue of their size, nature or                             performance without 
                       frequency to aid understanding of the                          the effects of foreign 
                       performance for the year or comparability                      exchange movements, 
                       between periods:                                               one--off or non-operational 
                        *    Recurring items include purchase price adjustments       items. 
                             including amortisation of acquired intangible assets     By including part-period 
                             and adjustments made to reduce deferred income           contributions from 
                             arising on acquisitions, acquisition-related items,      acquisitions, discontinued 
                             unhedged FX on intercompany balances and fair value      operations, disposals 
                             adjustments; and                                         and assets held for 
                                                                                      sale of standalone 
                                                                                      businesses in the 
                        *    Non-recurring items that management judge to be          current and/or prior 
                             one-off or non-operational such as gains and losses      periods, the impact 
                             on the disposal of assets, impairment charges and        of M&A decisions on 
                             reversals, and restructuring related costs.              earnings per share 
                                                                                      growth can be evaluated. 
 
                       Recurring items are adjusted each period 
                       irrespective of materiality to ensure 
                       consistent treatment. 
                       Underlying basic EPS is also adjusted 
                       for the tax impact of recurring and 
                       non-recurring items. 
                       All prior period underlying measures 
                       (revenue and profit) are retranslated 
                       at the current year exchange rates 
                       to neutralise the effect of currency 
                       fluctuations. 
                     -------------------------------------------------------------  ---------------------------------- 
 Organic              In addition to the adjustments made                            Organic measures allow 
  (revenue            for Underlying measures, Organic measures:                      management and investors 
  and profit)          *    Exclude the contribution from discontinued operations,    to understand the 
  measures                  disposals and assets held for sale of standalone          like--for--like revenue 
                            businesses in the current and prior period; and           and current period 
                                                                                      margin performance 
                                                                                      of the continuing 
                       *    Exclude the contribution from acquired businesses         business. 
                            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 adjusted                        generated by the operations 
  from Operations      for non-cash items, net capex (excluding                       and calculate underlying 
                       business combinations and similar items)                       cash conversion. 
                       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 Profit                          To calculate the Net 
                       excluding depreciation, amortisation                           Debt to EBITDA leverage 
                       and share based payments.                                      ratio and to show 
                                                                                      profitability before 
                                                                                      the impact of major 
                                                                                      non-cash charges. 
                     -------------------------------------------------------------  ---------------------------------- 
 Annualised           Annualised recurring revenue ("ARR")                           ARR represents the 
  recurring            is the normalised organic recurring                            annualised value of 
  revenue              revenue in the last month of the reporting                     the recurring revenue 
                       period, adjusted consistently period                           base that is expected 
                       to period, multiplied by twelve. Adjustments                   to be carried into 
                       to normalise reported recurring revenue                        future periods, and 
                       include those components that management                       its growth is a forward--looking 
                       has assessed should be excluded in                             indicator of reporting 
                       order to ensure the measure reflects                           recurring revenue 
                       that part of the contracted revenue                            growth. 
                       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              The ARR from renewals, migrations,                             As an indicator of 
  Rate by              upsell and cross-sell of active customers                      our ability to retain 
  Value                at the start of the year, divided by                           and generate additional 
                       the opening ARR for the year.                                  revenue from our existing 
                                                                                      customer base through 
                                                                                      up and cross sell. 
                     -------------------------------------------------------------  ---------------------------------- 
 Free Cash            Free Cash Flow is Underlying Cash Flow                         To measure the cash 
  Flow                 from Operations minus net interest                             generated by the operating 
                       paid and income tax paid and adjusted                          activities during 
                       for non-recurring cash items (which                            the period that is 
                       excludes net proceeds on disposals                             available to repay 
                       of subsidiaries) and profit and loss                           debt, undertake acquisitions 
                       foreign exchange movements.                                    or distribute to shareholders. 
                     -------------------------------------------------------------  ---------------------------------- 
 % Subscription       Organic software subscription revenue                          To measure the progress 
  Penetration          as a percentage of organic total revenue.                      of migrating our customer 
                                                                                      base from licence 
                                                                                      and maintenance to 
                                                                                      a subscription relationship. 
                     -------------------------------------------------------------  ---------------------------------- 
 % Sage Business      Organic recurring revenue from the                             To measure the progress 
  Cloud Penetration    Sage Business Cloud (native and connected                      in the migration of 
                       cloud) as a percentage of the organic                          our revenue base to 
                       recurring revenue of the Future Sage                           the Sage Business 
                       Business Cloud Opportunity.                                    Cloud by connecting 
                                                                                      our solutions to the 
                                                                                      cloud and/or migrating 
                                                                                      our customers to cloud 
                                                                                      connected and cloud 
                                                                                      native solutions. 
                     -------------------------------------------------------------  ---------------------------------- 
 Return on            ROCE is calculated as:                                         As an indicator of 
  Capital               *    Underlying Operating Profit; minus                       the current period 
  Employed                                                                            financial return on 
  (ROCE)                                                                              the capital invested 
                        *    Amortisation of acquired intangibles; the result         in the Company. 
                             being divided by                                         ROCE is used as an 
                                                                                      underpin in the FY20, 
                                                                                      FY21 and FY22 PSP 
                       The average (of the opening and closing                        awards. 
                       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). 
                     -------------------------------------------------------------  ---------------------------------- 
 Net debt             Net debt is cash and cash equivalents                          To calculate the Net 
                       less current and non-current borrowings.                       Debt to EBITDA leverage 
                                                                                      ratio and an indicator 
                                                                                      of our indebtedness. 
                     -------------------------------------------------------------  ---------------------------------- 
 

Consolidated income statement

For the year ended 30 September 2022

 
 
 
                                                  Adjustments                              Adjustments 
                                    Underlying       (note 3)                                 (note 3) 
                                                                              Underlying 
                                                                Statutory   as reported*                  Statutory 
                                          2022           2022        2022           2021          2021         2021 
                             Note         GBPm           GBPm        GBPm           GBPm          GBPm         GBPm 
===========================  ====  ===========  =============  ==========  =============  ============  =========== 
Revenue                       2          1,949            (2)       1,947          1,846             -        1,846 
Cost of sales                            (138)              -       (138)          (131)             -        (131) 
===========================  ====  ===========  =============  ==========  =============  ============  =========== 
Gross profit                             1,811            (2)       1,809          1,715             -        1,715 
Selling and administrative 
 expenses                              (1,434)            (8)     (1,442)        (1,357)            15      (1,342) 
Operating profit              2            377           (10)         367            358            15          373 
Finance income                               1              -           1              1             -            1 
Finance costs                             (32)              1        (31)           (26)           (1)         (27) 
===========================  ====  ===========  =============  ==========  =============  ============  =========== 
Profit before 
 income tax                                346            (9)         337            333            14          347 
Income tax expense            4           (83)              6        (77)           (83)            21         (62) 
===========================  ====  ===========  =============  ==========  =============  ============  =========== 
Profit for the 
 year                                      263            (3)         260            250            35          285 
---------------------------  ----  -----------  -------------  ----------  -------------  ------------  ----------- 
 
Earnings per share attributable 
 to the owners of the parent 
 (pence) 
Basic                         6         25.74p                     25.47p         23.09p                     26.33p 
Diluted                       6         25.44p                     25.17p         22.87p                     26.08p 
===========================  ====  ===========  =============  ==========  =============  ============  =========== 
 

All operations in the year relate to continuing operations.

Note:

* Underlying as reported is at 2021 reported exchange rates.

Consolidated statement of comprehensive income

For the year ended 30 September 2022

 
                                                                                        2022   2021 
                                                                                        GBPm   GBPm 
=====================================================================================  =====  ===== 
Profit for the year                                                                      260    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                                      3      2 
                                                                                          33      2 
=====================================================================================  =====  ===== 
 
Items that may be reclassified to profit or loss 
Exchange differences on translating foreign operations and net investment hedges         177   (60) 
Exchange differences recycled through income statement on sale of foreign operations    (13)   (21) 
                                                                                         164   (81) 
=====================================================================================  =====  ===== 
 
Other comprehensive income/(expense) for the year, net of tax                            197   (79) 
=====================================================================================  =====  ===== 
 
Total comprehensive income for the year                                                  457    206 
=====================================================================================  =====  ===== 
 
 

The notes on pages 21 to 41 form an integral part of this condensed consolidated yearly report.

Consolidated balance sheet

As at 30 September 2022

 
 
                                                                    2022      2021 
                                                          Note      GBPm      GBPm 
=======================================================  =====  ========  ======== 
 Non-current assets 
 Goodwill                                                  7       2,416     1,877 
 Other intangible assets                                   7         294       190 
 Property, plant and equipment                             7         152       164 
 Equity investments                                                    4        21 
 Trade and other receivables                                         128       113 
 Deferred income tax assets                                           19        40 
                                                                   3,013     2,405 
=======================================================  =====  ========  ======== 
 Current assets 
 Trade and other receivables                                         355       295 
 Current income tax asset                                             39        37 
 Cash and cash equivalents (excluding bank overdrafts)     10        489       553 
 Assets classified as held for sale                        11          -        39 
=======================================================  =====  ========  ======== 
                                                                     883       924 
=======================================================  =====  ========  ======== 
 
 Total assets                                                      3,896     3,329 
=======================================================  =====  ========  ======== 
 
 Current liabilities 
 Trade and other payables                                          (368)     (592) 
 Current income tax liabilities                                     (13)      (31) 
 Borrowings                                                10      (178)      (65) 
 Provisions                                                         (33)      (68) 
 Deferred income                                                   (734)     (611) 
 Liabilities classified as held for sale                   11          -      (13) 
=======================================================  =====  ========  ======== 
                                                                 (1,326)   (1,380) 
=======================================================  =====  ========  ======== 
 
 Non-current liabilities 
 Borrowings                                                10    (1,044)     (749) 
 Post-employment benefits                                           (19)      (22) 
 Deferred income tax liabilities                                    (16)       (5) 
 Provisions                                                         (20)      (49) 
 Trade and other payables                                            (6)       (3) 
 Deferred income                                                     (8)      (10) 
  Derivative financial instruments                                  (60)         - 
=======================================================  =====  ========  ======== 
                                                                 (1,173)     (838) 
=======================================================  =====  ========  ======== 
 
 Total liabilities                                               (2,499)   (2,218) 
=======================================================  =====  ========  ======== 
 Net assets                                                        1,397     1,111 
=======================================================  =====  ========  ======== 
 
 Equity attributable to owners of the parent 
 Ordinary shares                                           9          12        12 
 Share premium                                             9         548       548 
 Translation reserve                                                 206        42 
 Merger reserve                                                       61        61 
 Retained earnings                                                   570       448 
=======================================================  =====  ========  ======== 
 Total equity                                                      1,397     1,111 
=======================================================  =====  ========  ======== 
 

Consolidated statement of changes in equity

For the year ended 30 September 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 year                            -         -            -          -        260      260 
Other comprehensive income/(expense) 
Exchange differences on 
 translating foreign operations 
 and net investment hedges                     -         -          177          -          -      177 
Exchange differences recycled 
 through income statement 
 on sale of foreign operations                 -         -         (13)          -          -     (13) 
Fair value gain on reassessment 
 of equity investment                                                                      30       30 
Actuarial gain on post-employment              -         -            -          -          3        3 
 benefit obligations 
Total comprehensive income 
 for the year ended 30 September 
 2022                                          -         -          164          -        293      457 
=====================================  =========  ========  ===========  =========  =========  ======= 
Transactions with owners 
Employee share option scheme 
 -value of employee services 
 including deferred tax                        -         -            -          -         37       37 
Proceeds from issuance of 
 treasury shares                               -         -            -          -          7        7 
Purchase of shares by Employee 
 Benefit Trust                                 -         -            -          -       (32)     (32) 
Dividends paid to owners 
 of the parent                                 -         -            -          -      (183)    (183) 
=====================================  =========  ========  ===========  =========  =========  ======= 
Total transactions with 
 owners 
 for the year ended 30 September 
 2022                                          -         -            -          -      (171)    (171) 
=====================================  =========  ========  ===========  =========  =========  ======= 
At 30 September 2022                          12       548          206         61        570    1,397 
=====================================  =========  ========  ===========  =========  =========  ======= 
 
 

Consolidated statement of changes in equity

For the year ended 30 September 2021

 
                                                                       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 year                           -         -            -         -        285      285 
Other comprehensive (expense)/income 
Exchange differences on translating 
 foreign operations and net 
 investment hedges                            -         -         (60)         -          -     (60) 
Exchange differences recycled 
 through income statement on 
 sale of foreign operations                   -         -         (21)         -          -     (21) 
Actuarial gain on post-employment 
 benefit obligations                          -         -            -         -          2        2 
Total comprehensive (expense)/income 
 for the year ended 30 September 
 2021                                         -         -         (81)         -        287      206 
=====================================  ========  ========  ===========  ========  =========  ======= 
Transactions with owners 
Employee share option scheme 
 -value of employee services 
 including deferred tax                       -         -            -         -         36       36 
Proceeds from issuance of 
 treasury shares                              -         -            -         -          8        8 
Share buyback programme                       -         -            -         -      (602)    (602) 
Dividends paid to owners of 
 the parent                                   -         -            -         -      (189)    (189) 
=====================================  ========  ========  ===========  ========  =========  ======= 
Total transactions with owners 
 for the year ended 30 September 
 2021                                         -         -            -         -      (747)    (747) 
=====================================  ========  ========  ===========  ========  =========  ======= 
At 30 September 2021                         12       548           42        61        448    1,111 
=====================================  ========  ========  ===========  ========  =========  ======= 
 
 

Consolidated statement of cash flows

For the year ended 30 September 2022

 
 
                                                      2022   2021 
                                               Note   GBPm   GBPm 
=============================================  ====  =====  ===== 
Cash flows from operating activities 
Cash generated from continuing operations              368    476 
Interest paid                                         (21)   (19) 
Income tax paid                                       (62)   (81) 
Net cash generated from operating activities           285    376 
=============================================  ====  =====  ===== 
 
Cash flows from investing activities 
Proceeds on settlement of non-current 
 asset                                                   -      3 
Disposal of subsidiaries, net of cash 
 disposed                                       11      42    135 
Acquisition of subsidiaries, net of cash 
 acquired                                       11   (285)      - 
Purchases of equity investments                          -   (21) 
Purchases of intangible assets                  7     (40)   (17) 
Purchases of property, plant and equipment      7     (12)   (39) 
Proceeds from disposals of property, plant 
 and equipment                                          10      - 
Interest received                                        1      1 
Net cash (used in)/generated from investing 
 activities                                          (284)     62 
=============================================  ====  =====  ===== 
 
Cash flows from financing activities 
Proceeds from borrowings                        10     516    344 
Repayments of borrowings                        10   (166)  (481) 
Capital element of lease payments               10    (19)   (22) 
Borrowing costs                                        (1)    (1) 
Proceeds from issuance of treasury shares                7      8 
Share buyback programmes                        9    (249)  (353) 
Purchase of shares by Employee Benefit 
 Trust                                          9     (32)      - 
Dividends paid to owners of the parent          5    (183)  (189) 
Net cash used in financing activities                (127)  (694) 
=============================================  ====  =====  ===== 
 
Net decrease in cash, cash equivalents 
 and bank overdrafts 
 (before exchange rate movement)                     (126)  (256) 
Effects of exchange rate movement               10      48   (25) 
Net decrease in cash, cash equivalents 
 and bank overdrafts                                  (78)  (281) 
Cash, cash equivalents and bank overdrafts 
 at 1 October                                   10     567    848 
=============================================  ====  =====  ===== 
Cash, cash equivalents and bank overdrafts 
 at 30 September                                10     489    567 
=============================================  ====  =====  ===== 
 

Notes to the financial information

For the year ended 30 September 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.

The financial information set out above does not constitute the Company's Statutory Accounts for the year ended 30 September 2022 or 2021 but is derived from those accounts. Statutory Accounts for the year ended 30 September 2021 have been delivered to the Registrar of Companies and those for 2022 will be delivered in December 2022. The auditors have reported on both sets of accounts; their reports were unqualified and did not contain statements under section 498 (2), (3) or (4) of the Companies Act 2006.

Whilst the financial information included in this announcement has been computed in accordance with UK-adopted International Accounting Standards (UK-IFRS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), this announcement does not in itself contain sufficient information to comply with IFRS or UK-IFRS. The financial information has been prepared on the basis of the accounting policies and critical accounting estimates and judgements as set out in the Annual Report & Accounts for 2022.

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.

All figures presented are rounded to the nearest GBPm, unless otherwise stated.

Basis of preparation

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 (UK-IFRS), 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-IFRS. There was no impact or change in accounting policies from the transition. This change constitutes a change in accounting framework.

The consolidated financial statements of The Sage Group plc. have been prepared in accordance with UK-IFRS in conformity with the requirements of the Companies Act 2006 and also prepared in accordance with IFRS as issued by the IASB.

UK-IFRS can differ in certain respects from IFRS as issued by the IASB. The differences have no impact on the Group's consolidated financial statements for the years presented.

The consolidated financial statements have been prepared under the historical cost convention, except where adopted IFRS require an alternative treatment. The principal variations from the historical cost convention relate to derivative financial instruments and equity investments which are measured at fair value. The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared at the end of the reporting period. The accounting policies have been consistently applied across the Group. The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity, which is usually from date of acquisition.

Going Concern

The impact of the economic environment on the Group and its key stakeholders has been considered in the preparation of the financial statements and has informed the level of stress testing performed. Specifically, consideration has been given to the risks and uncertainties linked to the changing macro-economic environment, and the possible impact on the Group's customer base. In light of this, we note that the Group's operational and financially robust position is supported by:

-- High quality recurring and subscription based revenue;

-- Resilient cash generation and robust liquidity position, supported by strong underlying cash conversion of 107%, reflecting the strength of the subscription business model; and

-- A well-diversified small and medium sized customer base which is geographically diverse.

The Directors have reviewed the liquidity and covenant forecasts for the Group for the period to 31 March 2024 ("the going concern assessment period"), which reflect the expected impact of economic conditions on trading. In doing so, the Directors have also reviewed the extent to which the macro-economic environment has been considered in building assumptions to support the forecasts.

Scenario-specific stress testing has been performed, with the level of churn assumptions increased by 75%, and a significant reduction in the level of new customer acquisition and sales to existing customers. In these severe stress scenarios, the Group continues to have sufficient resources to continue in operational existence. If more severe impacts occur, controllable mitigating actions to protect liquidity, including the reduction of discretionary spend, are available to the Group should they be required. Additional stress testing has been performed as part of the severe but plausible scenarios (as described within the Viability Statement of the Annual Report & Accounts for 2022).

The Directors also reviewed the results of reverse stress testing performed to provide an illustration of the level of churn and deterioration in new customer acquisition which would be required to trigger a breach in the Group's covenants or exhaust cash down to minimum working capital requirements. The result of the reverse stress testing has highlighted that such a scenario would only arise following a catastrophic deterioration in performance, well in excess of the assumptions considered in the stress testing scenarios. The probability of these factors occurring is deemed to be remote given the resilient nature of the subscription 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 throughout the going concern assessment period . 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 2022.

Adoption of new and revised IFRSs

There are no accounting standards, amendments or interpretations effective for the first time this financial year that have had a material impact on the Group. No standards have been early adopted during the year.

Climate change

In preparing the consolidated financial statements management has considered the impact of climate change, specifically with reference to the disclosures included in the Strategic Report and the Group's stated net zero ambitions. There were no factors identified that would have a material impact on the Group's critical accounting estimates and judgements in the current year. The considerations in relation to goodwill impairment testing are set out in Note 6.1 of the annual financial statements for the year ended 30 September 2022 .

The assessment with respect to the impact of climate change will be kept under review by management, as the future impacts depend on factors outside of the Group's control, which are not all currently known.

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.

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.

The assumptions applied in calculating the value in use of the CGUs being tested for impairment are a source of estimation uncertainty. The key assumptions applied in the calculation relate to the future performance expectations of the business - average medium-term revenue growth and long-term growth rate - as well as the discount rate to be applied in the calculation.

These key assumptions used in performing the annual impairment assessment, and further information on the level at which goodwill is monitored are disclosed in the annual financial statements for the year ended 30 September 2022.

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.

On 17 January 2022, the Group acquired the remaining 83% of shares in Brightpearl which constituted a significant business combination. The key areas of judgment and estimate 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 forward, goodwill has been allocated to the Group's UK & Ireland and North America CGUs.

On 30 August 2022, the Group acquired 100% equity capital and voting rights of Lockstep Network Holdings Inc (Lockstep) which constituted a significant business combination. The key areas of judgement include the identification and subsequent measurement of acquired intangible assets.

In line with IFRS 3, the initial accounting for the acquisition of Lockstep is provisional. The residual excess of consideration over the net assets acquired has been provisionally recognised entirely as goodwill. Adjustments to provisional amounts 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. The acquisition accounting will be finalised within 12 months of the acquisition date.

Website

This annual consolidated financial report for the year ended 30 September 2022 will be available on our website from 1 December 2022: www.sage.com/investors

   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 its 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 & 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 reportable segment International - Central and Southern Europe reflects 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 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, Middle East, Australia, Singapore and Malaysia.

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. The Group reports revenue under two revenue categories as noted below:

 
 Category            Examples 
 Recurring revenue   Subscription contracts 
                      Maintenance and support contracts 
                    =================================== 
 Other revenue       Perpetual software licences 
                      Upgrades to perpetual licences 
                      Professional services 
                      Training 
                    ----------------------------------- 
 

Revenue by segment

 
                                        Year ended 30 September 2022                               Change 
----------------------  -------------------------------------------------------------  ------------------------------ 
                                      Underlying                     Organic 
                        Statutory   adjustments*  Underlying   adjustments**  Organic 
                             GBPm           GBPm        GBPm            GBPm     GBPm  Statutory  Underlying  Organic 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Recurring revenue 
 by segment 
North America                 786              1         787             (8)      779        23%         15%      14% 
Northern Europe               427              1         428             (9)      419         9%         10%       7% 
International - 
 Central and 
 Southern Europe              490              -         490             (4)      486       (4%)        (1%)       4% 
International - 
 Africa & APAC                140              -         140               -      140       (8%)        (9%)      10% 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Recurring revenue           1,843              2       1,845            (21)    1,824         9%          7%       9% 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Other revenue by 
 segment 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
North America                  32              -          32             (1)       31      (30%)       (35%)    (37%) 
Northern Europe                 6              -           6               -        6      (42%)       (42%)    (52%) 
International - 
 Central and Southern 
 Europe                        53              -          53             (1)       52      (28%)       (26%)    (23%) 
International - 
 Africa & APAC                 13              -          13             (2)       11      (41%)       (42%)    (16%) 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Other revenue                 104              -         104             (4)      100      (32%)       (32%)    (30%) 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Total revenue by 
 segment 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
North America                 818              1         819             (9)      810        19%         12%      10% 
Northern Europe               433              1         434             (9)      425         8%          8%       6% 
International - 
 Central and 
 Southern Europe              543              -         543             (5)      538       (7%)        (4%)       1% 
International - 
 Africa & APAC                153              -         153             (2)      151      (12%)       (13%)       8% 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
Total revenue               1,947              2       1,949            (25)    1,924         5%          4%       6% 
----------------------  ---------  -------------  ----------  --------------  -------  ---------  ----------  ------- 
 

* Adjustments between statutory and underlying numbers are detailed in note 3.

**Adjustments relate to the disposal of the Group's Swiss business and its payroll outsourcing business in South Africa and the acquisitions of Brightpearl and Lockstep (note 11)

Revenue by segment (continued)

 
                                                                                   Year ended 30 September 2021 
                                                 Statutory           Impact 
                                            and Underlying       on foreign                    Organic 
                                               as reported         exchange  Underlying   adjustments*  Organic 
                                                      GBPm             GBPm        GBPm           GBPm     GBPm 
======================          ======  ==================  ===============  ==========  =============  ======= 
Recurring revenue by segment 
North America                                          641               44         685              -      685 
Northern Europe                                        391              (1)         390              -      390 
International - 
 Central and Southern 
 Europe                                                509             (13)         496           (30)      466 
International - 
 Africa & APAC                                         152                1         153           (27)      126 
======================================  ==================  ===============  ==========  =============  ======= 
Recurring revenue                                    1,693               31       1,724           (57)    1,667 
======================================  ==================  ===============  ==========  =============  ======= 
Other revenue by segment 
North America                                           46                3          49              -       49 
Northern Europe                                         11                -          11              -       11 
International - 
 Central and Southern 
 Europe                                                 74              (2)          72            (4)       68 
International - 
 Africa & APAC                                          22                -          22            (8)       14 
======================================  ==================  ===============  ==========  =============  ======= 
Other revenue                                          153                1         154           (12)      142 
======================================  ==================  ===============  ==========  =============  ======= 
Total revenue by segment 
North America                                          687               47         734              -      734 
Northern Europe                                        402              (1)         401              -      401 
International - 
 Central and Southern 
 Europe                                                583             (15)         568           (34)      534 
International - 
 Africa & APAC                                         174                1         175           (35)      140 
======================================  ==================  ===============  ==========  =============  ======= 
Total revenue                                        1,846               32       1,878           (69)    1,809 
======================================  ==================  ===============  ==========  =============  ======= 
 
 

* Adjustments relate to the disposal of the Group's Swiss business and its payroll outsourcing business in South Africa in the current year, 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 year.

Operating profit by segment

 
                                                                                         Year ended 30 September 
                                                                                                            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            116            30         146             -      146          7%         (1%)      (2%) 
Northern Europe           58            47         105             7      112       (18%)           5%       12% 
International 
 - Central and 
 Southern Europe         152          (61)          91             -       91         86%           1%       13% 
International 
 - Africa & APAC          41           (6)          35           (1)       34       (63%)          15%       37% 
=================  =========  ============  ==========  ============  =======  ==========  ===========  ======== 
Total operating 
 profit                  367            10         377             6      383        (2%)           2%        8% 
=================  =========  ============  ==========  ============  =======  ==========  ===========  ======== 
 
 
                                                                                         Year ended 30 September 
                                                                                                            2021 
-----------------  ---------  ------------  --------------  -------------  ------------------------------------- 
                                                                   Impact 
                                Underlying      Underlying     of foreign                       Organic 
                   Statutory   adjustments     as reported       exchange    Underlying     adjustments  Organic 
                        GBPm          GBPm            GBPm           GBPm          GBPm            GBPm     GBPm 
=================  =========  ============  ==============  =============  ============  ==============  ======= 
Operating profit 
 by segment 
North America            109            28             137             11           148               -      148 
Northern Europe           71            28              99              -            99               -       99 
International 
 - Central and 
 Southern Europe          82            10              92            (2)            90             (9)       81 
International 
 - Africa 
 & APAC                  111          (81)              30              1            31             (6)       25 
=================  =========  ============  ==============  =============  ============  ==============  ======= 
Total operating 
 Profit                  373          (15)             358             10           368            (15)      353 
=================  =========  ============  ==============  =============  ============  ==============  ======= 
 
 

Reconciliation of underlying operating profit to statutory operating profit

 
                                                           2022   2021 
                                                           GBPm   GBPm 
======================================================    =====  ===== 
Underlying operating profit by reportable segment 
North America                                               146    148 
Northern Europe                                             105     99 
International - Central and Southern Europe                  91     90 
Total reportable segments                                   342    337 
International - Africa & APAC                                35     31 
========================================================  =====  ===== 
Underlying operating profit                                 377    368 
Impact of movement in foreign currency exchange rates         -   (10) 
=======================================================   =====  ===== 
Underlying operating profit (as reported)                   377    358 
Amortisation of acquired intangible assets                 (42)   (31) 
Adjustment to acquired deferred income                      (2)      - 
Other M&A activity-related items                           (39)    (9) 
Non-recurring items                                          73     55 
========================================================  =====  ===== 
Statutory operating profit                                  367    373 
========================================================  =====  ===== 
 
   3.    Adjustments between underlying profit and statutory profit 
 
                                         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                               42           -      42          31           -       31 
Gain on disposal of subsidiaries            -        (53)    (53)           -       (126)    (126) 
Adjustment to acquired 
 deferred income                            2           -       2           -           -        - 
Other M&A activity-related 
 items                                     39           -      39           9           -        9 
Other items 
(Reversal of)/restructuring 
 costs                                      -        (20)    (20)           -          62       62 
Office relocation                           -           -       -           -           9        9 
Total adjustments made 
 to operating profit                       83        (73)      10          40        (55)     (15) 
Fair value adjustments                      -           -       -           1           -        1 
Foreign currency movements 
 on intercompany balances                 (1)           -     (1)           -           -        - 
Total adjustments made 
 to profit before income 
 tax                                       82        (73)       9          41        (55)     (14) 
=================================  ==========  ==========  ======  ==========  ==========  ======= 
 

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. GBP14m (2021: GBP7m) of these costs have been paid in the year while the remainder is expected to be paid in subsequent financial years.

Foreign currency movements on intercompany balances of GBP1m (2021: GBPnil) occur due to retranslation of unhedged intercompany balances other than those where settlement is not planned or likely in the foreseeable future and resulted in a gain of GBP1m (2021: GBPnil).

In the prior year, fair value adjustments of GBP1m were in relation to an embedded derivative asset which related to contractual terms agreed as part of the US private placement debt. The related US private placement debt matured during the current year, resulting in the extinguishment of the embedded derivative asset. There were no associated gains or losses.

Non-recurring items

Net credit in respect of non-recurring items amounted to GBP73m (2021: net credit GBP55m).

The gain on disposal of subsidiaries of GBP53m relates to the disposal of the Group's Swiss business (GBP49m) and the Group's payroll outsourcing business in South Africa (GBP4m). In the prior year, the gain on disposal of subsidiaries of GBP126m related to the Group's Polish business (GBP41m) and the Group's Australia and Asia Pacific business (GBP85m). Further details can be found in note 11.

Reversal of restructuring costs of GBP20m primarily relates to unutilised provisions recognised in the prior year, as some colleagues were redeployed or left the business (2021: charge GBP67m). The provision was recognised in the prior year following the implementation of a business transformation plan to rebalance investment towards the Group's strategic priorities and simplify the business.

In the prior year, the restructuring costs of GBP62m were comprised of charges of GBP67m noted above, offset by the reversal of GBP5m of previous restructuring costs related to unutilised Professional Service provisions created in 2020.

In the prior year, office relocation costs of GBP9m relate to the incremental depreciation charge resulting from accelerated depreciation in 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 23% (2021: 18%), whilst the effective tax rate on underlying profit before tax on continuing operations was 24% (2021: 25%). The statutory effective tax rate is lower than the underlying effective tax rate mainly due to due to non-taxable accounting net gains on our disposals in the year.

The underlying effective tax rate is higher than the UK corporation tax rate applicable to the Group primarily due to the geographic profile of the Group and the inclusion of local business taxes in the corporate tax expense. This net increase to the rate is offset by innovation tax credits for registered patents and software, and research and development activities which attract government tax incentives in a number of operating territories. The underlying effective tax rate was decreased in the year principally due to a reduction in the French corporation tax rate and certain non-recurring items.

   5.    Dividends 
 
                                                       2022   2021 
                                                       GBPm   GBPm 
====================================================  =====  ===== 
Final dividend paid for the year ended 30 September 
 2021 of 11.63p per share                               119      - 
(2021: final dividend paid for the year ended 
 30 September 2020 of 11.32p per share)                   -    124 
 
Interim dividend paid for the year ended 30 
 September 2022 of 6.30p per share                       64      - 
(2021: interim dividend paid for the year ended 
 30 September 2021 of 6.05p per share)                    -     65 
                                                        183    189 
====================================================  =====  ===== 
 

In addition, the Directors are proposing a final dividend in respect of the financial year ended 30 September 2022 of 12.10p per share which will absorb an estimated GBP124m of shareholders' funds. The Company's distributable reserves are sufficient to support the payment of this dividend. If approved at the AGM, it will be paid on 10 February 2023 to shareholders who are on the register of members on 13 January 2023. These financial statements do not reflect this proposed dividend payable.

   6.    Earnings per share 

Basic earnings per share is calculated by dividing the profit for the year attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year, excluding those held as treasury shares, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares, exercisable at the end of the year. The Group has one class of dilutive potential ordinary shares. They are share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.

 
                                             Underlying 
                              Underlying   as reported*  Underlying    Statutory  Statutory 
                                    2022           2021        2021         2022       2021 
============================  ==========  =============  ==========  ===========  ========= 
Earnings attributable to owners of 
 the parent** (GBPm) 
Profit for the year                  263            250         257          260        285 
============================  ==========  =============  ==========  ===========  ========= 
 
Number of shares (millions) 
Weighted average number 
 of shares                         1,020          1,080       1,080        1,020      1,080 
Dilutive effects of shares            12             10          10           12         10 
============================  ==========  =============  ==========  ===========  ========= 
                                   1,032          1,090       1,090        1,032      1,090 
============================  ==========  =============  ==========  ===========  ========= 
Earnings per share attributable to 
 owners of the 
 parent** (pence) 
Basic earnings per share           25.74          23.09       23.79        25.47      26.33 
============================  ==========  =============  ==========  ===========  ========= 
Diluted earnings per share         25.44          22.87       23.57        25.17      26.08 
============================  ==========  =============  ==========  ===========  ========= 
 

Note:

* Underlying as reported is at 2021 reported exchange rates.

** All operations in the years relate to continuing operations.

 
 
                                                                                2022   2021 
Reconciliation of earnings - continuing operations                              GBPm   GBPm 
=============================================================================  =====  ===== 
Underlying earnings attributable to owners of the parent                         263    257 
Impact of movement in foreign currency exchange rates, net of taxation             -    (7) 
=============================================================================  =====  ===== 
Underlying earnings attributable to owners of the parent (as reported)           263    250 
Amortisation of acquired intangible assets                                      (42)   (31) 
Gain on disposal of subsidiaries                                                  53    126 
Adjustment to acquired deferred income                                           (2)      - 
Other M&A activity-related items                                                (39)    (9) 
(Reversal of)/restructuring costs                                                 20   (62) 
Office relocation                                                                  -    (9) 
Foreign currency movements on intercompany balances                                1      - 
Fair value adjustments                                                             -    (1) 
Taxation on adjustments between underlying and statutory profit before tax         6     21 
=============================================================================  =====  ===== 
Net adjustments                                                                  (3)     35 
=============================================================================  =====  ===== 
Earnings: statutory profit for the year attributable to owners of the parent     260    285 
=============================================================================  =====  ===== 
 
   7.    Non-current assets 
 
                                                                 Other 
                                                            intangible 
                                                 Goodwill       assets  Property, plant and equipment  Total 
                                                     GBPm         GBPm                           GBPm   GBPm 
===============================================  ========  ===========  =============================  ===== 
Opening net book amount at 1 October 2021           1,877          190                            164  2,231 
Additions                                               -           29                             18     47 
Acquisition of subsidiaries                           255          110                              2    367 
Depreciation, amortisation and other movements          -         (56)                           (41)   (97) 
Exchange movement                                     284           21                              9    314 
Closing net book amount at 30 September 2022        2,416          294                            152  2,862 
===============================================  ========  ===========  =============================  ===== 
 
 
                                                                 Other 
                                                            intangible  Property, plant 
                                                 Goodwill       assets    and equipment  Total 
                                                     GBPm         GBPm             GBPm   GBPm 
===============================================  ========  ===========  ===============  ===== 
Opening net book amount at 1 October 2020           1,962          212              173  2,347 
Additions                                               -           30               49     79 
Disposals                                               -            -              (1)    (1) 
Disposals of subsidiaries                            (11)            -                -   (11) 
Transfer to held for sale                             (2)            -             (10)   (12) 
Depreciation, amortisation and other movements          -         (44)             (43)   (87) 
Exchange movement                                    (72)          (8)              (4)   (84) 
Closing net book amount at 30 September 2021        1,877          190              164  2,231 
===============================================  ========  ===========  ===============  ===== 
 

Goodwill is not subject to amortisation but is tested for impairment annually or upon any indication of impairment. At 30 September 2022, there were no indicators of impairment to goodwill. Full details of the outcome of the 2022 goodwill impairment review are provided in the 2022 financial statements.

   8.    Financial instruments 

The carrying amounts of the following financial assets and liabilities approximate to their fair values: trade and other payables excluding tax and social security, trade and other receivables excluding prepayments and accrued income, lease liabilities, and short-term bank deposits, and cash at bank and in hand.

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 loan notes is determined by reference to interest rate movements on the USD 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 30 September 2022     At 30 September 2021 
                                                     ======================  ======================= 
                                                     Book Value  Fair Value   Book Value  Fair Value 
                                                           GBPm        GBPm         GBPm        GBPm 
===================================================  ==========  ==========  ===========  ========== 
Long-term borrowings (excluding lease liabilities)        (966)       (753)        (667)       (682) 
Short-term borrowing (excluding lease liabilities)        (161)       (158)         (47)        (48) 
===================================================  ==========  ==========  ===========  ========== 
 

The fair value of the unlisted equity investments held by the Group is determined using a market-based valuation approach. The significant unobservable inputs used in level 3 fair value measurement are transaction prices paid for identical or similar instruments of the investee and revenue growth factors.

During the year, the Group has designated USD cross-currency interest rate swap contracts totalling GBP350m (USD 400m) (2021: GBPnil, USD nil) as hedging instruments in relation to the GBP350m sterling denominated bond notes.

The fair value of the cross-currency interest rate swaps held by the Group is determined using a discounted cash flow valuation technique at market rates and therefore can be considered as a level 2 fair value as defined within IFRS 13. The fair value as at the 30 September 2022 was a GBP60m liability.

   9.    Ordinary shares and share premium 
 
                                                         Ordinary 
                                              Number of    Shares  Share premium  Total 
                                                 shares      GBPm           GBPm   GBPm 
========================================  =============  ========  =============  ===== 
At 1 October 2021                         1,120,789,295        12            548    560 
----------------------------------------  -------------  --------  -------------  ----- 
Cancellation of treasury shares            (20,000,000)         -              -      - 
----------------------------------------  -------------  --------  -------------  ----- 
At 30 September 2022                      1,100,789,295        12            548    560 
 
At 1 October 2020 and 30 September 2021   1,120,789,295        12            548    560 
========================================  =============  ========  =============  ===== 
 

During the year, the Group purchased a total of 27,979,129 Ordinary shares, held as treasury shares, as part of a non-discretionary share buyback programme entered into on 6 September 2021 and completed on 24 January 2022. 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 during the current year.

In the prior year, the Group entered into another non-discretionary share buyback programme under which 45,418,600 shares were bought back for a total consideration of GBP302m, inclusive of stamp duty and related fees. This programme was completed during the prior year.

In addition, during the year:

-- The Group cancelled 20,000,000 treasury shares which reduced the number of Ordinary shares to 1,100,789,295 at 30 September 2022.

-- The Group agreed to satisfy the vesting of certain share awards, utilising a total of 6,396,278 (2021: 5,544,880) treasury shares.

-- The Employee Benefit Trust purchased GBP32m (2021: nil) of shares from the market, funded by the Company. The Employee Benefit Trust did not receive additional funds for future purchase of shares in the market (2021: nil).

At 30 September 2022 the Group held 81,168,903 (2021: 79,586,223) treasury shares.

10. Cash flow and net debt

 
 
                                                                                                2022   2021 
                                                                                                GBPm   GBPm 
=============================================================================================  =====  ===== 
Statutory operating profit                                                                       367    373 
Recurring and non-recurring items                                                                 10   (15) 
=============================================================================================  =====  ===== 
Underlying operating profit (as reported)                                                        377    358 
Depreciation/amortisation/impairment/profit on disposal of non-current assets/non-cash items      51     47 
Share-based payments                                                                              36     36 
Net changes in working capital                                                                  (40)     65 
Net capital expenditure                                                                         (22)   (55) 
Underlying cash flow from operating activities                                                   402    451 
Non-recurring items                                                                             (23)    (9) 
Net interest paid                                                                               (21)   (19) 
Income tax paid                                                                                 (62)   (81) 
Exchange movement                                                                                (1)    (3) 
=============================================================================================  =====  ===== 
Free cash flow                                                                                   295    339 
Net debt at 1 October                                                                          (247)  (151) 
Disposals of businesses                                                                           43    142 
Acquisition of businesses                                                                      (315)      - 
Acquisition and disposals related items                                                         (22)   (21) 
Purchases of equity investments                                                                    -   (21) 
Proceeds on settlement of non-current assets                                                       -      3 
Proceeds from issuance of treasury shares                                                          7      8 
Dividends paid to owners of the parent                                                         (183)  (189) 
Share buyback programmes                                                                       (249)  (353) 
Purchase of shares by Employee Benefit Trust                                                    (32)      - 
New leases                                                                                       (6)    (8) 
Exchange movement                                                                               (23)      7 
Other                                                                                            (1)    (3) 
=============================================================================================  =====  ===== 
Net debt at 30 September                                                                       (733)  (247) 
=============================================================================================  =====  ===== 
 
 
 
                                                             2022   2021 
                                                             GBPm   GBPm 
==========================================================  =====  ===== 
Underlying cash flow from operations                          402    451 
==========================================================  =====  ===== 
Net capital expenditure                                        22     55 
Recurring and non-recurring cash items                       (55)   (30) 
Other adjustments including foreign exchange translations     (1)      - 
Statutory cash flow from operations                           368    476 
==========================================================  =====  ===== 
 
 
 
 Analysis of 
 change in net          At 1         At 1              Acquisition                                               At 30 
 debt                October      October                       of   Disposal of     Non-cash     Exchange   September 
 (inclusive of          2020         2021  Cash flow  subsidiaries  subsidiaries    movements     movement        2022 
 leases)                GBPm         GBPm       GBPm          GBPm          GBPm         GBPm         GBPm        GBPm 
===============  ===========  ===========  =========  ============  ============  ===========  ===========  ========== 
Cash and cash 
 equivalents             831          553      (124)            12             -            -           48         489 
Cash amounts 
 included in 
 held for sale            17           14          -             -          (14)            -            -           - 
===============  ===========  ===========  =========  ============  ============  ===========  ===========  ========== 
Cash, cash 
 equivalents 
 and bank 
 overdrafts 
 including cash 
 as held for 
 sale                    848          567      (124)            12          (14)            -           48         489 
===============  ===========  ===========  =========  ============  ============  ===========  ===========  ========== 
 
Liabilities 
arising from 
financing 
activities 
Loans due 
 within one 
 year                      -         (47)         46             -             -        (144)         (16)       (161) 
Loans due after 
 more than one 
 year                  (877)        (667)      (396)             -             -          143         (46)       (966) 
Lease 
 liabilities 
 due within one 
 year                   (20)         (18)         19             -             -         (17)          (1)        (17) 
Lease 
 liabilities 
 after more 
 than one year          (93)         (82)          -             -             -           11          (7)        (78) 
Lease 
 liabilities 
 included in 
 held for sale           (9)            -          -             -             1            -          (1)           - 
                       (999)        (814)      (331)             -             1          (7)         (71)     (1,222) 
===============  ===========  ===========  =========  ============  ============  ===========  ===========  ========== 
 
Total                  (151)        (247)      (455)            12          (13)          (7)         (23)       (733) 
===============  ===========  ===========  =========  ============  ============  ===========  ===========  ========== 
 

11. Acquisitions and disposals

Acquisitions made during the current year

Lockstep

On 30 August 2022, the Group acquired 100% equity capital and voting rights of Lockstep Network Holdings Inc (Lockstep). Lockstep provides cloud native technology that automates accounting workflows between companies. The acquisition of Lockstep accelerates Sage's strategy for growth by broadening its value prioritisation for SMBs and expanding Sage's digital network.

 
                                                    Total 
Summary of acquisition                               GBPm 
==================================================  ===== 
Cash consideration                                     76 
Deferred consideration                                  3 
Holdback consideration                                  1 
==================================================  ===== 
Acquisition-date fair value of consideration           80 
Provisional fair value of identifiable net assets     (1) 
Provisional goodwill                                   79 
==================================================  ===== 
 
 

In line with IFRS 3, the initial accounting for the acquisition of Lockstep is provisional. The residual excess of consideration over the net assets acquired has been provisionally recognised as unallocated goodwill. No goodwill is expected to be deductible for tax purposes. Adjustments to provisional amounts 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 within 12 months. The results of the business are allocated to the North America operating segment in line with the underlying operations.

The outflow of cash and cash equivalents on the acquisition is as follows:

 
                                     Total 
                                      GBPm 
===================================  ===== 
Cash consideration                    (76) 
Cash and cash equivalents acquired       1 
Net cash outflow                      (75) 
===================================  ===== 
 

Transaction 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 bonus shares to remunerate employees of Lockstep for future services. The amount recognised to date of GBP1m is included in selling and administrative expenses, classified as other M&A activity-related items. The total cost of these arrangements will be recognised in future periods over the retention period, contingent on employment.

The consolidated income statement includes revenue and loss after tax relating to Lockstep for the period since the acquisition date, of which both are immaterial. On an underlying basis, revenue would have increased by GBP3m and profit after tax would have decreased by GBP7m, if Lockstep had been acquired at the start of the financial year and included in the Group's results for the year ended 30 September 2022. On a statutory basis, revenue would have increased by GBP3m and profit after tax would have decreased by GBP21m, which includes GBP14m of other M&A activity related items.

Brightpearl

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 multi-channel retail management system for the retail and ecommerce vertical, helping to accelerate the Group's strategy for growth.

 
                                                  Total 
Summary of acquisition                             GBPm 
================================================  ===== 
Cash consideration                                  221 
Fair value of previously held minority interest      47 
Acquisition-date fair value of consideration        268 
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 
Fair value of identifiable net assets acquired    GBPm 
===============================================  ===== 
Intangible assets                                  110 
Deferred income                                    (4) 
Deferred tax liability                            (20) 
Other net assets                                     6 
Fair value of identifiable net assets acquired      92 
Goodwill                                           176 
Total consideration                                268 
===============================================  ===== 
 

A summary of the acquired intangible assets is set out below:

 
                                                                 Useful economic 
                                                      Valuation             life 
  Acquired intangible assets                               GBPm          (years) 
================================================  =============  =============== 
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 results of the business are allocated to the North America and Northern Europe operating segments in line with the underlying operations.

The outflow of cash and cash equivalents on the acquisition is as follows:

 
                                     Total 
                                      GBPm 
===================================  ===== 
Cash consideration                   (221) 
Cash and cash equivalents acquired      11 
Net cash outflow                     (210) 
===================================  ===== 
 

Transaction costs of GBP7m 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.

Arrangements have been put in place for retention payments to remunerate employees of Brightpearl for future services. The amount recognised to date of GBP10m is included in selling and administrative expenses, in the consolidated income statement, as other M&A activity-related items. The total cost of these arrangements will be recognised in future periods over the retention period, contingent on employment.

The consolidated income statement includes revenue of GBP17m and loss after tax of GBP26m reported by Brightpearl for the period since the acquisition date. The loss after tax includes GBP22m of other M&A activity-related items.

On an underlying basis, revenue would have increase by GBP8m and profit after tax would have decreased by GBP6m, if Brightpearl had been acquired at the start of the finance year and included in the Group's results for the year ended 30 September 2022. On a statutory basis, revenue would have increased by GBP8m and profit after tax would have decreased by GBP16m, which includes GBP10m of other M&A activity-related items.

Futrli

On 12 May 2022, the Group acquired 100% equity capital and voting rights of Futrli Limited (Futrli), a company based in the UK, for total consideration of GBP17m comprising GBP15m payable in cash on completion and GBP2m deferred consideration.

The Futrli acquisition is accounted for as an asset acquisition which is an acquisition of a legal entity that does not qualify as a business combination under IFRS 3 "Business Combinations". This treatment has been adopted as the value of the Futrli business largely comprises the rights to the acquired technology, the Futrli software. As a result, no goodwill has been recognised as part of the acquisition accounting.

The net assets recognised in the financial statements, including the technology intangible, are based on a valuation of the acquired identifiable net assets as at the acquisition date. The technology intangible has a fair value of GBP17m and is recognised as an intangible asset (see note 7) which will be amortised over a useful life of 8 years. Other net assets acquired are negligible.

GoProposal

In the prior year, the Group acquired 100% controlling equity capital and voting rights of GoProposal Limited (GoProposal) for total consideration of GBP13m, which was accrued at 30 September 2021 and paid in cash during the current year.

The GoProposal acquisition was accounted for as an asset acquisition which is an acquisition of a legal entity that does not qualify as a business combination under IFRS 3 "Business Combinations". As a result no goodwill was recognised as part of the acquisition accounting, and a technology intangible of fair value GBP13m was recognised as an intangible asset with a useful life of 8 years (see note 7).

Disposals made during the current year

On 30 November 2021, the Group completed the sale of its Swiss business for gross consideration of GBP54m. Subsequently, on 4 April 2022 the Group completed the sale of its payroll outsourcing business in South Africa for gross consideration of GBP5m. Both businesses were held for sale at 30 September 2021. The gains on disposal are calculated as follows:

 
                                                       Switzerland  Payroll outsourcing business (South Africa)  Total 
Gains on disposal                                             GBPm                                         GBPm   GBPm 
=====================================================  ===========  ===========================================  ===== 
Cash consideration                                              54                                            5     59 
Gross consideration                                             54                                            5     59 
Transaction costs                                              (3)                                            -    (3) 
=====================================================  ===========  ===========================================  ===== 
Net consideration                                               51                                            5     56 
Net assets disposed                                           (15)                                          (1)   (16) 
Cumulative foreign exchange differences reclassified 
 from other comprehensive income to the 
 income statement                                               13                                            -     13 
Gains on disposal                                               49                                            4     53 
=====================================================  ===========  ===========================================  ===== 
 

Net assets disposed comprise:

 
                                 Switzerland  Payroll outsourcing business (South Africa)  Total 
                                        GBPm                                         GBPm   GBPm 
===============================  ===========  ===========================================  ===== 
Goodwill                                  10                                            1     11 
Property, plant and equipment              2                                            -      2 
Customer acquisition costs                 1                                            -      1 
Trade and other receivables                1                                            -      1 
Cash and cash equivalents                 14                                            -     14 
===============================  ===========  ===========================================  ===== 
Total assets                              28                                            1     29 
 
Trade and other payables                 (3)                                            -    (3) 
Borrowings                               (1)                                            -    (1) 
Current income tax liabilities           (1)                                            -    (1) 
Post-employment benefits                 (2)                                            -    (2) 
Deferred income                          (6)                                            -    (6) 
Total liabilities                       (13)                                            -   (13) 
===============================  ===========  ===========================================  ===== 
Net assets                                15                                            1     16 
===============================  ===========  ===========================================  ===== 
 

The gains are reported within continuing operations, as a non-recurring adjustment between underlying and statutory results.

The net inflow of cash and cash equivalents on the disposals is calculated as follows:

 
                                                      Switzerland  Payroll outsourcing business (South Africa)  Total 
Inflow of cash and cash equivalents on disposal              GBPm                                         GBPm   GBPm 
====================================================  ===========  ===========================================  ===== 
Cash consideration                                             54                                            5     59 
Transaction costs                                             (3)                                            -    (3) 
====================================================  ===========  ===========================================  ===== 
Net consideration received                                     51                                            5     56 
Cash disposed                                                (14)                                            -   (14) 
Net inflow of cash and cash equivalents on disposal            37                                            5     42 
====================================================  ===========  ===========================================  ===== 
 

Prior to the disposal, the Swiss business formed part of the Group's International - Central and Southern Europe reporting segment and the payroll outsourcing business in South Africa formed part of the International - Africa & APAC reporting segment.

Discontinued operations and assets and liabilities held for sale

There are no assets or liabilities held for sale at 30 September 2022.

Assets and liabilities held for sale at 30 September 2021 included two disposal groups which comprised the Group's business in Switzerland and the payroll outsourcing business in South Africa as well as the Group's North Park property site assets in the UK.

The two disposal groups were disposed in the year 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.

The Group had no discontinued operations during the year (30 September 2021: none).

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.

 
 
                                             2022   2021 
Key management compensation                  GBPm   GBPm 
==========================================  =====  ===== 
Salaries and short-term employee benefits      10      8 
Share-based payments                            5      4 
==========================================  =====  ===== 
                                               15     12 
==========================================  =====  ===== 
 

The key management figures given above include the executive directors of the Group.

13. Events after the balance sheet date

On 11 October 2022, the Group acquired 100% equity capital and voting rights of Spherics Technology Limited (Spherics) for total cash consideration of GBP11 million. Spherics provides a carbon accounting solution to help businesses easily understand and reduce their environmental impact. Due to the timing of the acquisition, being after 30 September 2022, the results of Spherics are not included in our financial statements for the year ended 30 September 2022 and the acquisition accounting has not yet been completed. In line with IFRS 3, the purchase price accounting for the acquisition will be finalised within 12 months of the acquisition date.

Managing Risk through our Risk Management Framework

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 FY22 Annual Report.

 
 PRINCIPAL RISK                      RISK CONTEXT                                             MANAGEMENT AND MITIGATION 
 Understanding                       Risk Trend: Improving Risk Environment 
  Customer Needs 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       As Sage continues to 
  anticipate, understand,             communicate its new                                       *    A new brand launched to communicate the new vision of 
  and deliver against                 brand and purpose, understanding                               how Sage will support businesses. 
  the capabilities                    of how to attract new 
  and experiences                     customers whilst retaining 
  our current and                     its existing customers                                    *    Brand health surveys to provide an understanding of 
  future                              is essential. This requires                                    customer perception of the Sage brand and its 
  customers need                      a deep and continuous                                          products, used to inform and enhance our market 
  in a timely manner;                 flow of insights supported                                     offerings 
  they will find                      by processes and systems. 
  alternative solution                By understanding the 
  providers.                          needs of our customers,                                   *    A Market and Competitive Intelligence team to provide 
  Strategic alignment:                Sage will differentiate                                        insights that Sage uses to win in the market 
                                      itself from competitors, 
                                      build compelling value 
                                      propositions and offers,                                  *    Proactive analysis of customer activity and churn 
                                      leverage key drivers                                           data, to improve customer experience 
                                      to identify opportunities, 
                                      influence product and 
                                      process roadmaps, decrease                                *    Customer Segmentation Framework and the customer 
                                      churn and drive more                                           market analysis by region to help inform product 
                                      effective revenue generation.                                  roadmaps 
 
 
                                                                                                *    Customer Advisory Boards, Customer Design Sessions 
                                                                                                     and NPS detractor call-back channels to constantly 
                                                                                                     gather information on customer needs. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Execution of                        Risk Trend: Improving Risk Environment 
  Product Strategy 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       We need to execute at 
  deliver the capabilities            pace, a prioritised                                       *    A product strategy in line with FY23 strategic 
  and experiences                     product strategy that                                          objectives and priorities, based on our market 
  outlined in our                     continues to simplify                                          understanding and customer expectations 
  product strategy                    our product portfolio 
  in a timely manner,                 and focuses on our drive 
  we will not meet                    to create a digital                                       *    A robust product organisation supported by a 
  the needs of our                    network that will benefit                                      governance model to enable the way we build products 
  customers or our                    our customers. 
  commercial goals. 
                                                                                                *    Migration framework in key countries to support our 
  Strategic alignment:                                                                               customers in their journey to the cloud 
 
 
                                                                                                *    Continued expansion of Sage Intacct outside of North 
                                                                                                     America and for additional product verticals (i.e. 
                                                                                                     retail with the acquisition of Brightpearl) 
 
 
                                                                                                *    Digitalisation of Sage products to support strategic 
                                                                                                     objections through the integration of Lockstep 
                                                                                                     (recent acquisition) 
 
 
                                                                                                *    Product design governance to ensure product 
                                                                                                     development is always driven by our understanding of 
                                                                                                     our ability to penetrate key markets. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Developing and                      Risk Trend: Stable Risk Environment 
  Exploiting New 
  Business Models 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we are unable                    We must be able to rapidly 
  to develop, commercialise           deploy new innovations                                    *    Creation of a new Business Unit solely focused on 
  and scale new                       to our customers and                                           creating the Sage Digital Network 
  business models                     partners by introducing 
  to diversify from                   technologies, services, 
  traditional SaaS,                   or new ways of working.                                   *    Continued focus on AI/ML development coupled with a 
  especially consumption-based        Innovation requires                                            drive to improve how to exploit data to provide 
  services and those                  us to address how we                                           better management insight to our customers 
  which leverage                      drive change and transformation 
  data, we will                       across our people, processes, 
  not meet the needs                  and technology, and                                       *    Enhanced, consistent digital experience for all Sage 
  of our customers                    how we differentiate                                           Business Cloud users through the Sage Design System 
  or our commercial                   our products and drive 
  goals.                              customer efficiencies. 
  Strategic alignment:                                                                          *    Strategic acquisition (e.g. Lockstep) and 
                                                                                                     collaboration with partners to complement and enable 
                                                                                                     accelerated innovation 
 
 
                                                                                                *    Focused colleague engagement to accelerate innovation 
                                                                                                     across the organisation through a Continuous 
                                                                                                     Innovation Community. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Route to Market                     Risk Trend: Improving Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       We have a blend of channels 
  deliver a bespoke                   to communicate with                                       *    Market data and intelligence is used to support 
  blend of route                      our current and potential                                      decision making regarding the best routes to market 
  to market channels                  customers and ensure 
  in each country,                    our customers receive 
  based upon common                   the right information                                     *    Dedicated colleagues are in place to support partners, 
  components, we                      on the right products                                          and to help manage the growth of targeted channels 
  will not be able                    and services at the 
  to efficiently                      right time. Our sales 
  deliver the right                   channels include selling                                  *    Sale processes are targeted and configured by region 
  capabilities and                    directly to customers                                          for key customer segments and verticals 
  experiences to                      through digital and 
  our current and                     telephony channels, 
  future customers.                   via our accountant network                                *    A dedicated On-Boarding Squad to enhance user 
  Strategic alignment:                and through partners,                                          journeys to enable customer conversion 
                                      valued added resellers 
                                      (VARs) and Independent 
                                      Software Vendors (ISVs).                                  *    Acceleration of new partnerships to support the 
                                      We use these channels                                          Digital Network 
                                      to maximise our marketing 
                                      and customer engagement 
                                      activities. This can                                      *    Centre of Excellence to support our Indirect Sales 
                                      shorten our sales cycle                                        and Third-Party approach. 
                                      and ensure that customer 
                                      retention is improved. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Customer Experience                 Risk Trend: Stable Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       We must maintain a sharp 
  effectively identify                focus on the relationships                                *    Battlecards are in place for key products in all 
  and deliver ongoing                 we have with our customers,                                    countries, setting out the strengths and weaknesses 
  value to our customers              constantly focusing                                            of competitors and their products 
  by focusing on                      on We must maintain 
  their needs over                    a sharp focus on the 
  the lifetime of                     relationship we have                                      *    A data-driven Customer Success Framework to enhance 
  their customer                      with our customers,                                            the customer experience and ensure that Sage is 
  journey, we will                    constantly focusing                                            better positioned to meet the current and future 
  not be able to                      on delivering the products,                                    needs of the customer 
  achieve sustainable                 services and experiences 
  growth through                      our customers need to 
  renewal.                            be successful. If we                                      *    Customer Journey mapping and mapping of the five core 
  Strategic alignment:                do not do this, they                                           customer processes to ensure appropriate strategy 
                                      will likely find another                                       alignment and alignment to Target Operating Model 
                                      provider who does give 
                                      them these things. Conversely, 
                                      if we do these things                                     *    'Customer for life' roadmaps, detailing how products 
                                      well these customers                                           fit together, any interdependencies, and migration 
                                      will stay with Sage,                                           pathways for current and potential customers 
                                      increasing their lifetime 
                                      value, becoming our 
                                      greatest marketing advocates.                             *    Continuous Net Promoter Score (NPS) surveying allows 
                                      Whilst Sage is known                                           Sage to identify customer challenges rapidly, and 
                                      for its quality customer                                       respond in a timely manner to emerging trends 
                                      support, this area requires 
                                      constant, proactive 
                                      focus. By helping customers                               *    Launch of member service to provide business tools 
                                      to recognise and fully                                         and advise to support businesses 
                                      realise the value of 
                                      Sage's products we can 
                                      help increase the value 
                                      of these relationships 
                                      over time and reduce 
                                      the likelihood of customer 
                                      loss. By aligning our 
                                      people, processes, and 
                                      technology with this 
                                      focus in mind, all Sage 
                                      colleagues can help 
                                      support our customers 
                                      to be successful and 
                                      in turn drive increased 
                                      financial performance. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Third Party Reliance                Risk Trend: Stable Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we do not embed                  Sage places reliance 
  our partners as                     on third-party providers                                  *    Centre of Excellence for our Indirect Sales and 
  an integral and                     to support the delivery                                        Third- Party partners 
  aligned part of                     of our products to our 
  Sage's go-to-market                 customers through the 
  strategy in a                       provision of cloud native                                 *    Dedicated colleagues in place to support partners, 
  timely manner,                      products.                                                      and to help manage the growth of targeted channels 
  we will fail to                     Sage also has an extensive 
  deliver the right                   network of sales partners 
  capabilities and                    critical to our success                                   *    Standardised implementation plans for Sage products 
  experiences to                      in the market, and suppliers                                   that facilitate efficient partner implementation 
  our customers.                      upon whom it places 
  Strategic alignment:                reliance. 
                                      Any interruption in                                       *    Managed growth of the API estate, including enhanced 
                                      these services or relationships                                product development that enables access by 
                                      could have a profound                                          third-party API developers 
                                      impact on Sage's reputation 
                                      in the market and could 
                                      result in significant                                     *    Enhanced third-party management framework, to support 
                                      financial liabilities                                          closer alignment and oversight of third-party 
                                      and losses.                                                    activities. 
 
 
                                                                                                *    A specialized Procurement function supporting the 
                                                                                                     business with the selection of strategic third-party 
                                                                                                     suppliers and negotiation of contracts. 
 
 
                                                                                                *    Investing in new types of partnerships to explore and 
                                                                                                     grow business in new markets. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 People and Performance              Risk Trend: Stable Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 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 colleagues                  and leadership skills                                          attractive in the market through our enhanced 
  with                                we need will continue                                          employee value proposition, enhanced presence through 
  the critical skills,                to change. Sage will                                           social media such as Glassdoor, Comparably, Twitter, 
  capabilities,                       not only need to attract                                       LinkedIn, and Facebook 
  and capacity we                     the talent and experience 
  need to deliver                     we will need to help 
  on our strategy,                    navigate this change.                                     *    Hiring practices focused on the skills we need in 
  we will not be                      We will also need to                                           balance with organisational costs supported by a 
  successful.                         provide an environment                                         methodology for upskilling and building capability in 
  Strategic alignment:                where colleagues can                                           the long term from within the organisation 
                                      develop to meet these 
                                      new expectations, an 
                                      environment where everyone                                *    Reward mechanisms designed to incentivize and drive 
                                      can perform at their                                           the right behaviour with a focus on ensuring fair and 
                                      very best.                                                     equitable pay in all markets 
                                      By empowering colleagues 
                                      and leaders to make 
                                      decisions, be innovative,                                 *    Focused development of our leaders (e.g. a 7-month 
                                      and be bold in delivering                                      Senior Leadership Programme) to ensure they create 
                                      on our commitments,                                            the environment which enables colleagues to thrive 
                                      Sage will be able to                                           and perform at their very best 
                                      create an attractive 
                                      working environment. 
                                      By addressing drivers                                     *    Implementing an effective hybrid working model across 
                                      of colleague voluntary                                         the organization 
                                      attrition, and embracing 
                                      the values of successful 
                                      technology companies, 
                                      Sage can increase colleague 
                                      engagement and create 
                                      an aligned high-performing 
                                      team. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Culture                             Risk Trend: Improving Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we do not fully                  The development of a 
  empower our colleagues              shared behavioural competency                             *    New values launched to align with our new Sage brand 
  and enable them                     that encourages colleagues 
  to take accountability              to always do the right 
  in line with our                    thing, put customers                                      *    Integration of Values and Behaviours into all 
  shared Values                       at the heart of business                                       colleague priorities including talent attraction, 
  and Behaviours,                     and drive innovation                                           selection, onboarding as well as performance 
  we will be challenged               is critical in Sage's                                          management 
  to maintain a                       success. Devolution 
  culture, that                       of decision making, 
  meets Sage's business               and the acceptance of                                     *    All colleagues are actively encouraged to take up to 
  ambitions.                          accountability for these                                       five paid Sage Foundation days each year, to support 
  Strategic alignment:                decisions, will need                                           charities and provide philanthropic support to the 
                                      to go hand in hand as                                          community 
                                      the organisation develops 
                                      and sustains its shared 
                                      Values and Behaviours,                                    *    Commitments to diversity, equity and inclusion (DEI) 
                                      and fosters a culture                                          including zero tolerance to discrimination, equal 
                                      that provides customers                                        chance to everyone, inclusive culture, removing 
                                      a rich digital environment.                                    barriers, DEI education, and development of a new DEI 
                                      Sage will also need                                            strategy to ensure we deliver on our commitments 
                                      to create a culture 
                                      of empowered leaders 
                                      that supports the development                             *    A DEI strategy focused on building diverse teams, an 
                                      of ideas, and that provides                                    equitable culture, and fostering inclusive 
                                      colleagues with a safe                                         leadership. This strategy is supported by measurable 
                                      environment allowing                                           plans and metrics to track progress 
                                      for honest disclosures 
                                      and discussions. Such 
                                      a trusting and empowered                                  *    A new transparency and accountability development 
                                      environment can help                                           framework 
                                      sustain innovation, 
                                      enhance customer success, 
                                      and drive the engagement                                  *    Code of Conduct communicated to all colleagues, and 
                                      that results in increased                                      subject to certification every two years 
                                      market share. 
 
                                                                                                *    Core eLearning modules rolled out across Sage, with 
                                                                                                     regular refresher training 
 
 
                                                                                                *    Whistleblowing and incident reporting mechanisms in 
                                                                                                     place to allow issues to be formally reported and 
                                                                                                     investigated. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Cyber Security                      Risk Trend: Improving Risk Environment 
  and Data Privacy 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       Information is the life 
  responsibly collect,                blood of a digital company                                *    Multi-year cyber security programmes in IT and 
  process and store                   - protecting the confidentiality,                              products to ensure Sage is driving continuous 
  data, together                      integrity and accessibility                                    improvement and cyber risk reduction across 
  with ensuring                       of this data is critical                                       technology, business processes and culture 
  an appropriate                      for a data-driven business, 
  standard of cyber                   and failure to do so 
  security across                     can have significant                                      *    Accountability within both IT and Product for all 
  the business,                       financial and regulatory                                       internal and external data being processed by Sage. 
  we will not meet                    consequences in the                                            The Chief Information Security Officer oversees 
  our regulatory                      General Data Protection                                        information security, with a network of Information 
  obligations, and                    Regulation (GDPR) era.                                         Security Officers that directly support the business 
  will lose the                       In addition, we also 
  trust of our stakeholders.          need to use our data 
  Strategic alignment:                efficiently and effectively                               *    The Chief Data Protection Officer oversees 
                                      to drive improved business                                     information protection 
                                      performance. 
 
                                                                                                *    Formal certification schemes maintained across the 
                                                                                                     business, and include internal and external 
                                                                                                     validation of compliance 
 
 
                                                                                                *    All colleagues are required to undertake awareness 
                                                                                                     training for cyber security, information management 
                                                                                                     and data protection, with a focus on the GDPR 
                                                                                                     requirements 
 
 
                                                                                                *    A Cyber Security Risk Management Methodology is 
                                                                                                     deployed to provide objective risk information on our 
                                                                                                     assets and systems. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Data Strategy                       Risk Trend: Improving Risk Environment 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       Data is central to the 
  recognise the                       Sage strategy to deliver                                  *    Data strategy across customer, product, and 
  value of our data                   our ambition                                                   enterprise data to support the delivery of customer 
  assets, deliver                     of a digital network.                                          value and solve customer problems, including the use 
  effective data                      The strategy is underpinned                                    of enhanced Artificial Intelligence /Machine Learning 
  foundations, and                    by our ability to innovate                                     capabilities 
  capitalise on                       and develop solutions 
  their use, we                       to enhance customer 
  will not be able                    propositions, improve                                     *    A global data function that drives focus and 
  to realise their                    insight and decision                                           alignment across the organization. In FY22, Sage 
  full potential                      making and create new                                          appointed its first Chief Data Officer. 
  to secure strategically             business models and 
  aligned outcomes.                   ecosystems. Successful 
  Strategic alignment:                ability to use data                                       *    A defined set of Data ethics and principles to ensure 
                                      will accelerate our                                            we use customer data responsibly to achieve our 
                                      growth and will be a                                           strategy 
                                      key driver in helping 
                                      customers transform 
                                      how they run and build                                    *    Plan to increase digital network participation, which 
                                      their businesses.                                              will contribute to more data to support the delivery 
                                                                                                     of real customer value and solve real customer 
                                                                                                     problems 
 
 
                                                                                                *    Governance policies, processes, and tooling to 
                                                                                                     enhance and manage the quality and consistency of our 
                                                                                                     data 
 
 
                                                                                                *    A data asset catalogue to enable creation of use 
                                                                                                     cases 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Readiness to                        Risk Trend: Improving Risk Environment 
  Scale 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       As Sage transitions 
  maintain a reliable,                to a digital company,                                     *    Migrating of products to public cloud offerings to 
  scalable, and                       we continue to focus                                           improve scalability, resilience, and security. 
  secure live services                on scaling our current 
  environment, we                     and future platform 
  will be unable                      services environment                                      *    Accountability across product owners, underpinned by 
  to deliver the                      in a robust, agile,                                            ongoing risk assessments and continuous improvement 
  consistent cloud                    and speedy manner to                                           projects 
  experience expected                 ensure the delivery 
  by our customers.                   of a consistent and 
  Strategic alignment:                robust cloud platform                                     *    Formal onboarding process including ongoing 
                                      and associated digital                                         management in Portfolio Management processes 
                                      network. 
                                      Sage must provide the 
                                      right infrastructure                                      *    Incident and problem management change processes 
                                      and operations for all                                         adhered to for all products and services 
                                      our customer products, 
                                      a hosting platform together 
                                      with the governance                                       *    Service-level objectives including uptime, 
                                      to ensure optimal service                                      responsiveness, and mean time to repair objectives 
                                      availability, performance, 
                                      security protection 
                                      and restoration (if                                       *    Defined Real-Time Demand Management processes and 
                                      required).                                                     controls and also Disaster Recovery Capability and 
                                                                                                     operational resilience models 
 
 
                                                                                                *    Improved focus and monitoring of product 
                                                                                                     availability. 
 
 
                                                                                                *    A governance framework to optimise operational cost 
                                                                                                     base in line with key metrics. 
 
 
                                                                                                *    All new acquisitions are required to adopt Sage cloud 
                                                                                                     operation standards. 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 Environmental,                      Risk Trend: Improving Risk Environment 
  Social and Governance 
                                    ------------------------------------------------------------------------------------------------------------------------ 
 If we fail to                       We are committed to 
  fully, and continually,            investing in education,                                    *    A robust Sustainability and Society strategy which 
  respond to the                     technology, and the                                             was launched in 2021, focusing on three pillars: Tech 
  range of environmental             environment to give                                             for Good, Fuel for Business, Protect the Planet 
  (especially climate),              individuals, small and 
  social, and governance-related     medium businesses (SMBs), 
  opportunities                      and our planet the opportunity                             *    Underpinning the strategy is a robust 
  and risks we may                   to thrive.                                                      cross-functional governance framework 
  fail to deliver                    Our goal is to use our 
  positive change                    technology, time, and 
  to social and                      experience to back a                                       *    Tracking tools in place to enable horizon scanning 
  environmental                      generation of diverse,                                          and to track the Sustainability and Society 
  issues and damage                  sustainable businesses.                                         strategy's impact 
  the confidence                     The potential benefits 
  of our stakeholders.               of investing in our 
                                     ESG strategy include:                                      *    As part of our broader Sustainability function, the 
  Strategic alignment:                *    Increased customer engagement                             Sage Foundation, established in 2015, remains focused 
                                                                                                     on the areas of education, employment, and 
                                                                                                     entrepreneurship via the contribution of time, 
                                      *    Better use of resources, for example lower energ          investment, and capability on managing climate risks 
                                     y and 
                                           water consumption and associated costs 
                                                                                                *    An integrated framework for the management of ESG 
                                                                                                     related risk, including physical and transitional 
                                      *    Enhanced stakeholder trust                                climate risks as recommended by the Taskforce for 
                                                                                                     Climate Related Financial Disclosures (TCFD) 
 
                                      *    Improved ability to attract and retain talent, 
                                           enabling colleagues to perform at their best 
 
 
                                      *    Stronger community relations 
                                    -------------------------------------------------------  --------------------------------------------------------------- 
 
 
 

Statement of Directors' Responsibilities

Responsibility statement of the Directors on the Annual Report & Accounts

The Annual Report & Accounts for the year ended 30 September 2022 includes the following responsibility statement.

The Directors as at the date of this report, whose names and functions are listed in the Board of Directors section of the Annual Report and Accounts, confirm that:

- To the best of their knowledge, the Group's financial statements, which have been prepared in accordance UK-adopted International Accounting Standards (UK-IFRS), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

- To the best of their knowledge, the Company's financial statements, which have been prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- To the best of their knowledge, the Directors' report and the Strategic report include a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that it faces.

The contents of this announcement, including the responsibility statement above, have been extracted from the annual report and accounts for the year ended 30 September 2022 which may be found at www.sage.com/investors and will be published on 1 December 2022. Accordingly, this responsibility statement makes reference to the financial statements of the Company and the Group and to the relevant narrative appearing in that annual report and accounts rather than the contents of this announcement.

On behalf of the Board

S Hare

Chief Executive Officer

15 November 2022

[1] Please see Appendix 1 for guidance on the usage and definitions of Alternative Performance Measures.

[2] Organic revenue and operating profit for FY21 have been restated to aid comparability with FY22. 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] As reported

[9] Underlying and organic revenue and profit measures are defined in Appendix 1.

[10] United Kingdom, Ireland, Africa and APAC

[11] Recurring and non-recurring items are defined in Appendix 1 and detailed in note 3 of the financial statements.

[12] Impact of retranslating FY21 results at FY22 average rates

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