The Sage Group plc
Annual Report and Accounts 2006
Bringing business management software and
services together for 5.2 million customers worldwide
Contents
Future Outlook
Long-term Strategy and Business Objectives
01 Operating and Financial Highlights
03 Chairman’s Introduction
Operating and Financial Review
07 Overview of our Business
11
13 Key Performance Indicators
14 Results for 2006 Financial Year
16
16 Risks and Uncertainties
17 Resources
18 Corporate Social Responsibility
21
Governance
27 Directors and Advisers
29 Directors’ Report
33 Corporate Governance Statement
39 Remuneration Report
Consolidated Financial Statements
Under IFRS 2006
53 Consolidated Income Statement
53 Consolidated Statement of Recognised
Financial Review
Income and Expense
54 Consolidated Balance Sheet
55 Consolidated Cash Flow Statement
56 Notes to the Accounts – Group
105 Independent Auditors’ Report
Parent Company Financial
Statements Under UK GAAP 2006
107 Company Balance Sheet
108 Notes to the Accounts – Company
113 Independent Auditors’ Report
Investors
115 Notice of Meeting
119 Shareholder Information
Operating and Financial Highlights
and Chairman’s Introduction
CONTENTS
01 Operating and Financial Highlights
03 Chairman’s Introduction
Operating and Financial Highlights
The Sage Group plc Annual Report and Accounts 2006 p1
Operating Highlights
● Total licence growth of 12%*,
total growth in services of 28%*
● 7%* organic growth for the full year
(reflecting 8%* organic growth for the
second half of the year)
● Growth across all regions and strong
performance in established product lines
such as Line 50 (UK), Line 100 (France),
MAS 500, Peachtree, Simply Accounting
(all North America) and Pastel (South Africa)
● CRM products delivered global organic
growth of 8%*
● Customer base expanded to 5.2m
businesses (2005: 4.7m)
● Significant acquisition activity, broadening
both geographic reach and product range
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Overview
Sage is one of the leading suppliers of
business management software to 5.2 million
small and medium-sized enterprises (“SMEs”)
worldwide. Our goal is to help our customers
manage their business processes more
effectively through software applications and
service support.
Our products include traditional “back office”
applications for accounting, payroll and human
resources functions as well as “front office”
applications including Customer Relationship
Management (“CRM”) and payment
processing services. We also provide software
and service applications customised to the
requirements of particular industries, including:
● Health care
● Food distribution
● Transport
● Manufacturing
● Real estate/construction
● Accountancy practices
● Not-for-profit organisations
(charities, hospitals, schools)
● Retail
Our business philosophy is founded on
our belief that SMEs want local solutions
for local markets. This focus on local market
requirements has helped our customer base
grow steadily year on year. Connecting with our
customers on a local level and servicing their
local needs is the cornerstone of our success.
The Sage Group plc Annual Report and Accounts 2006 p2
Financial Highlights
+23%*
EBITA £249.3m
+20%
Adjusted EPS^ 12.54p
+25%
Total dividend 3.59p
+14%
Pre-tax profit £221.2m
+22%*
Revenue £935.6m
27%
EBITA margin maintained
107%
Operating cash flow/EBITA
REVENUE (£m)
PROFIT BEFORE TAX (£m)
ADJUSTED EPS^ (pence)
2006
2005
2004
935.6
759.6
687.6
2003
560.3
2002
551.7
2006
2005
2004
221.2
193.6
181.1
2003
151.0
2002
129.2
2006
2005
2004
12.54
10.49
9.90
2003
8.16
2002
6.99
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
Figures included in the graphs above for the years 2002 – 2004 reported under UK GAAP.
Chairman’s Introduction
The Sage Group plc Annual Report and Accounts 2006 p3
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
“I am pleased to report a
strong performance, with
revenue increasing 22%* and
adjusted earnings per share^
increasing 20%. These results
demonstrate that our
businesses have responded
well to the competitive
challenges they face.”
We maintained our strong market positions
by providing locally-developed solutions, by
working closely with our high quality business
partners and by supporting customers with
locally-based services. This enabled us to
increase our customer base to 5.2 million
businesses (2005: 4.7 million).
Our 2006 results reflect strong progress
towards the long-term strategy and business
objectives described in more detail on pages
11 and 12 of our Operating and Financial
Review. We will continue to pursue our
strategy in 2007 and beyond.
MARKET TRENDS
As our customers grow, they demand more
sophisticated applications for managing their
businesses, tailored to the requirements of
their specific industry. Over the year, we
introduced new industry-specific applications
in health care, food distribution, transport,
manufacturing and real estate/construction,
further extending the product range we can
offer our customers. These applications
broaden the range of industry-specific
solutions we offer globally to our customers
in these business segments.
There is also increased demand for “packaged”
combinations of software upgrades and
support services contracts. These combined
services contracts represented 53% of total
support revenues and showed an organic
growth rate of 12%*. We expect that these
combined software/support contracts will
constitute an increasing portion of services
revenue going forward and will strengthen the
recurring revenues derived from traditional
software revenues. Overall, these specialist
solutions and enhanced services are higher
margin business lines and enjoy strong
customer loyalty.
PEOPLE
We now employ over 13,000 people (2005:
10,000), the increase resulting principally from
acquisitions. Our new employees have
integrated well into our corporate structure
The Sage Group plc Annual Report and Accounts 2006 p4
In September 2006, Ruth Markland joined
the Board as a non-executive director. Ruth,
a non-executive director of Standard
Chartered plc, has wide experience of
international business from her role between
1996 and 2003 as Managing Partner, Asia
for the international law firm Freshfields
Bruckhaus Deringer.
OUTLOOK
This has been an exciting year for Sage with a
number of significant acquisitions broadening
both the products and services we offer to
SMEs. We are one of the largest suppliers of
business management software solutions to
the SME market worldwide and our presence
in high growth, high margin markets continues
to expand. We have reported strong organic
growth in our business, demonstrating the
strength and potential of our existing
customer base.
We will continue to serve the changing needs
of our dynamic SME customer base using
our expertise and insight into a wide range
of industries. We remain confident about
our prospects for continued growth through
focusing on value-added services, tailored
solutions and premium versions of
current products.
Sir Julian Horn-Smith
Chairman
18 January 2007
and are already making a contribution to our
local businesses. In all our businesses, our
people have demonstrated commitment to
meeting the needs of our customers and their
achievements have been reflected in
numerous industry awards for product
quality and customer service.
Our decentralised approach to managing
our global network enables our people to be
responsive to our customers’ needs and to
continue to develop products and services that
match country-specific customer requirements.
The contribution of individuals at Sage is
always highly valued and respected and this
year we have continued to benefit from new
ideas on business processes and products,
thanks to the innovative approach of our
people. I would like to thank everyone in
Sage for their professionalism, dedication
and contribution to the year’s performance.
BOARD
I joined the Board on 3 March 2006 having
previously held the role of Deputy Chief
Executive of Vodafone Group plc. I became
Chairman on 1 August 2006.
On 1 August 2006 Michael Jackson retired
from the Board. Michael joined the Board in
1984 and was Chairman from 1997. During
this period Michael helped guide the Group
through its initial growth to become UK
market leader, its flotation as a listed
company and its international expansion
through a series of successful acquisitions.
The Board would like to thank Michael for
his substantial contribution to Sage’s growth
over the past 22 years.
During the year, Lindsay Bury retired from the
Board. Lindsay joined the Board in 1996 and
chaired its Remuneration Committee from that
date. He also acted as Senior Independent
Director. Lindsay made a significant
contribution to the Board during this time. On
behalf of the Sage team, I would like to thank
Lindsay for his valuable contribution.
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
The Sage Group plc Annual Report and Accounts 2006 p5
Operating and Financial Review
The Sage Group plc Annual Report and Accounts 2006 p6
CONTENTS
This review has been prepared in accordance
with the Directors’ Report Business Review
Requirements in section 234ZZB of the
Companies Act 1985. It also incorporates much
of the guidance set out in the Accounting
Standards Board’s Reporting Statement on
the Operating and Financial Review (“OFR”).
The OFR’s intent is to provide information
to shareholders. It should not be relied on
by any other party or for any other purpose.
Where this review contains forward-looking
statements, these are made by the Directors in
good faith based on the information available to
them at the time of their approval of this report.
These statements should be treated with caution
due to the inherent uncertainties underlying
any such forward-looking information.
The OFR discusses the following areas:
07 Overview of our Business
11 Long-term Strategy and Business Objectives
13 Key Performance Indicators
14 Results for 2006 Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social Responsibility
21 Financial Review
Operating and Financial Review
The Sage Group plc Annual Report and Accounts 2006 p7
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Overview of our Business
KEY FACTS
40,000
certified consultants
promoting Sage
products
5.2m
customers
1.5m
customers advised
through support
contracts
30,000
customer calls
per day
BUSINESS PHILOSOPHY AND
MANAGEMENT STRUCTURE
Sage is one of the leading suppliers of
business management software to 5.2 million
small and medium-sized enterprises (“SMEs”)
worldwide. Our goal is to help our customers
manage their business processes more
effectively through software applications and
support services.
Our business philosophy is founded on our
belief that SMEs want locally designed
solutions that meet the requirements of their
particular markets. Our local focus allows us
to develop compelling products tailored to
specific market requirements, but with the
backing of a global brand. This focus on local
markets differentiates us from our competition
and has contributed to the steady growth in
our customer base year on year.
23,000
business partners
13,000
employees
To allow us to leverage the power of our local
expertise, we operate a deliberately devolved
organisational strategy, based on four regional
businesses: United Kingdom & Ireland,
Mainland Europe & Asia, North America and
South Africa & Australia. The regional
businesses report to the Group but have
substantial independence in determining
business strategy and product development
for their particular regions. They are therefore
represented on our Executive Committee
which also comprises senior members of our
central team. The Executive Committee
structure which supports this organisational
strategy is shown opposite.
PRODUCT AND SERVICE STRATEGY
Our decentralised organisational model, local
product strategy and industry specialisms
give us a unique insight into our customers’
businesses. Through innovation, we translate
this into an offering that fits the specialised
needs of SME customers. This is one of our
competitive advantages and it has allowed us
to become market leader in many of our
operating regions. It is also the cornerstone of
our product strategy and is discussed further
on page 12.
The Sage Group plc Annual Report and Accounts 2006 p8
MANAGEMENT STRUCTURE
Paul Walker
Group Chief
Executive
Paul Harrison
Group Finance
Director
Paul Stobart
Managing
Director
UK & Ireland
Guy Berruyer
Managing
Director
Mainland
Europe & Asia
Ron Verni
Managing
Director
North America
Ivan Epstein
Managing
Director
South Africa
& Australia
Michael Robinson
Company
Secretary &
Group Legal
Director
Klaus-Michael
Vogelberg
Chief
Technology
Officer
Karen Geary
Director of Human
Resources
& Corporate
Communications
Increasingly, we incorporate common
technology platforms across different product
lines to benefit from global synergies.
In October 2006, we announced a global
agreement to work with MySQL AB, using a
common database platform in our entry-level
products. From our customers’ perspective this
is a significant development as it reduces the
overall cost of ownership. In the mid-market,
choice of operating systems and databases
is important to many of our customers. We
therefore remain committed to working with
a range of operating systems and databases.
“Packaged” combinations of software upgrades
and support services contracts are a growing
part of our business as customers continue
to streamline management of their business
processes. We expect that these combined
software/support contracts will constitute an
increasing portion of services revenues going
forward and will strengthen the recurring
revenues derived from traditional software
revenues. Overall, these specialist solutions and
enhanced services are higher margin business
lines and enjoy strong customer loyalty.
Our products include traditional “back office”
applications for accounting, payroll and
human resources functions as well as
“front office” applications including customer
relationship management and payment
processing services.
We also provide software and service
applications customised to the requirements
of specific industries.
Sage industry-specific applications
Health care
Food distribution
Transport
Manufacturing
Real estate
Region
North America
Mainland Europe
Mainland Europe
All regions
Mainland Europe
North America
North America
Construction
Accountancy practices
All regions
Not-for-profit organisations Mainland Europe
North America
(charities, hospitals, schools)
United Kingdom
Retail
Mainland Europe
North America
Our products and services integrate and
complement each other so we are able to
support very small businesses through to
complex multi-divisional organisations in the
mid-market. They are deployed in traditional
PC/server based format and increasingly,
over the internet. Typically we serve
businesses with up to 500 employees,
although our industry-specific applications
often serve larger businesses.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p9
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
2006 REVENUE CONTRIBUTION
BY PRODUCT LINE
The software and support services we offer
include some of the following applications:
7%
16%
3%
60%
60%
14%
● Accounting
● Payroll/HR
● Payment
● processing services
● Industry-specific
● CRM
OUR BRANDS
The Sage brand is admired and trusted in key
SME markets around the world. In addition,
we have acquired some of the most
respected products and business brands
which we continue to leverage. Through a
combination of greater brand trust, superior
product and service offering and strong
customer relationships, we continue
to build our market position.
Accounting and financials
We recognise that accounting software is core
to our offering and are continuing to invest in
this area, both in developing new and existing
products in our existing markets and in exploring
the potential of completely new markets.
Our products are unique to each country
and designed to satisfy the legal and fiscal
requirements of our customers in that country.
HR and payroll
As with our accounting products, we have
a broad range of payroll products designed
with the particular requirements of a specific
country in mind. Within a given country there
are payroll solutions to suit the needs of most
sizes of business, from those with only a
handful of employees to those that have
thousands of employees. We are continuing to
develop these payroll products. Recently, our
North American business introduced a service
that allows a customer to outsource their
payroll processing to Sage, further reducing
their administrative and legislative burden.
Sage offers a complete solution for SMEs giving them insight
and control over all aspects of their business - this is
illustrated in our 2007 marketing campaign in North America.
The Sage Group plc Annual Report and Accounts 2006 p10
CRM
CRM products are the only area where we
believe it is appropriate to approach the
SME market with global products, since
businesses around the world face similar
challenges in managing their customer
relationships. We recently re-organised our
CRM business along global lines to reflect
this. Sage has three CRM products, each
designed to satisfy a different set of
customer requirements and, as the market
for CRM develops, we expect to offer our
CRM solutions in more countries.
Industry-specific solutions
SMEs are increasingly demanding software
that is tailored to the requirements of the
particular industry in which they operate. In
response to this, we are investing in
developing a range of tailored business
solutions, from add-ons to our core accounting
packages with specific industry features to
complete suites of products. These solutions
are designed to allow SMEs to optimise their
existing business processes rather than
adapting them to conform to standard software.
Payment processing services
Our newest service facilitates payment
processing for SME customers with retail-,
telephone- or internet-based payment
requirements. Customer research shows
that the ability to accept payment remotely
is increasingly important for SME businesses
in a wide range of industries, particularly
when this service is tightly integrated with
back-office accounting and management
information applications. We now offer
payment processing applications in the
United States and the United Kingdom and
will be developing this service offering further.
DISTRIBUTION STRENGTH
The diversity of our distribution channels
is one of our key business strengths.
Each business works closely with an
influential “referral” group, usually
accountants and business advisers, who act
as advocates for our products in the market.
Worldwide, we have over 40,000 advisers
recommending Sage products to their clients.
We are also developing new referral networks,
such as the partnership we initiated with
Barclays Bank in the UK, who sell Sage
business management products to their small
business customers.
In addition, we have over 23,000 business
partners and certified consultants promoting
our products to the market. Most of these
business partners are long-term Sage
partners with in-depth specialist knowledge
of Sage products. They keep us in touch
with market dynamics and help us develop
products tailored to local needs, particularly
in the mid-market sector where customers
often have unique requirements.
REVENUE BREAKDOWN:
SOFTWARE/SERVICES
2006
Software
Software
£323m
323
35%
35%
Services
Services
£613m
613
65%
65%
Total
Total
£936m
936
2005 Software
Software
£289m*
289
38%
38%
Services
Services
£477m*
477
62%
62%
Total
Total
£766m*
766
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p11
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Long-term Strategy and
Business Objectives
BUSINESS PHILOSOPHY
Our business philosophy is based on five
principles that guide our commercial strategy:
Simplicity: We believe in finding simple,
high quality, innovative solutions to help our
customers manage their business processes.
We aim to make it easier for our customers
to do business with us and easier for them
to use our products.
Agility: We are flexible in our approach
to the changing needs of our customers
and the markets in which we operate. Our
decentralised approach means we are able to
challenge ourselves constantly over how we
can do business in a more agile way.
Innovation: We are committed to exceeding
customers’ evolving needs. We aim to be first
to market with creative solutions to our
customers’ challenges and take an equally
innovative approach across all other aspects
of our business model.
Integrity: Relationships with customers,
suppliers, shareholders and employees are
the foundations of our business. They must
be built on credibility and mutual respect. We
expect our people to act with integrity in their
dealings with all of our stakeholders and to
challenge business practice or behaviours
that might threaten our corporate reputation.
Trust: We are consistent in delivering our
promises to our customers, employees,
business partners and shareholders.
We aim to differentiate ourselves from our
competition by building closer relationships
with our customers and improving the ease
of using our products and services. We believe
that we offer outstanding customer service
and our approach is designed to engender
customer loyalty. Support service is an
essential component of our product offering
and is critical to developing an enduring
relationship with our customers. It allows our
customers to benefit fully from their software
solutions as well as giving us direct insight
into market and product developments.
MAKING IT EASIER FOR OUR CUSTOMERS
TO MANAGE THEIR BUSINESS PROCESSES
Support services
Local focus
and insight
Core principles
Targeted
acquisitions
Strong business
partner network
SME
expertise
Great
people
ent proc e s s i n
R
H
m
y
a
P
v i c es
C R M
y r o ll
a
r
s e
g
p
an d
Accounting
and
financials
Global strength
Trusted brands
Choice and
breadth
Local expertise
A solution for
every business
Admired employer
Industry-specific
solutions
The Sage Group plc Annual Report and Accounts 2006 p12
We want our customers to recommend
our products to others, demonstrating our
understanding of the needs of our target
customer base. A key indicator of our success
in building strong customer relationships is the
level of renewal rates on our maintenance and
support contracts. Satisfied customers actively
choose to stay with Sage products and our
renewal rates are at a historic high.
PRODUCT AND SERVICE DEVELOPMENT
Our business philosophy is underpinned by
our commitment to creating value for our
customers, our business partners and our
shareholders. We continue to innovate and
develop our products to offer our customers
the range and depth to meet their needs.
We reinvest on average 30% of our software
revenues into research and development.
Through continued innovation in our products
and services, we strive to meet our
customers’ needs more effectively than our
competitors, driving our future growth.
Continued strength in our core businesses is
an essential measure of our success in
meeting the challenge of product innovation,
which is shown by our consistently strong
rate of organic revenue growth, excluding
contribution from recent acquisitions.
ACQUISITION STRATEGY
We also seek to innovate and grow through a
carefully managed and disciplined acquisition
strategy, supporting our existing businesses.
We acquire companies in order to bring new
products or knowledge to our portfolio, which
has strengthened Sage and has brought
greater depth and expertise. We are committed
to expanding the Group through acquisition into
new regions throughout the world and providing
complementary products in our existing markets.
We seek acquisitions which enhance our range
of products and services and which support our
strategy of meeting the broader needs of SMEs.
We focus on opportunities to expand our
business into new geographic areas, to
broaden our core product and service offerings
through related products and to develop our
industry-specific applications. In the past year,
we completed seven significant acquisitions
that met these criteria, complementing and
extending our businesses around the world. Our
successful acquisition strategy has contributed
to the continuing growth of our business.
We manage our acquisition programme through
rigorous analysis of the strategic opportunity,
cultural fit with our corporate vision and strong
financial discipline. Valuations are initially
derived from discounted cash flow modelling,
based on conservative assumptions for growth
prospects, terminal value and discount rates.
There then follows a quantitative and qualitative
evaluation of the target’s value, depending on
what we believe the target could contribute
to our core business.
Acquisition opportunities are identified both
centrally and by our regional businesses with
supervision and approval from the central
team. Successfully completed acquisitions
are generally integrated into the organisational
structure of our regional businesses.
CREATION OF VALUE
We are firmly committed to delivering
enhanced value to our shareholders through
growth in both earnings and dividends.
Our successful record in creating shareholder
value is based on our focus on organic growth,
our core skills in understanding the needs
of SMEs and our proven acquisition strategy.
Creating shareholder value continues to be
a strategic priority. We measure our success
in creating value for our shareholders through
the growth in our adjusted earnings per share
(“EPS”), which we have delivered consistently
over the past five years.
FINANCIAL STRENGTH
Maintaining the financial health and stability of
our business operations is our primary strategic
goal, allowing us to reinvest in our core
businesses and pursue appropriate acquisition
opportunities. We measure our financial
performance through the EBITA margin and
cash generation from operations. EBITA
margin monitors our costs and expenses
against revenues and has been maintained
at a high level for the past several years.
Our business model continues to be strongly
cash generative which provides necessary
funds for reinvestment and development of
our business operations. In the last five years,
cash generation from operations has
consistently exceeded profit as a result of our
high level of recurring revenues and naturally
low working capital requirements.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p13
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Key Performance Indicators
Our progress on our strategic objectives
is monitored by the Board of Directors by
reference to the key performance indicators
(“KPIs”) applied on a Group-wide basis. Our
regional businesses also set individual KPIs
tailored to their local business operations.
The Board has debated which KPIs provide
the most accurate view of our business,
taking into account Sage’s decentralised
organisational structure. The KPIs selected
are regularly reviewed to ensure that they
provide a true picture of our business
performance. KPIs relating to the environment
are kept under review, but are not considered
relevant as our businesses have limited
environmental impact. In any event, risks
arising from environmental issues are kept
under review as part of our internal control
environment as referred to on page 16 under
the heading “Risks and Uncertainties”. Our
performance against our KPIs is discussed in
more detail in the section on “Long-term
Strategy and Business Objectives” on pages
11 and 12.
Performance in 2006 is set out in the table
below, together with the prior year’s
performance data. No changes have been
made to the source of the data or calculation
methods used in the year. In both years the
results are calculated on an IFRS basis.
2006 2005
20% 13%
Adjusted earnings
per share growth
Organic revenue growth
EBITA margin
Cash generation
from operations
Renewal rates on maintenance 80% 78%
and support contracts
7% 6%
27% 27%
107% 119%
ADJUSTED EARNINGS PER
SHARE GROWTH
Adjusted earnings per share represents
income for the financial year, prior to the
amortisation of intangible assets, divided
by the weighted average number of ordinary
shares in issue during the year. This is our fifth
consecutive year of double-digit EPS growth.
ORGANIC REVENUE GROWTH
Organic revenues are derived from our core
business operations, excluding the contribution
from acquisitions made in the current and prior
year, along with non-core products. Current
year revenue is compared to the prior financial
year translated on consistent exchange rates
to eliminate distortions due to fluctuations in
exchange rates. Organic revenue growth
strengthened compared to the prior year,
increasing 1% to 7% for the full year.
EBITA MARGIN
EBITA is defined as earnings before interest,
tax and amortisation. This measure excludes
the effects of amortisation of acquired
intangible assets and the net amortisation or
capitalisation of software development
expenditure. The EBITA margin represents
EBITA divided by revenue for the year. EBITA
margins remained constant relative to the
prior year.
CASH GENERATION FROM OPERATIONS
Operating cash flows divided by EBITA
provide a measure of the ability of the Group
to yield cash from its on-going business to
reinvest and fund liabilities. The Group aims to
maintain positive cash generation from
operations.
RENEWAL RATES ON MAINTENANCE
AND SUPPORT CONTRACTS
Customer retention is an important measure
of competitiveness in the market. Renewal
rates are calculated as the number of
maintenance and support contracts which
were renewed in the period divided by the
number of contracts which were potentially
renewable in the period. Renewal rates on the
Group’s maintenance and support contracts
reached a historic high level of 80% this year.
The Sage Group plc Annual Report and Accounts 2006 p14
Results for 2006 Financial Year
OVERVIEW
We are pleased once again to report strong
growth during 2006, with our existing
businesses performing well. Our acquisition
programme has this year moved us into new
product lines and new geographic areas.
Our customer base and business partners
continue to provide the cornerstone of our
strong market positions and underpin our
organic growth. Over the year, we added
553,000 new businesses (283,000 resulting
from acquisitions made this year), increasing
our customer base to 5.2 million (2005: 4.7
million). Our strategy of developing local
products and services for local markets has
helped make us one of the largest global
vendors of business management software
solutions to SMEs.
2006 REGIONAL REVENUE CONTRIBUTION
£205.2m
205.2
299.8
£299.8m
361.5
£361.5m
● UK & Ireland
● Mainland Europe
● North America
● Rest of World
£69.1m
UK & IRELAND
UK & Ireland revenues totalled £205.2m
(2005: £192.6m) with strong organic growth
of 7%. Line 50, our core UK product, had
another strong year, with revenue growing
13%. We also introduced several new
products and continued our successful
strategy of combining software and services
contracts. Payroll, CRM and industry-specific
products also performed well.
This year Sage UK began a review of its
product lines to improve integration of
different applications into a broad suite of
business management software solutions.
Extensive customer research showed that
customers increasingly want business
management software solutions rather than
individual products. We are initiating a new
phase in our product development to meet
that need by strengthening integration of
different product lines and building on
common database technology for entry-level
products, where possible.
The EBITA margin was maintained at 37%
(2005: 37%).
In November 2006, after the close of the
financial year, we announced the acquisition
of Protx Group Ltd (“Protx”), a provider of
payment processing services. This was our
second acquisition in the rapidly growing
payment processing services sector. Protx
complements our acquisition of Verus
Financial Management, Inc. (“Verus”) in
February 2006, which provides a similar,
less specialised range of payment processing
services in the US. The acquisition of Protx
in the UK represented a further step in
developing our offering in this exciting market.
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p15
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
MAINLAND EUROPE
Total revenues in Mainland Europe were
£299.8m (2005: £203.8m*) with organic
growth of 5%*. Spain recorded another year
of strong organic growth of 10%*, with
excellent progress in developing the support
offering for entry-level products. A strong
performance in the Mid-Market Division
contributed to France’s organic growth rate
of 4%*. Switzerland showed good organic
growth, with strength in both entry-level and
mid-market licences. Challenging market
conditions in Germany kept combined organic
growth in Germany/Switzerland to 2%*.
Poland’s Symfonia, acquired in 2005, showed
good growth in entry-level licences, with overall
revenues rising 15%* on a like-for-like basis.
The EBITA margin was maintained at 22%
(2005: 22%*).
Several acquisitions were completed in
Mainland Europe over the year, including
Adonix S.A. (“Adonix”), Bäurer GmbH
(“Bäurer”) and Elit Group (“Elit”), which
significantly expanded our industry-specific
solutions into new industries. These high
growth, high margin businesses offer great
potential in developing our mid-market,
industry-specific products in Europe. Adonix
complements our existing Line 1000 product
in France and brings new offerings for the
real estate and manufacturing sectors.
Bäurer strengthens our mid-market position
in Germany, bringing a suite of advanced
business management solutions including
industry-specific software for manufacturing.
Elit, also in France, offers industry-specific
applications tailored to the food distribution
and transport sectors.
NORTH AMERICA
Total revenues in North America were
£361.5m (2005: £311.6m*) with organic
growth of 6%*, reflecting a recovery of
organic growth in the second half to 7%*.
Accounting products, including Peachtree,
Simply Accounting and MAS 500, all posted
significant growth, as did CRM products.
The Small Business Division grew organically
by 10%*, with strong performances from
all products, particularly ACT!, Simply
Accounting and Peachtree. The Mid-Market
Division recovered from the slowdown in
the first half of the year and recorded an
annual organic growth rate of 4%*, boosted
by good performances in MAS 500 and
ACCPAC products.
The EBITA margin improved 1% to 25%
(2005: 24%*) including a profit on disposal
of £2.7m relating to a small business unit
sold in January 2006.
We made three significant acquisitions in
North America over the year: Verus, Emdeon
Practice Services, Inc. (“Emdeon”) and Master
Builder/Contractor Anywhere.
Verus was our first acquisition in the rapidly
growing area of payment processing services,
a strategically important market for our
business. Verus brought a new customer base
of 100,000 businesses concentrated in the
SME segment, where we have great potential
to integrate our back office solutions with
payment processing. Verus has performed
ahead of our expectations at acquisition and
has grown by 24%* on a like-for-like basis
since acquisition.
Emdeon, now renamed Sage Healthcare
Division, establishes for Sage a significant
presence in the doctors’ practices market
in the US. Doctors’ practices in the US are
classic SMEs, often resource-constrained, yet
with significant administrative and back office
challenges. This industry is currently facing
substantial legislative change, which in the past
has been a catalyst for increased demand for
our products and services. We completed the
Emdeon acquisition on 14 September 2006
and are confident about the opportunities for
this business with its established customer
base of 20,000 doctors’ practices.
The Sage Group plc Annual Report and Accounts 2006 p16
Master Builder and Contractor Anywhere were
acquired in May 2006 and together further
enhanced our existing presence in the US
construction industry. These acquisitions
expanded our offering to smaller businesses
in the construction industry complementing our
existing mid-market product Timberline Office.
REST OF WORLD (“ROW”: SOUTH AFRICA,
AUSTRALIA, ASIA, INDIA, UAE)
Total revenues in ROW were £69.1m (2005:
£58.4m*) with organic growth of 17%*. Our
South African business enjoyed an excellent
year with strong performances in accounting
and payroll products. Australia also reported
good growth in its core products for
professional accountants and payroll markets.
The EBITA margin increased to 27%
(2005: 24%*).
We completed two smaller acquisitions during
the year in China, a strategically important
geography. In May 2006, Sage Software
(Shanghai) Co Ltd was founded through the
acquisitions of SWA Ltd. and Huatuo Software
Ltd., both established IT companies in the mid-
market enterprise resource planning (“ERP”)
segment. In July 2006, we completed the
acquisition of UBS Corporation Berhad (“UBS”),
the leading vendor of business management
software solutions for SMEs in Malaysia.
These acquisitions were important steps in
our strategy gradually to build up a significant
presence in the Asian markets whilst
developing local market expertise.
GLOBAL CRM REVIEW
Our CRM product lines encompass a
comprehensive range from entry-level
packages like ACT! through to Sage CRM and
hosted SageCRM.com, which offer a greater
degree of customer functionality. SalesLogix
is a highly customisable CRM solution offering
our reseller partners significant opportunities
to add value through tailoring our solution
to suit customers’ specific requirements.
Global CRM revenue grew 8%* organically.
Future Outlook
This has been an exciting year for Sage with a
number of significant acquisitions broadening
both the products and services we offer to
SMEs. We are one of the largest suppliers of
business management software solutions to
the SME market worldwide and our presence
in high growth, high margin markets continues
to expand. We have reported strong organic
growth in our business, demonstrating the
strength and potential of our existing
customer base.
We will continue to serve the changing
needs of our dynamic SME customer base
using our expertise and insight into a wide
range of industries. We remain confident
about our prospects for continued growth
through focusing on value-added services,
tailored solutions and premium versions of
current products.
Risks and Uncertainties
There are a number of potential risks and
uncertainties which could have a material
impact on the Group’s long-term performance
and cause actual results to differ materially
from expected and historical results. We seek
to identify material risks and put into place
contingency plans to mitigate the Group’s
potential exposure. The Group’s risk
management policies and procedures are
also discussed in the Corporate Governance
Statement on pages 33 to 38.
COMPETITOR RISK
The market for business management
software solutions is highly competitive.
This competition may intensify, particularly in
the small and medium-sized business market,
because increasing sophistication in this
market segment may attract more companies
to enter the market. Many companies with
which we compete, or which may enter into
competition with us, have substantial
financial, marketing and technical resources.
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p17
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
To mitigate this risk, we work to build strong
customer relationships and expand and
develop our product offering, both organically
and through acquisitions.
COMMERCIAL RELATIONSHIPS
Some of our products utilise software
licensed to us by independent, third-party
software developers. We also depend on
third parties to enhance their current
products, to develop new products on a
timely and cost-effective basis and to respond
to rapid technological change. Any absence
or failure of key third-party products could
have a material effect on our business.
To mitigate this risk, we keep under review all
key commercial relationships and developments
in technology in our marketplace. We also work
with a diversity of partners to mitigate the risk
inherent in working with a single partner.
OPERATIONS
The Group’s facilities could be disrupted by
events beyond the Group’s control such as
fire, workforce actions or other issues. The
Group prepares recovery plans for most
foreseeable situations so that our business
operations would continue should these
situations occur.
FOREIGN EXCHANGE AND TREASURY
Although a substantial proportion of the
Group’s revenue and profit is earned outside
the UK, subsidiaries generally only trade in
their own currency. The Group is therefore not
subject to any significant foreign exchange
transactional exposure. The Group’s principal
exposure to foreign currency, therefore, lies in
the translation of overseas profits into sterling.
This exposure is hedged to the extent that
these profits are offset by interest charges in
the same currency arising from the financing
of the investment cost of overseas
acquisitions by borrowings in the same
currency. In light of this limited exposure to
foreign exchange risk, the Group does not
hold any sophisticated financial instruments
such as derivatives.
The Group has some exposure to interest rate
volatility and seeks to fix interest rates on a
proportion of its debt when market conditions
make this desirable. At 30 September 2006,
all outstanding debt was held at variable
interest rates.
Resources
The Group has the following key resources
which assist in its pursuit of its key objectives:
● Well-established and respected brands;
● Strong distribution channels and
established working relationships with
business partners;
● Quality products and services with strong
market positions;
● Extensive knowledge of our local markets;
● Strong financial resources and cash
generation;
● Employees who have extensive knowledge
of the key markets and therefore can assist
in the development of new products;
● Strong corporate reputation for quality
products;
● Highly qualified, stable employee base.
The Sage Group plc Annual Report and Accounts 2006 p18
Corporate Social
Responsibility (“CSR”)
INTRODUCTION
It is the role and responsibility of the Board
to take into account all aspects of social,
environmental and ethical issues in its
discussions and decision-making. The Board
receives reports at each Board meeting from
Group executives on relevant developments
in these areas. In order to verify that as a
group of companies we are working to these
standards, we require each of our operating
companies to report on key indicators on a
quarterly basis.
The Board considers that material risks from
social, environmental and ethical issues are
limited. However, it takes a proactive
approach to risk management of these issues.
The Risk Committee, consisting of executive
management, identifies and considers any
risks to the business of the Group from social,
ethical and environmental issues and reports
on any such risks to the Audit Committee of
the Board. Should any risks be identified, the
Risk Committee monitors the steps being
taken by operating companies to reduce
such risks. The induction programme for new
Board directors explains the procedures for
identification, assessment and management
of risk, including those arising from social,
environmental and ethical issues. Through
both the quarterly reporting cycle and the
reviews undertaken by the Risk Committee,
the Board has in place an effective system
to manage risks in this area.
As part of our on-going commitment to
improving and maintaining good practices
across the Group, the Board continues to
ensure that an executive has specific
responsibility for this area. Karen Geary,
Director of Human Resources and Corporate
Communications, continues to have
responsibility for matters relating to CSR.
Our operating companies (“OpCos”) are
encouraged and supported in undertaking
positive corporate social responsibility
activities within a common policy framework
provided by the Group regarding employment,
marketplace, community and environmental
matters. In order to develop our framework
further and drive an involving and engaged
approach to CSR, we have appointed a team
comprising members of all OpCos. The team
will take the existing framework and develop
it as appropriate with each OpCo in line with
Sage’s guiding principles.
Our OpCos have adopted the principles of:
● Treating employees fairly and equitably;
● Operating ethically and with integrity;
● Respecting basic human rights;
● Seeking to limit our impact on the
environment;
● Being a caring member of our
communities.
We currently do not set specific CSR targets
for our OpCos, but it is a matter that the Board
continues to monitor. At present the Board
does not consider it appropriate to link the
management of social, environmental and
ethical issues to remuneration incentives, given
the difficulties in objectively measuring risk
management and performance in this area.
EMPLOYMENT
We strive to ensure our people are proud to
work for our Group. We encourage and foster
a culture of innovation, entrepreneurship and
team spirit within a supportive environment.
Sage now employs over 13,000 people and
we continue to recruit and retain only the best
talent. It is our goal to bring out the best in
our people and it is our policy to pursue
practices that are sensitive to their needs.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p19
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006
Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Our priorities are:
● Ensuring equality of opportunity, fostering
diversity and providing a safe workplace;
● Encouraging our people to reach their
full potential through training, career
development and promotion from within
the Group, where possible;
● Communicating openly and transparently
with our people and taking into account
their feedback;
● Recognising and rewarding our people
for their contribution and encouraging
share ownership at all levels.
We have an equal opportunities policy
that applies across the Group prohibiting
discrimination on grounds of race, gender,
religion, sexual orientation or disability.
We operate in a number of geographic
regions, adhering to all relevant laws that
apply and support internationally accepted
standards on human rights. Our policy
includes, where practical, the continued
employment of those who may become
disabled during their employment. Our
policies ensure that all decisions about the
appointment, treatment and promotion of
employees are based entirely on merit.
Key activities in 2006:
Across the Group as a whole we have
enhanced our people policies and activities,
introducing some of the following initiatives:
● Group-wide policy statement relating to
bribery and corruption that applies to all
employees and is published on our global
intranet site;
● Group-wide policy relating to Health and
Safety published on our global intranet site;
● Methodology introduced for measuring key
people drivers for success;
● Establishment of a talent database to drive
structured succession planning;
● Group-wide communication of our
corporate principles of Simplicity, Agility,
Innovation, Integrity and Trust;
● Enhancement of our internal
communications framework in order to
help our people connect more closely
with our collective vision and purpose.
Our OpCos have introduced local initiatives
in their regions, including:
● Employee involvement programmes
in our larger regions;
● Employee award programmes to
recognise extra effort and high
performance in many OpCos;
● New performance management
frameworks in the UK and North America;
● Intranets to improve employee
communication and involvement in the
UK and Mainland Europe;
● Social events in all regions to promote
and embed our corporate principles;
● Health awareness programmes in the
UK, Mainland Europe and South Africa;
● English language lessons in Mainland
Europe;
● Employee involvement in CSR activities
in the UK and Mainland Europe.
OUR MARKETPLACE
It is our aim to be a trusted advisor to our
customers, a respected and admired company
in our industry and a leader in encouraging
the growth and development of SMEs through
the effective use of information technology.
We actively promote the use of the internet in
business, particularly in the area of government
submissions. Our awareness of the importance
of prompt payment to small businesses is
demonstrated by our commitment to pay
customers and suppliers on fair terms.
All of our OpCos focus on customer
satisfaction by:
● Monitoring customer advocacy and
recommendation;
● Undertaking loyalty surveys;
● Responding to customer support phone
calls, handling on average 30,000 calls
per day in total;
● Holding customer awareness events and
discussion groups to enable customers
and Sage employees to meet face to face;
● Surveying SMEs to understand their
business issues;
● Releasing publications discussing current
business issues.
The success of our customer satisfaction
policies is evidenced by the numerous
industry awards won by our OpCos:
The Sage Group plc Annual Report and Accounts 2006 p20
ENVIRONMENT
It is our policy to ensure that our operations
have as little environmental impact as is
consistent with our business needs. We work
to promote environmental care, to increase
our understanding of environmental issues
and to spread environmental best practice
throughout our businesses. As a software
publisher and services provider, our business
activities have minimal environmental impact;
however, we encourage all our OpCos to
pursue environmental best practice. We make
maximum use of internet and telephone-
based tools to manage international meetings
in order to minimise air travel where possible
and many of our OpCos have introduced
policies and incentives to reduce car use.
This year we have strengthened our
environmental activity with continued focus
on waste reduction, energy minimisation and
reduced packaging as we continue to work
to minimise any negative impact on the
environment. We will continue to work on
this area in the coming years.
Major initiatives from our OpCos include:
● Recycling facilities in all office locations;
● Recycled water used for landscaping
in many office locations across North
America and Mainland Europe;
● Campaigns to minimise production
of manuals, printed materials and
packaging associated with product
sales across all regions;
● Increasing use of the internet for
distribution of printed materials;
● Campaigns to minimise power use
in the UK and Mainland Europe;
● Measurement of the carbon footprint
in the UK;
● The Group’s annual report is now only
mailed in hard copy if requested by the
shareholder (rather than the shorter
Summary Financial Statements) and users
are encouraged to view our full report via
the website.
● The UK won two awards for ‘Best
Community Spirit’ at the industry’s
annual World Contact Centre Awards and
‘European Contact Centre of the Year’
at the European Contact Centre Awards;
● North America won the K2 Enterprise
2006 Quality Award for Technical Support;
● Sage CRM Solutions (North America) was
named ‘Product of the Year 2006’;
● North America won the 2006 ‘Rebrand
Award’ in the Rebrand 100 Global Awards;
● North America won ‘Call Centre Award
for The Americas’ sponsored by
ContactCenterWorld.com;
● Ireland won ‘Customer Service Team
of the Year’ at the Customer Service
Awards for Ireland.
COMMUNITY
It is our policy to be an integral part of the
communities in which we are based. We are
committed to developing relationships with
those communities, where appropriate,
through voluntary activities and donations.
Close relationships have been fostered with
many communities through local initiatives
and numerous donations have been made to
local, national and international charities and
community foundations.
In total this year we donated £200,100 to
various charities.
Sage Day 2006 once again acted as a focus
for our community activity. The theme was
‘Connecting with Our Community’ and every local
office was encouraged to partner with another
Sage office in a different country and organise
activities to learn about each other while raising
funds for a local cause selected by employees.
The Group also became a member of
The Prince’s Trust, making a donation to a
fund for young people from disadvantaged
backgrounds who wish to start up in business.
Each of our OpCos work within the community
in ways that are meaningful to them and their
people. Employees are encouraged to become
more closely involved in the local community
through a wide range of sponsorship, donations
and partnerships with schools, hospitals,
orphanages and charities. Many OpCos are
actively involved in their business communities
with partnerships and award programmes to
encourage idea generation, business start-ups
and excellence in business practice.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p21
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006 Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
Financial Review
OVERVIEW
In the year ended 30 September 2006,
revenue increased by 23% to £935.6m (2005:
£759.6m). Earnings before interest, tax and
amortisation, which exclude the effects of
amortisation of acquired intangible assets
and the net amortisation or capitalisation of
software development expenditure (“EBITA”)
rose by 23% to £249.3m (2005: £202.1m)
reflecting an EBITA margin of 27% (2005:
27%). Profit before taxation increased by
14% to £221.2m (2005: £193.6m) and
adjusted earnings per share^ grew by 20% to
12.54p (2005: 10.49p). These results include a
gain of £2.7m on the disposal of a small North
American business unit in January 2006.
The impact of the year on year movement
in exchange rates was to increase prior year
revenue by £6.8m and EBITA by £1.2m,
mainly due to the weakening of sterling
against the US dollar. Accordingly, on a
constant currency basis, revenue increased
by 22%* and EBITA increased by 23%*.
INTERNATIONAL FINANCIAL REPORTING
STANDARDS (“IFRS”)
The Group is, for the first time, reporting full
year results under IFRS. The results for 2005
have been restated under IFRS. Reconciliation
of the 2005 results is available on Sage’s
website, www.sage.com. To measure financial
performance, the Board uses EBITA.
REVENUE ANALYSIS
Organic revenue growth was 7%*. Organic
revenue growth improved from 5%* in the first
half of the year to 8%* in the second half of
the year. We calculate organic growth by
removing the contributions of current and
prior year acquisitions and of non-core
products. Non-core products, which
accounted for 3% of Group revenues, are
those products where the focus is not on
growth but rather on encouraging customers
to move, over time, to core solutions.
Total software licence revenues were £322.8m
(2005: £289.0m*), with organic growth of 5%*.
Total services revenues increased to £612.8m
(2005: £477.4m*), benefiting from strong
organic growth of 8%* for the year. Following
the acquisition of Verus, services revenues
now include three categories of revenues,
maintenance and support (75% of services
revenue), payment processing services (5% of
services revenue) and other (business forms,
professional services and hardware), (20% of
services revenue). Maintenance and support
revenues grew by 9%* organically. Payment
processing services is a new category
comprising Verus, and, in 2007, Protx, following
our acquisition of this company in November
2006. The category of Other Services grew by
2%* organically, but remains an important
ancillary service to our main support offering.
GEOGRAPHICAL CONTRIBUTIONS
The UK & Ireland contributed 22% (2005:
25%) of Group revenue. It remains the highest
margin business in the Group. On an organic
basis, revenue grew 7% with growth biased
to a strong performance at the entry-level
market segment. The UK’s EBITA margin was
maintained at 37% (2005: 37%).
The Sage Group plc Annual Report and Accounts 2006 p22
PROFIT BEFORE TAXATION
Group profit before taxation for the year
was £221.2m, £27.6m ahead of 2005 profit
before taxation.
TAXATION
Taxation was £68.6m for the year ended
30 September 2006, £7.4m above last year
reflecting the higher profit achieved. The
effective tax rate for the Group reduced
slightly to 31% (2005: 32%).
EARNING PER SHARE
Basic earnings (after amortisation) per share
for the year ended 30 September 2006 was
11.81p, compared with 10.31p in 2005.
Diluted earnings per share were 11.73p,
compared with 10.26p for 2005.
DIVIDEND AND DIVIDEND POLICY
In line with the Group’s policy, announced in
December 2004, of reducing dividend cover
over time, to 3.5 times (pre amortisation of
intangible assets), the proposed final dividend
for the year ended 30 September 2006 is
being raised to 2.51 pence per share (2005:
1.95 pence per share), giving dividend growth
for the full year of 25% to 3.59 pence per
share (2005: 2.88 pence per share). The final
dividend will be payable on 9 March 2007
to shareholders on the register at close
of business on 9 February 2007.
Revenues in Mainland Europe grew on a
constant currency basis by 47%* and were
32% (2005: 26%*) of Group revenue. EBITA
margins were maintained at 22% (2005: 22%*).
Organic revenue growth was 5%*.
Overall North America revenues on a constant
currency basis grew by 16%* and were 39%
(2005: 41%*) of Group revenue. Overall North
American EBITA margins increased to 25%
(2005: 24%*). Organic revenue growth was
6%*, moving from 4%* in the first half of the
year to 7%* in the second half.
Revenues in South Africa, Australia and Asia
contributed 7% (2005: 8%*) to Group
revenue and grew organically by 17%*.
The EBITA margin in the region increased
to 27% (2005: 24%*).
Revenue and EBITA are discussed in more
detail on a Group and regional basis in
“Results for 2006 Financial Year” above.
Operating profit (EBITA after amortisation
of intangible assets and net amortisation
or capitalisation of software development
expenditure) for the year ended 30 September
2006 was £235.8m (2005: £199.3m), which
represents an operating margin of 25% (2005:
26%). The reduction in operating margin over
the prior year is due to increased intangible
amortisation charges of £13.6m (2005: £3.3m)
arising on acquisitions made in the current
and prior year.
INTEREST
The net interest cover for the Group for the
year ended 30 September 2006 was 16.2
times. This was reduced from 35 times in
the prior year, due to higher average net
debt levels resulting from new debt drawn
down in the year (see further details in
“Capital structure” below).
*Foreign currency results for the year ended 30 September 2005 have been retranslated based on the average exchange
rates for the year ended 30 September 2006 of $1.80/£1 and €1.46/£1 to facilitate the comparison of results. Results for
2005 have been restated in accordance with IFRS.
^EPS figures stated prior to amortisation of intangible assets.
Operating and Financial Review continued
The Sage Group plc Annual Report and Accounts 2006 p23
01 Operating and
Financial Highlights
03 Chairman’s Introduction
07 Overview of our Business
11 Long-term Strategy and
Business Objectives
13 Key Performance Indicators
14 Results for 2006 Financial Year
16 Future Outlook
16 Risks and Uncertainties
17 Resources
18 Corporate Social
Responsibility
21 Financial Review
RESEARCH AND DEVELOPMENT AND
CAPITAL EXPENDITURE
The Group spent £95.7m in the year
ended 30 September 2006 on research
and development (2005: £81.6m). Of this
amount £0.9m was capitalised as relating
to development of new software and £0.8m
was amortised to the income statement
relating to prior years’ expenditure which
had been capitalised.
NET DEBT
The Group has net debt of £593.6m at 30
September 2006 (2005: £114.8m). During the
year additional debt of £1,131.1m was drawn
down. The Group continues to be able to
borrow at competitive rates and therefore
currently deems this to be the most effective
means of raising finance. Acquisitions of
£617.5m have therefore been funded by
debt financing.
Capital expenditure in the year ended 30
September 2006 (including the purchase of
3rd party software systems for internal use)
was £27.0m (2005: £20.7m). The majority of
this expenditure relates to IS infrastructure,
both in new and replacement systems.
In November 2006, after the close of the
financial year, the Group drew down an
additional £19.0m of debt in connection
with the acquisition of Protx Group Ltd
(“Protx”) in the UK (see “Post balance
sheet events” below).
CAPITAL STRUCTURE
Our balance sheet at 30 September 2006 can
be summarised as set out in the table below:
Net assets increased by 10% to £977.6m
(2005: £888.9m) and net assets per share by
10% to 76 pence (2005: 69 pence). The main
movements in the balance sheet items were
in goodwill and intangible fixed assets
(relating mainly to investment in acquisitions
of £617.5m) and the associated change in
net debt (see further “Net debt” and “Cash
flow” below).
CASH FLOW
The Group remains highly cash generative
with operating cash flow of £267.1m
representing 107% of EBITA. After interest,
tax and dividends, this gave free cash flow
of £153.7m. The cash net cost of acquisitions
completed in the period was £617.5m and
net cash receipts of disposals were £7.8m.
After net capital expenditure of £20.9m,
payments in respect of intangible assets
and net development capitalisation of £3.3m
and other movements of £1.4m, net debt
stood at £593.6m at 30 September 2006
(30 September 2005: £114.8m).
Capital structure
Property, plant and equipment
Goodwill and intangible assets
Current assets and liabilities
Post-retirement obligations
Deferred tax
Total before net debt
Net debt
Total as at 30 September 2006
Total as at 30 September 2005
Assets
£m
133.8
1,747.5
220.4
-
26.3
2,128.0
82.9
2,210.9
1,510.6
Liabilities
£m
-
-
(544.7)
(2.1)
(10.0)
(556.8)
(676.5)
(1,233.3)
(621.7)
Net assets
£m
133.8
1,747.5
(324.3)
(2.1)
16.3
1,571.2
(593.6)
977.6
888.9
The Sage Group plc Annual Report and Accounts 2006 p24
POST BALANCE SHEET EVENTS
On 13 November 2006 the Group announced
that it had acquired Protx, for an enterprise
value of £20.0m.
GOING CONCERN
Based on normal business planning and
control procedures, the directors have a
reasonable expectation that the Company
and the Group have adequate resources
to continue in operational existence for the
foreseeable future. For this reason, the
directors continue to adopt the going
concern basis in preparing the accounts.
TREASURY
Facilities, cash management and gearing
The Group's acquisition programme is funded
through multi-currency revolving credit
facilities totalling £850m. £200m of these
facilities expire on 15 January 2011 and
£650m expire on 4 August 2011. At 30
September 2006, £662.7m had been drawn
under these facilities, leaving £187.3m
undrawn. Group cash balances are invested
for appropriate periods with institutions and in
instruments with high credit ratings.
Hedging strategy
Whilst a substantial proportion of the Group’s
revenue and profit is earned outside the UK,
subsidiaries generally only trade in their own
currency. The Group is therefore not subject
to any significant foreign exchange
transactional exposure. The Group’s principal
exposure to foreign currency, therefore, lies in
the translation of overseas profits into sterling.
This exposure is hedged to the extent that
these profits are offset by interest charges in
the same currency, arising from the financing
of the investment cost of overseas acquisitions
by borrowings in the same currency.
The Group treasury management policy
provides that the Group will seek to fix
interest rates on a proportion of its debt when
market conditions make this desirable. At 30
September 2006 net debt was held at variable
interest rates. In light of the nature and level
of the exposures identified above, the Group
does not hold any sophisticated financial
instruments such as derivatives.
Governance
CONTENTS
27 Directors and Advisers
29 Directors’ Report
33 Corporate Governance Statement
39 Remuneration Report
Directors and Advisers
The Sage Group plc Annual Report and Accounts 2006 p27
7
8
9
10
11
1
2
3
4
5
6
1 Sir Julian Horn-Smith, 58
Chairman, Non-executive Director
Sir Julian joined Vodafone in 1984 and held a number of
senior appointments before being appointed to its Board in
1996 and becoming Deputy CEO in 2005. Previously he held
positions in Rediffusion and Mars GB. He is also a
non-executive director of Lloyds TSB. He joined the Board of
Sage in March 2006, becoming Chairman on 1 August 2006.
2 Paul Walker, 49
Chief Executive
Paul joined Sage as company accountant in 1984 having
previously trained as a chartered accountant with Arthur
Young. He was appointed Finance Director in 1987 and
became Chief Executive in 1994. In May 2002, Paul was
appointed to the Board of Diageo plc as a non-executive
director.
3 Paul Harrison, 42
Finance Director
A chartered accountant, Paul moved from Price
Waterhouse, where he was a senior manager responsible
for the provision of audit and advisory services to larger
private and public companies, to become Group Financial
Controller of Sage in 1997. He joined the Board as Group
Finance Director in April 2000.
4 Paul Stobart, 49
Managing Director, UK and Ireland
After qualifying as a chartered accountant with Price
Waterhouse, Paul spent five years in corporate finance
with Hill Samuel before joining Interbrand, an international
marketing services consultancy, in 1988. He joined Sage
in 1996 as Business Development Director becoming
Managing Director of UK and Ireland in June 2003.
In July 2003, Paul was appointed to the Board of
Capital & Regional plc as a non-executive director.
5 Guy Berruyer, 55
Managing Director, Mainland Europe and Asia
Guy was a director of Bull and Claris before joining Intuit
as Country Manager and then European Director. He
joined Sage in 1997 and was appointed to the Board in
January 2000. As well as Mainland Europe, Guy is
also responsible for our operations in Asia.
6 Ron Verni, 58
Managing Director, North America
Ron was a Vice President of Marketing with Automatic
Data Processing and President and CEO of NEBS
Software, Inc. before joining Peachtree Software, Inc.
as President and CEO in July 1994. In October 2000,
Ron was appointed CEO of the combined Sage North
American operations and was appointed to the Group
Board in July 2002.
The Sage Group plc Annual Report and Accounts 2006 p28
7 David Clayton, 49
Independent Non-executive Director
After a career in senior executive roles at a number of
international technology companies, David joined BZW
in 1995 where, after its merger with CSFB in 1997, he
was Managing Director and Head of European Technology
Research until 2004. He joined the Board in June 2004
and was appointed Senior Independent Director on
12 September 2006.
8 Tony Hobson, 59
Independent Non-executive Director
Tony is the Chairman of Northern Foods plc and a non-
executive director of HBOS plc (where he chairs the Audit
Committee) and Glas Cymru. He is the Senior Independent
Director of AIM-listed, Cenkos Securities plc. He was
previously Group Finance Director of Legal and General
Group plc for 14 years, retiring in 2001. He is a member
of the Board of Trustees of the Darden Graduate School
of Business, University of Virginia. He joined the Board
in June 2004.
9 Tamara Ingram, 46
Independent Non-executive Director
Tamara, who joined the Board in December 2004, is
responsible for WPP plc’s Procter & Gamble business
worldwide. She is also CEO of advertising group
Grey UK, chairman of Visit London and chair of the
Development Board for the Royal Court Theatre. Prior
to Grey, Tamara was President of the Henley Centre and
marketing insights company Added Value. Previously,
Tamara worked at Saatchi and Saatchi for 15 years,
rising to the role of Executive Chairman.
10 Tim Ingram, 59
Independent Non-executive Director
Tim is Chief Executive of Caledonia Investments plc.
He was formerly Managing Director of Business to
Business Banking at Abbey National plc. He is a
non-executive director of Savills plc and was appointed
to the Group Board in March 2002.
11 Ruth Markland, 53
Independent Non-executive Director
Ruth is a non-executive director of Standard Chartered plc
and Chairman of the Board of Trustees of WRVS. She was
formerly Managing Partner, Asia for the international law
firm, Freshfields Bruckhaus Deringer and was appointed
to the Group Board on 13 September 2006.
CONTACTS
Financial Advisers
Deutsche Bank
1 Great Winchester Street
London
EC2N 2EQ
Corporate Brokers
Deutsche Bank
1 Great Winchester Street
London
EC2N 2EQ
Regional Brokers
Brewin Dolphin
Securities Limited
Commercial Union House
39 Pilgrim Street
Newcastle upon Tyne
NE1 6RQ
Principal Bankers
Lloyds TSB Bank plc
Corporate Banking
1st Floor
31/32 Park Row
Leeds
LS1 5JT
Auditors
PricewaterhouseCoopers LLP
89 Sandyford Road
Newcastle upon Tyne
NE1 8HW
Registrars
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 6DA
Solicitors
Allen & Overy LLP
One Bishops Square
London
E1 6AO
Registered Office
North Park
Newcastle upon Tyne
NE13 9AA
The Sage Group plc
Registered Number: 2231246
www.sage.com
Directors’ Report
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p29
The directors present their report and the audited financial
statements for the year ended 30 September 2006.
PRINCIPAL ACTIVITIES
The Group’s principal activities during the year continued
to be the development, distribution and support of
business management software and related products and
services for medium-sized and smaller businesses.
BUSINESS REVIEW
The Group achieved a profit on ordinary activities before
taxation of £221.2m on revenue of £935.6m.
CHARITABLE CONTRIBUTIONS AND POLITICAL
DONATIONS
During the year, within the UK, charitable contributions
totalling £103,000 were made, which included £50,000 to
The Tyne and Wear Community Foundation, £15,000 to
The Community Foundation for Greater Manchester,
£15,000 to The Berkshire Community Foundation, £15,000
to the NSPCC, £4,500 for children’s charity Christmas
presents and a total of £3,500 smaller contributions to
numerous charities. The rest of the Group made charitable
contributions totalling £97,100. No political donations were
made in the year.
The information that fulfils the requirements of the
Business Review including Key Performance Indicators
can be found in the Operating and Financial Review
on pages 7 to 24 which is incorporated in this report
by reference.
The purpose of this Annual Report is to provide
information to the members of the Company. The Annual
Report contains certain forward-looking statements with
respect to the operations, performance and financial
condition of the Group. By their nature, these statements
involve uncertainty since future events and circumstances
can cause results and developments to differ materially
from those anticipated. The forward-looking statements
reflect knowledge and information available at the date of
preparation of this Annual Report and the Company
undertakes no obligation to update these forward-looking
statements. Nothing in this Annual Report should be
construed as a profit forecast.
RESULTS AND DIVIDENDS
The trading results for the year, dividends paid and
proposed and the amount transferred to reserves are set
out on page 53. The Board proposes a final dividend of
2.51 pence per share (2005: 1.953 pence per share) taking
the proposed full year dividend to 3.59 pence per share
(2005: 2.875 pence per share).
RESEARCH AND DEVELOPMENT
During the year, the Group invested £94.8m in research
and development (2005: £80.5m). This has resulted in a
number of new products and features as referred to in the
Operating and Financial Review on pages 7 to 24.
DIRECTORS AND THEIR INTERESTS
A list of directors, their interests in the ordinary share
capital of the Company and details of their options over
the ordinary share capital of the Company are given in
the Remuneration Report on pages 39 to 50. No director
had a material interest in any significant contract, other
than a service contract or contract for services, with
the Company or any of its subsidiaries at any time during
the year.
As at the date of this report, indemnities are in place under
which the Company has agreed to indemnify the directors,
to the extent permitted by law and by the Company’s
articles of association, in respect of all liabilities incurred
in connection with the performance of their duties as a
director of the Company or its subsidiaries. Copies of
these indemnities are available for review at the registered
office of the Company.
EMPLOYMENT POLICY
The Group continues to give full and fair consideration to
applications for employment made by disabled persons,
having regard to their respective aptitudes and abilities.
The policy includes, where practicable, the continued
employment of those who may become disabled during their
employment and the provision of training and career
development and promotion, where appropriate. The Group
has continued its policy of employee involvement by making
information available to employees on matters of concern
to them. Many employees are stakeholders in the business
through participation in share option schemes. Further details
of employment policies are given on pages 18 and 19.
The Sage Group plc Annual Report and Accounts 2006 p30
CREDITOR PAYMENT POLICY
Given the international nature of its operations, the Group
does not operate a standard code in respect of payments
to suppliers. Subsidiary operating companies are
responsible for agreeing the terms and conditions under
which business transactions with their suppliers are
conducted, including the terms of payment. It is the Group’s
policy that payments to suppliers are made promptly in
accordance with these terms. Creditor days for the Group
have been calculated at 40 days (2005: 37 days).
The Resolutions to be put at the Annual General Meeting
are in the notice of Annual General Meeting set out on
pages 115 to 118.
Resolution 1 is to receive and consider the audited
accounts for the year ended 30 September 2006 together
with the reports of the directors and auditors. The
directors are required to present to the meeting the
accounts together with these reports which are contained
in this Annual Report.
SUBSTANTIAL SHAREHOLDINGS
At 18 January 2007, the Company had been notified, in
accordance with sections 198 to 208 of the Companies
Act 1985, of the following interests in the ordinary share
capital of the Company:
● Zurich Assurance Ltd
● FMR Corp
● The Capital Group Companies, Inc.
● Scottish Widows Investment Partnership Ltd
● Legal & General Investment Management Ltd
5.07%
4.96%
3.97%
3.23%
3.00%
FUTURE DEVELOPMENTS
The Group’s future developments are described in the
Operating and Financial Review on pages 7 to 24.
ANNUAL GENERAL MEETING
Notice of the nineteenth Annual General Meeting of The
Sage Group plc to be held on Tuesday 6 March 2007 is set
out on pages 115 to 118. A form of proxy is enclosed for
members who wish to use one. It should be returned so
as to be with the Company’s registrars no later than
10.00am on 4 March 2007. Shareholders with internet
access may register their voting instructions online for the
forthcoming Annual General Meeting. They may register
their vote electronically by going to www.sharevote.co.uk.
They will be required to key in the three security numbers
printed on the form of proxy to access the voting site.
CREST members may appoint their proxy or proxies
electronically via Lloyds TSB Registrars (ID 7RA01).
Resolution 2 recommends a final dividend of 2.51 pence
per ordinary share be declared. The final dividend declared
cannot exceed the amount recommended by the directors.
The proposed final dividend, which will be payable on 9
March 2007 to holders of ordinary shares registered at the
close of business on 9 February 2007, will bring the total
dividend for the year to 3.59 pence per share. Last year the
total dividend was 2.875 pence per share.
Resolutions 3 to 7 relate to the re-appointment of certain
directors to the Board.
In accordance with the Company’s articles of association,
Sir Julian Horn-Smith, Ms R Markland, Mr P A Walker,
Mr P S Harrison and Mr P L Stobart will be retiring at the
Annual General Meeting and, being eligible, will offer
themselves for re-election. Messrs Walker, Harrison and
Stobart have service contracts with the Company,
terminable on twelve months’ notice by the Company.
Sir Julian Horn-Smith has a contract for services with the
Company for a fixed period of three years from 3 March
2006, terminable within that period by 12 months’ notice
from the Company or from him.
Ms R Markland has a contract for services with the Company
for a fixed term of three years from 13 September 2006,
terminable within that period by six months’ notice from the
Company and one month’s notice from her.
Directors’ Report continued
The Sage Group plc Annual Report and Accounts 2006 p31
Resolution 3 relates to the re-appointment
of Sir Julian Horn-Smith. Sir Julian joined the Board in
March 2006 becoming Chairman on 1 August that year.
He is also a non-executive director of Lloyds TSB
and from 1984 to 2006 he was a senior executive of
Vodafone Group plc becoming its Deputy Chief Executive
Officer in 2005.
Resolution 4 relates to the re-appointment
of Ms R Markland. Ms Markland joined the Board on
13 September 2006. She is a non-executive director
of Standard Chartered plc and has extensive experience
of business in the Far East from her time as Managing
Partner, Asia of the international law firm Freshfields
Bruckhaus Deringer.
Resolution 5 relates to the re-election of Mr P A Walker.
Mr Walker joined the Company in 1984, becoming Finance
Director in 1987 and Chief Executive in 1994.
Resolution 6 relates to the re-election of Mr P S Harrison.
Mr Harrison joined the Group as Financial Controller in
1997, becoming Group Finance Director in 2000.
Resolution 7 relates to the re-election of Mr P L Stobart.
Mr Stobart joined the Group in 1996, becoming Managing
Director of UK and Ireland in June 2003.
Further biographical details of Messrs. Horn-Smith,
Walker, Harrison, Stobart and Ms Markland are set out on
pages 27 and 28.
The Nomination Committee, which is the Committee
of the Board which considers the balance of the Board
and the mix of skills, knowledge and experience of its
members, has considered and approved the re-
appointment of Ms Markland and of Messrs. Horn-Smith,
Walker, Harrison and Stobart. Messrs. Horn-Smith,
Walker, Harrison and Stobart have been subject to a
formal evaluation procedure in the last twelve months.
Following that procedure the Chairman confirms the
continuing commitment and contribution of Messrs
Walker, Harrison and Stobart to their roles. Mr D H
Clayton, the Senior Independent Director, also confirms
the continuing commitment and contribution to his role
of Sir Julian Horn-Smith. Having joined the Board in
September 2006 Ms Markland has not yet been subject
to such a procedure.
Resolution 8 relates to the re-appointment of the auditors.
PricewaterhouseCoopers LLP have indicated their
willingness to continue in office.
Resolution 9 is to approve the Remuneration Report on
pages 39 to 50. The Directors’ Remuneration Report
Regulations 2002 (the “Regulations”) require that a report,
prepared in accordance with the Regulations, is put to a vote
of shareholders at the Annual General Meeting.
Resolutions 10 and 11 will be proposed to enable the
directors to renew their existing power to allot unissued
shares in the capital of the Company up to an aggregate
nominal amount of £4,314,200 (representing 33.2% of the
nominal value of the Company’s issued share capital on
18 January 2007, the latest practicable date prior to the
printing of this document) and to allot equity securities
for cash up to an aggregate nominal amount of £647,140
(representing 4.98% of the issued ordinary share capital of
the Company on 18 January 2007, the latest practicable
date prior to the printing of this document). These
authorities will expire at the conclusion of the next Annual
General Meeting of the Company. The directors do not
have any present intention of exercising these authorities
other than in connection with the Group’s employee share
schemes and do not intend to issue more than 7.5%
of the issued share capital of the Company under the
authority to allot equity securities for cash in any three
year period without prior consultation with the relevant
investor groups. The Company currently holds no shares
in treasury.
Resolution 12 set out in the Notice of Meeting will be
proposed to continue to enable the Company to purchase
its own shares in accordance with section 166 of the
Companies Act 1985 on such terms and in such manner
as the directors determine, subject to the following:
● The price which may be paid for each ordinary share
will not be less than the nominal value of the share and
will not exceed the higher of 5% above the average of
the mid-market price of the ordinary shares of the
Company (as derived from the London Stock
Exchange Daily Official List) for the five business days
before the purchase is made and that amount
stipulated by Article 5(1) of the Buy-back and
Stabilisation Regulation 2003, in each case exclusive of
any expenses payable by the Company;
● The maximum aggregate number of shares that may be
purchased pursuant to this authority shall be limited to
129,428,000 shares which is equivalent to
approximately 10% of the Company’s issued share
capital as at 30 September 2006;
The Sage Group plc Annual Report and Accounts 2006 p32
● The authority will remain in force until the conclusion of
the next Annual General Meeting of the Company but
will terminate on 31 March 2008 if the Annual General
Meeting has not been held by that date.
The Company may agree before the authority terminates
to purchase ordinary shares where the purchase will or
may be executed after the authority terminates (either in
whole or in part). The Company may complete such a
purchase even though the authority has ended.
The Company has no present intention to exercise this
authority, nor were any shares repurchased in the year
to 30 September 2006 under previous authorities. In any
event, the power given by the resolution will only be
exercised if the directors are satisfied that any purchase
will increase the earnings per share of the ordinary
share capital in issue after the purchase and, accordingly,
that the purchase is in the interests of shareholders.
The directors will also give careful consideration to
gearing levels of the Company and its general financial
position. The purchase price would be paid out of
distributable profits.
A listed company may hold shares in treasury, as an
alternative to cancelling them, following a purchase of own
shares by the Company in accordance with the
Companies Act 1985. Shares held in treasury in this
manner will be available for resale by the Company or may
be transferred for the purpose of or pursuant to an
employees’ share scheme. Accordingly, if the directors
exercise the authority conferred by Resolution 12, the
Company will have the option of holding those shares
in treasury, rather than cancelling them. Your Board will
have regard to any guidelines published by any of the
investor groups in force at the time of any such purchase,
holding or re-sale of treasury shares.
The total number of options to subscribe for ordinary
shares and awards to be satisfied by newly issued
ordinary shares under other long-term incentive plans of
the Group that were outstanding at 18 January 2007
(being the latest practicable date prior to the printing of
this report) was 48,355,605. The proportion of issued
share capital that they represented at that time was 3.72
per cent and the proportion of issued share capital that
they will represent if the full authority to purchase shares
(existing and being sought) is used is 4.14 per cent.
The Company’s articles of association are reviewed
annually. As a result of this review, the Company proposes
to change its articles of association to reflect recent
legislative changes. The Companies (Audit, Investigations
and Community Enterprise) Act 2004 changed the
provisions of section 310 of the Companies Act 1985 to
give companies the power to extend indemnities to
directors to cover liability to third parties and to provide
funding for directors’ defence costs as they are incurred.
The Company proposes to amend its articles of
association to give the Company the opportunity to take
advantage of these new provisions and to allow a director
to vote in relation to a resolution concerning directors'
indemnification by the Company.
Companies listed on the London Stock Exchange are now
required to produce their group accounts in accordance
with International Financial Reporting Standards (“IFRS”).
The Company proposes to make certain amendments to
Article 85 (power to borrow money) to update the
terminology used in Article 85 to the new terminology used
by IFRS and appearing on consolidated balance sheets
prepared under IFRS. The Company’s borrowing limit is
currently an amount equal to two times adjusted capital
and reserves (after adding back any amounts attributable
to goodwill which have been written-off). In order to
preserve the Company’s borrowing power and ability to
make acquisitions in the future, the Company proposes that
this figure be increased to two and a half times adjusted
total equity (without any addition for goodwill written-off).
Resolution 13 will effect these changes if passed.
Resolution 14 set out in the Notice of Meeting will be
proposed to enable the Company to take advantage of
the new rules in the Companies Act 2006 on implied
consent to website usage and, as a listed company, to
benefit from the rules on electronic and website
communications in the Disclosure and Transparency Rules
which recently came into force.
By Order of the Board
M J Robinson
Secretary
18 January 2007
Corporate Governance Statement
The Sage Group plc Annual Report and Accounts 2006 p33
The Company and the Group are committed to high
standards of corporate governance and the Board is
accountable to the Company’s shareholders for good
corporate governance. This statement describes how the
relevant principles of corporate governance are applied by
the Company. Throughout the year the Company has been
in compliance with the provisions set out in the Revised
Combined Code on Corporate Governance issued by the
Financial Reporting Council (the “Combined Code”), other
than A.3.2 relating to the composition of the Board and
A.3.3 relating to the Senior Independent Director.
Rule A.3.2 requires at least half the Board, not counting
the Chairman, to comprise non–executive directors
determined by the Board to be independent. For the
period from the appointment of Sir Julian Horn-Smith to
the role of Chairman of the Board on 1 August 2006 to the
appointment to the Board of Ms R Markland on 13
September 2006 this ratio was not maintained. There were
a number of changes to the Board during the year which
made compliance difficult to achieve in this short period.
With the appointment of Ms R Markland on 13 September
2006 the Company is fully compliant with the rule.
Rule A.3.3 requires the Board to appoint one of the
independent non-executive directors to the role of Senior
Independent Director. Mr L C N Bury, who fulfilled this role,
retired from the Board on 2 March 2006. Sir Julian Horn-
Smith, who joined the Board in March 2006 and became
Chairman on 1 August 2006, fulfilled the role for the period
from Mr L C N Bury’s retirement to his appointment as
Chairman on 1 August 2006. On 12 September 2006, Mr
D H Clayton was appointed to the role and so for a short
period from 1 August 2006 to 11 September 2006 the role
was vacant.
THE WORKINGS OF THE BOARD AND ITS COMMITTEES
The Board
The Board currently comprises the non-executive
Chairman, the Chief Executive, four other executive
directors and five other independent non-executive
directors. The roles of the Chairman and the Chief
Executive are quite distinct from one another and are
clearly defined in written terms of reference
for each role adopted by the Board and available to
shareholders on request to the Secretary at the registered
office and on the Company’s website at www.sage.com.
The directors’ biographies appear on pages 27 and 28.
These demonstrate that the directors have a range of
experience and are of sufficient calibre to bring
independent judgement on issues of strategy,
performance, resources and standards of conduct, which
is vital to the success of the Group. All directors are
subject to re-election at least every three years.
The Board is responsible to shareholders for the proper
management of the Group. Where it is considered
appropriate, training is made available to directors and
training needs are assessed as part of the evaluation
procedure of the Board referred to below. A statement of
the directors’ responsibilities in respect of the accounts is
set out on page 38. The Board has formally adopted a
schedule of matters specifically reserved to it for decision
which is available to shareholders on request to the
Secretary at the registered office and which is also
available on the Company’s website at www.sage.com.
All directors have access to the advice and services of
the Secretary, who is responsible to the Board for ensuring
that Board procedures are followed and that applicable
rules and regulations are complied with. The Secretary
ensures that the directors take independent professional
advice as required at the expense of the Company when
it is judged necessary to discharge their responsibilities as
directors. The appointment and removal of the Secretary
is a matter for the Board as a whole.
The Board meets formally not less than six times a year,
reviewing trading performance, ensuring adequate
funding, setting and monitoring strategy, examining major
acquisition opportunities and reviewing regular reports to
shareholders. In the year under review the Board met on
nine occasions, six such meetings being formal board
meetings and on three occasions at meetings of the
Board called at short notice and held by telephone to
consider acquisition opportunities. All directors in office
at the time attended all of these Board meetings other
than on two occasions when Ms T Ingram was unable
to attend the formal board meetings and two occasions
when Ms T Ingram and Mr A J Hobson were unable to
attend the meetings called on short notice. On one
occasion Mr G S Berruyer was unable to attend a meeting
called on short notice.
The non-executive directors have a particular
responsibility to ensure that the strategies proposed by
the executive directors are fully considered. To enable the
Board to discharge its duties, all directors receive
appropriate and timely information. Briefing papers are
distributed by the Secretary to all directors in advance of
Board meetings. The members of the Board have
evaluated the performance of the Board, its committees
and individual members at meetings and also through
the completion of detailed questionnaires. These are
reviewed and considered by the Chairman and by the
Board as a whole. In the year under review, the
questionnaires indicated no areas of concern.
The Sage Group plc Annual Report and Accounts 2006 p34
The current Board complies with the main principle in
paragraph A.3 of the Combined Code in that it includes a
balance of executive and non-executive directors so that
no individual or small group of individuals can dominate
the Board’s decision taking.
New members of the Board undergo a full, formal and
tailored induction to the Board. Sir Julian Horn-Smith,
who was appointed to the Board in March 2006, has
undertaken such an induction process since his appointment
and Ms R Markland who joined the Board in September
2006 has also undertaken such a process.
The Chairman
The terms of reference for the Chairman of the Board
ensure that this role is quite distinct from that of the Chief
Executive and are set out on the Company’s website at
www.sage.com.
The Chairman of the Board has held meetings with the
non-executive directors without the executive directors. In
addition, the non-executive directors have met without the
Chairman present to appraise the Chairman’s
performance. The Chairman also ensures that shareholder
communication and responses are discussed at each
meeting of the Board and that all shareholders have
access to the non-executive directors, through a request
to the Chairman or the Secretary.
The Senior Independent Director
The Board has appointed Mr D H Clayton to the role of
Senior Independent Director. This role provides a point of
contact for those shareholders who wish to raise issues
with the Board, other than through the Chairman. He is
available to consult with shareholders and also chairs
meetings of the non-executive directors without the
Chairman present.
COMMITTEES OF THE BOARD
Committees of the Board deal with certain specific aspects
of the Group’s affairs. These Committees are the
Remuneration Committee, the Audit Committee and the
Nomination Committee. Details of all these Committees
are set out below. Whilst the Board notes that a number of
independent non-executive directors are members of more
than one Board Committee, it is considered that
membership is appropriate in the light of the Board’s
policy that all independent non-executive directors are
given the opportunity to take part in the discussions of
those Committees. The terms of reference of the
Remuneration, Nomination and Audit Committees are
reviewed annually and are available on request from the
Secretary at the registered office of the Company or on
the Company’s website at www.sage.com.
Remuneration Committee
The Group’s Remuneration Committee is chaired by
Mr T C W Ingram and its other members are the other
independent non-executive directors, Mr D H Clayton,
Mr A J Hobson, Ms T Ingram and Ms R Markland.
Under its terms of reference, the Committee meets at
least twice a year. In the year under review, two meetings
of the Committee were held and all members in office at
the time attended all the meetings other than Ms T Ingram
who was unable to attend one meeting. Each of the
Chairman and the Chief Executive may, by invitation of the
Committee, attend meetings (except when his own
performance and remuneration are under review) but
neither is a member of the Committee. The Committee is
responsible for making recommendations to the Board,
within agreed terms of reference, on the Company’s
framework of executive remuneration and its cost. The
Committee determines the contract terms, remuneration
and other benefits for each of the executive directors
including share options, performance share awards,
performance-related bonus schemes, pension rights and
compensation payments. Remuneration consultants
advise the Committee. The Committee also monitors
remuneration for those senior executives below Board
level. The Board itself determines the remuneration of the
non-executive directors. The Secretary acts as secretary
to the Committee.
Details of the Company’s policies on directors’
remuneration are given in the Remuneration Report on
pages 39 to 50, together with further details of the
Remuneration Committee.
Audit Committee
The Audit Committee is chaired by Mr A J Hobson.
Its other members are independent non-executive
directors, Mr T C W Ingram, Mr D H Clayton and
Ms R Markland (who joined the Committee on 1 January
2007). Mr A J Hobson is a Fellow of the Institute of
Chartered Accountants in England and Wales and is
considered by the Board to have the recent and relevant
financial experience required for the provisions of the
Combined Code. The other members of the Committee
have a wide range of business experience, which is
evidenced in their biographies on page 27 and 28. The
Board makes appointments to the Committee and the
Company Secretary acts as secretary to the Committee.
Full induction training is provided for new members and
additional training is provided as and when required.
Corporate Governance Statement continued
The Sage Group plc Annual Report and Accounts 2006 p35
The main duties of the Committee, set out in its terms of
reference are to:
● Make recommendations on the appointment and
remuneration of external auditors and to monitor their
performance;
● Approve and monitor the policy for non-audit services
provided by the external auditors to ensure that the
independence of the auditors is not compromised;
● Review and advise the Board on the Company’s interim
and annual financial statements, its accounting policies
and on the control and mitigation of its financial and
business risks;
● Review the nature and scope of the work to be
performed by the external and internal auditors, the
results of their audit work and of the response of
management; and
● Review and advise the Board on the effectiveness of
the Company’s internal control environment, including
its “whistleblowing” procedures.
Meetings
The Committee invites executive directors, management,
external and internal auditors to attend meetings as it
considers appropriate for the matters being discussed.
Work of the Committee
In the financial year, the Audit Committee met on four
occasions and reported its conclusions to the Board. It
met privately with the internal and external auditors
without executives present. It also met with executive
management and executive directors.
The Committee discharged its obligations in respect of the
financial year as follows:
● Financial reporting. During the year the Committee
reviewed the interim and annual financial statements.
The Committee received a report from the external
auditors setting out the accounting or judgemental
issues which required its attention. The auditors’ reports
were based on a full audit (Annual Report) and a high
level review (Interim Report) respectively.
The Committee has also advised the board on
accounting policies, disclosure and controls. It has
been pivotal in considering the disclosure requirements
of IFRS, including IFRS policies and the Restatement of
Financial Information for the year ended 30 September
2006, under IFRS and comparatives.
● Internal controls and risk management. The Committee
considers reports from internal audit on the operation of,
and issues arising from, the Group’s internal control
procedures, together with observations from the external
auditors. The Committee monitored the effectiveness of
the Group’s risk management process, which considers
the key risks, both financial and non-financial, facing the
Group and the effectiveness of the Group’s controls to
manage and reduce the impact of those risks.
● Internal audit. Internal audit activities and responsibilities
are provided by KPMG, under an outsourcing
agreement. The Group’s Risk Officer provides oversight
and coordination of internal audit but internal audit
has a direct reporting line to the Audit Committee
and its Chairman. This ensures its independence.
It is the role of internal audit to advise management and
the Board on the extent to which systems of internal
control are effective and to provide independent and
objective assurance that the processes by which
significant risks are identified, assessed and managed
are appropriate and effectively applied. The internal
audit plan which covers the scope, authority and
resources of the function is determined through a
structured process of risk assessment and is approved
by the Audit Committee.
The nature and scope of the work of the internal audit
team was reviewed and approved, the reports of results
received and the responses of management
considered. The plan set out at the beginning of the
year was achieved and the outcome of the work was
in line with expectations.
● External audit. The Audit Committee is responsible for
the development, implementation and monitoring of the
Group’s policy on external audit. The policy assigns
oversight responsibility for monitoring the independence,
objectivity and compliance with ethical and regulatory
requirements to the Audit Committee and day to day
responsibility to the Group Finance Director.
To assess the effectiveness of the external auditors,
the Audit Committee reviewed:
- The external auditors’ fulfilment of the agreed audit
plan and any variations;
- The robustness and perceptiveness of the auditors
in their handling of key accounting and audit
judgements; and
- The content of the external auditors’ Internal
Control Report.
The Sage Group plc Annual Report and Accounts 2006 p36
The Committee is confident that the objectivity and
independence of the auditors is not impaired in any way
by reason of their non-audit work. The Committee has
adopted controls to ensure that the independence of the
external audit process is not compromised and that, in the
provision of non-audit services, the objectivity and
independence of the external auditors is safeguarded.
These controls include the continued monitoring of the
independence and effectiveness of the audit process. The
scope, fee, performance and independence of the external
auditor is considered annually by the Audit Committee,
together with an evaluation of whether the external audit
should be tendered. In addition, audit partners are rotated
every five years and a formal statement of independence
from the external auditors is received each year. In relation
to the provision of non-audit services, executive
management has the discretion, (subject to certain
financial limitations), to obtain taxation services from the
auditors without prior reference to the Audit Committee
subject to regularly appraising the Audit Committee of the
amount and nature of fees for such services. Other non-
audit services may be undertaken by the external auditors,
subject to all projects expected to cost in excess of an
amount set by the Audit Committee being approved in
advance either by the Chairman of the Audit Committee or
by the full Audit Committee depending on the expected
cost of the project. The Chairman of the Audit Committee
may require that such projects are put out to tender to a
number of firms. It is the policy of the Committee to
require acquisition due diligence be undertaken by firms
other than the auditors unless conflicts of interest for
comparable firms make this impractical. Further details of
fees paid to the auditors are set out on page 64.
In the year to 30 September 2006 the audit fee was
£1,732,000 (including £0.3m of non recurring fees in
connection with the Group’s conversion to IFRS). The
Company’s auditors, PricewaterhouseCoopers LLP, also
perform non-audit services for the Group (principally tax
advice) over and above the external audit. The fees in
relation to these services were £1,417,000 which was
attributable to taxation services and compliance work. The
Audit Committee keeps the ratio of audit to non-audit fees
under review and has determined that the ratio of non-audit
fees (other than those relating to taxation) paid to the
auditors and the audit fee should not exceed 1:1. The
Committee believes that the Company receives particular
benefit from tax advice provided by its auditors given their
wide and detailed knowledge of the Group and the very
international nature of the Group.
As a consequence of its satisfaction with the results of the
activities outlined above, the Audit Committee has
recommended to the Board that the external auditors are
reappointed.
Nomination Committee
The Nomination Committee is chaired by the Chairman of
the Board, Sir Julian Horn-Smith and consists of the
Chairman and the five independent non-executive
directors, Mr T C W Ingram, Mr D H Clayton, Mr A J
Hobson, Ms T Ingram and Ms R Markland. In the absence
of the Chairman of the Board, the Committee is chaired by
the Senior Independent Director. The Nomination
Committee meets not less than twice a year. Two
meetings of the Committee took place in the year under
review at which all the members of the Committee in office
at the time were present.
The Nomination Committee is responsible for a number of
matters relating to the composition of the Board and its
committees including proposing candidates for
appointment to the Board, having regard to its balance
and structure and considering issues of succession.
Recruitment consultants are used to assist in the process.
The Nomination Committee is also responsible for an
annual review of the membership of the Board, evaluating
the balance of skills, knowledge and experience on the
Board and advising the Board on any areas where further
recruitment may be appropriate. It also considers the
succession planning of the Group for key executive
personnel at Board level and below. The Secretary
acts as secretary to the Committee.
RELATIONS WITH SHAREHOLDERS
Communication with shareholders is given high priority.
The Chairman’s Introduction and Operating and Financial
Review on pages 3 to 24 include a detailed review of the
business and future developments in relation to it. A full
Annual Report and Accounts is sent to all shareholders
who so wish, although shareholders have been given the
opportunity to receive Summary Financial Statements in
place of the full Annual Report and Accounts. The
Company also has a website (www.sage.com) which
contains up to date information on Group activities and
published financial results. There is regular dialogue with
individual institutional shareholders and there are
presentations to analysts after the Company’s
announcement of the year-end and half-year results. At
each Board meeting, the Board receives an update on
presentations to investors and any communication from
shareholders to ensure that directors, both executive and
non-executive, have an understanding of their views.
The Board uses the annual general meeting to
communicate with private and institutional investors and
welcomes their participation. The resolutions to be
proposed at the Annual General Meeting on 6 March 2007
can be found in the Notice of Meeting on pages 115 to 118.
Corporate Governance Statement continued
The Sage Group plc Annual Report and Accounts 2006 p37
INTERNAL CONTROL AND RISK MANAGEMENT
The Board is responsible for the operation and
effectiveness of the Group’s system of internal controls
and risk management. There is an ongoing process for
identifying, evaluating and managing the significant risks
faced by the Group. This process has been in place for
the year under review and up to the date of approval of
this report. It is regularly reviewed by the Board and
complies fully with the Turnbull guidance. The internal
control systems are designed to meet the Group’s
particular needs and the risks to which it is exposed and
by their nature can only provide reasonable but not
absolute assurance against misstatement or loss.
The effectiveness of this process has been reviewed by
the Audit Committee, which reports its findings to the
Board. The processes used by the Audit Committee to
review the effectiveness of the system of internal control
include discussions with management on significant risk
areas identified and the review of plans for, and results
from, internal and external audits.
The Audit Committee reports the results of its review of
the risk assessment process to the Board. The Board then
draws its collective conclusion as to the effectiveness of
the system of internal control. The key procedures, which
the directors have established with a view to providing
effective internal control, are as follows:
Indication of business risks
The processes to identify and manage the key risks to the
success of the Group are an integral part of the internal
control environment. Such processes, which are reviewed
and improved as necessary, include strategic planning, the
appointment of senior managers, the regular monitoring of
performance and control over capital expenditure and
acquisitions. The Company has formed a Risk Committee
consisting of the Chief Executive, Group Finance Director,
the Group Risk Officer, members of the Group finance team,
the Secretary and representatives of the Group operating
companies. A representative of KPMG, the internal auditors,
may attend meetings of the Committee by request.
The Committee reviews all business activities to identify
the nature and extent of the significant risks facing the
Group, undertakes risk review audits and considers the
scope and results of audits undertaken by KPMG. It
identifies significant internal control failings and
weaknesses, if any, and agrees remedial action on such
matters. The Risk Committee reports to the Audit
Committee. Through the work of the Audit and Risk
Committees, the Board is provided with a balanced
assessment of the significant risks associated with the
Group’s operations and the effectiveness of the system of
internal controls.
A “whistleblowing” telephone hotline service has been
introduced in many operating companies in the Group
(including all those in the UK and US) allowing employees
to raise issues of concern in relation to dishonesty or
malpractice on an entirely confidential basis. The Audit
Committee receives regular reports on any matters raised
through this service and monitors its use throughout the
Group. Similar arrangements are being considered for
Group companies in other jurisdictions subject to
compliance with local legal requirements.
Quality and integrity of personnel
The integrity and competence of personnel is ensured
through high recruitment standards and subsequent
training courses. High quality personnel are seen as an
essential part of the control environment.
Management structure
The Board has overall responsibility for the Group. Each
executive director has been given responsibility for specific
aspects of the Group’s affairs. A clearly defined
organisation structure exists within which individual
responsibilities are identified and can be monitored. The
management of the Group as a whole is delegated to the
Chief Executive and the executive directors. The conduct
of Sage’s individual businesses is delegated to the local
executive management teams. These teams are
accountable for the conduct and performance of their
businesses within the agreed business strategy. They have
full authority to act subject to the reserved powers and
sanctioning limits laid down by the Board and to Group
policies and guidelines.
Internal audit
The Group utilises internal audit resource supplied by
KPMG to review compliance with procedures and assess
the integrity of the control environment. Internal audit acts
as a service to the businesses by assisting with the
continuous improvement of controls and procedures.
Actions are agreed in response to its recommendations and
these are followed up by the Audit and Risk Committees
to ensure that satisfactory control is maintained.
Budgetary process
A comprehensive budgeting system is in place, with
annual budgets for all operating subsidiaries being
approved by respective subsidiary boards. Subsequently
the combined budget is subject to consideration and
approval by the Board. Management information systems
provide the directors with relevant and timely information
required to monitor financial performance.
The Sage Group plc Annual Report and Accounts 2006 p38
Each of the persons who is a director at the time of this
report confirms that:
● So far as the director is aware, there is no relevant
audit information of which the Company’s auditors
are unaware; and
● The director has taken all the steps that he or she
ought to have taken as a director in order to make
himself/herself aware of any relevant audit information
and to establish that the Company’s auditors are aware
of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of s234ZA of the
Companies Act 1985.
By Order of the Board
M J Robinson
Secretary
18 January 2007
Investment appraisal (including acquisitions)
Budgetary approval and defined authorisation levels
regulate capital expenditure. As part of the budgetary
process the Board considers proposals for research and
development programmes. Acquisition activity is subject
to internal guidelines governing investment appraisal
criteria, financial targets, negotiation, execution and
post-acquisition management.
STATEMENT BY THE DIRECTORS ON COMPLIANCE
WITH THE PROVISIONS OF THE COMBINED CODE
Other than as referred to at page 33 above, the Company
has been in full compliance with the provisions set out in
Section 1 of the Combined Code throughout the year.
GOING CONCERN
The following statement has been included in accordance
with the Listing Rules: Based on normal business planning
and control procedures, the directors have a reasonable
expectation that the Company and the Group have
adequate resources to continue in operational existence
for the foreseeable future. For this reason, the directors
continue to adopt the going concern basis in preparing
the accounts.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Company law requires the directors to prepare financial
statements for each financial year that give a true and fair
view of the state of affairs of the Company and the Group
and of the profit or loss of the Group for that period. In
preparing those financial statements the directors are
required to:
● Select suitable accounting policies and then apply
them consistently.
● Make judgements and estimates that are reasonable
and prudent.
● State whether applicable accounting standards have
been followed subject to any material departures
disclosed and explained in the financial statements.
The directors confirm that they have complied with the
above requirements in preparing the financial statements.
The directors are responsible for keeping proper
accounting records that disclose with reasonable accuracy
at any time the financial position of the Company and the
Group and to enable them to ensure that the financial
statements comply with the Companies Act 1985. They
are also responsible for safeguarding the assets of the
Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Remuneration Report
The Sage Group plc Annual Report and Accounts 2006 p39
This report sets out the remuneration policy and
remuneration details of the executive and non-executive
directors of the Company. Remuneration policy for the
executive directors and the Chairman of the Board of the
Company is determined by the Remuneration Committee
of the Board of Directors (the “Remuneration Committee”)
and approved by the Board. Remuneration policy for the
non-executive directors is determined by the Board
excluding the non-executive directors. The report has been
prepared in accordance with the Companies Act 1985 (as
amended) and also meets the requirements of the Listing
Rules of the UK Listing Authority.
1 THE REMUNERATION COMMITTEE
1.1 Composition of the Remuneration Committee
The Remuneration Committee consists solely of non-
executive directors considered by the Board to be
independent and works within detailed terms of reference,
copies of which are available on request from the Secretary
and on the Company’s website at www.sage.com. Its role
includes the making of recommendations to the Board on
policy for remuneration of executive directors and the
Chairman, defining the remuneration packages of
executive directors and the Chairman and approving the
Remuneration Report. The Committee also considers the
remuneration policy of the Company for senior executives
of the Group other than members of the Board and seeks
to maintain consistency in the approach to remuneration
policy. The current members of the Remuneration
Committee are Mr T C W Ingram (Chairman), Mr D H
Clayton, Mr A J Hobson, Ms T Ingram and Ms R
Markland. Messrs, Ingram, Clayton, Hobson and Ms
Ingram have been members of the Committee throughout
the year whilst Ms Markland became a member on her
appointment to the Board on 13 September 2006. Mr L C
N Bury retired from the Committee on retiring from the
Board at the Annual General Meeting in March 2006.
1.2 Advisers to the Remuneration Committee
In order to be aware of market trends in remuneration and
current best practice, the Remuneration Committee
considers market data for comparable businesses. In
addition, the Remuneration Committee has received advice
from New Bridge Street Consultants LLP (“NBSC”) and
Watson Wyatt Limited, both independent firms of
remuneration consultants appointed after consultation with
the Board. The terms of engagement of NBSC and Watson
Wyatt are available on request from the Secretary. NBSC
and Watson Wyatt are entirely independent of the Board and
provide no services to the Group other than advice on
executive remuneration to the Remuneration Committee. Ms
K Geary (Director of Human Resources and Corporate
Communications) and Mr M J Robinson (Secretary) have
provided advice or services to the Remuneration Committee
that materially assisted it in its consideration of matters
relating to directors’ remuneration for the financial year and
the Chairman of the Board, the Chief Executive, Ms K Geary
and Mr M J Robinson have, following the invitation of the
Committee, attended certain of its meetings. However, they
were not present at any meeting when any matter relating to
their own remuneration was discussed, nor did they advise
in any way in relation to their own remuneration.
2 REMUNERATION POLICY
2.1 General Remuneration Policy
The Remuneration Committee, in setting remuneration
policy, recognises the need to be competitive in an
international market. The Committee’s policy is to set
remuneration levels which ensure that the executive
directors are fairly and responsibly rewarded in return for
high levels of performance. Remuneration policy is
designed to support key business strategies and to create
a strong, performance-orientated environment. At the
same time, the policy must attract, motivate and retain
talent. Accordingly, executive directors receive base
salaries comparable with companies of a similar size and
international scope and have the opportunity to earn
enhanced total remuneration for meeting the performance
targets set by the Committee. In setting remuneration
levels for the executive directors, the Committee takes
account of the remuneration policy and practice applicable
to other Group employees.
The components of remuneration for executive directors
comprise base salary (a fixed sum payable monthly which
is reviewed annually in October), benefits (including car
allowance and non-contributory health insurance), an
annual bonus (with a deferred element), long-term
incentives (comprising share options and awards under a
performance share plan) and pension contributions.
The Remuneration Committee considers that a successful
remuneration policy must ensure that a significant part of
the remuneration package is linked to the achievement of
stretching corporate performance targets. Performance-
related elements for the year ended 30 September 2006
comprise share options, awards under a performance
share plan and annual bonus. The policy adopted by the
Committee ensures that a significant proportion of the
remuneration of executives is aligned with corporate
performance, generating a strong alignment of interest with
shareholders. As a result, significantly over half of the
executive directors’ potential remuneration packages is
performance-related.
2.2 Policy on Salary of Executive Directors
It is the policy of the Committee to pay base salaries to
the executive directors at broadly market rates compared
with those of executives of companies of a similar size and
international scope (in particular those within the
The Sage Group plc Annual Report and Accounts 2006 p40
FTSE 50-150 with more than 50% of revenue derived from
overseas), whilst also taking into account the executives’
personal performance and the performance of the Group.
2.3 Policy on fees of non-Executive Directors
The fees of the non-executive directors are reviewed every
two years. Since the previous fees were effective for the
two years ended on 30 September 2006, a review was
recently conducted. As a result of that review and
recognising that non-executive fees had not increased in
the two years since the previous review, the basic fee for
directors has been increased to £40,000 with effect from 1
October 2006. An additional fee of £5,000 and £7,000 is
paid for membership of the Remuneration and Audit
Committees respectively. Therefore, a director sitting on
both those Committees will receive fees of £52,000. Further
payments are made to the chair of each of these
Committees, being £6,000 and £8,000 for chairing the
Remuneration and Audit Committees respectively. A further
payment of £4,000 is made each year to the Senior
Independent Director. These revised fees are in place for
the two financial years ending on 30 September 2008.
In relation to the Chairman, it is the policy of the Board for
remuneration to be comparable to that of the median fees
for non-executive chairs of companies of a comparable
size and complexity.
Non-executive directors are not entitled to participate in
long-term plans or pension schemes.
2.4 Policy on Bonus
The bonus in the case of executive directors (and indeed
all employees) is designed to reward outstanding
performance.
The Remuneration Committee adopted its policy on
bonuses after discussion with certain institutional
shareholders, taking into account market practice amongst
comparator companies, the overall remuneration structure
for the executive directors and the Remuneration
Committee’s desire to reward outstanding performance. For
this reason, bonus is linked to demanding strategic targets
for the Group and for the individual operating companies,
the meeting or out-performance of which is a significant
achievement. Taking this into account, in relation to
executive directors with no specific divisional responsibility,
budgeted Group EPS is the main element in determining the
calculation of bonus. In the case of divisional managing
directors, 75% of bonus is based on the achievement of the
targets for EBITA of the relevant operating division and 25%
on the budgeted Group EPS target. A bonus of 15% of
salary is payable if 95% of budget is achieved, 75% of
salary if budget is achieved and 125% of salary if 110% of
budget is achieved. Between these points bonus is payable
on a straight-line basis. In all cases, a further measure
based on cash generation from operations overlays the
performance condition providing a 0.9 to 1.1 multiplier to
the bonus payment, depending on the achievement of the
cash generation measure. In no case will the multiplier
increase any bonus to more than 125% of salary.
In addition, in respect of any bonus awarded in excess of
75% of salary, 25% of that excess is to be satisfied in
deferred shares and 75% in cash. These shares (which will
be market purchased ordinary shares in the capital of the
Company) will only be released after three years to the
relevant executive and will be generally at risk of forfeiture if
the executive leaves within the deferral period. Awards over
deferred shares were made to executive directors as set out
in the Directors’ Remuneration table in paragraph 5 below.
In the year under review, significant achievements were
made against stretching budgets which are reflected in the
bonuses paid. These are set out in the Directors’
Remuneration table in paragraph 5 below.
Wherever used in this Remuneration Report, EPS refers to
earnings per share before amortisation or impairment of
intangible assets, exceptional items and amounts written-
off investments. This measure has been selected since the
timing of acquisitions can be unpredictable, with the result
that the amortisation charge in respect of intangible assets
is inherently difficult to budget.
2.5 Policy on Long-Term Incentives
Executive Share Options
Under the 1999 Executive Share Option Scheme (“ESOS”),
market value option grants are made to senior executives
and managers across the Group, as well as to other staff
with high potential or to recognise significant achievement
or local market practice. The annual grant is normally made
after the preliminary declaration of the annual results.
Under the rules of the ESOS, the annual grant of options to
an individual is limited to shares worth up to 300% of base
salary. In practice, annual grants to executive directors are
limited to shares under option worth 100% of base salary
except in exceptional circumstances, such as a promotion
or recruitment or to reflect local market practice.
The performance targets governing the vesting of options
are based on stretching EPS growth measured over a fixed
three year period from the start of the financial year in
which the grant is made. 30% of options will vest at the
end of the period if the increase in EPS exceeds RPI by
15% (an average of 5% per year) and 100% of those
options will vest at that time only if RPI is exceeded in that
period by 27% (an average of 9% per year). Between
Remuneration Report continued
The Sage Group plc Annual Report and Accounts 2006 p41
those targets, options will vest on a straight-line basis.
If those targets are not met at the end of the three year
period, then no further retesting of the performance
criteria will be undertaken and the options will lapse.
The Remuneration Committee believes that this EPS
growth target for share options is appropriately
demanding for the Group at this time and will keep the
target under review to ensure that it continues to be
stretching. The Remuneration Committee considers that
EPS growth is an appropriate performance measure as it
requires executives to produce sustained improvement in
the underlying financial performance of the Group.
The Remuneration Committee noted the change to
accounting standards arising from the adoption of
International Financial Reporting Standards and will
ensure that EPS is calculated on a consistent basis over
the transition period to the new standards. As it will not
be practical to restate either historic or future EPS on a
common accounting policy basis, the intention is to
review material differences between the two approaches
on an item by item basis and remove significant one-off
variances to produce ‘normalised earnings’.
Performance Share Plan
Under the Performance Share Plan (the “Plan”), annual
grants of performance shares will normally be made to
executive directors and senior executives across the Group
after the preliminary declaration of the annual results. This
Plan is operated in conjunction with the ESOS.
Annual awards under the Plan are limited to shares worth
up to 150% of base salary. In practice, annual grants to
executive directors are limited to shares worth 100% of
base salary except in exceptional circumstances, such as a
promotion or recruitment or to reflect local market practice.
The performance shares are subject to performance
conditions measuring the Group’s total shareholder return
(“TSR”) against a comparator group of international
software and computer services companies. TSR has
been chosen as the performance condition because it
helps to align the interests of award holders with
shareholders and complements the focus on Group
financial results that arises from using EPS under the
ESOS and annual bonus plan. The comparator group for
awards made in the year to 30 September 2007 will
comprise the following companies:
● LogicaCMG
● Blackbaud
● Business Objects ● Microsoft
● Cap Gemini
● Cegid
● Exact
● Intuit
● iSOFT
● Lawson
● Misys
● MYOB
● Northgate
● Information Solutions
● Oracle
● Salesforce.com
● SAP
Software, Inc.
The Committee will continue to ensure that the
comparator group remains appropriate.
30% of shares vest for median TSR performance as
compared to the comparator group whilst all shares vest
for upper quintile (top 20%) TSR performance. Between
those two points, shares will vest on a straight-line basis.
TSR will be measured over a single three year period from
the start of the financial year in which the grant is made to
establish whether the criteria have been met and if these
criteria are not met on the third anniversary of grant, the
rights to the performance shares will lapse. If financial
performance in any year was disappointing, then the
Committee would consider making no award under the
Plan in the following year.
For comparator companies listed overseas the TSR is
calculated in local currency since this is considered to give
a better reflection of the underlying performance of the
comparator companies over the performance period. The
Committee will continue to review whether this treatment
is appropriate.
The Committee believes that granting both options and
performance shares provides a well balanced, long-term
incentive package and considers that it is appropriate for
executive directors to receive an annual grant worth up to
100% of salary under each of the ESOS and the Plan.
However, if, for example, local legislation makes it less tax
efficient to grant performance shares to any executive, an
enhanced option grant may be made above 100% of
salary in value to ensure equality of treatment to these
executives, with a corresponding reduction in the value of
the performance share award.
The Sage Group plc Annual Report and Accounts 2006 p42
All-Employee Share Schemes
UK based executive directors are entitled to participate in
The Sage Group Savings-Related Share Option Plan (the
“SAYE Scheme”). Mr G S Berruyer currently holds units
granted under the Sage Plan d’Epargne d’Entreprise
(“PEE”), which is an all-employee plan designed to enable
French employees to acquire shares in the Company at a
discounted price under terms comparable to those offered
to UK employees under the SAYE Scheme. There are no
performance conditions under either the SAYE Scheme or
the PEE since these generally do not apply to all-employee
share plans such as these.
2.6 Policy on Pensions
All the executive directors’ pension arrangements are of
the defined contribution type. The Sage Executive Pension
Scheme is the main pension fund for Sage executives in
the UK. It is a defined contribution plan where the
standard contribution rate is 15% of base salary subject,
where appropriate, to limits set by HMRC. The
components of remuneration other than base salary are
not pensionable.
2.7 Policy on Directors’ Shareholdings
The Committee believes that all executive directors should
hold a substantial number of shares in the Company. It is,
therefore, its policy that all executive directors over time
hold shares equivalent in value to 150% of their annual
salary. Until the required holding is achieved, executive
directors will be expected to retain (net of any shares sold
to meet the tax liability in respect of them) at least 50% of:
● Shares received as deferred bonus;
● Shares resulting (net of exercise costs) from the
exercise of share options granted from December 2004
onwards; and
● Performance shares received under the Plan.
In assessing whether the target of 150% of salary is met,
vested options under the share option schemes of the
Company will be deemed to have a value equal to the net
value after exercise costs and taxation of those options as
if exercised on the relevant date.
2.8 Policy on Service Contracts
In relation to contracts with executive directors, the
Remuneration Committee aims to set notice or contract
periods at one year. If it is necessary to offer longer notice
or contract periods to new directors recruited from outside
the Group, it is the Company’s policy to reduce these as
soon as contractually possible after the initial period to a
notice period of one year.
Both executive and non-executive directors are subject to
election by shareholders at the first annual general
meeting following their appointment and thereafter require
re-election at least once every three years. The
appointment of a non-executive director may be
terminated without compensation if that director is not re-
elected by shareholders or otherwise in accordance with
the Company’s Articles of Association. The appointment of
the non-executives is for a fixed term of two or three
years, during which period the appointment may be
terminated by the Board on notice, ranging from 6 to 12
months. There are no provisions on payment for early
termination in their letters of appointment.
Executive directors are permitted, where appropriate and
with Board approval, to take non-executive directorships
with other organisations in order to broaden their
knowledge and experience in other markets and countries.
Mr P A Walker is currently a non-executive director of
Diageo plc. Mr P L Stobart is a non-executive director of
Capital & Regional plc and was until 1 December 2006 a
non-executive director of Planit Holdings plc. Fees
received in their capacity as directors of these companies
are retained by each of them reflecting the personal
responsibility they undertake in these roles. In the year
under review, these fees were £60,000 in the case of Mr P
A Walker and £59,500 in the case of Mr P L Stobart.
The Board recognises the significant demands that are
made on executive and non-executive directors and has
therefore adopted a policy that no executive director
should hold more than two directorships of other listed
companies. The Board encourages executive directors to
limit other directorships to one listed company and in no
case should more than one directorship of another FTSE
100 company be taken. Where an executive director holds
non-executive positions at more than one listed company
only the fees from one such company will be retained by
the director. No formal limit on other board appointments
applies to non-executive directors under the policy but
prior approval from the Chairman on behalf of the Board
is required in the case of any new appointment.
The service contracts of executive directors and the letters
of appointment of non-executive directors prohibit the
disclosure of confidential information relating to the Group
both during the term of the contract and after its
termination. The letters of appointment of non-executive
directors and service contracts of executive directors are
available for inspection at the Company’s registered office
during normal business hours and will be available at the
Annual General Meeting.
Remuneration Report continued
The Sage Group plc Annual Report and Accounts 2006 p43
3 DIRECTORS’ CONTRACTS AND COMPENSATION
All executive directors have service contracts, which may be terminated by the Company for breach by the executive or
by giving 12 months’ notice. There are no pre-determined special provisions for directors with regard to compensation
in the event of loss of office, with compensation based on what would be earned by way of salary, pension entitlement
and other benefits over the notice period. In the event that a contract is to be terminated, payments to the executive
director may be staged over the notice period, or in the case of executive directors other than Mr G S Berruyer, the
contract terminated and payments made in lieu of notice at the same time as salary would have been paid throughout
the 12 months’ notice period. There is no automatic entitlement to annual bonus or outstanding awards under share
incentive plans. Non-executive directors’ appointments may be terminated without compensation other than in respect
of fees during the notice period. Mr L C N Bury and Mr M E W Jackson retired from the Board and their contracts were
terminated by mutual agreement without further payment on 2 March 2006 and 1 August 2006 respectively. Details
of the contract of service or contract for services of each person who has served as a director of the Company at any
time during the financial year are set out below:
Director
Executive directors
G S Berruyer
P S Harrison
P L Stobart
R Verni
P A Walker
Date of contract
30 September 2004
1 April 2000
26 September 2003
8 July 2003
26 September 2003
Unexpired term
of contract on
30 September 2006
12 months
Age 60 or 12 months
Age 60 or 12 months
12 months
Age 60 or 12 months
Non-executive directors
L C N Bury
D H Clayton
A J Hobson
J M Horn-Smith
T Ingram
T C W Ingram
M E W Jackson
R Markland
23 September 2005
6 September 2004
29 June 2004
27 January 2006
21 December 2004
24 March 2006
Nil (terminated 2 March 2006)
9 months
9 months
2 years 3 months
1 year 3 months
1 year 6 months
16 September 2005 Nil (terminated on 1 August 2006)
3 years
15 August 2006
Notes:
There are no other benefits in the contracts relevant to termination payment.
Notice period under contract
12 months from the Company and/or 6 months from individual
12 months from the Company and/or individual
12 months from the Company and/or individual
12 months from the Company and/or individual
12 months from the Company and/or individual
3 months from the Company and/or 1 month from individual
6 months from the Company and/or 1 month from individual
6 months from the Company and/or 1 month from individual
12 months from the Company and/or the individual
6 months from the Company and/or 1 month from individual
6 months from the Company and/or 1 month from individual
3 months from the Company and/or 1 month from individual
6 months from the Company and/or 1 month from individual
The Sage Group plc Annual Report and Accounts 2006 p44
4 PERFORMANCE GRAPH
Total Shareholder Return (“TSR”) against FTSE 100
The graph shows, for the last five financial years of the Company, the TSR on a holding of shares in the Company as
against the TSR of the FTSE 100 Index.
Total Shareholder Return
180
160
140
120
100
80
60
40
20
0
100
●
100
78
●
●
69
102
●
●
89
103
●
●
102
146
●
●
128
162
●
●
144
30 Sep 01
30 Sep 02
30 Sep 03
30 Sep 04
30 Sep 05
30 Sep 06
This graph shows the value, by 30 September 2006 of £100 invested in The Sage Group plc on 30 September 2001 compared with the value of £100
invested in the FTSE 100 Index. The other points plotted are the values at intervening financial year-ends.
● Sage Group ● FTSE 100 Index (Source: Thomson Financial)
The FTSE 100 Index is, in the opinion of the directors, the most appropriate index against which the TSR of the Company should be measured because of
the comparable size of the companies which comprise that index.
Remuneration Report continued
The Sage Group plc Annual Report and Accounts 2006 p45
5 DIRECTORS’ REMUNERATION
The information set out in Sections 5.1 to 5.4 below has been subject to audit as required by part 3 of Schedule 7A of
the Companies Act 1985.
5.1 Directors’ Emoluments and Compensation (audited information)
The total salaries, fees and benefits paid to or receivable by each person who served as a director at any time
during the year, appear below. These include all payments for services as a director of the Company, its subsidiaries
or otherwise in connection with the management of the Group and any other directorship he or she holds because
of the Company’s nomination.
Salary
and fees
‘000
Director
Executive directors
G S Berruyer
P S Harrison
P L Stobart
R Verni
P A Walker
Non-executive directors
L C N Bury1
D H Clayton
A J Hobson
J M Horn-Smith2
T Ingram
T C W Ingram
M E W Jackson3
R Markland4
€€558
£300
£378
$693
£656
£26
£42
£48
£59
£37
£46
£138
£2
Bonus
deferred
into
shares7
‘000
€€44
£28
£10
$56
£60
-
-
-
-
-
-
-
-
Bonus
‘000
€€549
£308
£315
$688
£672
-
-
-
-
-
-
-
-
Benefits
in kind5
‘000
€€7
£17
£17
-
£21
-
-
-
-
-
-
£1
-
2006
Total
‘000
€€1,158
£653
£720
$1,437
£1,409
£26
£42
£48
£59
£37
£46
£139
£2
2005
Total
‘000
€1,113
£568
£683
$1,478
£1,320
£48
£42
£45
-
£29
£42
£166
-
2006
Pension
contributions6
‘000
2005
Pension
contributions
‘000
-
£45
£57
$6
£98
-
-
-
-
-
-
£21
-
-
£40
£54
$1
£94
-
-
-
-
-
-
£25
-
Notes:
1 Retired 2 March 2006.
2 Appointed 3 March 2006.
3 Retired 1 August 2006.
4 Appointed 13 September 2006.
5 Benefits in kind include the provision of car allowance and insurance.
6 Retirement benefits were accruing to five directors (2005: five). All pension contributions accrued under money purchase schemes.
7 An element of bonus has been deferred by the Company as an award under the Sage Group Deferred Bonus Plan. Awards under the Plan, which were made on 10 January
2007 over such number of shares whose market value is as close as possible to, but no greater than, the deferred bonus, will vest on the third anniversary of the date of grant. In
the event that a director ceases to be an employee of the Group for reasons other than death, retirement, redundancy, injury, ill health or disability before the third anniversary of
the date of grant, then the rights to the award will lapse unless the Remuneration Committee recommend otherwise. The directors have no entitlement to the bonus deferred into
an award of shares until it vests. Full details of the award will be contained in the report for the year ended 30 September 2007.
• No payments for compensation for loss of office or otherwise relating to termination of office or employment were made during the year.
• Total directors’ emoluments were £4,771,000 (2005: £4,541,000).
• No other payments (including non-cash benefits) were made to third parties in respect of the services of a person who served as a director of the Company at any time during
the financial year.
• Including gains on share options, the total emoluments of the highest paid director were £4,688,000 (2005: £1,319,836).
5.2 Directors’ Share Options (audited information)
There are limits on the number of newly issued shares that can be used to satisfy awards under the Group’s share
schemes in any 10 year period. The limits and the Group’s current position against those limits as at 18 January 2007
(the last practicable date prior to printing this document), are set out below:
Limit
7.5% of Group’s share capital can be used for discretionary share schemes
10% of Group’s share capital can be used for all share schemes
Current position
5.93% used
6.46% used
Whilst there is still sufficient scope within the above limits to satisfy options through new issue shares for the foreseeable future,
the Company currently intends to satisfy awards under the Performance Share Plan through the market purchase of shares.
The Sage Group plc Annual Report and Accounts 2006 p46
Executive Share Options
The Group’s only current executive share option scheme is the ESOS where, in the year under review, executive directors
received grants worth 100% of their base salary at the then relevant exchange rates (where applicable). The outstanding
executive share options granted to each director of the Company under the executive share option schemes, including
the ESOS, are recorded in the register kept by the Company under section 325 Companies Act 1985 as follows:
Director
G S Berruyer
P S Harrison
M E W Jackson
P L Stobart
R Verni
P A Walker
Exercise
price per
share
81.10p
136.00p
329.75p
134.00p
171.00p
198.00p
258.50p
136.00p
721.00p
329.75p
134.00p
171.00p
198.00p
258.50p
136.00p
81.10p
136.00p
329.75p
134.00p
171.00p
198.00p
258.50p
204.50p
329.75p
228.50p
134.00p
171.00p
198.00p
258.50p
33.90p
136.00p
329.75p
134.00p
171.00p
198.00p
258.50p
Shares under
option at
1 October
2005
number
250,000
350,000
121,304
223,880
175,438
189,082
-
1,309,704
60,000
30,000
65,595
186,567
128,654
133,838
-
604,654
300,000
400,000
210,000
121,304
223,880
175,438
181,818
-
1,312,440
150,000
121,304
89,031
298,507
182,158
178,062
-
1,019,062
1,560,000
440,000
151,630
313,432
280,701
315,656
-
3,061,419
Granted
during
the year
number
-
-
-
-
-
-
147,748
147,748
-
-
-
-
-
-
116,054
116,054
-
-
-
-
-
-
-
146,228
146,228
-
-
-
-
-
-
151,975
151,975
-
-
-
-
-
-
253,771
253,771
Exercised
during
the year
number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1,560,000)
-
-
-
-
-
-
(1,560,000)
Lapsed
during
the year
number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Shares under
option at
30 September
2006
number
250,000
350,000
121,304
223,880
175,438
189,082
147,748
1,457,452
60,000
30,000
65,595
186,567
128,654
133,838
116,054
720,708
300,000
400,000
210,000
121,304
223,880
175,438
181,818
146,228
1,458,668
150,000
121,304
89,031
298,507
182,158
178,062
151,975
1,171,037
-
440,000
151,630
313,432
280,701
315,656
253,771
1,755,190
Total
7,607,279
815,776
(1,560,000)
-
6,863,055
Date exercisable
17 December 2000 – 17 December 2007
16 December 2001 – 16 December 2008
17 January 2004 – 17 January 2011
31 December 2005 – 31 December 2012
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
16 December 2001 – 16 December 2008
23 February 2003 – 23 February 2010
17 January 2004 – 17 January 2011
31 December 2005 – 31 December 2012
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
16 December 2001 – 31 July 2007
17 December 2000 – 17 December 2007
16 December 2001 – 16 December 2008
17 January 2004 – 17 January 2011
31 December 2005 – 31 December 2012
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
7 June 2002 – 7 June 2009
17 January 2004 – 17 January 2011
2 January 2005 – 2 January 2012
31 December 2005 – 31 December 2012
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
15 January 1999 – 15 January 2006
16 December 2001 – 16 December 2008
17 January 2004 – 17 January 2011
31 December 2005 – 31 December 2012
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
Remuneration Report continued
The Sage Group plc Annual Report and Accounts 2006 p47
Notes:
• No options were varied during the year.
• Options granted to all directors of the Company and its operating subsidiaries throughout the Group under the ESOS that are exercisable on or after 23
February 2003 but before 6 January 2008 will normally be exercisable only if the percentage increase in the Company’s EPS has exceeded the RPI by at
least 3% each year in the three year period since grant i.e. by a total of 9%. If that target is not met at the end of the three year period, then those options
will only be exercisable if EPS growth exceeds RPI by 12% over the four year period following the date of grant. In respect of options exercisable on or after
6 January 2008 the performance criteria for exercise are set out in paragraph 2.5 above. In respect of any share options exercisable prior to 23 February
2003 no performance conditions apply as such conditions were not deemed appropriate by the Remuneration Committee at that time.
• For the options exercised in the year, the market price of the exercised shares at the date of exercise (9 December 2005) was 244.08p.
• The market price of a share of the Company at 30 September 2006 was 251.25p and the lowest and highest market price during the year of each such
share were 204.75p and 283.75p respectively.
• Total gains on the exercise of share options were £3,307,183 (2005: £478,275), including £3,278,877 (2005: £478,275) on executive share options.
• The table above does not show exercises of options after 30 September 2006 which are referred to in the notes to the table in paragraph 5.5 below.
All-Employee Share Scheme
In relation to the SAYE Scheme, the outstanding options granted to each director of the Company are as follows:
Director
P S Harrison
P L Stobart
Exercise
price per
share
112.00p
184.00p
112.00p
184.00p
Shares under
option at
1 October
2005
number
8,437
-
8,437
8,437
-
8,437
Granted
during
the year
number
-
5,081
5,081
-
5,081
5,081
Exercised
during
the year
number
(8,437)
-
(8,437)
(8,437)
-
(8,437)
Lapsed
during
the year
number
-
-
-
-
-
-
Shares under
option at
30 September
2006
number
-
5,081
5,081
-
5,081
5,081
Total
16,874
10,162
(16,874)
-
10,162
Date exercisable
1 March 2006 – 31 August 2006
1 August 2009 – 31 January 2010
1 March 2006 – 31 August 2006
1 August 2009 – 31 January 2010
Notes:
• These options are not subject to performance conditions since these do not apply to this all-employee share scheme.
• For the options exercised in the year, the market price of the exercised shares at the dates of exercise, being 1 March 2006 was 279.75p. Neither director sold
the shares after exercise.
• Under the PEE Mr G S Berruyer holds units in a French mutual fund, which holds shares in the Company. The units must be held for no less than 5 years. On
30 September 2005 10,307 units were held by Mr G S Berruyer at a price of 3.44 euros per share. On 30 September 2006 13,195 units were held at a price
of 3.91 euros per share. Units are valued on a weekly basis.
The Sage Group plc Annual Report and Accounts 2006 p48
5.3 Performance Share Plan (audited information)
In the year under review, the following awards were made to executive directors under the Performance Share Plan and
are still outstanding at 30 September 2006:
Director
G S Berruyer
P S Harrison
P L Stobart
R Verni
P A Walker
Awarded at
1 October
2005
number
178,903
-
178,903
128,329
-
128,329
174,334
-
174,334
166,118
-
166,118
302,663
-
302,663
Awarded
during
the year
number
-
147,748
147,748
-
116,054
116,054
-
146,228
146,228
-
151,975
151,975
-
253,771
253,771
Vested
during
the year
number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Lapsed
during
the year
number
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Awarded
30 September
2006
number
178,903
147,748
326,651
128,329
116,054
244,383
174,334
146,228
320,562
166,118
151,975
318,093
302,663
253,771
556,434
Vesting date
18 March 2008
10 January 2009
18 March 2008
10 January 2009
18 March 2008
10 January 2009
18 March 2008
10 January 2009
18 March 2008
10 January 2009
Total
950,347
815,776
-
-
1,766,123
Notes:
• No variations were made in the terms of the awards in the year.
• The market price of a share on 10 January 2006, the date of the award, was 253.00p.
• The vesting of shares awarded under the Performance Share Plan is subject to performance conditions measuring the Group’s total shareholder return
(“TSR”) against a comparator group. 30% of shares vest for median TSR performance as compared to that group whilst all shares vest for upper quintile (top
20%) TSR performance. Between those points, shares will vest on a straight-line basis. Further details are given in paragraph 2.5 above.
Remuneration Report continued
The Sage Group plc Annual Report and Accounts 2006 p49
5.4 Deferred Shares (audited information)
In accordance with the rules of the Sage Group Deferred Bonus Plan awards were made as follows to directors of the
Company in respect of the bonus for financial year ended 30 September 2005.
Director
G S Berruyer
P S Harrison
P L Stobart
R Verni
P A Walker
Total
Shares at
30 September 2005
number
-
-
-
-
-
-
Shares awarded
during the year
number
11,736
8,418
3,524
17,693
19,853
61,224
Shares at
30 September 2006
number
11,736
8,418
3,524
17,693
19,853
61,224
Notes:
• Awards of shares will vest on the third anniversary of the date of grant, being 10 January 2009. In the event that a director ceases to be an employee of the Group
for reasons other than death, retirement, redundancy, injury, ill health or disability before the third anniversary of the date of grant then the rights to the award will
lapse, unless the Remuneration Committee recommend otherwise.
• No variations were made in the terms of the awards in the year.
• The market price of a share on 10 January 2006, the date of the award, was 253.00p.
5.5 Interests In Shares
The interests of the directors in the shares of the Company according to the register kept by the Company under section
325 of the Companies Act, 1985 were:
Director
G S Berruyer
L C N Bury1
D H Clayton
P S Harrison
A J Hobson
J M Horn-Smith
T Ingram
T C W Ingram
M E W Jackson1
R Markland
P L Stobart
R Verni
P A Walker
Total
Ordinary shares at
30 September 2006
number
-
400,000
25,000
8,437
20,000
100,000
-
23,114
90
-
23,477
-
7,069,772
7,669,890
Ordinary shares at
30 September 2005
number
-
400,000
25,000
-
11,000
-
-
10,000
370,090
-
15,040
-
7,069,772
7,900,902
The Sage Group plc Annual Report and Accounts 2006 p50
Notes:
1 The interests of Messrs Bury and Jackson are shares on their retirement as directors on 2 March 2006 and 1 August 2006 respectively.
• The above interests in the ordinary share capital of the Company are beneficial.
• There have been no changes in the directors’ holdings in the share capital of the Company between 30 September 2006 and 18 January 2007 other than
referred to in the notes below.
– On 1 December 2006 Ms R Markland acquired 5,000 ordinary shares at a price of 263.25p per share.
– On 1 December 2006 Mr P L Stobart exercised options under the terms of The Sage Group (No. 2) Executive Share Option Scheme over 400,000
ordinary shares at an option price of 81.10p per share and over 210,000 ordinary shares at an option price of 136.00p per share. He subsequently sold
that day 610,000 ordinary shares at an average price of 260.50p per share.
– On 4 January 2007 Mr G S Berruyer exercised options under the terms of The Sage Group (No. 2) Executive Share Option Scheme over 250,000 ordinary
shares at an option price of 81.10p per share and under the terms of The Sage Group 1999 Executive Option Scheme over 223,880 ordinary shares at an
option price of 134.00p per share. He subsequently sold that day 250,000 ordinary shares at an average price of 266.50p per share.
– On 4 January 2007 Mr R Verni purchased 25,000 ordinary shares at a price of 266.50p per share.
– On 18 January 2007 Ms T Ingram purchased 3,600 ordinary shares at a price of 275.00p per share.
5.6 Significant Awards to Past Directors
No significant awards were made to any person who was not a director at the time the award was made but who was
previously a director.
Approved by the Board of Directors and signed on its behalf:
T C W Ingram
Chairman of the Remuneration Committee
18 January 2007
Consolidated Financial
Statements Under IFRS 2006
CONTENTS
53 Consolidated Income Statement
53 Consolidated Statement of Recognise
Income and Expense
54 Consolidated Balance Sheet
55 Consolidated Cash Flow Statement
56 Notes to the Accounts – Group
105 Independent Auditors’ Report
Consolidated Income Statement
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p53
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance income
Finance expenses
Net finance expenses
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity shareholders
Minority interest
Profit for the year
EBITA*
Earnings per share (pence)
- Basic
- Diluted
Consolidated Statement of
Recognised Income and Expense
For the year ended 30 September 2006
Profit for the year
Net exchange adjustments offset in reserves
Net (losses)/gains not recognised in income statement
Total recognised income for the year
Attributable to:
Equity shareholders
Minority interest
Total recognised income for the year
* EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
• Amortisation of acquired intangible assets; and
• Amortisation (or capitalisation) of software development expenditure.
Note
1
1,3
2
2
2
4
23
22,23
23,24
23
1
6
6
Note
23
23
2006
£m
935.6
(80.4)
855.2
(619.4)
235.8
3.5
(18.1)
(14.6)
221.2
(68.6)
152.6
152.5
0.1
152.6
249.3
2005
£m
759.6
(60.7)
698.9
(499.6)
199.3
2.8
(8.5)
(5.7)
193.6
(61.2)
132.4
132.3
0.1
132.4
202.1
11.81p
11.73p
10.31p
10.26p
2006
£m
152.6
(30.8)
(30.8)
121.8
121.7
0.1
121.8
2005
£m
132.4
13.3
13.3
145.7
145.7
-
145.7
Consolidated Balance Sheet
As at 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p54
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
Current liabilities
Trade and other payables
Current tax liabilities
Financial liabilities
- Borrowings
Deferred consideration
Deferred income
Non-current liabilities
Financial liabilities
- Borrowings
Retirement benefit obligations
Deferred tax liabilities
TOTAL LIABILITIES
NET ASSETS
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total parent shareholders’ equity
Minority interest in equity
TOTAL EQUITY
Note
7
8
9
17
10
11
12
13
14
15
15
28
17
18
20
21
22
23
24
23
2006
£m
1,561.9
185.6
133.8
26.3
1,907.6
5.6
215.7
82.0
303.3
2005
£m
1,076.8
45.4
119.9
46.0
1,288.1
3.5
149.9
69.1
222.5
2,210.9
1,510.6
(190.3)
(63.5)
(1.0)
(21.5)
(282.1)
(558.4)
(662.8)
(2.1)
(10.0)
(674.9)
(145.5)
(60.8)
(0.2)
(5.8)
(228.3)
(440.6)
(176.3)
(2.3)
(2.5)
(181.1)
(1,233.3)
(621.7)
977.6
888.9
12.9
462.8
43.7
458.1
977.5
0.1
977.6
12.8
451.0
74.5
350.4
888.7
0.2
888.9
The consolidated financial statements on pages 53 to 104 were approved by the Board of Directors on 18 January 2007 and are signed on their behalf by:
Sir Julian Horn-Smith
Chairman
P A Walker
Director
Consolidated Cash Flow Statement
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p55
Cash flows from operating activities
Cash generated from continuing operations
Interest received
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries (net of cash acquired)
Disposal of subsidiaries
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Development expenditure
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Purchase of treasury shares
Finance lease principal payments
Issue costs on loans
Repayment of borrowings
New borrowings
Dividends paid to shareholders
Net cash generated/(used) in financing activities
Net increase/(decrease) in cash and cash equivalents (before exchange rate changes)
Effects of exchange rate changes
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 October
Cash and cash equivalents at 30 September
Note
25
2
26(m)
26(o)
8
9
23
25
25
25
25
5
12
2006
£m
267.1
3.5
(17.5)
(60.3)
192.8
(617.5)
7.8
(3.2)
(23.8)
2.9
(0.1)
(633.9)
11.7
(13.3)
(0.3)
(2.2)
(631.7)
1,131.1
(39.1)
456.2
15.1
(2.2)
12.9
69.1
82.0
2005
£m
241.0
2.8
(8.1)
(57.3)
178.4
(101.0)
-
(6.3)
(14.4)
3.5
(0.7)
(118.9)
4.6
-
0.9
-
(209.4)
173.1
(33.9)
(64.7)
(5.2)
-
(5.2)
74.3
69.1
Notes to the Accounts - Group
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p56
GROUP ACCOUNTING POLICIES
a Basis of preparation
As an EU listed company, The Sage Group plc is required to prepare its
Group accounts using International Financial Reporting Standards (“IFRS”),
as adopted by the European Union, with effect from 1 October 2005. These
financial statements are the first full year statements to be prepared in
accordance with IFRS. The disclosures required by IFRS 1 “First-time
Adoption of International Financial Reporting Standards”, are set out below.
The principal IFRS accounting policies of the Group are set out below:
The accounts are also prepared in accordance with IFRIC interpretations as
endorsed by the EU and with those parts of the Companies Act 1985 that
are applicable to companies reporting under IFRS.
First-time adoption of IFRS
In accordance with the requirements of IFRS 1 “First-time Adoption of
International Financial Reporting Standards”, the Group is subject to a
number of voluntary and mandatory exemptions from full restatement of
comparatives to the requirements of IFRS, details of which exemptions have
been applied are included in note 34 below.
The financial statements are prepared on the historical cost basis of accounting.
b Basis of consolidation
The financial statements of the Group comprise the financial statements
of the Company and entities controlled by the Company (its subsidiaries)
prepared at the Balance Sheet date. Control is achieved where the
Company has the power to govern the financial and operating policies
of an entity so as to benefit from its activities.
The results of subsidiaries acquired during the year are included in the
Consolidated Income Statement, Consolidated Statement of Recognised
Income and Expense and Consolidated Cash Flow Statement from the date
of acquisition. They are de-consolidated from the date that control ceases.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the cost of the business combination
over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment,
the Group’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in the income statement.
The interest of minority shareholders in the acquiree is initially measured
at the minority’s proportion of the net fair value of the assets, liabilities
and contingent liabilities recognised.
d Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services
provided in the normal course of business, net of discounts, VAT and other
sales related taxes.
The Group derives revenue from software licences, customer support and other
products and services. Customer support includes telephone support and
maintenance updates. Other products and services include the sale of professional
services, business forms, hardware, payment processing and training.
Software licences – the Group recognises the revenue allocable to software
licences and upgrades when all the following conditions have been satisfied:
• The Group has transferred to the buyer the significant risks and rewards
of ownership of the licence;
• The Group retains neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over the goods sold;
• The amount of revenue can be measured reliably;
• It is probable that the economic benefits associated with the transaction
will flow; and
• The costs incurred or to be incurred in respect of the transaction can be
measured reliably.
All intra-group transactions, balances, income and expenses are eliminated
on consolidation.
Where appropriate the Group provides a reserve for estimated returns under
the standard acceptance terms at the time the revenue is recorded.
Minority interests in the net assets of consolidated subsidiaries are identified
separately from the Group’s equity therein. Minority interests consist of the
amount of those interests at the date of the original business combination and
the minorities’ share of changes in equity since the date of the combination.
c Business combinations
The acquisition of subsidiaries is accounted for using the purchase method.
The cost of the acquisition is measured at the aggregate of the fair values,
at the date of exchange, of assets given, liabilities incurred or assumed and
equity instruments issued by the Group in exchange for control of the
acquiree, plus any costs directly attributable to the business combination.
The acquiree’s identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 are recognised at their fair
values at the acquisition date.
Customer support and maintenance – revenue allocable to customer
support and maintenance is recognised on a straight-line basis over the
term of the support and maintenance contract. Revenue not recognised in
the income statement under this policy is classified as deferred income in
the balance sheet.
Other products and services – revenue allocable to other products and
services is recognised as the products are shipped, or rendering of services
can be estimated reliably. Revenue associated with the transaction is
recognised by reference to the stage of completion of the transaction at the
balance sheet date. The outcome of a transaction can be estimated reliably
when all the following conditions are satisfied:
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p57
GROUP ACCOUNTING POLICIES continued
• The amount of revenue can be measured reliably;
• It is probable that the economic benefits associated with the transaction
will flow to the Group;
• The state of completion of the transaction at the balance sheet date
can be measured reliably; and
• The costs incurred for the transaction and the costs to complete
the transaction can be measured reliably.
e Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value
of the Group’s interest in the identifiable assets, liabilities and contingent
liabilities acquired in a business combination. Goodwill previously written-off
directly to reserves under UK GAAP prior to 1 October 1998 has not been
reinstated and is not recycled to the income statement on the disposal of
the business to which it relates.
f Impairment of assets
Goodwill is allocated to cash-generating units for the purposes of
impairment testing. The recoverable amount of the cash-generating unit to
which the goodwill relates is tested annually for impairment or when events
or changes in circumstances indicate that it might be impaired. The carrying
values of property, plant and equipment, investments measured using a cost
basis and intangible assets other than goodwill are reviewed for impairment
only when events indicate the carrying value may be impaired.
In an impairment test, the recoverable amount of the cash-generating unit
or asset is estimated to determine the extent of any impairment loss. The
recoverable amount is the higher of fair value less costs to sell and the value
in use in the Group. An impairment loss is recognised to the extent that the
carrying value exceeds the recoverable amount.
In determining a cash-generating unit’s or asset’s value in use, estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of
money and risks specific to the cash-generating unit or asset that have not
already been included in the estimate of future cash flows.
g Intangible assets – arising on business combinations
Amortisation of intangible assets is charged to the income statement on a
straight-line basis over the estimated useful lives of each intangible asset.
Intangible assets are amortised from the date they are available for use.
The estimated useful lives are as follows:
• Brand names
• Technology / In process R&D (IPR&D)
• Customer relationships
- 5 to 20 years
- 3 to 7 years
- 5 to 10 years
h Intangible assets – other
Other intangible assets that are acquired by the Group are stated at cost
less accumulated amortisation and impairment losses. Software assets are
amortised over their estimated useful lives, which do not exceed three years.
i Internally generated intangible assets – research and
development expenditure
Expenditure on research activities is recognised as an expense in the period
in which it is incurred.
An internally generated intangible asset arising from the development of
software is recognised only if all of the following conditions are met:
• It is probable that the asset will create future economic benefits;
• The development costs can be measured reliably;
• Technical feasibility of completing the intangible asset can be demonstrated;
• There is the intention to complete the asset and use or sell it;
• There is the ability to use or sell the asset; and
• Adequate technical, financial and other resources to complete the
development and to use or sell the asset are available.
Internally generated intangible assets are amortised over their estimated
useful lives which is between three to six years. Where no internally
generated intangible asset can be recognised, development expenditure
is charged to the income statement in the period in which it is incurred.
j Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses if applicable. Depreciation on property,
plant and equipment is provided down to an asset’s residual value over its
useful economic life as follows:
• Freehold buildings
• Long leasehold buildings and improvements
• Plant and equipment
• Motor vehicles
• Office equipment
- 50 years
- over period of lease
- 2 to 7 years
- 4 years
- 5 to 7 years
Freehold land is not depreciated.
Residual values and useful lives are reviewed and adjusted, if appropriate,
at each balance sheet date.
k Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
includes expenditure incurred in acquiring the inventories and bringing them
to their existing location and condition.
l Cash and cash equivalents
For the purpose of preparation of the cash flow statement, cash and cash
equivalents include cash at bank and in hand and short-term deposits with
an original maturity period of three months or less. Bank overdrafts that are
an integral part of a subsidiary’s cash management are included in cash and
cash equivalents where they have a legal right of set-off and there is an
intention to settle net, against positive cash balances, otherwise bank
overdrafts are classified as borrowings.
The Sage Group plc Annual Report and Accounts 2006 p58
m Trade receivables and trade payables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation and default or delinquency in payments
are considered indicators that the trade receivable is impaired. The amount of
the provision is the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the loss is recognised in the
income statement within selling and administrative expenses. When a trade
receivable is uncollectible, it is written-off against the allowance account for
trade receivables. Subsequent recoveries of amounts previously written-off are
credited against selling and administrative expenses in the income statement.
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
n Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised based on tax rates
that have been enacted or substantively enacted at the balance sheet date.
Deferred tax and current tax are charged or credited to profit or loss, except
when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity.
Tax assets and liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when they relate
to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
In recognising income tax assets and liabilities, management makes
estimates of the likely outcome of decisions by tax authorities on transactions
and events whose treatment for tax purposes is uncertain. Where the final
outcome of such matters is different, or expected to be different, from
previous assessments made by management, a change to the carrying value
of income tax assets and liabilities will be recorded in the period in which
such a determination is made. The carrying values of income tax assets
and liabilities are disclosed separately in the Consolidated Balance Sheet.
o Financial instruments and hedge accounting
(pre and post 30 September 2005)
Financial assets and liabilities are recognised in the Group’s balance sheet when
the Group becomes a party to the contractual provision of the instrument. Trade
receivables are non-interest-bearing and are stated at their nominal value less
the amount of any appropriate provision for irrecoverable amounts. Trade
payables are non-interest-bearing and are stated at their nominal value.
In accordance with its treasury policy, the Group does not hold or issue
derivative financial instruments for trading purposes.
The portion of the gain or loss on an instrument used to hedge a net investment
in a foreign operation that is determined to be an effective hedge is recognised
directly in equity. The ineffective portion is recognised immediately in profit or loss.
p Foreign currency translation
The individual financial statements of each Group entity are presented in the
currency of the primary economic environment in which the entity operates
(its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed
in Pounds Sterling, which is the functional currency of the Company and
the presentation currency for the consolidated financial statements.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates and interests in joint
ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity’s functional currency (“foreign currencies”)
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing on the balance
sheet date. Non-monetary items carried at fair value that are denominated
in foreign currencies are retranslated at the rates prevailing on the date
when the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not retranslated.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p59
GROUP ACCOUNTING POLICIES continued
Exchange differences arising on the settlement of monetary items and on the
retranslation of monetary items, are included in profit or loss for the period.
Exchange differences arising on the retranslation of non-monetary items carried
at fair value are included in profit or loss for the period except for differences
arising on the retranslation of non-monetary items in respect of which gains
and losses are recognised directly in equity. For such non-monetary items, any
exchange component of that gain or loss is also recognised directly in equity.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group’s foreign operations (including comparatives) are
expressed in Pounds Sterling using exchange rates prevailing on the balance
sheet date. Income and expense items (including comparatives) are translated
at the average exchange rates for the period, unless exchange rates
fluctuated significantly during that period, in which case the exchange rates at
the dates of the transactions are used. Exchange differences arising, if any, are
classified as equity and transferred to the Group’s translation reserve.
Goodwill and fair value adjustments arising on the acquisition of a foreign
operation are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are recognised in the income
statement as part of the gain or loss on sale.
q Borrowing
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income
statement over the period of borrowing on an effective interest basis.
r Leasing
Assets held under finance leases are recognised as assets of the Group
at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding
liability to the lessor is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly
as finance costs to the income statement.
Rentals payable under operating leases are charged to income on a
straight-line basis over the term of the relevant lease. Benefits received and
receivable as an incentive to enter into an operating lease are also spread
on a straight-line basis over the lease term.
s Retirement benefit costs
The Group operates money purchase pension schemes for certain of its
employees. The contributions are charged to the income statement as incurred.
There is a small defined benefit scheme operating within the Group.
The assets of the defined benefit scheme are held separately from the
assets of the Group. The costs of providing benefits under this scheme
are determined using the projected unit credit actuarial valuation method.
The current service cost and gains and losses on settlements and curtailments
are included in selling and administrative expenses in the Consolidated Income
Statement. Past service costs are similarly included where the benefits have
vested, otherwise they are amortised on a straight-line basis over the vesting
period. The expected return on assets of funded defined benefit pension
schemes and the imputed interest on pension plan liabilities comprise the
pension element of the net finance expense/income in the income statement.
Differences between the actual and expected return on assets, changes in
the retirement benefit obligation due to experience and changes in actuarial
assumptions are included in the statement of recognised income and
expense in full in the period in which they arise.
The liability recognised in the balance sheet in respect of the defined benefit
pension scheme is the present value of the defined benefit obligation and
unrecognised past service cost and future administration costs at the balance
sheet date less the fair value of plan assets. The defined benefit obligation is
calculated annually by independent actuaries. The present value of the defined
benefit obligation is determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid and that have
terms to maturity approximate to the terms of the related pension liability.
The Groups contributions to defined contribution schemes are charged to
the income statement in the period to which the contributions relate.
The calculation of the defined benefit obligation of a defined benefit plan
requires estimation of future events, for example salary and pension
increases, inflation and mortality rates. In the event that future experience
does not bear out the estimates made in previous years, an adjustment will
be made to the plan’s defined benefit obligation in future periods which
could have a material effect on the Group. The carrying amounts of assets
and liabilities relating to defined benefit plans, together with the key
assumptions used in the calculation of the defined benefit obligations
relating to those plans, are disclosed in note 28.
t Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair value
(excluding the effect of non market-based vesting conditions) at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of the shares that will eventually vest
allowing for the effect of non market-based vesting conditions.
Fair value is measured using the Black-Scholes or the Monte Carlo pricing
models. The expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The Group also provides certain employees with the ability to purchase the
Group’s ordinary shares at a discount to the current market value at the
date of the grant. The Group records an expense, based on its estimate of
the discount related to shares expected to vest, on a straight-line basis over
the vesting period.
The Sage Group plc Annual Report and Accounts 2006 p60
u Dividends
Dividends on ordinary shares are recognised as a liability in the period in
which they are approved by the Company’s shareholders.
Amendments to existing standards
• Amendment to IAS 1 “Presentation of Financial Statements” – Capital disclosures
• Amendment to IAS 19 “Employee Benefits” – Actuarial Gains and Losses,
v Provisions
A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event and it is probable that
an outflow of economic benefits will be required to settle the obligation. If the
effect is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
• Amendment to IAS 21 “The Effects of Changes in Foreign Exchange
Rates” – Net Investment in a Foreign Operation
• Amendments to IAS 39 “Financial Instruments: Recognition and
Measurement” – Cash flow hedge accounting of forecast intra-group
transactions, The Fair Value Option
• Amendments to IAS 39 “Financial Instruments: Recognition and
Measurement” and IFRS 4 “Insurance Contracts”
Group Plans and Disclosures
w Segment reporting
At 30 September 2006, the Group is organised into geographical
businesses. The geographic regions are the Group’s primary reporting
format for segment information as they represent the dominant source and
nature of the Group’s risks and returns. The Group’s secondary reporting
format is business segments: Small Business and Mid-market.
Segment assets include all intangible assets, property, plant and equipment,
inventories, trade and other receivables, cash and cash equivalents and tax
assets. Segment liabilities comprise mainly trade and other payables,
retirement benefit obligations, tax liabilities and certain borrowings that can
be attributed to the segment but exclude borrowings that are for general
corporate purposes. Capital expenditure comprises additions to property,
plant and equipment and intangible assets.
x Adoption of new and revised International Financial Reporting
Standards
At the date of approval of these financial statements, the following standards,
interpretations and amendments there to were issued but not yet mandatory
effective for the Group.
International Financial Reporting Standards (“IFRS”)
• IFRS 6 “Exploration for and Evaluation of Mineral Resources”
• IFRS 7 “Financial Instruments: Disclosures”
• IFRS 8 “Operating Segments”
International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations
• IFRIC 4 “Determining whether an arrangement contains a lease”
• IFRIC 5 “Rights to Interests arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds”
• IFRIC 6 “Liabilities arising from Participating in a Specific Market - Waste
Electrical and Electronic Equipment”
• Amendments to IFRS 1 “First-time Adoption of International Financial Reporting
Standards” and IFRS 6 “Exploration for and Evaluation of Mineral Resources”
All the IFRSs, IFRIC interpretations and amendments to existing standards had
been adopted by the EU at the date of approval of these consolidated financial
statements with the following exceptions: IFRIC 10, IFRIC 11 and IFRIC 12.
The directors anticipate that the future adoption of those standards,
interpretations and amendments listed above that have not been adopted
early will not have a material impact on the Consolidated Financial Statements.
y Critical accounting estimates and judgements
In preparing the Consolidated Financial Statements, management has to
make judgements on how to apply the Group’s accounting policies and
make estimates about the future. The critical judgements that have been
made in arriving at the amounts recognised in the Consolidated Financial
Statements and the key sources of estimation uncertainty that have a
significant risk of causing a material adjustment to the carrying value of
assets and liabilities in the next financial year, are discussed below:
• Acquisitions
When acquiring a business, we have to make judgements and best estimates
about the fair value allocation of the purchase price. We seek appropriate
competent and professional advice before making any such allocations. We
test the valuation of goodwill on an annual basis and whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable. These tests require the use of estimates. See notes 7 and 8.
• Impairment reviews
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated above. The recoverable
amounts of cash-generating units have been determined based on value-
in-use calculations. These calculations require the use of estimates (note 7).
• IFRIC 7 “Applying the Restatement Approach under IAS 29 Financial
• Income taxes
Reporting in Hyperinflationary Economies”
• IFRIC 8 “Scope of IFRS 2”
• IFRIC 9 “Reassessment of embedded derivatives”
• IFRIC 10 “Interim Financial Reporting and Impairment”
• IFRIC 11 “IFRS 2: Group and Treasury Share Transactions”
• IFRIC 12 “Service Concession Arrangements”
The Group is subject to income taxes in numerous jurisdictions. Significant
judgement is required in determining the worldwide provision for income
taxes. There are many transactions and calculations for which the ultimate
tax determination is uncertain during the ordinary course of business. The
Group recognises liabilities for anticipated tax audit issues based on
estimates of whether additional taxes will be due. Where the final tax
outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p61
1 SEGMENTAL REPORTING
Primary reporting format – geographical segments
The Group manages its business segments on a global basis. The operations are based in four main geographical areas. The UK is the home country of the
parent. The main operations in the principal territories are as follows:
• UK & Ireland
• Mainland Europe
• North America
• Rest of World
The Rest of World segment operations are mainly based in South Africa, Australia, Singapore, Malaysia, UAE, China and India. The sales 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.
Note
UK &
Ireland
£m
205.2
76.3
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
299.8
58.9
361.5
82.4
69.1
18.2
Year ended 30 September 2006
The primary segment results were as follows:
Continuing operations
Revenue
Segment operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit for the year from continuing operations
The primary segment assets and liabilities were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
- Corporate borrowings
Total net assets
334.0
(139.2)
194.8
474.4
(184.3)
290.1
1,307.4
(223.4)
1,084.0
95.1
(25.5)
69.6
Other segmental information in respect of the primary segments was as follows:
Capital expenditure – property, plant and equipment
Capital expenditure – intangible fixed assets
Depreciation
Amortisation of intangible assets
Other non-cash expenses – share-based payments
8.0
0.1
5.7
0.1
2.8
9
8
9
8
19
3.4
1.0
3.7
7.8
2.0
11.1
2.1
3.5
8.2
3.5
1.3
-
0.8
0.1
0.5
Group
£m
935.6
235.8
3.5
(18.1)
221.2
(68.6)
152.6
2,210.9
(572.4)
1,638.5
(660.9)
977.6
23.8
3.2
13.7
16.2
8.8
The Sage Group plc Annual Report and Accounts 2006 p62
Note
UK &
Ireland
£m
192.6
70.9
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
204.9
43.4
302.3
70.5
59.8
14.5
Year ended 30 September 2005
The primary segment results were as follows:
Continuing operations
Revenue
Segment operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit for the year from continuing operations
The primary segment assets and liabilities were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
- Corporate borrowings
Total net assets
320.0
(126.5)
193.5
313.5
(130.8)
182.7
798.0
(166.3)
631.7
79.1
(23.6)
55.5
Other segmental information in respect of the primary segments was as follows:
Capital expenditure – property, plant and equipment
Capital expenditure – intangible fixed assets
Depreciation
Amortisation of intangible assets
Other non-cash expenses – share-based payments
6.2
-
5.3
-
3.0
9
8
9
8
19
2.7
0.3
3.5
3.2
1.8
4.5
6.0
4.6
0.7
3.0
1.0
-
0.8
-
0.4
Group
£m
759.6
199.3
2.8
(8.5)
193.6
(61.2)
132.4
1,510.6
(447.2)
1,063.4
(174.5)
888.9
14.4
6.3
14.2
3.9
8.2
Segment assets include all intangible assets, property, plant and equipment, inventories, trade and other receivables, cash and cash equivalents and tax
assets. Segment liabilities comprise mainly trade and other payables, retirement benefit obligations, tax liabilities and certain borrowings that can be
attributed to the segment but exclude borrowings that are for general corporate purposes. Capital expenditure comprises additions to property, plant and
equipment and intangible assets.
Reconciliation of operating profit to EBITA (Non GAAP measure)*
Operating profit
Amortisation of acquired intangible assets
Net amortisation of software development expenditure
EBITA*
* EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
• Amortisation of acquired intangible assets; and
• Amortisation (or capitalisation) of software development expenditure.
2006
£m
235.8
13.6
(0.1)
249.3
2005
£m
199.3
3.3
(0.5)
202.1
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p63
1 SEGMENTAL REPORTING continued
Secondary reporting format – business segment
The business segments identified are the Small business and Mid-market divisions.
The Small business division offers products and services to smaller SMEs. Products offered to this segment are generally stand-alone software products or
networked with typically up to 3 users. The Mid-market division offer products and services to mid-sized SMEs. Products offered to this segment are
generally networked products which allow more than 3 users.
2006
£m
348.1
587.5
935.6
Revenue
2005
£m
321.0
438.6
759.6
2006
£m
822.7
1,388.2
2,210.9
Segment
assets
2005
£m
638.4
872.2
1,510.6
Continuing operations
Small business division
Mid-market division
Sale of goods
Rendering of services
2 NET FINANCE EXPENSES
Finance income
Finance expenses:
Finance costs on bank borrowings
Amortisation of issue costs
Net finance expenses
3 OPERATING PROFIT
The following items have been included in arriving at operating profit
Staff costs
Inventories
- Cost of inventories recognised as an expense (included in cost of sales)
Depreciation of property, plant and equipment
- Owned assets
- Under finance leases
Amortisation of intangible assets (excluding amortisation of development expenditure)
(Loss) on disposal of fixed assets
Profit on disposal of subsidiary
Other operating lease rentals payable
- Plant and machinery
- Property
Repairs and maintenance expenditure on property, plant and equipment
Research and development expenditure
Note
27
10
9
9
8
26(j)
Capital
expenditure
2005
£m
8.8
11.9
20.7
Revenue
2005
£m
286.5
473.1
759.6
2005
£m
2.8
(7.8)
(0.7)
(8.5)
(5.7)
2005
£m
321.5
9.7
14.2
-
3.3
-
-
2.2
17.7
0.7
80.5
2006
£m
10.0
17.0
27.0
2006
£m
322.8
612.8
935.6
2006
£m
3.5
(17.5)
(0.6)
(18.1)
(14.6)
2006
£m
409.8
13.6
13.6
0.1
15.4
(0.8)
2.7
3.0
18.6
2.8
94.8
The Sage Group plc Annual Report and Accounts 2006 p64
Services provided by the Group’s auditor and network firms
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:
Audit services
- Fees payable to Company auditor for the audit of parent Company and consolidated accounts
Non-audit services
Fees payable to the Company auditor and its associates for other services:
- The audit of the Company’s subsidiaries pursuant to legislation
- Other services
- Tax services and compliance work
2006
£m
1.3
0.1
0.3
1.4
3.1
2005
£m
0.8
0.1
0.1
1.3
2.3
The total audit fee for the Group, including the audit of overseas subsidiaries was £1.4m (2005: £0.9m). Other services include IFRS transition costs and are
therefore closely associated with the audit.
The Group reported its results under IFRS for the first time for the year ended 30 September 2006. Consequently, fees incurred in connection with audit
services included significant, one-time costs associated with the conversion from UK GAAP to IFRS.
The Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on pages 35 and 36.
4 TAXATION
Analysis of charge in the year
Current tax
- Current year
- Adjustment in respect of prior year
Deferred tax
Taxation
Tax on items (charged)/credited to equity
Deferred tax (charge)/credit on stock options
Total tax on items (charged)/credited to equity
2006
£m
65.4
2.4
67.8
0.8
68.6
2006
£m
(1.2)
(1.2)
The tax for the period is higher (2005: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below:
Profit on ordinary activities before taxation
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 30% (2005: 30%)
Effects of:
Adjustment in respect of prior period
Adjustment in respect of foreign tax rates
Expenses not deductible for tax purposes and other permanent differences
Other
Total taxation
2006
£m
221.2
66.4
2.4
6.1
(4.5)
(1.8)
68.6
2005
£m
58.1
(0.3)
57.8
3.4
61.2
2005
£m
2.4
2.4
2005
£m
193.6
58.1
(0.3)
6.1
(3.8)
1.1
61.2
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p65
5 DIVIDENDS
Final dividend paid for the year ended 30 September 2005 of 1.95p per share
(2005: final dividend paid for the year ended 30 September 2004 of 1.72p per share)
Interim dividend paid for the year ended 30 September 2006 of 1.08p per share
(2005: interim dividend paid for the year ended 30 September 2005 of 0.92p per share)
2006
£m
25.1
-
14.0
-
39.1
2005
£m
-
22.0
-
11.9
33.9
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2006 of 2.51p per share which will absorb an
estimated £32.4m of shareholders’ funds. It will be paid on 9 March 2007 to shareholders who are on the register of members on 9 February 2007.
6 EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year, excluding those held in the employee share trust (note 22), which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary
shares. The Group has two classes of dilutive potential ordinary shares: those 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 and the contingently issuable shares under the Group’s long-term incentive plan. At
30 September 2006, the performance criteria for the vesting of the awards under the incentive scheme had not been met and consequently the shares in
question are excluded from the diluted EPS calculation.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Basic EPS
Earnings attributable to ordinary shareholders
Effect of dilutive securities
Options
Weighted
average
number of
shares
millions
2006
Per-share
amount
pence
Earnings
£m
Weighted
average
number of
shares
millions
2005
Per-share
amount
pence
Earnings
£m
152.5
1,290.8
11.81
132.3
1,283.3
10.31
8.9
6.4
Diluted EPS
152.5
1,299.7
11.73
132.3
1,289.7
10.26
The Sage Group plc Annual Report and Accounts 2006 p66
EPS – Non GAAP measure
Basic EPS
Earnings attributable to ordinary shareholders
Non EBITA items:
Intangible asset amortisation and
net development expenditure
Taxation
Net EBITA adjustments
Weighted
average
number of
shares
millions
2006
Per-share
amount
pence
Earnings
£m
Weighted
average
number of
shares
millions
2005
Per-share
amount
pence
Earnings
£m
152.5
1,290.8
11.81
132.3
1,283.3
10.31
13.5
(4.1)
9.4
2.8
(0.5)
2.3
EBITA adjusted Basic EPS
161.9
1,290.8
12.54
134.6
1,283.3
10.49
Effect of dilutive securities
Options
8.9
6.4
EBITA adjusted Diluted EPS
161.9
1,299.7
12.46
134.6
1,289.7
10.44
7 GOODWILL
Cost
At 1 October
Additions
Deferred tax on intangible assets
Disposals
Exchange adjustments
At 30 September
Aggregate impairment
At 30 September
Net book amount at 30 September
Note
26(n)
17
26(j)
2006
£m
1,076.8
503.4
25.8
(7.4)
(36.7)
1,561.9
2005
£m
995.8
65.8
-
-
15.2
1,076.8
-
-
1,561.9
1,076.8
Details of acquisitions and disposals in the year are shown in note 26. During the year, goodwill was reviewed for impairment in accordance with IAS 36. For
the purposes of this impairment review, goodwill has been valued on the basis of discounted future cash flows arising in each relevant cash-generating unit.
Goodwill impairment tests
Goodwill acquired in a business combination is allocated to one or more cash-generating units (“CGUs”). CGUs represent the operations of a country or,
in more material operations, divisions within a country.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p67
7 GOODWILL continued
The following table shows the allocation of the carrying value of goodwill at the balance sheet date by geographic area:
UK
France
Germany
Switzerland
Poland
Spain
North America
South Africa
Australia
Asia
2006
£m
152.6
161.2
20.4
22.5
6.2
91.6
1,045.5
25.1
25.0
11.8
1,561.9
2005
£m
151.9
68.9
6.4
20.1
6.0
84.5
685.4
26.8
26.8
-
1,076.8
The Group conducts annual impairment tests on the carrying value of goodwill, based on the recoverable amount of CGUs to which goodwill has been
allocated. The recoverable amounts of CGUs are determined from value in use calculations. The key assumptions in the value in use calculations are the
discount rate applied, the long-term operating margin and the long-term growth rate of net operating cash flows. In all cases, the approved budget for the
following financial year formed the basis for the cash flow projections for a CGU. The approved cash flow projections in the four financial years following the
budget year reflected management’s expectations of the medium-term operating performance of the CGU and growth prospects in the CGU’s market.
• The discount rate applied to a CGU represents a pre-tax rate that reflects market assessment of the time value of money at the balance sheet date and the
risks specific to the CGU. The discount rate applied to CGUs were in the range of 6.4% (2005: 6.4%) to 10.7% (2005: 10.7%).
• The long-term operating margin assumed for a CGU's operations is primarily based on past performance. For some CGUs, those for which management
has strong reason to believe that past operating margins are not indicative of future operating margins, expected future improvements from sustainable
operating cost savings are also included in management’s assessment of the long-term operating margin. The long-term operating margin applied to CGUs
was in the range of 18% (2005: 18%) to 54% (2005: 40%).
• Long-term growth rates of net operating cash flows are assumed equal to the long-term growth rate in the gross domestic product of the country in which
the CGU’s operations are undertaken and were in the range of 1.0% (2005: 1.0%) to 5.0% (2005: 5.0%).
Goodwill impairment tests were conducted separately for each CGU.
The Sage Group plc Annual Report and Accounts 2006 p68
8 OTHER INTANGIBLE ASSETS
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
Cost
At 1 October 2005
Additions
Acquisitions – through
business combinations
Additions – internally generated
Disposals
Exchange adjustments
At 30 September 2006
Aggregate amortisation
At 1 October 2005
Charge for the year
Acquisitions
Disposals
At 30 September 2006
Net book amount
At 30 September 2006
Cost
At 1 October 2004
Additions
Acquisitions – through
business combinations
Additions – internally generated
Disposals
Exchange adjustments
At 30 September 2005
Aggregate amortisation
At 1 October 2004
Charge for the year
Disposals
Exchange adjustments
At 30 September 2005
Net book amount
At 30 September 2005
17.6
-
16.3
-
-
(0.4)
33.5
0.5
1.5
-
-
2.0
18.4
-
42.2
-
-
(0.2)
60.4
1.3
5.6
-
-
6.9
31.5
53.5
0.3
-
-
-
-
-
0.3
-
0.1
-
-
0.1
0.2
3.8
-
-
0.9
-
-
4.7
1.5
0.8
-
-
2.3
2.4
5.9
3.2
11.7
-
(0.7)
(0.6)
19.5
2.5
1.8
6.9
(0.3)
10.9
5.7
-
90.7
-
-
(0.1)
96.3
0.5
6.4
-
-
6.9
Total
£m
51.7
3.2
160.9
0.9
(0.7)
(1.3)
214.7
6.3
16.2
6.9
(0.3)
29.1
8.6
89.4
185.6
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
-
5.6
12.0
-
-
-
17.6
-
0.5
-
-
0.5
-
-
18.4
-
-
-
18.4
-
1.3
-
-
1.3
-
-
0.3
-
-
-
0.3
-
-
-
-
-
17.1
17.1
0.3
2.7
-
-
1.1
-
-
3.8
0.9
0.6
-
-
1.5
2.3
7.0
0.7
0.2
-
(1.9)
(0.1)
5.9
3.5
1.0
(1.9)
(0.1)
2.5
3.4
-
-
5.7
-
-
-
5.7
-
0.5
-
-
0.5
5.2
Total
£m
9.7
6.3
36.6
1.1
(1.9)
(0.1)
51.7
4.4
3.9
(1.9)
(0.1)
6.3
45.4
All amortisation charges in the year have been charged through selling and administrative expenses. Intangible assets (apart from internally generated IPR&D
and computer software) relate to identifiable assets purchased as part of the Group’s business combinations. Intangible assets are amortised on a straight-
line basis over their expected useful economic life.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p69
9 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 October 2005
Additions at cost
Acquisitions
Disposals
Exchange adjustments
At 30 September 2006
Accumulated depreciation
At 1 October 2005
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2006
Net book amount at 30 September 2006
Cost
At 1 October 2004
Additions at cost
Acquisitions
Transfer of property held for sale to other debtors
Disposals
Exchange adjustments
At 30 September 2005
Accumulated depreciation
At 1 October 2004
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2005
Net book amount at 30 September 2005
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
and office
equipment
£m
88.0
1.3
3.3
-
(0.4)
92.2
4.0
1.0
0.7
(0.8)
-
4.9
87.3
100.4
17.6
19.6
(19.2)
(2.8)
115.6
75.4
9.7
15.1
(17.3)
(2.1)
80.8
34.8
34.0
4.9
2.9
(2.7)
(0.8)
38.3
23.1
3.0
1.6
(0.5)
(0.6)
26.6
11.7
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
and office
equipment
£m
89.2
1.6
2.3
(3.5)
(1.9)
0.3
88.0
2.4
2.0
-
(0.4)
-
4.0
84.0
85.4
11.4
4.4
-
(1.9)
1.1
100.4
63.2
9.3
3.4
(1.5)
1.0
75.4
25.0
28.8
1.4
6.5
-
(3.0)
0.3
34.0
17.3
2.9
4.1
(1.4)
0.2
23.1
10.9
Total
£m
222.4
23.8
25.8
(21.9)
(4.0)
246.1
102.5
13.7
17.4
(18.6)
(2.7)
112.3
133.8
Total
£m
203.4
14.4
13.2
(3.5)
(6.8)
1.7
222.4
82.9
14.2
7.5
(3.3)
1.2
102.5
119.9
The Sage Group plc Annual Report and Accounts 2006 p70
Assets held under finance leases have the following net book amount:
Cost
Accumulated depreciation
Net book amount
2006
£m
0.6
(0.2)
0.4
2005
£m
0.5
(0.1)
0.4
Included in assets held under finance leases are plant and equipment with a net book amount of £0.3m (2005: £0.2m) and vehicles £0.1m (2005: £0.2m).
10 INVENTORIES
Materials
Finished goods
2006
£m
1.9
3.7
5.6
2005
£m
1.0
2.5
3.5
The Group consumed £13.6m (2005: £9.7m) of inventories during the year. There was no material write down of inventories during the current or prior year.
11 TRADE AND OTHER RECEIVABLES
Amounts falling due within one year:
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2006
£m
215.2
(30.1)
185.1
19.2
11.4
215.7
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated.
12 CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the cash flow statement comprise:
Cash at bank and in hand
Short-term bank deposits
2006
£m
81.4
0.6
82.0
The effective interest rate on short-term deposits was 3.9% (2005: 3.0%) and these deposits have an average maturity of 41 days (2005: 13 days).
13 TRADE AND OTHER PAYABLES - CURRENT
Trade payables
Other tax and social security payable
Accruals
14 CURRENT TAX LIABILITIES
Current tax liabilities
2006
£m
95.1
38.2
57.0
190.3
2006
£m
63.5
2005
£m
153.5
(25.6)
127.9
10.3
11.7
149.9
2005
£m
65.4
3.7
69.1
2005
£m
80.4
30.5
34.6
145.5
2005
£m
60.8
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p71
15 FINANCIAL LIABILITIES - BORROWINGS
Current
Bank loans due within one year of demand:
Secured
Unsecured
Finance lease obligations
Non-current
Bank loans:
Secured
Unsecured
Finance lease obligations
(a)
(a)
2006
£m
0.6
0.3
0.9
0.1
1.0
2006
£m
1.7
660.9
662.6
0.2
662.8
2005
£m
0.1
-
0.1
0.1
0.2
2005
£m
0.8
174.9
175.7
0.6
176.3
(a) The bank loans are secured by a fixed charge over the property the acquisition of which the loan funded.
Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the country in which the
borrowing is incurred.
Included in loans above is £660.9m (2005: £174.6m) of unsecured loans (after unamortised issue costs) taken out in connection with acquisitions.
This is drawn down under £850.0m multi-currency revolving credit facilities, £650.0m expiring on 4 August 2011 and £200.0m expiring on 15 January 2011.
In the table above, loans are stated net of unamortised issue costs of £1.7m (2005: £0.6m). The Group has incurred total issue costs of £7.1m (2005: £4.9m) in
respect of these facilities. These costs are allocated to the income statement over the term of the facility at a constant rate on the carrying amount.
Unsecured borrowings were drawn in the following currencies: US Dollar £549.2m (2005: £122.3m), Euro £106.5m (2005: £43.4m) and Swiss Franc £5.5m
(2005: £9.2m) and bear interest at a rate of 0.45% (2005: 0.5%) above LIBOR.
16 FINANCIAL INSTRUMENTS
Numerical financial instruments disclosures are set out below. Additional disclosures are set out in the accounting policies relating to risk management and
also in note 25.
Hedge of net investment in foreign entity
The Group has US Dollar, Euro and Swiss Franc denominated borrowings which it has designated as a hedge of the net investment in its subsidiaries in the
US, France, Spain, Germany and Switzerland. The fair value of the US Dollar borrowings at 30 September 2006 was £549.2m (2005: £122.3m), the Euro
borrowings £106.3m (2005: £43.0m) and Swiss Franc borrowings £5.5m (2005: £9.2m). The foreign exchange gain of £12.8m (2005: loss of £1.8m) on
translation of the borrowings into sterling has been recognised in exchange reserves.
Fair values of non-derivative financial assets and financial liabilities
Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flows at
prevailing interest rates and by applying year end exchange rates. The carrying amounts of short-term borrowings approximate to book value.
Fair values of financial instruments
For the following financial assets and liabilities: long-term borrowings, short-term borrowings, trade and other payables, trade and other receivables, short-
term deposits and cash at bank and in hand, the carrying amount approximates the fair value of the instrument due to the instrument bearing interest at
market rates and/or the short-term nature of the instrument.
The Sage Group plc Annual Report and Accounts 2006 p72
Long-term borrowings
Note
15
Book value
£m
(662.8)
2006
Fair value
£m
(662.8)
Book value
£m
(176.3)
2005
Fair value
£m
(176.3)
Fair value of other financial assets and financial liabilities:
Primary financial instruments held or issued to finance the Group’s operations:
Short-term borrowings
Trade and other payables
Trade and other receivables
Short-term bank deposits
Cash at bank and in hand
15
13
11
12
12
(1.0)
(190.3)
215.7
0.6
81.4
(1.0)
(190.3)
215.7
0.6
81.4
(0.2)
(145.5)
149.9
3.7
65.4
(0.2)
(145.5)
149.9
3.7
65.4
Currency exposure
The Group’s other currency exposures comprise only those exposures that give rise to net currency gains and losses to be recognised in the income
statement. Such exposures reflect the monetary assets and liabilities of the Group that are not denominated in the operating (or “functional”) currency
of the operating unit involved. At 30 September 2006 and 30 September 2005, these exposures are immaterial to the Group.
Maturity of financial liabilities
The maturity profile of the carrying amount of the Group’s non-current liabilities at 30 September was as follows:
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Debt
£m
-
662.6
-
662.6
Finance
leases
£m
0.2
-
-
0.2
2006
Total
£m
0.2
662.6
-
662.8
Debt
£m
-
175.7
-
175.7
Finance
leases
£m
0.6
-
-
0.6
Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at 30 September in respect of which all conditions precedent had been
met at that date:
Expiring within 1 year
Expiring between 1 and 2 years
Expiring in more than 2 years
2006
Total
£m
-
-
187.3
187.3
2005
Total
£m
0.6
175.7
-
176.3
2005
Total
£m
20.0
20.0
194.9
234.9
The facilities have been arranged to help finance the proposed expansion of the Group’s activities. All these facilities incur commitment fees at market rates.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p73
16 FINANCIAL INSTRUMENTS continued
The minimum lease payments under finance leases fall due as follows:
Not later than one year
Later than one year but not more than five years
More than five years
Future finance charges on finance leases
Present value of finance lease liabilities
2006
Total
£m
0.1
0.2
-
0.3
-
0.3
2005
Total
£m
0.1
0.7
-
0.8
(0.1)
0.7
17 DEFERRED TAX
Deferred tax has been calculated at 30% in respect of UK companies (being the prevailing corporation tax rate at 30 September 2006 and 2005) and at the
prevailing rates for the overseas subsidiaries.
The movement on the deferred tax account is as shown below:
At 1 October
Acquisition of subsidiary
Transfer to current tax
Deferred tax on intangible assets
Income statement credit
Exchange differences
Stock options
At 30 September
2006
£m
43.5
2.7
(0.8)
(25.8)
(0.8)
(1.3)
(1.2)
16.3
2005
£m
30.2
16.7
-
-
(4.0)
0.6
-
43.5
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets because it is probable
that these assets will be recovered.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the Group, no tax is
expected to be payable on them in the foreseeable future.
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the year are
shown below.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
Deferred tax assets
At 1 October 2005
Income statement credit
Deferred tax on intangible assets
Acquisition of subsidiary
Transfer to current tax
Exchange differences
Stock options
At 30 September 2006
Net deferred tax asset
At 30 September 2006
At 30 September 2005
Intangible assets
£m
21.4
(4.1)
(17.3)
-
-
-
-
-
Tax losses
£m
1.0
(1.0)
-
-
-
-
-
-
(8.0)
21.4
-
1.0
Other
£m
23.6
3.8
-
2.2
(0.8)
(1.3)
(1.2)
26.3
24.3
21.1
Total
£m
46.0
(1.3)
(17.3)
2.2
(0.8)
(1.3)
(1.2)
26.3
16.3
43.5
The Sage Group plc Annual Report and Accounts 2006 p74
Deferred tax liabilities
At 1 October 2005
Income statement charge
Deferred tax on intangible assets
Acquisition of subsidiary
At 30 September 2006
The deferred tax liability due after more than one year is £10.0m (2005: £2.5m)
18 SHARE CAPITAL
Authorised
1,860,000,000 (2005: 1,860,000,000) ordinary shares of 1p each
Intangible assets
£m
-
(0.5)
8.5
-
8.0
Other
£m
2.5
-
-
(0.5)
2.0
2006
£m
18.6
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
2006
shares
1,285,318,582
8,962,362
1,294,280,944
2006
£m
12.8
0.1
12.9
2005
shares
1,281,801,526
3,517,056
1,285,318,582
Total
£m
2.5
(0.5)
8.5
(0.5)
10.0
2005
£m
18.6
2005
£m
12.8
-
12.8
Potential issues of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 33.90p to 721.00p under the share option schemes approved
by shareholders. The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised are given below:
Date of grant
15 January 1996
17 December 1997
20 January 1998
20 April 1998
15 May 1998
16 December 1998
7 June 1999
11 February 2000
23 February 2000
24 May 2000
10 January 2001
17 January 2001
16 May 2001
2 January 2002
31 December 2002
12 May 2003
24 December 2003
24 May 2004
6 January 2005
12 May 2005
10 January 2006
Exercise price
pence
33.90p
81.10p
98.75p
50.86p – 92.61p
140.00p
136.00p
204.50p
91.34p – 619.50p
721.00p
542.50p
301.00p
329.75p
264.00p
228.50p
134.00p
147.00p
171.00p
172.00p
198.00p
206.00p
258.50p
Exercise period
15 January 1999 – 15 January 2006
17 December 2000 – 17 December 2007
20 January 2001 – 20 January 2008
8 August 1999 – 2 March 2009
15 May 2001 – 15 May 2008
16 December 2001 – 16 December 2008
7 June 2002 – 7 June 2009
11 February 2000 – 6 January 2010
23 February 2003 – 23 February 2010
24 May 2003 – 24 May 2010
10 January 2004 – 10 January 2011
17 January 2004 – 17 January 2011
16 May 2004 – 16 May 2011
2 January 2005 – 2 January 2012
31 December 2005 – 31 December 2012
12 May 2006 – 12 May 2013
24 December 2006 – 24 December 2013
24 May 2007 – 24 May 2014
6 January 2008 – 6 January 2015
12 May 2008 – 12 May 2015
10 January 2009 – 10 January 2016
2006
number
-
680,000
150,000
708,460
1,008,110
2,094,710
1,352,500
158,065
31,250
19,037
2,975,643
581,137
2,096,431
4,520,285
4,621,782
2,288,047
11,110,075
320,351
5,268,627
2,150,367
6,458,797
48,593,674
2005
number
1,560,000
993,300
150,000
748,520
1,238,010
2,356,120
1,566,500
184,227
31,250
26,410
3,295,354
581,137
2,345,359
5,360,599
7,155,060
2,873,739
13,109,831
387,212
5,928,002
2,294,538
-
52,185,168
Under the above scheme, 7,929,609 1p ordinary shares were issued during the year for aggregate proceeds of £10,523,107.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p75
18 SHARE CAPITAL continued
Under the Group’s long-term incentive plan for certain senior executives approved by shareholders on 3 March 2005, the following awards have been made:
2005
number
1,899,315
242,626
-
2,141,941
Vesting date
18 March 2008
12 May 2008
10 January 2009
Date of award
18 March 2005
12 May 2005
10 January 2006
2006
number
1,841,204
242,626
2,469,883
4,553,713
In addition, options were granted under the terms of The Sage Group plc 1996 Savings-related Share Option Scheme approved by members on 7 February
1996 up to 2005 and thereafter under the new scheme approved by the members at the Annual General Meeting on 2 March 2006, as follows:
Date of grant
8 January 1999
1 March 2000
1 March 2001
1 March 2001
1 March 2002
1 March 2002
1 March 2003
1 March 2003
1 March 2003
1 March 2004
1 March 2004
1 March 2004
1 March 2005
1 March 2005
1 March 2005
1 August 2006
1 August 2006
1 August 2006
Exercise price
pence
114.80p
499.00p
240.00p
240.00p
180.40p
180.40p
112.00p
112.00p
112.00p
140.00p
140.00p
140.00p
157.00p
157.00p
157.00p
184.00p
184.00p
184.00p
Exercise period
1 February 2006 – 31 July 2006
1 March 2007 – 31 August 2007
1 March 2006 – 31 August 2006
1 March 2008 – 31 August 2008
1 March 2007 – 31 August 2007
1 March 2009 – 31 August 2009
1 March 2006 – 31 August 2006
1 March 2008 – 31 August 2008
1 March 2010 – 31 August 2010
1 March 2007 – 31 August 2007
1 March 2009 – 31 August 2009
1 March 2011 – 31 August 2011
1 March 2008 – 31 August 2008
1 March 2010 – 31 August 2010
1 March 2012 – 31 August 2012
1 August 2009 – 31 January 2010
1 August 2011 – 31 January 2012
1 August 2013 – 31 January 2014
2006
number
-
1,840
-
1,531
24,763
6,575
4,050
146,729
14,579
335,654
126,312
37,140
365,531
128,230
19,422
1,069,966
258,043
46,830
2,587,195
2005
number
29,120
1,840
30,230
1,531
27,330
6,575
1,034,053
157,287
29,190
410,081
161,316
37,140
423,328
145,701
21,699
-
-
-
2,516,421
Under the above scheme, 1,032,753 1p ordinary shares were issued during the year for aggregate proceeds of £1,219,029.
The market price of the shares of the Company at 30 September 2006 was 251.25p and the highest and lowest prices during the year were 283.75p and
204.75p respectively.
19 SHARE-BASED PAYMENTS
The total charge for the year relating to employee share-based payment plans was £8.8m (2005: £8.2m), all of which related to equity-settled share-based
payment transactions. After deferred tax, the total charge was £6.2m (2005: £5.3m). A reconciliation of share movements for options granted after 7
November 2002 to which IFRS 2 is applicable is shown below.
ESOS
Under the 1999 Executive Share Option Scheme (“ESOS”), grants are made at an exercise price which approximates to the share price at the date of the
grant and are made to senior executives and managers across the Group, as well as to other staff with high potential or to recognise significant achievement
or local market practice. The annual grant is normally made after the preliminary declaration of the annual results. Under the rules of the ESOS, as amended
at the Annual General Meeting in 2005, the annual grant of options to an individual is limited to shares worth up to 300% of base salary. In practice, annual
grants to executive directors are limited to shares under option worth 100% of base salary except in exceptional circumstances, such as a promotion or
recruitment or to reflect local market practice.
The Sage Group plc Annual Report and Accounts 2006 p76
The performance targets governing the vesting of options are based on stretching EPS growth measured over a fixed three year period from the start of the
financial year in which the grant is made. 30% of options will vest at the end of the period if the increase in EPS exceeds Retail Prices Index (“RPI”) by 15%
(an average of 5% per year) and 100% of those options will vest at that time only if RPI is exceeded in that period by 27% (an average of 9% per year).
Between those targets, options will vest on a straight-line basis. If those targets are not met at the end of the three year period, then no further retesting
of the performance criteria will be undertaken and the options will lapse.
Options were valued using the Black-Scholes option-pricing model. Performance conditions were included in the fair value calculations. The fair value per
option granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends
expressed as a dividend yield
Possibility of ceasing
employment before vesting
Expectation of meeting
performance criteria
Fair value per option
December
2002
£1.33
£1.34
204
4,621,782
3
62%
10
4
4.1%
0.3%
5%
100%
May
2003
£1.45
£1.47
84
2,288,047
3
63%
10
4
3.8%
1.3%
5%
100%
December
2003
£1.75
£1.71
698
11,110,075
3
62%
10
4
4.5%
0.9%
5%
100%
May
2004
£1.72
£1.72
27
320,351
3
57%
10
4
5.1%
1.0%
5%
100%
January
2005
£1.90
£1.98
179
5,268,627
3
52%
10
4
4.4%
1.6%
5%
100%
May
2005
£2.07
£2.06
160
2,150,367
3
48%
10
4
4.3%
1.6%
January
2006
£2.53
£2.59
519
6,458,797
3
40%
10
4
4.1%
1.6%
5%
5%
100%
100%
£0.661
£0.678
£0.855
£0.794
£0.802
£0.777
£0.799
The expected volatility is based on historical volatility over the last four years. The expected life is the average expected period to exercise. The risk free rate
of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. A reconciliation of option movements over the
year is shown below:
Outstanding at 1 October
Granted
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Weighted
average
excerise
price
£
1.88
Range of
exercise
prices
1.34 – 2.59
2006
Number
of shares
32,218
Weighted average
remaining life years
Contractual
7.7
Expected
0.8
2006
Weighted
average
exercise price
£
1.68
2.59
1.81
1.50
1.88
1.51
Number
‘000s
26,530
8,462
(2,267)
(977)
31,748
3,590
2005
Weighted
average
exercise price
£
1.57
2.00
1.65
1.59
1.68
1.62
2005
Number
of shares
31,748
Weighted average
remaining life years
Contractual
8.3
Expected
1.1
Number
‘000s
31,748
6,686
(2,053)
(4,163)
32,218
9,692
Weighted
average
excerise
price
£
1.68
The weighted average share price during the period for options exercised over the year was 259.10p (2005: 220.25p).
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p77
19 SHARE-BASED PAYMENTS continued
The Sage Group PSP
The Performance Share Plan (the “Plan”) was approved by shareholders at the Annual General Meeting in 2005. Annual grants of performance shares will
normally be made to executive directors and senior executives across the Group after the preliminary declaration of the annual results. This Plan is operated
in conjunction with the ESOS.
Annual awards under the Plan are limited to shares worth up to 150% of base salary. In practice, annual grants to executive directors are limited to shares
worth 100% of base salary except in exceptional circumstances, such as a promotion or recruitment or to reflect local market practice.
The performance shares are subject to performance conditions measuring the Group’s total shareholder return (“TSR”) against a comparator group of
international software and computer services companies. TSR has been chosen as the performance condition because it helps to align the interests of
award holders with shareholders and complements the focus on Group financial results that arises from using EPS under the ESOS and annual bonus plan.
The comparator group for awards made in 2005 comprised the following companies:
• Oracle
• Blackbaud
• Salesforce.com
• Business Objects
• SAP
• Cap Gemini
• Systems Union
• Cegid
• Microsoft
• Misys
• MYOB
• Northgate Information Systems
• Exact
• GEAC
• Intuit
• iSOFT
30% of shares vest for median TSR performance as compared to the comparator group whilst all shares vest for upper quintile (top 20%) TSR performance.
Between those two points, shares will vest on a straight-line basis. TSR will be measured over a single three year period from the start of the financial year in
which the grant is made to establish whether the criteria have been met and if these criteria are not met on the third anniversary of grant, the performance
shares will lapse.
Awards were valued using the Monte Carlo option-pricing model. Performance conditions were included in the fair value calculations. The fair value per
award granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under award
Vesting period (years)
Expected volatility
Award life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Expectation of meeting performance criteria
Fair value per award
March
2005
£2.07
£0.00
21
1,841,204
3
44%
3
3
4.7%
0.0%
0%
100%
£1.385
May
2005
£2.07
£0.00
6
242,626
3
42%
3
3
4.3%
0.0%
0%
100%
£1.341
January
2006
£2.59
£0.00
97
2,469,883
3
32%
3
3
4.2%
0.0%
0%
100%
£1.401
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate
of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed award life. A reconciliation of award movements over the
year is shown below:
The Sage Group plc Annual Report and Accounts 2006 p78
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Weighted
average
excerise
price
£
-
Range of
exercise
prices
-
2006
Number
of shares
4,554
Weighted average
remaining life years
Contractual
1.9
Expected
1.9
2006
Weighted
price average
£
-
-
-
-
-
-
Number
‘000s
-
2,142
-
-
2,142
-
2005
Weighted
price average
£
-
-
-
-
-
-
2005
Number
of shares
2,142
Weighted average
remaining life years
Contractual
2.5
Expected
2.5
Number
‘000s
2,142
2,531
(119)
-
4,554
-
Weighted
average
excerise
price
£
-
The Sage Group Savings-Related Share Option Plan (the “SAYE Plan”)
In February 1996, the Company introduced an Inland Revenue approved savings-related share option scheme allowing all UK employees to apply for an
option to acquire ordinary shares in the Company (“Shares”) at a price per Share which was not less than 80% of the market value of those Shares when
invitations for options were made. The acquisition of the Shares was funded by the proceeds of a savings account with a bank or building society. The
original scheme adopted in 1996 continued in accordance with its terms for 10 years and expired in February 2006. A new scheme was approved by the
members at the Annual General Meeting held on 2 March 2006.
Eligibility
All UK employees, including executive directors, of the Company and its participating subsidiaries who have completed at least one year’s continuous service
and are assessable to employment income tax are eligible to participate in the SAYE Plan. The directors may offer participation to other employees and may
alter the length of service required to qualify to a different period, not exceeding five years.
Employee contributions
An employee who wishes to participate in the SAYE Plan will enter into a contract (the “SAYE contract”) with a savings body, designated by the directors
for the purpose of the SAYE Plan, to make monthly contributions by deduction from their pay of not more than the maximum contribution permitted from
time to time by HMRC (currently £250).
A tax-free bonus (currently equivalent to 1.4x or 4.4x the monthly contribution) will be paid on completion of 36 or 60 monthly savings contributions
respectively and another tax-free bonus (currently 8.4x the monthly contribution) (including the payment at the end of 60 months) will be paid after a further
two years if the savings plus the initial bonus are not withdrawn prior to that date.
Exercise price
An employee who applies for the grant of an option to acquire Shares will do so at a price (the “Exercise Price”) which is determined by the directors
but which is not less than the greater of:
• 80% of the middle market quotation of a Share on the dealing day prior to the date of invitation as derived from the London Stock Exchange Daily Official
List (or, if the directors so decide, 80% of the average of the middle market quotations over the three dealing days prior to the date of the invitation or
80% of the middle market quotations at such other time or times agreed in advance with HMRC), and;
• In the case of an option over unissued Shares, the nominal value of a Share.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p79
19 SHARE-BASED PAYMENTS continued
Grant of options
Each option is granted over a number of Shares which, when multiplied by the Exercise Price, does not exceed the total monthly contributions plus the
bonus payable on the maturity of the SAYE contract. There will be no payment for the grant of an option. Invitations to apply for options must be made
within a period of 42 days after:
• Approval of the SAYE Plan by HMRC, or
• The publication by the Company of its interim or final results each year, or
• The day after the Company’s Annual General Meeting, or
• Any day on which any change to the savings-related share option schemes legislation is announced or made, or
• If the directors resolve that exceptional circumstances exist which justify the operation of the SAYE Plan.
Exercise of options
In normal circumstances, an option may be exercised at any time within six months following maturity of the SAYE contract, using the proceeds of the
SAYE contract and the applicable bonus.
Options were valued using the Black-Scholes option-pricing model. Performance conditions were not included in the fair value calculations. The fair value per
option granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Fair value per option
March 2003
£1.34
£1.12
2
4,050
3
65%
3
3
3.5%
1.1%
5%
£0.644
March 2003
£1.34
£1.12
26
146,729
5
60%
5
5
3.8%
1.1%
5%
£0.729
March 2003
£1.34
£1.12
3
14,579
7
52%
7
7
4.0%
1.1%
5%
£0.746
March 2004
£1.93
£1.40
141
335,654
3
58%
3
3
4.5%
0.9%
5%
£0.967
March 2004
£1.93
£1.40
43
126,312
5
59%
5
5
4.6%
0.9%
5%
£1.135
March 2004
£1.93
£1.40
12
37,140
7
54%
7
7
4.7%
0.9%
5%
£1.192
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Fair value per option
March 2005
£2.06
£1.57
190
365,531
3
44%
3
3
4.7%
1.6%
5%
£0.847
March 2005
£2.06
£1.57
36
128,230
5
55%
5
5
4.7%
1.6%
5%
£1.092
March 2005
£2.06
£1.57
8
19,422
7
54%
7
7
4.7%
1.6%
5%
£1.176
August 2006
£2.28
£1.84
535
1,069,966
3
26%
3
3
4.7%
1.6%
5%
£0.706
August 2006
£2.28
£1.84
94
258,043
5
42%
5
5
4.7%
1.6%
5%
£1.028
August 2006
£2.28
£1.84
18
46,830
7
51%
7
7
4.6%
1.6%
5%
£1.255
The expected volatility is based on historical volatility over the last three, five or seven years, consistent with the option life. The expected life is the average
expected period to exercise. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life.
A reconciliation of option movements over the year is shown below:
The Sage Group plc Annual Report and Accounts 2006 p80
Outstanding at 1 October
Granted
Forfeited
Surrendered
Exercised
Outstanding at 30 September
Exercisable at 30 September
Weighted
average
excerise
price
£
1.65
Range of
exercise
prices
1.12 – 1.84
2006
Number
of shares
2,552
Weighted average
remaining life years
Contractual
2.5
Expected
2.5
20 SHARE PREMIUM ACCOUNT
At 1 October 2004
Premium on shares issued during the year under share option schemes
At 1 October 2005
Premium on shares issued during the year under share option schemes
At 30 September 2006
21 OTHER RESERVES
At 1 October 2004
Exchange adjustments, net of tax
At 30 September 2005
Exchange adjustments, net of tax
At 30 September 2006
2006
Weighted
average
price
£
1.30
1.84
1.36
1.51
1.12
1.65
1.12
Number
‘000s
1,953
639
(115)
(115)
(46)
2,316
-
2005
Weighted
average
price
£
1.22
1.57
1.36
1.36
1.16
1.30
1.57
2005
Number
of shares
2,316
Weighted average
remaining life years
Contractual
1.7
Expected
1.7
Number
‘000s
2,316
1,399
(84)
(122)
(957)
2,552
4
Weighted
average
excerise
price
£
1.30
£m
446.3
4.7
451.0
11.8
462.8
Other
reserves
£m
61.1
13.4
74.5
(30.8)
43.7
Translation
reserve
£m
-
13.4
13.4
(30.8)
(17.4)
Other
reserve
£m
61.1
-
61.1
-
61.1
Translation reserve
The translation reserve represents the accumulated exchange differences arising from the following sources:
• The impact of the translation of subsidiaries with a functional currency other than pounds sterling; and
• Exchange differences arising on hedging instruments that are designated hedges of a net investment in foreign operations, net of tax where applicable.
Other reserve
Other reserves brought forward at 1 October 2004 relate to the merger reserve which was present under UK GAAP and frozen on transition to IFRS.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p81
22 RETAINED EARNINGS
At 1 October
Profit for the year
Share-based payments
Dividends paid
Treasury shares
Equity movement of deferred tax
At 30 September
2006
£m
350.4
152.5
8.8
(39.1)
(13.3)
(1.2)
458.1
2005
£m
241.4
132.3
8.2
(33.9)
-
2.4
350.4
Treasury shares
The Group holds treasury shares in a trust which was set up for the benefit of Group employees. The Trust purchases the Company’s shares in the market
for use in connection with the Group’s share-based payments arrangements. The amounts shown in the treasury shares reserve at 30 September each year
would be deducted in determining the distributable profits of the Company at that date.
Interests in own shares represent the cost of £13,272,933 of the Company’s ordinary shares (nominal value of £47,556) purchased in February 2006. These
shares were acquired by the Trust in the open market using funds provided by the Company to meet obligations under the Performance Share Plan. The
costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The market
value of the shares at 30 September 2006 was £11.9m.
Cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, amounts to £245.8m (2005: £254.4m).
The reserves of subsidiary undertakings have generally been retained to finance their business.
23 SHAREHOLDERS’ FUNDS AND RECONCILIATION OF CHANGES IN SHAREHOLDERS’ EQUITY
At 1 October 2004
Exchange adjustments
Net profit
Equity movement of deferred tax
Share options
- proceeds from shares issued
- value of employee services
Dividends
At 30 September 2005
Exchange adjustments
New shares issued
Purchase of minority interest
Net profit
Equity movement of deferred tax
Share options
- proceeds from shares issued
- value of employee services
Treasury shares
Dividends
At 30 September 2006
Share
capital
£m
12.8
-
-
-
-
-
-
12.8
-
0.1
-
-
-
-
-
-
-
12.9
Share
premium
£m
446.3
-
-
-
4.7
-
-
451.0
-
-
-
-
-
11.8
-
-
-
462.8
Retained
earnings
£m
241.4
-
132.3
2.4
-
8.2
(33.9)
350.4
-
-
-
152.5
(1.2)
-
8.8
(13.3)
(39.1)
458.1
Other
reserves
£m
61.1
13.4
-
-
-
-
-
74.5
(30.8)
-
-
-
-
-
-
-
-
43.7
Equity
funds
£m
761.6
13.4
132.3
2.4
4.7
8.2
(33.9)
888.7
(30.8)
0.1
-
152.5
(1.2)
11.8
8.8
(13.3)
(39.1)
977.5
Minority
interest
£m
0.2
(0.1)
0.1
-
-
-
-
0.2
-
-
(0.2)
0.1
-
-
-
-
-
0.1
Total
equity
£m
761.8
13.3
132.4
2.4
4.7
8.2
(33.9)
888.9
(30.8)
0.1
(0.2)
152.6
(1.2)
11.8
8.8
(13.3)
(39.1)
977.6
Other reserves brought forward at 1 October 2004 relate to the merger reserve which was present under UK GAAP and frozen on transition to IFRS.
The Sage Group plc Annual Report and Accounts 2006 p82
24 MINORITY INTEREST
At 1 October
Share of net profit of subsidiaries
Purchase of minority interest
Exchange adjustments
At 30 September
25 CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of profit for the year to cash generated from continuing operations
Profit for the year
Adjustments for:
Taxation
Finance income
Finance expenses
Amortisation of intangible assets
Depreciation of property, plant and equipment
Profit on sale of subsidiary
Loss on disposal of fixed assets
Equity-settled share-based transactions
Exchange movements
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries)
• Decrease in inventories
• Increase in trade and other receivables
• (Decrease)/increase in payables
• Increase in deferred income
Cash generated from continuing operations
2006
£m
0.2
0.1
(0.2)
-
0.1
2006
£m
152.6
68.6
(3.5)
18.1
15.4
13.7
(2.7)
0.8
8.8
(9.1)
0.6
(15.4)
(0.9)
20.1
267.1
2005
£m
0.2
0.1
-
(0.1)
0.2
2005
£m
132.4
61.2
(2.8)
8.5
3.9
14.2
-
-
7.4
3.0
0.3
(9.3)
4.5
17.7
241.0
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p83
25 CASH FLOWS FROM OPERATING ACTIVITIES continued
Reconciliation of net cash flow to movement in net debt (inclusive of finance leases)
Increase/(decrease) in cash in the year (pre exchange movements)
Cash (inflow)/outflow from (increase)/decrease in loans, finance leases and cash collected from customers
Change in net debt resulting from cash flows
Loans acquired with subsidiaries
Finance leases acquired with subsidiaries
Cash collected from customers acquired with subsidiaries
Non cash movements
Exchange movements
Movement in net debt in the year
Net debt at 1 October
Net debt at 30 September
Analysis of change in net debt (inclusive of finance leases)
2006
£m
15.1
(496.9)
(481.8)
(7.4)
-
-
(0.6)
11.0
(478.8)
(114.8)
(593.6)
2005
£m
(5.2)
35.4
30.2
(2.6)
(0.8)
(7.8)
(0.7)
(1.8)
16.5
(131.3)
(114.8)
Net cash at bank and in hand
Loans due within one year
Finance leases due within one year
Loans due after more than one year
Finance leases due after more
than one year
Cash collected from customers
Total
At 1
October
2005
£m
69.1
(0.1)
(0.1)
(175.2)
(0.6)
(7.9)
(114.8)
Cash flow
£m
15.1
5.7
-
(497.6)
0.3
(5.3)
(481.8)
Acquisition
£m
-
(6.1)
-
(1.3)
-
-
(7.4)
Exchange
movements
£m
(2.2)
-
-
12.6
0.1
At 30
September
2006
£m
82.0
(0.9)
(0.1)
(661.7)
(0.2)
0.5
11.0
(12.7)
(593.6)
Other
£m
-
(0.4)
-
(0.2)
-
-
(0.6)
Included in cash above is £12.7m (2005: £7.9m) relating to cash collected from customers, which the Group is contracted to pay onto another party.
A liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt above.
The Sage Group plc Annual Report and Accounts 2006 p84
26 ACQUISITIONS AND DISPOSALS
a Acquisition of Adonix, S.A.
On 15 November 2005 the Group completed the acquisition of Adonix S.A. (“Adonix”) for a consideration of £98.3m (inclusive of £0.6m related costs). Total
goodwill arising on the acquisition is £55.7m. The fair values of net assets acquired are based on provisional assessments pending final determination of
certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £41.0m to
revenue and £7.4m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill
in the financial statements.
Adonix acquisition
Intangible fixed assets
Property, plant and equipment
Receivables
Payables
Taxation
- Current
- Deferred
Cash and cash equivalents
Loans
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of Adonix is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of Adonix can be analysed as follows:
Brand names
Technology
Computer software
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
8.5
1.0
5.8
(11.1)
Provisional
fair value
£m
31.4
1.0
5.5
(12.1)
0.7
0.3
23.2
(5.6)
(2.0)
20.8
0.7
0.6
23.2
(5.6)
(2.1)
42.6
55.7
98.3
97.8
0.5
98.3
£m
97.8
(23.2)
74.6
£m
7.3
19.3
0.1
4.7
31.4
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p85
26 ACQUISITIONS AND DISPOSALS continued
b Acquisition of Verus Financial Management, Inc.
On 6 February 2006 the Group completed the acquisition of Verus Financial Management, Inc. (“Verus”) for a consideration of £176.6m (inclusive of £2.3m
related costs). Total goodwill arising on the acquisition is £135.4m. The fair values of net assets acquired are based on provisional assessments pending final
determination of certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £28.9m to
revenue and £11.2m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the financial
statements.
Verus acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Taxation
- Current
- Deferred
Cash and cash equivalents
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of Verus is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of Verus can be analysed as follows:
Technology
Computer software
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
42.7
0.5
0.2
7.8
(10.1)
Provisional
fair value
£m
38.2
0.5
0.2
7.8
(10.1)
0.1
(1.5)
5.1
(0.2)
44.6
0.2
(0.5)
5.1
(0.2)
41.2
135.4
176.6
169.1
7.5
176.6
£m
169.1
(5.1)
164.0
£m
5.4
0.5
32.3
38.2
The Sage Group plc Annual Report and Accounts 2006 p86
c Acquisition of Master Builder
On 19 May 2006 the Group completed the acquisition of the Master Builder division of Intuit Inc. for a consideration of £12.7m (inclusive of £0.2m related
costs). Total goodwill arising on the acquisition is £10.5m. The fair values of net assets acquired are based on provisional assessments pending final
determination of certain assets and liabilities.
In the purchase 100% of the division was acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £2.7m to revenue
and £0.4m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the financial
statements.
Master Builder acquisition
Intangible fixed assets
Payables
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of Master Builder is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of Master Builder can be analysed as follows:
Brand names
Technology
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
-
(0.2)
(2.5)
(2.7)
Provisional
fair value
£m
4.9
(0.2)
(2.5)
2.2
10.5
12.7
12.7
-
12.7
£m
12.7
-
12.7
£m
1.5
1.5
1.9
4.9
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p87
26 ACQUISITIONS AND DISPOSALS continued
d Acquisition of Bäurer GmbH
On 11 July 2006 the Group completed the acquisition of Bäurer GmbH (“Bäurer”) for a consideration of £17.6m (inclusive of £0.3m related costs). Total
goodwill arising on the acquisition is £12.1m. The fair values of net assets acquired are based on provisional assessments pending final determination of
certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £3.2m to
revenue and £0.1m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the
financial statements.
Bäurer acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Taxation
- Current
Cash and cash equivalents
Loans
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of Bäurer is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of Bäurer can be analysed as follows:
Brand names
Technology
Computer software
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
2.3
0.3
0.1
1.8
(2.3)
Provisional
fair value
£m
5.9
0.3
0.1
1.8
(2.3)
0.3
1.4
(0.2)
(1.8)
1.9
0.3
1.4
(0.2)
(1.8)
5.5
12.1
17.6
17.3
0.3
17.6
£m
17.3
(1.4)
15.9
£m
0.9
1.1
0.4
3.5
5.9
The Sage Group plc Annual Report and Accounts 2006 p88
e Acquisition of Elit Group
On 24 July 2006 the Group completed the acquisition of Elit Group (“Elit”) for a consideration of £22.2m (inclusive of £1.4m related costs). Total goodwill
arising on the acquisition is £18.0m. The fair values of net assets acquired are based on provisional assessments pending final determination of certain
assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £2.4m to
revenue and (£0.3m) to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the
financial statements.
Elit acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Taxation
- Current
- Deferred
Cash and cash equivalents
Loans
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of Elit is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of Elit can be analysed as follows:
Technology
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
5.5
0.4
0.1
7.1
(4.3)
Provisional
fair value
£m
6.9
0.4
0.1
4.8
(7.1)
0.6
-
(0.9)
(1.6)
(0.6)
6.3
0.6
2.6
(0.9)
(1.6)
(1.6)
4.2
18.0
22.2
14.1
8.1
22.2
£m
14.1
0.9
15.0
£m
1.2
5.7
6.9
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p89
26 ACQUISITIONS AND DISPOSALS continued
f Acquisition of UBS Corporation Berhad
On 3 July 2006 the Group completed the acquisition of UBS Corporation Berhad (“UBS”), for a consideration of £14.6m. Total goodwill arising on the
acquisition is £10.8m. The fair values of net assets acquired are based on provisional assessments pending final determination of certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £0.5m to
revenue and £0.2m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the
financial statements.
UBS acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Cash and cash equivalents
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of UBS is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of UBS can be analysed as follows:
Brand names
Technology
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
-
1.2
0.2
0.5
(0.1)
1.1
2.9
Provisional
fair value
£m
0.9
1.2
0.2
0.5
(0.1)
1.1
3.8
10.8
14.6
14.6
-
14.6
£m
14.6
(1.1)
13.5
£m
0.2
0.6
0.1
0.9
The Sage Group plc Annual Report and Accounts 2006 p90
g Acquisition of Emdeon Practice Services, Inc.
On 14 September 2006 the Group completed the acquisition of Emdeon Practice Services, Inc. (“EPS”) for a consideration of £307.8m (inclusive of £3.6m
related costs). Total goodwill arising on the acquisition is £245.9m. The fair values of net assets acquired are based on provisional assessments pending final
determination of certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2006 the acquisition contributed £8.5m to
revenue and £0.9m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the
financial statements.
EPS acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Cash and cash equivalents
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of EPS is calculated as follows:
Cash consideration
Cash acquired
The intangible assets acquired as part of the acquisition of EPS can be analysed as follows:
Brand names
Technology
Computer software
Customer relationships
Further details of these are given in note 8.
Carrying values
pre acquisition
£m
102.1
5.1
2.2
21.7
(10.0)
2.0
(25.6)
97.5
Provisional
fair value
£m
64.4
5.1
2.2
31.3
(10.5)
2.0
(32.6)
61.9
245.9
307.8
304.8
3.0
307.8
£m
304.8
(2.0)
302.8
£m
6.7
11.9
3.8
42.0
64.4
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p91
26 ACQUISITIONS AND DISPOSALS continued
h Other acquisitions made in the year
The following acquisitions, each of the entire share capital of the relevant company, were made during the year:
• Gestexper – Informática, Lda was acquired on 1 October 2005 for a cash consideration of £0.2m (including costs). The fair value of assets acquired was
£nil resulting in goodwill of £0.2m.
• Digital Pilot SARL was acquired on 22 December 2005 for a cash consideration of £0.3m (including costs) and a deferred element of £1.1m. The fair value
of assets acquired was £nil resulting in goodwill of £1.4m.
• Contractor Anywhere, Inc. was acquired on 8 May 2006 for a cash consideration of £2.9m (including costs). The fair value of assets acquired was £nil
resulting in goodwill of £2.9m.
• SWA Ltd. and Huatuo Software Ltd. were acquired on 16 May 2006 for a cash consideration of £0.8m (including costs). The fair value of assets acquired
was (£0.2m) resulting in goodwill of £1.0m.
• Escripóvoa – Formação e Contabilidade, S.A. was acquired on 10 July 2006 for a cash consideration of £1.0m (including costs). The fair value of assets
acquired was £0.1m resulting in goodwill of £0.9m.
In addition, the following acquisitions were completed during the year of the trade and assets of the following businesses:
• Certain trade and assets of Datev Symfonia SP z.o.o. were acquired on 1 February 2006 for a cash consideration of £nil. The fair value of assets acquired
was (£0.3m) resulting in goodwill of £0.3m.
• Certain trade and assets of BGM Business Solutions Limited were acquired on 31 January 2006 for a cash consideration of £0.4m (including costs). The
fair value of assets acquired was £nil resulting in goodwill of £0.4m.
• Certain trade and assets of Logic Galicia, S.L. were acquired on 10 August 2006 for a cash consideration of £0.6m (including costs). The fair value of
assets acquired was £0.4m resulting in goodwill of £0.2m.
• The Corum Mobile Division of Corum Corporation was acquired on 15 September 2006 for a cash consideration of £9.4m (including costs). The fair value
of assets acquired was £nil resulting in goodwill of £9.4m.
Other acquisitions
Property, plant and equipment
Receivables
Payables
Taxation
- Current
Cash and cash equivalents
Deferred income
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
The fair value adjustments contain some provisional amounts which will be finalised in the 2007 accounts.
Goodwill represents the value of synergies and assembled workforce.
The outflow of cash and cash equivalents on the acquisition of the other acquisitions is calculated as follows:
Cash consideration
Cash acquired
Carrying values
pre acquisition
£m
0.1
0.4
(0.8)
Provisional
fair value
£m
0.1
0.4
(0.8)
0.1
0.5
(0.3)
-
0.1
0.5
(0.3)
-
16.7
16.7
15.6
1.1
16.7
£m
15.6
(0.5)
15.1
The Sage Group plc Annual Report and Accounts 2006 p92
i Contribution of acquisitions
The contribution to Group revenue and net profit, had the acquisitions occurred at the beginning of the year, has not been disclosed as it would be
impracticable to determine these amounts due to the following reasons;
• Certain of the acquisitions had a different year end to the Group;
• Certain of the acquisitions accounted under a different GAAP to the Group, making accounting information not comparable to the rest of the Group; and
• In certain instances, accounting information is not sufficient to determine accurately the fair value adjustments that would have been made to the balance
sheets one year ago.
j Disposal of CPA Software
On 14 January 2006 the Group disposed of the CPA Software division of Sage Software, Inc. for £7.8m in cash and a deferred element of £0.6m.
Property, plant and equipment
Receivables
Payables
Deferred income
Goodwill
Net assets at disposal
Profit on disposal
Total consideration
Consideration satisfied by:
Cash
Deferred consideration
£m
0.1
0.1
(0.1)
(1.8)
(1.7)
7.4
5.7
2.7
8.4
7.8
0.6
8.4
k Other disposals
In addition, the following disposals were completed during the year of the trade and assets of the following businesses:
• Certain trade and assets of Sage Concept Italia SPA were disposed of on 15 November 2005 for a cash consideration of £0.7m. The fair value of assets
disposed of was £0.7m resulting in a profit on disposal of £nil.
• Certain trade and assets of Sage ACCPAC International, Inc. were disposed of on 25 April 2006 for a cash consideration of £0.1m. The fair value of assets
disposed of was £0.1m resulting in a profit on disposal of £nil.
Property, plant and equipment
Receivables
Cash and cash equivalents
Payables
Net assets at disposal
Profit on disposal
Total cash consideration
The inflow of cash and cash equivalents on the other disposals is calculated as follows:
Cash consideration
Cash disposed
£m
0.1
0.6
0.8
(0.7)
0.8
-
0.8
£m
0.8
(0.8)
-
l Other
During the year ended 30 September 2006 adjustments were made in respect of goodwill on prior year acquisitions of (£1.7m), due to additional cash
acquisition payments of £0.6m, reduction in deferred consideration of £0.3m and increase in net assets of £2.0m following the re-appraisal of the fair value
of assets and liabilities.
In addition, adjustments were made in respect of other intangible assets on prior year acquisitions of £1.4m.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p93
26 ACQUISITIONS AND DISPOSALS continued
m Analysis of net outflow of cash in respect of acquisitions
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Adonix
Verus
Master Builder
Bäurer
Elit
UBS
EPS
Other acquisitions
Payments in relation to previous years’ acquisitions
Payment of deferred consideration
Net cash outflow in respect of acquisitions
n Analysis of goodwill
The total additions to goodwill are calculated as follows:
Adonix
Verus
Master Builder
Bäurer
Elit
UBS
EPS
Other acquisitions
Adjustments in relation to previous years’ acquisitions
Net movement in goodwill on acquisitions
o Analysis of net inflow of cash in respect of disposals
The inflow of cash and cash equivalents on the disposals is calculated as follows:
CPA Software
Other disposals
Net cash inflow in respect of disposals
27 EMPLOYEES AND DIRECTORS
Average monthly number of people employed
By territory
UK & Ireland
Mainland Europe
North America
Rest of World
Staff costs
Wages and salaries
Social security costs
Share-based payments
Other pension costs
Note
26(a)
26(b)
26(c)
26(d)
26(e)
26(f)
26(g)
26(h)
26(l)
Note
26(a)
26(b)
26(c)
26(d)
26(e)
26(f)
26(g)
26(h)
26(l)
7
Note
26(j)
26(k)
2006
number
2,031
4,001
3,307
1,171
10,510
2006
£m
335.8
57.4
8.8
7.8
409.8
£m
74.6
164.0
12.7
15.9
15.0
13.5
302.8
15.1
0.6
3.3
617.5
£m
55.7
135.4
10.5
12.1
18.0
10.8
245.9
16.7
(1.7)
503.4
£m
7.8
-
7.8
2005
number
1,850
2,871
2,978
987
8,686
2005
£m
256.1
47.6
8.2
9.6
321.5
Note
28
The Sage Group plc Annual Report and Accounts 2006 p94
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
The key management figures given above include directors.
2006
£m
5.8
0.3
1.7
7.8
2005
£m
5.5
0.3
1.6
7.4
28 PENSION COMMITMENTS
The Group has established a number of pension schemes around the world covering many of its employees. All of these schemes are defined contribution
schemes with the exception of a small scheme in Switzerland.
Pension costs for defined contribution schemes are as follows:
Defined contribution schemes
Note
27
2006
£m
7.4
Defined benefit plan
The most recent actuarial valuation of the Swiss pension plan was performed by Swisscanto. The principal assumptions made by the actuaries were:
Rate of increase in pensionable salaries
Rate of increase in pensions in payment and deferred pensions
Mortality assumption
Discount rate
Inflation assumption
Expected return on plan assets
Pensions and other post-retirement obligations
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations
Fair value of plan assets
Unrecognised actuarial losses
Net liability recognised in the balance sheet
2006
%
2.00
0.50
1.00
3.00
2.00
4.00
2006
£m
(11.7)
9.6
-
(2.1)
2005
£m
9.3
2005
%
1.00
0.25
1.00
3.00
1.00
4.50
2005
£m
(11.2)
8.8
0.1
(2.3)
The expected return on plan assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.
The major categories of plan assets as a percentage of total plan assets are as follows:
Cash
Bonds
Equities
Property
Other
£m
0.7
5.2
2.1
1.0
0.6
9.6
2006
%
6.9
55.0
21.8
10.6
5.7
100.0
£m
0.3
4.9
2.0
1.2
0.5
8.9
2005
%
3.4
55.0
22.3
13.4
5.9
100.0
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p95
28 PENSION COMMITMENTS continued
The amounts recognised in the income statement are as follows:
Actuarial pension cost
Interest cost
Expected return on plan assets
Current service cost
Total included within staff costs
The entire cost is included within selling and administrative expenses.
Changes in the present value of the defined benefit obligation are as follows:
Note
27
Present value of obligation – 1 October
Exchange movement
Service cost
Interest cost
Benefits paid
Actuarial gain/(loss) on benefit obligation
Present value of obligation – 30 September
Changes in the fair value of plan assets are as follows:
Fair value of plan assets – 1 October
Exchange movement
Expected return on plan assets
Employer’s contributions
Employee’s contributions
Benefits paid
Actuarial loss on plan assets
Fair value of plan assets – 30 September
Analysis of the movement in the balance sheet liability
At 1 October
Total expense as above
Contributions paid
At 30 September
The actual return on plan assets was £0.3m (2005: £0.4m).
History of experience gains and losses
Present value of defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments on plan liabilities
Change in assumptions adjustment on plan liabilities
Experience adjustments on plan assets
Total actuarial (loss)/gain
2006
£m
(0.9)
(0.3)
0.4
0.4
(0.4)
2006
£m
(11.2)
0.2
(0.9)
(0.3)
0.3
0.2
(11.7)
2006
£m
8.8
(0.2)
0.4
0.6
0.4
(0.3)
(0.1)
9.6
2006
£m
(2.3)
(0.4)
0.6
(2.1)
2006
£m
(11.7)
9.6
(2.1)
(0.1)
-
0.1
-
2005
£m
(0.7)
(0.2)
0.3
0.3
(0.3)
2005
£m
(10.3)
(0.2)
(0.7)
(0.2)
0.3
(0.1)
(11.2)
2005
£m
8.1
-
0.3
0.3
0.4
(0.3)
-
8.8
2005
£m
(2.3)
(0.3)
0.3
(2.3)
2005
£m
(11.2)
8.8
(2.4)
(0.1)
0.3
(0.1)
0.1
The Sage Group plc Annual Report and Accounts 2006 p96
29 OPERATING LEASE COMMITMENTS – MINIMUM LEASE PAYMENTS
Commitments under non-cancellable
operating leases expiring:
Within one year
Later than one year and less than five years
After five years
2006
Vehicles
plant and
equipment
£m
0.5
2.7
0.1
3.3
2005
Vehicles
plant and
equipment
£m
0.8
2.1
-
2.9
Property
£m
12.1
48.6
84.2
144.9
Property
£m
16.6
73.3
125.1
215.0
The Group leases various offices and warehouses under non-cancellable operating lease agreements. These leases have various terms, escalation clauses
and renewal rights. The Group also leases vehicles, plant and equipment under non-cancellable operating lease agreements.
30 CONTINGENT LIABILITIES
The Group had no contingent liabilities at 30 September 2006 (2005: none).
31 RELATED PARTY TRANSACTIONS
The Group has taken advantage of the exemption available under IAS 24, “Related Party Disclosures”, not to disclose details of transactions with its
subsidiary undertakings. There are no other external related parties.
32 POST BALANCE SHEET EVENTS
On 13 November 2006 the Group announced that it had acquired 100% of Protx Group Ltd in the UK, for an enterprise value of £20.0m.
The book values of the net assets acquired are detailed below:
Intangible assets
Property, plant and equipment
Receivables
Payables
Cash and cash equivalents
Net assets acquired
In accordance with IFRS 3, the directors will assess the fair values of the net assets acquired as further information becomes available.
Book
value
£m
0.2
0.5
0.4
(0.4)
0.1
0.8
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p97
33 PRINCIPAL SUBSIDIARIES
Detailed below is a list of those subsidiaries which in the opinion of the directors
principally affect the amount of the profit or the amount of the assets of the
Group. The Group percentage of equity capital and voting rights is 100%
and nature of business is software and the provision of related services.
Incorporated subsidiaries
Name
Sage (UK) Limited
Sage Hibernia Limited
Sage Software, Inc.
Sage Software SB, Inc.
Sage ACCPAC International, Inc.
Verus Financial Management, Inc.
Sage Software Healthcare, Inc.
Sage ACCPAC Canada Inc.
Ciel SAS
Sage SAS
Adonix SAS
Elit Group
Sage Software GmbH & Co KG
Bäurer GmbH
Sage Schweiz AG
Simultan AG
Sage SP, S.A.
Sage Logic Control, S.A.
Sage Symfonia SP z.o.o.
Micropay (Pty) Ltd
Handisoft Software (Pty) Ltd
Sage Business Solutions (Pty) Ltd
Softline (Pty) Ltd
UBS Corporation Bhd
Sage China Limited
Country of incorporation
UK
Ireland
US
US
US
US
US
Canada
France
France
France
France
Germany
Germany
Switzerland
Switzerland
Spain
Spain
Poland
Australia
Australia
Australia
South Africa
Malaysia
China
34 RECONCILIATION OF NET ASSETS
AND PROFIT UNDER UK GAAP TO IFRS
The Group reported under UK GAAP in its previously published financial
statements for the year ended 30 September 2005. The analysis below
shows a reconciliation of net assets and profit as reported under
UK GAAP at 30 September 2005 to the revised net assets and profit under
IFRS as reported in these financial statements. In addition, there is a
reconciliation of net assets under UK GAAP to IFRS at the transition date
for this Group, being 1 October 2004.
Impact of key differences between UK GAAP and IFRS
All relevant accounting standards have been applied to the restated financial
information and the following accounting standards are those that have the
most significant impact on the Group.
IFRS 2 (Share-based Payment): Under UK GAAP, the Group did not
recognise compensation costs under share option schemes unless the
exercise price is at a discount to the open market value of the shares at date of
grant. Under IFRS, an income statement charge is recognised in respect of the
cost of share options granted under the Group’s various share schemes. This
cost is deemed to be the fair value of the options granted and is charged to the
income statement over the vesting period of the share option schemes. An
amount equivalent to the charge is credited directly to equity, resulting in no
net impact on net assets.
The impact of this policy for the year ended 30 September 2005 is an
additional charge in the income statement of £7.4m.
Under IAS 33 (Earnings per Share), the assumed proceeds used in the
diluted earnings per share calculation include the fair value of any services to
be supplied to the entity in the future. This has the effect of reducing the
dilutive effect of certain outstanding options in each accounting period.
The impact as shown in the IFRS 2 column in the income statement is an
increase of 0.03p per share on the diluted EPS for the year ended 30
September 2005.
IFRS 3 (Business Combinations): Separate intangible assets are
recognised at fair value on the acquisition of businesses after the date of
transition to IFRS, which previously formed part of goodwill under UK GAAP.
For the Group, these include mainly technology, brand names and customer
relationships, all of which are amortised over their respective estimated
useful lives. The residual goodwill balance under IFRS is therefore lower in
value than under UK GAAP. The residual goodwill will continue to be tested
at least annually for impairment.
The impact of this policy for the year ended 30 September 2005 is an
amortisation charge in the income statement of £2.0m.
Separate intangible assets (pre-amortisation) which were previously included
within goodwill of £36.4m at 30 September 2005 have been reclassified
within the Group balance sheet from goodwill into intangible assets.
IAS 7 (Cash Flow Statements): Underlying cash flows
are unaffected by the transition to IFRS although there are changes to their
presentation. IFRS requires cash flows to be reported under three sections:
operating, investing and financing, whereas the equivalent UK GAAP standard
requires cash flows to be reported in far greater detail under nine standard
headings.
One further impact of IAS 7 relates to reporting of cash and cash equivalents.
UK GAAP reports the movements in cash. However, IFRS reports the
movements in cash and cash equivalents. Under UK GAAP, there is no
concept of cash equivalents, but cash flows relating to IAS 7 cash
equivalents would be included in “management of liquid resources”.
The Sage Group plc Annual Report and Accounts 2006 p98
The impact of this policy for the year ended 30 September 2005 is to reclassify
£4.8m of short-term deposits at the transition date into cash and cash
equivalents and to reduce in the year cash and cash equivalents by £1.1m.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
IAS 10 (Events After the Balance Sheet Date): Previously under UK GAAP,
proposed dividends were recognised as an adjusting post balance sheet
event. Under IFRS, dividends are not appropriated within the accounts until
the shareholders’ right to receive the dividend is established. In the case of the
final dividend, this is not until they have been approved by shareholders at the
Annual General Meeting and in the case of the interim dividend, when paid.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised based on tax rates
that have been enacted or substantively enacted at the balance sheet date.
Deferred tax is charged or credited to the income statement, except when it
relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
The impact of this standard is to reverse unapproved dividends in the
balance sheet. This has the impact of increasing net assets on transition by
£22.0m and by £25.1m at 30 September 2005.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
IAS 12 (Income Taxes): Deferred taxation charges arise under IFRS as a result
of differences between the accounting treatment in respect of share-based
payment (IFRS 2), intangible assets (IFRS 3 / IAS 38), revenue recognition
(IAS 18) and employee benefits (IAS 19) (holiday pay accruals and pensions).
Under UK GAAP, in accordance with FRS 19 “Deferred Tax”, deferred tax is
provided in full on all timing differences which result in an obligation at the
balance sheet date to pay more tax, or a right to pay less tax, at a future
date, at rates expected to apply when they crystallise, based on current tax
rates and law. Timing differences arise from the inclusion of items of income
and expenditure in taxation computations in periods different from those in
which they are included in the financial statements. Deferred tax assets are
recognised to the extent that it is regarded as more likely than not that they
will be recovered. It is the Group’s policy that deferred tax assets and
liabilities are not discounted.
Under IAS 12, deferred tax is recognised on differences between the
carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit and are
accounted for using the balance sheet liability method. Deferred tax liabilities
are generally recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
The impact of this policy is to recognise a deferred tax asset in the Group
balance sheet on transition of £21.2m. A further asset of £10.0m was
recognised in June 2005 on the acquisition of Logic Control SA in Spain.
This was treated as an adjustment to net assets on acquisition also
impacting goodwill. The adjustments to the total deferred tax asset in the
Group balance sheet at 30 September 2005 was £34.5m.
IAS 18 (Revenue): Under IAS 18 there are certain revenue adjustments
related to the allocation of revenue and discounts between the various
elements of bundled licence and maintenance and support contracts. Under
IAS 18, the amount allocated to the future services is required to be on a fair
value basis, with the amount deferred being equal to the cost to provide the
service plus a reasonable profit on the service.
The impact of this policy is to increase deferred income in the Group
balance sheet on transition by £6.8m. The equivalent adjustment at 30
September 2005 was £8.4m, with the movement impacting revenue and
profit from operations in the income statement.
Under UK GAAP marketing rebates are classified as a marketing cost within
overheads. Under IFRS, certain marketing rebates are classified as a
reduction of revenue. The impact of this reclassification is a reduction in
revenue for the year ended 30 September 2005 of £17.0m.
IAS 19 (Employee Benefits): An accrual is recognised for employee annual
leave accrued, but not taken, at each balance sheet date.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries except where the Group is able to
control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
The impact of this policy is to recognise an accrual for holiday pay in the
Group balance sheet on transition of £7.7m. A further charge of £1.3m is
recorded in the income statement creating a total accrual of £9.0m in the
Group balance sheet at 30 September 2005.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p99
Similarly under IAS 38 – Intangible assets, expenditure on research activities
is recognised as an expense in the period in which it is incurred. However,
an internally generated intangible asset arising from the development of
software is recognised if all of the following conditions are met:
• It is probable that the asset will create future economic benefits;
• The development costs can be measured reliably;
• Technical feasibility of completing the intangible asset can be demonstrated;
• There is the intention to complete the asset and use or sell it;
• There is the ability to use or sell the asset; and
• Adequate technical, financial and other resources to complete the
development and to use or sell the asset are available.
Internally generated intangible assets are amortised over their estimated
useful lives. If any of the criteria above are not met then no internally
generated intangible asset is recognised and development expenditure is
charged to the income statement in the period in which it is incurred.
The impact of this policy is a net capitalisation of internally generated
intangible assets at the transition date of £1.8m. For the year ended 30
September 2005 a further £1.1m of costs were capitalised which were
offset by amortisation of £0.6m. The value of net capitalised internally
generated intangible assets at 30 September 2005 was £2.3m.
The impact on the Group Cash Flow Statement is that capitalised
development costs (after tax) of £0.7m for the year ended 30 September
2005, which were previously written-off as an operating expense, are now
reported as development expenditure within investing activities.
34 RECONCILIATION OF NET ASSETS
AND PROFIT UNDER UK GAAP TO IFRS continued
IAS 19 allows separate recognition of the operating and financing costs
of defined benefit schemes in the income statement and permits a number
of options for the recognition of actuarial gains and losses. The Group has
adopted the IFRS 1 transitional exemption and recognised the full actuarial
deficit of a small defined benefit pension scheme that operated within
the Group, which includes all cumulative actuarial gains and losses,
in shareholders’ equity at 1 October 2004.
During the year to 30 September 2005 the Group has recognised all
actuarial gains and losses immediately in the Statement of Recognised Income
and Expense.
The impact of this policy is to recognise a liability for retirement benefits in the
Group Balance Sheet on transition of £1.1m. A further liability of £0.9m was
recognised in December 2004 on the acquisition of Simultan AG in
Switzerland. This was treated as an adjustment to net assets on acquisition
also impacting goodwill. The total liability in the Group Balance Sheet at 30
September 2005 was £2.3m.
IAS 21 (The Effects of Changes in Foreign Exchange Rates): Certain
exchange differences, previously recognised directly within retained earnings
under UK GAAP, are reclassified into a separate currency translation reserve,
directly within equity, under IFRS.
The impact of this policy results in a reduction in the retained earnings reserve at
30 September 2005 of £13.4m. These exchange movements are now
recorded in a separate currency translation reserve. This policy does not
impact the Group’s net equity.
IAS 38 (Intangible Assets): Certain software assets are reclassified from
tangible to intangible assets under IFRS. The impact is a reclassification of
£3.5m on the Group Balance Sheet at transition. The equivalent
reclassification was £3.4m at 30 September 2005.
Separate intangible assets are also recognised within business
combinations (see IFRS 3, above). These assets are amortised to the
income statement over their estimated useful lives.
Under UK GAAP all research and development expenditure activity undertaken
by the Group is charged through the income statement as incurred.
The Sage Group plc Annual Report and Accounts 2006 p100
Elections made under IFRS 1 (First-time adoption of International Financial Reporting Standards)
IFRS options
Share-based Payment
There are two first-time adoption exemptions for
accounting for share-based payments:
• Share-based payments granted on or before 7 November 2002
Basis of election
IFRS 2
and vested before 1 January 2005 may be restated but restatement
is not mandatory;
• Share options granted on or before 7 November 2002 and vested before
1 January 2005, have not been restated in accordance with IFRS 2.
• Share-based payments granted on or before 7 November 2002
• IFRS has been applied to all share options granted
and not vested before 1 January 2005 may be restated but restatement
is not mandatory.
after 7 November 2002 which had not vested by 1 January 2005.
Business Combinations/Intangible Assets
The standard is mandatory for all acquisitions after the Group’s transition
date of 1 October 2004.
IFRS 3/IAS 38
The standard has been applied only to business combinations taking place after
the Group’s transition date of 1 October 2004.
However, the standard allows a first-time adopter to apply the standard to
all business combinations that occurred before this date.
The Effects of Changes in Foreign Exchange Rates
IFRS requires certain translation differences to be recognised as a separate
component of equity, rather than within retained earnings and to be considered
as part of the profit or loss on any future disposal of foreign operations.
However, the standard allows first-time adopters to deem the cumulative
translation differences to be zero at the date of transition.
Employee Benefits
Under IAS 19, companies may choose to adopt an accounting policy in
which actuarial gains and losses are recognised in the income statement
over a period. When this policy is adopted, some actuarial gains and losses
are unrecognised at each balance sheet date.
However, first-time adopters can apply this approach prospectively from the
date of transition to IFRS.
Financial Instruments
This standard is applicable from the Group’s transition date of 1 October 2004.
However, the standard grants a first year exemption from its application to
the comparative period but also allows first-time adopters to account
retrospectively for financial instruments in line with the standard.
Goodwill relating to acquisitions prior to the transition date will be held at net
book value at 1 October 2004 and subject to impairment review (IAS 36).
IAS 21
The Group will deem cumulative exchange differences to be zero as at 1
October 2004 and will not consider any cumulative exchange differences
arising prior to 1 October 2004 if the relevant foreign operations are
disposed in the future.
IAS 19
All cumulative actuarial gains and losses relating to pensions and other post
retirement benefits have been recognised in full in equity at the transition date.
During the year to 30 September 2005, the Group has recognised all actuarial
gains and losses immediately to the statement of recognised income and
expenditure in accordance with the amendment to IAS 19, issued on 16
December 2004 and endorsed by the EU in November 2005.
IAS 32/IAS 39
The Group has taken the exemption from presenting comparative financial
information under IAS 32/IAS 39. Therefore, the restated results for the year
to 30 September 2005 do not reflect the impact of IAS 32 and IAS 39 and
the related applicable financial instruments have been accounted for under
UK GAAP.
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p101
34 RECONCILIATION OF NET ASSETS AND PROFIT UNDER UK GAAP TO IFRS continued
Consolidated Income Statement UK GAAP to IFRS Reconciliation
For the year ended 30 September 2005
UK GAAP -
(IFRS
IFRS 2
Share-
based
Format) Payment
£m
-
-
-
(7.4)
£m
776.6
(71.1)
705.5
(494.5)
IFRS 3
Business
Combinations
£m
-
-
-
(2.0)
IAS 2
Income
Taxes
£m
-
-
-
-
IAS 19
IAS 38
Intangible
Assets -
IAS 38
Intangible
Assets -
IAS 18 Employee Development Development
capitalisation amortisation
£m
-
-
-
(0.6)
Benefits
£m
-
-
-
(1.3)
Revenue
£m
(17.0)
10.4
(6.6)
5.1
£m
-
-
-
1.1
Year ended
30 September 2005
Revenue
Cost of sales
Gross profit
Selling and
administrative expenses
Operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity shareholders
Minority interest
Profit for the year
211.0
2.8
(8.5)
205.3
(61.8)
143.5
143.4
0.1
143.5
(7.4)
-
-
(7.4)
2.7
(4.7)
(4.7)
-
(4.7)
(2.0)
-
-
(2.0)
0.4
(1.6)
(1.6)
-
(1.6)
-
-
-
-
(3.3)
(3.3)
(3.3)
-
(3.3)
(1.5)
-
-
(1.5)
0.5
(1.0)
(1.0)
-
(1.0)
(1.3)
-
-
(1.3)
0.5
(0.8)
(0.8)
-
(0.8)
IFRS
£m
759.6
(60.7)
698.9
(499.6)
199.3
2.8
(8.5)
193.6
(61.2)
132.4
(0.6)
-
-
(0.6)
0.2
(0.4)
(0.4)
-
(0.4)
132.3
0.1
132.4
-
202.1
1.1
-
-
1.1
(0.4)
0.7
0.7
-
0.7
-
EBITA*
212.3
(7.4)
-
-
(1.5)
(1.3)
Earnings per share (pence)
- Basic
- Diluted
11.17
11.10
(0.36)
(0.34)
(0.12)
(0.12)
(0.26)
(0.26)
(0.08)
(0.08)
(0.06)
(0.06)
0.05
0.05
(0.03)
(0.03)
10.31
10.26
* EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
• Amortisation of acquired intangible assets; and
• Amortisation (or capitalisation) of software development expenditure.
The Sage Group plc Annual Report and Accounts 2006 p102
Consolidated Balance Sheet UK GAAP to IFRS Reconciliation
As at 30 September 2005
IAS 10
Events
After the
IAS 12
Balance Income
IAS 21
The
Effects of
Changes
IAS 19 in Foreign
IAS 18 Employee Exchange
IFRS 3
UK GAAP
- (IFRS
Business
Format) Combinations Sheet Date
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25.1
-
-
25.1
-
-
-
-
-
25.1
25.1
-
-
-
-
25.1
25.1
£m
1,122.4
5.4
123.3
11.5
1,262.6
3.5
149.8
69.1
222.4
1,485.0
(136.5)
(60.8)
(0.1)
(0.1)
(25.1)
(5.8)
(219.9)
(448.3)
(175.7)
-
(2.5)
(0.6)
(178.8)
(627.1)
857.9
12.8
451.0
61.1
-
332.8
857.7
£m
(36.4)
34.3
-
-
(2.1)
-
0.1
-
0.1
(2.0)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2.0)
-
-
-
-
(2.0)
(2.0)
Taxes Revenue Benefits
£m
£m
0.8
-
-
-
-
-
-
-
0.8
-
-
-
-
-
-
-
-
-
0.8
-
(9.0)
-
-
-
-
-
-
-
-
-
-
-
-
(8.4)
(9.0)
(8.4)
-
-
(2.3)
-
-
-
-
-
(2.3)
-
(11.3)
(8.4)
(10.5)
(8.4)
-
-
-
-
-
-
-
-
(10.5)
(8.4)
(10.5)
(8.4)
£m
(10.0)
-
-
34.5
24.5
-
-
-
-
24.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.5
-
-
-
-
24.5
24.5
IAS 38
Intangible
Assets -
IAS 38
Intangible
Assets -
Rates Development Reclassification
£m
£m
-
2.3
-
-
2.3
-
-
-
-
2.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.3
-
-
-
-
2.3
2.3
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13.4
(13.4)
-
IFRS
£m
- 1,076.8
45.4
3.4
119.9
(3.4)
-
46.0
- 1,288.1
-
3.5
149.9
-
-
69.1
-
222.5
- 1,510.6
(145.5)
-
(60.8)
-
(0.1)
-
(0.1)
-
-
-
-
(5.8)
(228.3)
-
(440.6)
-
(175.7)
-
(2.3)
-
(2.5)
-
-
(0.6)
(181.1)
-
(621.7)
-
888.9
-
-
12.8
451.0
-
61.1
-
13.4
-
350.4
-
888.7
-
0.2
857.9
-
(2.0)
-
25.1
-
24.5
-
(8.4)
-
(10.5)
-
-
-
2.3
-
-
0.2
888.9
As at 30 September 2005
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Trade and other payables
Current tax liabilities
Obligations under finance leases
Financial liabilities - Borrowings
Proposed dividends
Deferred consideration
Deferred income
Total current liabilities
Financial liabilities - Borrowings
Retirement benefit obligations
Deferred tax liabilities
Obligations under finance leases
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Share capital
Share premium account
Other reserve
Currency translation reserve
Retained earnings
Total parent
shareholders’ equity
Minority interest in equity
TOTAL EQUITY
Notes to the Accounts - Group continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p103
34 RECONCILIATION OF NET ASSETS AND PROFIT UNDER UK GAAP TO IFRS continued
Consolidated Cash Flow Statement
For the year ended 30 September 2005
Year ended 30 September 2005
Cash flows from operating activities
Interest received
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries (net of cash acquired)
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Development expenditure
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Movement in short term investments
Finance lease principal payments
Repayment of borrowings
New borrowings
Dividends paid to shareholders
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 October 2004
Effects of exchange rate changes
Cash and cash equivalents at 30 September 2005
Short-term deposits included within cash on the balance sheet
Net cash at bank and in hand shown on the balance sheet
UK GAAP -
(IFRS Format)
£m
240.3
2.8
(8.1)
(57.3)
177.7
IAS 7
Cash Flow
Statements
£m
-
-
-
-
-
(101.0)
(20.7)
3.5
-
(118.2)
4.6
1.1
0.9
(209.4)
173.1
(33.9)
(63.6)
(4.1)
69.5
-
65.4
3.7
69.1
-
-
-
-
-
-
(1.1)
-
-
-
-
(1.1)
(1.1)
4.8
-
3.7
(3.7)
-
IAS 38
Intangible
Assets
£m
0.7
-
-
-
0.7
-
-
-
(0.7)
(0.7)
-
-
-
-
-
-
-
-
-
-
-
-
-
IFRS
£m
241.0
2.8
(8.1)
(57.3)
178.4
(101.0)
(20.7)
3.5
(0.7)
(118.9)
4.6
-
0.9
(209.4)
173.1
(33.9)
(64.7)
(5.2)
74.3
-
69.1
-
69.1
The Sage Group plc Annual Report and Accounts 2006 p104
Consolidated Balance Sheet UK GAAP to IFRS Reconciliation
As at 1 October 2004 (Transition date)
IAS 10
Events
After the
IAS 12
Balance Income
IAS 21
The
Effects of
Changes
IAS 19 in Foreign
IAS 18 Employee Exchange
IFRS 3
UK GAAP
- (IFRS
Business
Format) Combinations Sheet Date
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
22.0
-
-
22.0
-
-
-
-
22.0
22.0
-
-
-
-
22.0
22.0
£m
994.8
-
124.0
13.9
1,132.7
3.2
121.6
74.4
199.2
1,331.9
(113.9)
(59.6)
(6.2)
(22.0)
(2.3)
(190.9)
(394.9)
(199.7)
-
(4.9)
(204.6)
(599.5)
732.4
12.8
446.3
61.1
-
212.0
732.2
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Taxes Revenue Benefits
£m
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(7.7)
-
-
-
-
-
-
-
-
-
-
(6.8)
(7.7)
(6.8)
-
-
(1.1)
-
-
-
(1.1)
-
(8.8)
(6.8)
(8.8)
(6.8)
-
-
-
-
-
-
-
-
(8.8)
(6.8)
(8.8)
(6.8)
£m
-
-
-
21.2
21.2
-
-
-
-
21.2
-
-
-
-
-
-
-
-
-
-
-
-
21.2
-
-
-
-
21.2
21.2
IAS 38
Intangible
Assets -
IAS 38
Intangible
Assets -
IFRS
Rates Development Reclassification
£m
£m
£m
994.8
-
-
5.3
3.5
1.8
120.5
(3.5)
-
-
-
35.1
- 1,155.7
1.8
-
-
3.2
121.6
-
-
-
-
74.4
-
-
199.2
- 1,354.9
1.8
(121.6)
-
-
(59.6)
-
-
(6.2)
-
-
-
-
-
(2.3)
-
-
(197.7)
-
-
(387.4)
-
-
(199.7)
-
-
(1.1)
-
-
-
-
(4.9)
(205.7)
-
-
(593.1)
-
-
761.8
-
1.8
12.8
-
-
446.3
-
-
61.1
-
-
-
-
-
241.4
-
1.8
761.6
-
1.8
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.2
732.4
-
-
-
22.0
-
21.2
-
(6.8)
-
(8.8)
-
-
-
1.8
-
-
0.2
761.8
As at 1 October 2004
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Trade and other payables
Current tax liabilities
Financial liabilities - Borrowings
Proposed dividends
Deferred consideration
Deferred income
Total current liabilities
Financial liabilities - Borrowings
Retirement benefit obligations
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
Share capital
Share premium account
Other reserve
Currency translation reserve
Retained earnings
Total parent
shareholders’ equity
Minority interest in equity
TOTAL EQUITY
Independent Auditors’ Report to
the Members of The Sage Group plc
The Sage Group plc Annual Report and Accounts 2006 p105
Basis of audit opinion
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the Group financial statements. It also includes an
assessment of the significant estimates and judgments made by the
directors in the preparation of the Group financial statements, and of
whether the accounting policies are appropriate to the Group’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Group financial
statements are free from material misstatement, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Group financial
statements.
Opinion
In our opinion:
• The Group financial statements give a true and fair view, in accordance
with IFRSs as adopted by the European Union, of the state of the Group’s
affairs as at 30 September 2006 and of its profit and cash flows for the
year then ended;
• The Group financial statements have been properly prepared in
accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation; and
• The information given in the Directors’ Report is consistent with the
Group financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Newcastle upon Tyne
18 January 2007
We have audited the Group financial statements of The Sage Group plc
for the year ended 30 September 2006 which comprise the Consolidated
Income Statement, the Consolidated Statement of Recognised Income
and Expense, the Consolidated Balance Sheet, the Consolidated Cash Flow
Statement, and the related notes. These Group financial statements have
been prepared under the accounting policies set out therein.
We have reported separately on the parent Company financial statements
of The Sage Group plc for the year ended 30 September 2006 and on
the information in the Remuneration Report that is described as having
been audited.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report and the Group
financial statements in accordance with applicable law and International
Financial Reporting Standards (“IFRSs”) as adopted by the European Union
are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group financial statements in accordance
with relevant legal and regulatory requirements and International Standards
on Auditing (UK and Ireland). This report, including the opinion, has
been prepared for and only for the Company’s members as a body in
accordance with Section 235 of the Companies Act 1985 and for no other
purpose. We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly agreed by our prior
consent in writing.
We report to you our opinion as to whether the Group financial statements
give a true and fair view and whether the Group financial statements have
been properly prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation. We report to you whether in our opinion the
information given in the Directors’ Report is consistent with the Group
financial statements. We also report to you if, in our opinion, we have not
received all the information and explanations we require for our audit, or if
information specified by law regarding directors’ remuneration and other
transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the
Company’s compliance with the nine provisions of the 2003 FRC Combined
Code specified for our review by the Listing Rules of the Financial Services
Authority, and we report if it does not. We are not required to consider
whether the Board’s statements on internal control cover all risks and
controls, or form an opinion on the effectiveness of the Group’s corporate
governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider
whether it is consistent with the audited Group financial statements. The
other information comprises only the Chairman’s Introduction, the
Operating and Financial Review, the Directors’ Report and the Corporate
Governance Statement. We consider the implications for our report if we
become aware of any apparent misstatements or material inconsistencies
with the Group financial statements. Our responsibilities do not extend to
any other information.
Parent Company Financial
Statements Under UK GAAP 2006
CONTENTS
107 Company Balance Sheet
108 Notes to the Accounts – Company
113 Independent Auditors’ Report
Company Balance Sheet
At 30 September 2006
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
The Sage Group plc Annual Report and Accounts 2006 p107
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due in more than one year
NET ASSETS
Capital and reserves
Called up equity share capital
Share premium
Treasury shares
Merger reserve
Profit and loss account
EQUITY SHAREHOLDERS’ FUNDS
2006
£m
1,475.7
1,475.7
939.2
1.4
940.6
Restated
2005
£m
923.9
923.9
540.0
2.1
542.1
(777.7)
(264.2)
162.9
277.9
1,638.6
1,201.8
(660.9)
(174.6)
977.7
1,027.2
12.9
462.8
(13.3)
61.1
454.2
977.7
12.8
451.0
-
61.1
502.3
1,027.2
Note
1
2
3
4
5
6
6
6
6
7
Recognised gains and losses
The Company has no recognised gains or losses, as defined in Financial Reporting Standard 3 (“FRS 3”), Reporting Financial Performance.
The financial statements on pages 107 to 112 were approved by the Board of Directors on 18 January 2007 and are signed on their behalf by:
Sir Julian Horn-Smith
Chairman
P A Walker
Director
Notes to the Accounts - Company
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p108
PARENT COMPANY ACCOUNTING POLICIES
a Basis of accounting
These financial statements have been prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable accounting
standards in the United Kingdom. A summary of the more important Company accounting policies, which have been consistently applied, is set out below.
b Foreign currency translation
Foreign currency assets and liabilities are translated into sterling at rates of exchange ruling at the year-end. Differences arising on the re-translation of the net
investments and the results for the year are taken directly to reserves together with differences on foreign currency borrowings to the extent that they are used
to finance or provide a hedge against equity investments in foreign enterprises. All other exchange differences are dealt with in the profit and loss account.
c Deferred tax
Deferred tax is accounted for under FRS 19, which requires a form of full provision for accounting for deferred tax, called the incremental liability approach.
Deferred tax is provided on timing differences where the Company has an obligation to pay more tax in the future as a result of those timing differences. Deferred
tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing
differences can be deducted.
As permitted by FRS 19, the Company has adopted a policy of not discounting deferred tax assets and liabilities.
d Investments
Fixed asset investments are stated at cost less provision for any diminution in value.
e Parent Company profit and loss account
The amount of loss for the financial year before dividends within the accounts of the parent Company is £16.0m (2005: £234.5m profit). There is no material
difference between the profits and losses as reported above and historical cost profits and losses and there are no other gains or losses in the year.
No profit and loss account is presented for the Company as permitted by Section 230 of the Companies Act 1985.
f Changes in accounting policies
The Group has adopted FRS 21 “Events after the Balance Sheet Date” in the financial statements. The adoption of this standard represents a change in
accounting policy and the comparative figures have been restated accordingly. Details of the effect of the prior year adjustment have been given in note 7.
Other accounting standards which have recently been issued have had no impact on the Company’s accounting policies.
1 INVESTMENTS
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2005
Additions in year
At 30 September 2006
Provision for diminution in value
At 1 October 2005
Reversal of provision for diminution in value
At 30 September 2006
Net Book Value
At 30 September 2006
At 30 September 2005
£m
924.2
551.5
1,475.7
(0.3)
0.3
-
1,475.7
923.9
The additions in the year represent investments both in new and existing subsidiary undertakings.
Principal trading subsidiary undertakings, included in the Group accounts at 30 September 2006, are shown in note 33 of the Group financial statements. All of
these subsidiary undertakings are wholly owned and are engaged in the development, distribution and support of business management software and related
products and services for small and medium-sized businesses.
Notes to the Accounts - Company continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p109
2 DEBTORS
Amounts owed by Group undertakings
Other debtors
Taxation recoverable
3 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Amounts owed to Group undertakings
Accruals
Proposed dividend
4 CREDITORS: AMOUNTS FALLING DUE IN MORE THAN ONE YEAR
Loans
Loans
Amounts falling due:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
5 CALLED UP EQUITY SHARE CAPITAL
Authorised
1,860,000,000 (2005: 1,860,000,000) ordinary shares of 1p each
2006
£m
933.4
1.3
4.5
939.2
2006
£m
777.0
0.7
-
777.7
2006
£m
660.9
2006
£m
-
-
660.9
660.9
2006
£m
18.6
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
2006
shares
1,285,318,582
8,962,362
1,294,280,944
2006
£m
12.8
0.1
12.9
2005
shares
1,281,801,526
3,517,056
1,285,318,582
2005
£m
538.5
0.6
0.9
540.0
Restated
2005
£m
263.5
0.7
-
264.2
2005
£m
174.6
2005
£m
-
-
174.6
174.6
2005
£m
18.6
2005
£m
12.8
-
12.8
The Sage Group plc Annual Report and Accounts 2006 p110
Potential issues of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 33.90p to 721.00p under the share option schemes
approved by shareholders. The number of shares subject to options, the periods in which they were granted and the periods in which they may be exercised
are given below:
Date of grant
15 January 1996
17 December 1997
20 January 1998
20 April 1998
15 May 1998
16 December 1998
7 June 1999
11 February 2000
23 February 2000
24 May 2000
10 January 2001
17 January 2001
16 May 2001
2 January 2002
31 December 2002
12 May 2003
24 December 2003
24 May 2004
6 January 2005
12 May 2005
10 January 2006
Exercise price pence
33.90p
81.10p
98.75p
50.86p – 92.61p
140.00p
136.00p
204.50p
91.34p – 619.50p
721.00p
542.50p
301.00p
329.75p
264.00p
228.50p
134.00p
147.00p
171.00p
172.00p
198.00p
206.00p
258.50p
Exercise period
15 January 1999 – 15 January 2006
17 December 2000 – 17 December 2007
20 January 2001 – 20 January 2008
8 August 1999 – 2 March 2009
15 May 2001 – 15 May 2008
16 December 2001 – 16 December 2008
7 June 2002 – 7 June 2009
11 February 2000 – 6 January 2010
23 February 2003 – 23 February 2010
24 May 2003 – 24 May 2010
10 January 2004 – 10 January 2011
17 January 2004 – 17 January 2011
16 May 2004 – 16 May 2011
2 January 2005 – 2 January 2012
31 December 2005 – 31 December 2012
12 May 2006 – 12 May 2013
24 December 2006 – 24 December 2013
24 May 2007 – 24 May 2014
6 January 2008 – 6 January 2015
12 May 2008 – 12 May 2015
10 January 2009 – 10 January 2016
2006
number
-
680,000
150,000
708,460
1,008,110
2,094,710
1,352,500
158,065
31,250
19,037
2,975,643
581,137
2,096,431
4,520,285
4,621,782
2,288,047
11,110,075
320,351
5,268,627
2,150,367
6,458,797
48,593,674
2005
number
1,560,000
993,300
150,000
748,520
1,238,010
2,356,120
1,566,500
184,227
31,250
26,410
3,295,354
581,137
2,345,359
5,360,599
7,155,060
2,873,739
13,109,831
387,212
5,928,002
2,294,538
-
52,185,168
Under the above scheme, 7,929,609 1p ordinary shares were issued during the year for aggregate proceeds of £10,523,107.
Under the Group’s long-term incentive plan for certain senior executives approved by shareholders on 3 March 2005, the following awards have been made:
2005
number
1,899,315
242,626
-
2,141,941
Vesting date
18 March 2008
12 May 2008
10 January 2009
Date of award
18 March 2005
12 May 2005
10 January 2006
2006
number
1,841,204
242,626
2,469,883
4,553,713
Notes to the Accounts - Company continued
For the year ended 30 September 2006
The Sage Group plc Annual Report and Accounts 2006 p111
5 CALLED UP EQUITY SHARE CAPITAL continued
In addition, options were granted under the terms of The Sage Group plc 1996 Savings-Related Share Option Scheme approved by members on 7 February
1996 up to 2005 and thereafter under the new scheme approved by the members at the Annual General Meeting on 2 March 2006, as follows:
Date of grant
8 January 1999
1 March 2000
1 March 2001
1 March 2001
1 March 2002
1 March 2002
1 March 2003
1 March 2003
1 March 2003
1 March 2004
1 March 2004
1 March 2004
1 March 2005
1 March 2005
1 March 2005
1 August 2006
1 August 2006
1 August 2006
Exercise price pence
114.80p
499.00p
240.00p
240.00p
180.40p
180.40p
112.00p
112.00p
112.00p
140.00p
140.00p
140.00p
157.00p
157.00p
157.00p
184.00p
184.00p
184.00p
Exercise period
1 February 2006 – 31 July 2006
1 March 2007 – 31 August 2007
1 March 2006 – 31 August 2006
1 March 2008 – 31 August 2008
1 March 2007 – 31 August 2007
1 March 2009 – 31 August 2009
1 March 2006 – 31 August 2006
1 March 2008 – 31 August 2008
1 March 2010 – 31 August 2010
1 March 2007 – 31 August 2007
1 March 2009 – 31 August 2009
1 March 2011 – 31 August 2011
1 March 2008 – 31 August 2008
1 March 2010 – 31 August 2010
1 March 2012 – 31 August 2012
1 August 2009 – 31 January 2010
1 August 2011 – 31 January 2012
1 August 2013 – 31 January 2014
2006
number
-
1,840
-
1,531
24,763
6,575
4,050
146,729
14,579
335,654
126,312
37,140
365,531
128,230
19,422
1,069,966
258,043
46,830
2,587,195
2005
number
29,120
1,840
30,230
1,531
27,330
6,575
1,034,053
157,287
29,190
410,081
161,316
37,140
423,328
145,701
21,699
-
-
-
2,516,421
Under the above scheme, 1,032,753 1p ordinary shares were issued during the year for aggregate proceeds of £1,219,029.
The market price of the shares of the Company at 30 September 2006 was 251.25p and the highest and lowest prices during the year were 283.75p and
204.75p respectively.
Share–based payments
The grants and related accounting treatment adopted by the Company under FRS 20 “Share-based Payment”, are identical to that adopted by the Group
under IFRS 2 “Share-based Payment”. For details please refer to note 19 in the Group financial statements.
6 RESERVES
At 1 October 2005 as previously reported
Prior year adjustment – FRS 21
At 1 October 2005 as restated
New shares issued
Treasury shares
Retained loss for the year
Dividends
Equity-settled transactions
At 30 September 2006
Treasury
shares
£m
-
-
-
-
(13.3)
-
-
-
(13.3)
Share
premium
account
£m
451.0
-
451.0
11.8
-
-
-
-
462.8
Merger
reserve
£m
61.1
-
61.1
-
-
-
-
-
61.1
Profit and
loss account
£m
477.2
25.1
502.3
-
-
(16.0)
(39.1)
7.0
454.2
Total
£m
989.3
25.1
1,014.4
11.8
(13.3)
(16.0)
(39.1)
7.0
964.8
The Sage Group plc Annual Report and Accounts 2006 p112
7 SHAREHOLDERS’ FUNDS AND STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
At 1 October 2004
New shares issued
Retained profit for the year
Equity-settled transactions
At 30 September 2005 as previously reported
Prior year adjustment – FRS 21
At 1 October 2005 as restated
New shares issued
Treasury shares
Retained loss for the year
Dividends
Equity-settled transactions
At 30 September 2006
Prior year adjustment
The prior year adjustment relates to the implementation of FRS 21.
Share capital
£m
12.8
-
-
-
12.8
-
12.8
0.1
-
-
-
-
12.9
Reserves
£m
786.2
4.7
197.6
0.8
989.3
25.1
1,014.4
11.8
(13.3)
(16.0)
(39.1)
7.0
964.8
Total
£m
799.0
4.7
197.6
0.8
1,002.1
25.1
1,027.2
11.9
(13.3)
(16.0)
(39.1)
7.0
977.7
Under FRS 21, dividends declared out of profits earned are not deducted from equity until they have either been approved by shareholders’ or have become
irrecoverable.
The adoption of FRS 21 has resulted in an increase in shareholders’ funds of £25.1m at 1 October 2005 due to the write back of the final dividend proposed
at 30 September 2005.
Treasury shares
The Group holds treasury shares in a trust which was set up for the benefit of Group employees. The Trust purchases the Company’s shares in the market
for use in connection with the Group’s share-based payments arrangements. The amounts shown in the treasury shares reserve at 30 September each year
would be deducted in determining the distributable profits of the Company at that date.
Interests in own shares represent the cost of £13,272,933 of the Company’s ordinary shares (nominal value of £47,556) purchased in February 2006. These
shares were acquired by the Trust in the open market using funds provided by the Company to meet obligations under the performance share plan. The
costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The market
value of the shares at 30 September 2006 was £11.9m.
8 OPERATING LEASE COMMITMENTS – MINIMUM LEASE PAYMENTS
The Company had no operating lease commitments during the year (2005: nil).
9 CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES
The Company had no capital commitments or contingent liabilities at 30 September 2006 (2005: none).
10 RELATED PARTY TRANSACTIONS
The Company has taken advantage of the exemption available under FRS 8 “Related Party Disclosures”, not to disclose details of transactions with its
subsidiary undertakings. There are no other external related parties.
Independent Auditors’ Report to
the Members of The Sage Group plc
The Sage Group plc Annual Report and Accounts 2006 p113
We have audited the parent Company financial statements of The Sage
Group plc for the year ended 30 September 2006 which comprise the
primary financial statements such as the Balance Sheet and the related
notes. These parent Company financial statements have been prepared
under the accounting policies set out therein. We have also audited
the information in the Remuneration Report that is described as having
been audited.
We have reported separately on the Group financial statements of
The Sage Group plc for the year ended 30 September 2006.
Basis of audit opinion
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts
and disclosures in the parent Company financial statements and the part
of the Remuneration Report to be audited. It also includes an assessment
of the significant estimates and judgments made by the directors in the
preparation of the parent Company financial statements and of whether
the accounting policies are appropriate to the Company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the parent Company
financial statements and the part of the Remuneration Report to be audited
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the parent Company financial
statements and the part of the Remuneration Report to be audited.
Opinion
In our opinion:
• The parent Company financial statements give a true and fair view,
in accordance with United Kingdom Generally Accepted Accounting
Practice, of the state of the Company’s affairs as at 30 September 2006;
• The parent Company financial statements and the part of the
Remuneration Report to be audited have been properly prepared
in accordance with the Companies Act 1985; and
• The information given in the Directors’ Report is consistent with the
parent Company financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Newcastle upon Tyne
18 January 2007
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the
Remuneration Report and the parent Company financial statements in
accordance with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice) are set out
in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the parent Company financial statements and
the part of the Remuneration Report to be audited in accordance with relevant
legal and regulatory requirements and International Standards on Auditing
(UK and Ireland). This report, including the opinion, has been prepared for and
only for the Company’s members as a body in accordance with Section 235
of the Companies Act 1985 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands
it may come save where expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the parent Company financial
statements give a true and fair view and whether the parent Company
financial statements and the part of the Remuneration Report to be audited
have been properly prepared in accordance with the Companies Act 1985.
We report to you whether in our opinion the information given in the
Directors’ Report is consistent with the parent Company financial
statements. We also report to you if, in our opinion, the Company has not
kept proper accounting records, if we have not received all the information
and explanations we require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider
whether it is consistent with the audited parent Company financial
statements. The other information comprises only the Directors’ Report,
the unaudited part of the Remuneration Report, the Chairman’s Introduction
and the Operating and Financial Review. We consider the implications for
our report if we become aware of any apparent misstatements or material
inconsistencies with the parent Company financial statements. Our
responsibilities do not extend to any other information.
Investors
CONTENTS
115 Notice of Meeting
119 Shareholder Information
Notice of Meeting
The Sage Group plc Annual Report and Accounts 2006 p115
Notice is hereby given that the nineteenth Annual General Meeting of The
Sage Group plc will be held at North Park, Newcastle upon Tyne, NE13 9AA
at 10.00am on 6 March 2007 for the following purposes:
To consider and, if thought fit, to pass the following resolutions, of which
resolutions 1 to 10 (inclusive) and 14 will be proposed as ordinary
resolutions and resolutions 11 to 13 will be proposed as special resolutions:
1 To receive and consider the audited accounts for the year ended 30
September 2006 together with the reports of the directors and the auditors.
2 To declare a final dividend recommended by the directors of 2.51 pence
per ordinary share for the year ended 30 September 2006 to be paid on 9
March 2007 to members whose names appear on the register at the close
of business on 9 February 2007.
3 To re-appoint Sir Julian Horn-Smith.
4 To re-appoint Ms R Markland.
5 To re-elect Mr P A Walker.
6 To re-elect Mr P S Harrison.
7 To re-elect Mr P L Stobart.
8 To re-appoint Messrs PricewaterhouseCoopers LLP as Auditors to the
Company and to authorise the directors to determine their remuneration.
9 To approve the Remuneration Report forwarded to shareholders with this
Notice of Annual General Meeting.
10 That:
• subject to and in accordance with Article 6 of the Company’s Articles of
Association, the directors be authorised to allot relevant securities up to a
maximum nominal amount of £4,314,200;
• all previous authorities under section 80 of the Companies Act 1985 shall
cease to have effect; and
• this authority shall expire at the conclusion of the next Annual General
Meeting of the Company.
11 That:
• subject to and in accordance with Article 7 of the Company’s Articles of
Association, the directors be given power to allot equity securities for
cash and that, for the purposes of paragraph 1(b) of Article 7, the nominal
amount to which this power is limited is £647,140; and
• the power given to directors by this resolution be extended to sales for
cash of any shares which the Company may hold as treasury shares.
12 That the Company be and is hereby granted general and unconditional
authority to make one or more market purchases (within the meaning of
section 163 of the Companies Act 1985) of ordinary shares in the capital
of the Company on such terms and in such manner as the directors shall
determine PROVIDED THAT:
• the maximum number of ordinary shares which may be acquired
pursuant to this authority is 129,428,000 ordinary shares in the capital
of the Company;
• this authority shall expire on 31 March 2008, or if earlier, at the conclusion
of the next Annual General Meeting; and
• the minimum price which may be paid for each such ordinary share is
its nominal value and the maximum price is the higher of 105% of the
average of the middle market quotations for an ordinary share as derived
from The London Stock Exchange Daily Official List for the five business
days immediately before the purchase is made and the amount stipulated
by Article 5 (1) of the Buy-back and Stabilisation Regulation 2003 (in each
case exclusive of expenses).
13 That the Articles of Association be amended as follows:
(i) that Article 85 be deleted in its entirety and replaced by the following:
“85. Power to borrow money
85.1 The board may exercise all the powers of the Company to borrow
money and to mortgage or charge all or any part of its undertaking,
property and assets (both present and future) and uncalled capital
and to issue debentures and other securities, whether outright or as
collateral security for any debt, liability or obligation of the Company
or of any third party.
85.2 The board shall restrict the borrowings of the Company and exercise
all voting and other rights or powers of control exercisable by the
Company in relation to its subsidiary undertakings (if any) so as to secure
(but as regards subsidiary undertakings only so far as by such exercise it
can secure) that the aggregate principal amount outstanding at any time
in respect of all borrowings by the Group (exclusive of any borrowings
which are owed by one Group company to another Group company)
after deducting the amount of cash deposited and cash equivalents held
will not, without the previous authority of the Company in general
meeting, exceed:
a an amount equal to two and a half times adjusted total equity; or
b any higher limit fixed by ordinary resolution of the Company which is
applicable at the relevant time.
85.3 In this article:
(a) adjusted total equity means the amount of total equity as shown in
the relevant balance sheet but after:
(A) making such adjustments as may be appropriate in respect of:
The Sage Group plc Annual Report and Accounts 2006 p116
vi any fixed amount in respect of a finance lease payable by any Group
company which would be shown at the relevant time as an obligation
in a balance sheet and prepared in accordance with the accounting
principles used in the preparation of the relevant balance sheet and for
this purpose finance lease means a contract between a lessor and a
Group company as lessee or sub-lessee where substantially all the
risks and rewards of the ownership of the asset leased or sub-leased
are to be borne by the lessee or sub-lessee,
but exclude the following:
(A) borrowings incurred by a Group company in the ordinary course of
business and which are repayable on demand or at any time on seven
days' notice or less or which have a fixed maturity or tenor of 35 days
or less;
(B) borrowings incurred by a Group company for the purpose of repaying
within six months of the borrowing all or part of any borrowings made
by it or another Group company, pending their application for that
purpose during that period;
(C) borrowing incurred by a Group company to finance a contract where
a part of the price receivable under the contract by that or another
Group company is guaranteed or insured by any government,
governmental agency or body or by a person (not being a Group
Company) carrying on the business of providing credit insurance up to
an amount equal to that part of the price which is guaranteed or
insured;
(D) a proportionate amount of the borrowings of a Group company which
is not a wholly-owned subsidiary of the Company corresponding to
the minority or outside interest in it; and
(E) borrowings of an undertaking which was not a subsidiary undertaking
at the date of the relevant balance sheet, to the extent that those
borrowings were outstanding on the date when it became a Group
company and borrowings of any person other than a Group company
which were secured by any mortgage or other security over an asset
acquired by a Group company and which were outstanding on the
date of the acquisition, but only until six months after the date on
which the undertaking became a subsidiary undertaking or the asset
was acquired; and
(c) cash deposited means an amount equal to the aggregate for the
time being of all cash deposits with any bank or other person (not being a
Group company), (whether on current account or otherwise), the
realisable value of certificates of governments and companies or other
readily realisable deposits owned by any Group company except that in
the case of any such items owned by a Group company which is not a
wholly-owned subsidiary of the Company, there shall be excluded a
proportionate amount of those items corresponding to the minority or
outside interests in it;
(d) Group means the Company and its subsidiary undertakings for the
time being;
(e) Group company means any undertaking in the Group; and
(f) relevant balance sheet means most recent audited consolidated
balance sheet of the Group at the relevant time.
i
ii
any variation in the amounts of the paid up share capital, the share
premium account or capital redemption reserve since the date of the
relevant balance sheet and so that for this purpose if any proposed
allotment of shares by the Company for cash has been underwritten
or agreed to be subscribed then these shares shall be deemed to
have been allotted and the amount (including any premium) of the
subscription monies payable (not being monies payable later than six
months after the date of allotment) shall be deemed to have been paid
up on the date when the issue of the shares was underwritten or
agreed to be subscribed (or if the underwriting or subscription
agreement was conditional, the date on which it became
unconditional); and
any undertaking which was not a subsidiary undertaking at the date of
the relevant balance sheet but which would be a subsidiary
undertaking if group accounts were prepared as at the relevant time
(and as if such time were the end of the Company's financial year) or
any undertaking which was a subsidiary undertaking but which would
no longer be so if group accounts were to be so prepared at the
relevant time; and
iii any variation in the interest of the Company in another Group
company since the date of the relevant balance sheet.
(B) excluding minority and other outside interests in any subsidiary
undertaking;
(C) adding the amount of any equity instruments deducted in arriving at
the amount of total equity; and
(D) making such other adjustments (if any) as the auditors may consider
appropriate or necessary/board may consider appropriate or
necessary and as are approved by the auditors;
(b) borrowings include the following except in so far as otherwise taken
into account:
i
the principal amount of any debenture (whether secured or unsecured)
of a Group company;
the outstanding amount raised by acceptances under an acceptance
credit or bills facility opened by a bank or acceptance house on behalf
of or in favour of a Group company, excluding acceptances of trade
bills relating to goods purchased in the ordinary course of trading;
the nominal amount of any share capital and the principal amount of
any debenture or borrowing, the beneficial interest in which is not
owned by a Group company, to the extent that their payment or
repayment is the subject of a guarantee or indemnity by a Group
company;
ii
iii
iv the principal amount of any share capital (not being equity share
capital) of any subsidiary undertaking owned otherwise than by a
Group company;
v any fixed or minimum premium payable on final repayment of any
borrowing or deemed borrowing; and
Notice of Meeting continued
The Sage Group plc Annual Report and Accounts 2006 p117
85.4 For the purposes of any calculation under this article:
(a) a borrowing denominated or repayable, in a currency other than
sterling shall be translated into sterling: (i) at the London exchange rate
for the date as at which the calculation is being made; or (ii) if it would
result in a lower figure, at the London exchange rate on the date of the
relevant balance sheet, and for this purpose the London exchange rate
for any date is the spot rate of exchange, quoted at or about 11.00 a.m.
on the business day before that date by a first class bank in London
selected by the board; and
(b) where under the terms of any borrowing the amount of money that
would be required to discharge its principal amount in full if it fell to be
repaid (at the option of the borrower or by reason of default) on the date
as at which the calculation is being made is less than the amount that
would otherwise be taken into account in respect of that borrowing for
the purpose of this article, the amount of the borrowing to be taken into
account shall be the lesser amount.
85.5 The limit imposed under paragraph 85.2 above shall be deemed not
to have been breached until the amount of borrowings has exceeded that
limit for 30 consecutive days. This paragraph overrides all other provisions
of this article.
“(g) indemnification (including loans made in connection with it) by the
Company in relation to the performance of his duties on behalf of the
Company or of any of its subsidiary undertakings.”
(iii) that Article 126 be deleted in its entirety and replaced by the following:
“Except to the extent prohibited or restricted by the Statutes, but without
prejudice to any indemnity to which a director or other office may
otherwise be entitled, every director or other officer (excluding an auditor)
of the Company may be indemnified out of the assets of the Company
against all liabilities incurred by him in the actual or purported execution or
discharge of his duties or the exercise or purported exercise of his
powers or otherwise in relation to or in connection with his duties, powers
or office.”
14 That the Company may:
• Send or supply documents or information to members by making them
available on a website for the purposes of paragraph 10(2) of Schedule 5
to the Companies Act 2006 and otherwise; and
• Use electronic means (within the meaning of the Disclosure Rules and
Transparency Rules Sourcebook published by the Financial Services
Authority) to convey information to members.
85.6 A certificate or report by the Company's auditors:
(a) as to the amount of adjusted total equity or the amount of
borrowings; or
By Order of the Board
(b) to the effect that the limit imposed under this article was not exceeded
or breached at a particular date; or
(c) to the effect that (subject to any assumptions described in the
certificate or report) the limit will not be exceeded or breached at a
particular date or as a result of a particular transaction,
M J Robinson
Secretary
Registered office:
North Park, Newcastle upon Tyne, NE13 9AA
18 January 2007
shall be conclusive evidence (subject to any such assumptions) as to that
amount or fact.
85.7 If the Company has joint auditors, references in this article to the
Company's auditors are to any of the joint auditors.
85.8 No lender or other person dealing with any Group company need
enquire whether the limit imposed under paragraph 85.2 above has been
or will be complied with.
85.9 A borrowing or security resulting in a breach of the limit shall not be
void nor shall it be voidable at the instance of the Company or any other
Group company.”
(ii) that Article 91 be amended by the deletion of “and” at end of
paragraph (e) and by the insertion of “and” at the end of paragraph (f) and
the insertion of a new paragraph (g) as follows:
The Sage Group plc Annual Report and Accounts 2006 p118
Notes:
(i) A member entitled to attend and vote may appoint one or more proxies to attend
and vote instead of him. A proxy need not also be a member.
(ii) To be valid, a Form of Proxy and any power of attorney or other authority (if any)
under which it is signed (or a duly certified copy thereof) must be lodged with the
Company’s Registrars, Lloyds TSB Registrars, The Causeway, Worthing, West Sussex,
BN99 6UQ, or received via the sharevote website, no later than 10.00am on 4 March
2007. The completion and return of a Form of Proxy will not prevent a member who
wishes to do so from attending and voting in person. In relation to appointing a proxy
through the CREST electronic proxy appointment service, please see note (vi) below.
(iii) Copies of the service contracts and terms of appointment of the directors are
available for inspection at North Park, Newcastle upon Tyne, NE13 9AA during normal
business hours on any weekday (weekends and public holidays excepted) and will be
available at the Annual General Meeting (for 15 minutes prior to and during the meeting).
(iv) The Company, pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, specifies that only those members registered in the register of
members of the Company as at 6.00pm on 4 March 2007 or, in the event that this
meeting is adjourned, in the register of members 48 hours before the time of any
adjourned meeting shall be entitled to attend or vote at the meeting in respect of the
number of shares registered in their name at that time. Changes to entries in the
register of members after 6.00pm on 4 March 2007 or, in the event that this meeting is
adjourned, in the register of members 48 hours before the time of any adjourned
meeting shall be disregarded in determining the rights of any person to attend or vote
at the meeting.
(v) If you return paper and electronic proxy instructions, those received last by the
Registrar before the latest time for receipt of proxies will take precedence. You are
advised to read the website terms and conditions of use carefully. Electronic
communication facilities are available to all shareholders and those who use them will
not be disadvantaged.
(vi) CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so for the Annual General Meeting and
any adjournment(s) of that meeting by using the procedures described in the CREST
Manual. CREST Personal Members or other CREST sponsored members, and those
CREST members who have appointed a voting service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to take the appropriate
action on their behalf. In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with CRESTCo's
specifications and must contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether it constitutes the
appointment of a proxy or an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received by the
issuer's agent (ID 7RA01) by the latest time(s) for receipt of proxy appointments
specified in the Notice of Meeting. For this purpose, the time of receipt will be taken to
be the time (as determined by the timestamp applied to the message by the CREST
Applications Host) from which the issuer's agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. After this time any change of
instructions to proxies appointed through CREST should be communicated to the
appointee through other means. CREST members and, where applicable, their CREST
sponsors or voting service providers should note that CRESTCo does not make
available special procedures in CREST for any particular messages. Normal system
timings and limitations will therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member or has
appointed (a) voting service provider(s), to procure that his CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to ensure that a message
is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting
service providers are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set
out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
(vii) If you have sold or otherwise transferred all your shares in The Sage Group plc
please forward this document, together with the form(s) of proxy as soon as possible
to the purchaser or other agent through or to whom the sale or transfer was effected
for transmission to the purchaser or transferee.
Shareholder Information
The Sage Group plc Annual Report and Accounts 2006 p119
FINANCIAL CALENDAR
Annual General Meeting
Dividend Payments
Final payable – year ended 30 September 2006
Interim payable – period ending 31 March 2007
Results Announcements
Interim results – period ending 31 March 2007
Final results – year ending 30 September 2007
6 March 2007
9 March 2007
June 2007
9 May 2007
28 November 2007
SHAREHOLDER INFORMATION ONLINE
The Sage Group plc’s registrars are able to notify shareholders by email of the availability of an electronic version of shareholder information. Whenever new
shareholder information becomes available, such as The Sage Group plc’s interim and full-year results, Lloyds TSB Registrars will notify you by email and you
will be able to access, read and print documents at your own convenience.
To take advantage of this service for future communications, please go to www.shareview.co.uk and select “Shareholder Centre”, where full details of the
shareholder portfolio service are provided. When registering for this service, you will need to have your eight character account number to hand, which is shown
on your dividend tax voucher, share certificate or form of proxy.
Should you change your mind at a later date, you may amend your request to receive electronic communication by entering your shareview portfolio online
and amending your preferred method of communication from “e-mail” to “post”. If you wish to continue receiving shareholder information in the usual printed
form, there is no need to take any action.
REGISTRARS
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 6DA
www.shareview.co.uk
Tel: 0870 600 3970
(from outside the UK: +44 121 415 7047)
Fax: 0870 600 3981
(from outside the UK: +44 121 415 7057)
INFORMATION FOR INVESTORS
Information for investors is provided on the internet as part of the Group’s website which can be found at: www.sage.com/investors
INVESTOR ENQUIRIES
Enquiries can be directed via our website or by contacting our Investor Relations department:
Cynthia Alers
Director of Investor Relations
Tel: +44 (0) 191 294 3000
Fax: +44 (0) 191 294 0002
The Sage Group plc
Registered office:
North Park
Newcastle Upon Tyne
NE13 9AA
Registered in England Number 2231246